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Pentair Reports Earnings Per Share of $1.81 for Fiscal Year 2006 on 7% Sales Gain
02.06.2007

GOLDEN VALLEY, Minn.--(BUSINESS WIRE)--Feb. 6, 2007--Pentair, Inc. (NYSE:PNR) announced today results for the fourth quarter and year ended December 31, 2006. Fiscal year 2006 earnings per share (EPS) from continuing operations were $1.81 compared with $1.80 for fiscal year 2005. Sales for 2006 reached $3.15 billion compared to sales of $2.95 billion for 2005, an increase of 7 percent. Free cash flow for the year of $181 million was slightly better than anticipated, with free cash flow conversion as a percentage of net income in line with the Company's goal of 100 percent.

For the fourth quarter, EPS from continuing operations was $0.39, an increase of 3 percent, on sales of $743.0 million as compared to $732.1 million in the same period in 2005. Fourth quarter sales reflect growth in the North American commercial and industrial markets; growth in the European and Asian markets; and, as anticipated, declines in pool sales linked to slowing pool starts and an inventory drawdown by distribution customers.

According to Pentair Chairman and Chief Executive Officer, Randall J. Hogan, "Overall, our fourth quarter results were in line with our expectations. Earnings per share were higher than anticipated, driven by tax benefits and operating improvements in Filtration and Technical Products. Sales grew despite softness in some markets, reflecting the value of the diversity in Pentair's end markets.

"Last year was challenging and our 2006 performance produced mixed results. We faced economic headwinds yet strengthened our organization, invested in growth, and enhanced our product lines to respond to the accelerating technological needs of our customers. Looking ahead, we are focused on improving Water margins and maintaining Technical Products solid margins through continued implementation of Pentair's Integrated Management System in all of our businesses, and by re-establishing solid growth," Hogan said.

Water Group Fourth Quarter 2006 Comments

  • The Water Group's fourth quarter sales of $500.8 million were down 3 percent over the same period last year. Excluding the impact of favorable foreign exchange, sales declined approximately 4 percent. Excluding the pool and spa businesses, Water sales grew nearly 4 percent in the quarter.
  • Growth in emerging markets in Asia-Pacific, successful market penetration in Europe and the Middle East, and strength in the North American commercial and industrial markets were offset by a significant decline in the pool and spa businesses and softness in retail and residential pumps.
  • Emerging markets in Asia-Pacific drove significant sales growth reflecting the Company's successful sales into desalination projects with the Codeline product. Continued commercial market penetration in China also contributed to the region's impressive growth.
  • Market growth in Europe and penetration into the Middle East drove strong sales with filtration and pump contributing growth in the mid-teens.
  • Sales in North American Filtration markets grew in the low single digits. Commercial filtration and Everpure residential filtration grew though slowing residential and marine markets did offset some of this growth.
  • Sales in North American Pump markets were essentially flat for the quarter with strong sales in commercial and industrial pump markets offset by slowing residential and retail sales. Municipal market orders and backlog reached record levels in the quarter though sales were down due to timing of shipments.
  • As expected, sales in North American pool and spa markets experienced a decline of almost 20 percent in the quarter. Decreases reflect the inventory drawdown by pool distribution customers as they positioned themselves for a softer overall market. Fourth quarter 2006 early buy orders were better than projected; however, the additional early buy orders are scheduled to be shipped in the first quarter of 2007 and could take the place of higher margin standard orders.
  • Water's fourth quarter operating income totaled $36.5 million, down 34 percent as compared to $55.5 million in the same period in 2005.
  • Water's fourth quarter operating margin was 7.3 percent, down 340 basis points as compared to the same period last year.
  • The most significant factor in the year-over-year operating margin comparison was lower volume, resulting in a 160 basis point operating margin decline. Other factors affecting operating margin included a mix shift to lower margin products, which resulted in an 80 basis point decline, and an excess inventory reserve established for pump motors the Company no longer expects to need, which resulted in an additional 80 basis point decline.
  • The impact of these negative factors was moderated by price increases implemented to offset inflationary cost increases; significant savings from supply management initiatives; and lower growth-related investment spending.

Technical Products Group Fourth Quarter Comments

  • For the quarter, sales of $242.2 million reflect a 13 percent gain compared to the same period last year. Excluding the impact of acquisitions and favorable foreign exchange, sales grew approximately 1 percent.
  • Growth in Asian markets was about 30%, reflecting new customer wins as well as the transition of OEM programs from North America. Even excluding the effect of favorable foreign exchange, growth was strong.
  • In European markets, sales grew in the low teens with solid growth in general electronics markets, particularly the test and measurement and defense markets. Excluding the effect of favorable foreign exchange, growth was in the mid single digits.
  • Excluding acquisitions, North American sales were down slightly. Continued strong growth in industrial and commercial markets was more than offset by severe declines in sales due to telecommunication market weakness and data-communication projects, which transitioned to Pentair's Asia operations or ended.
  • Technical Products operating income of $34.5 million was 15 percent higher than the same period last year. This performance resulted from supply management savings, productivity improvements, acquisitive growth, and pricing that together more than offset raw material inflation and the impact of lower telecommunication sales.
  • Technical Products operating margin was 14.2 percent for the quarter, up 20 basis points over the year-earlier period. These results reflect the 17th consecutive quarter of year-over-year operating margin improvement for Technical Products.
  • The Thermal Management businesses acquired in December 2005 exceeded sales, operating income and margin expectations in 2006.

Future Outlook and Comment

The Company sees continued opportunities among its diverse end markets in 2007 and coming years, and affirms projected EPS guidance for the full year 2007 of between $2.00 and $2.15. The Company is also initiating EPS guidance for the first quarter 2007 of between $0.37 and $0.41, including a $0.02 to $0.03 negative impact in the quarter for the Jung Pumpen acquisition (announced December 11, 2006). The Jung Pumpen acquisition is expected to be EPS neutral for the full year 2007.

Earnings Conference Call

As previously announced, Pentair will discuss the Company's results, strategy and outlook on a conference call with investors at 12:00 p.m. Eastern today. The Company will host a live webcast of this call from the Financial Information page of the Company's website (http://www.pentair.com), and the webcast will be archived at the same site.

About Pentair, Inc.

Pentair (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 Technical Products Group is a leader in the 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 2006 revenues of $3.15 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, including the strength of housing and related markets; the ability to successfully limit any judgment 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          Year ended
                       ----------------------- -----------------------
                       December 31 December 31 December 31 December 31
In thousands, except
 per-share data           2006        2005        2006        2005
----------------------------------------------------------------------
Net sales                $743,038    $732,113  $3,154,469  $2,946,579
Cost of goods sold        534,472     524,304   2,248,219   2,098,558
----------------------------------------------------------------------
Gross profit              208,566     207,809     906,250     848,021
       % of net sales        28.1%       28.4%       28.7%       28.8%
Selling, general and
 administrative           134,366     128,002     541,209     478,907
       % of net sales        18.1%       17.5%       17.2%       16.2%
Research and
 development               14,038      12,935      58,055      46,042
       % of net sales         1.9%        1.8%        1.8%        1.6%
----------------------------------------------------------------------
Operating income           60,162      66,872     306,986     323,072
       % of net sales         8.1%        9.1%        9.7%       11.0%
Gain on sale of
 assets, net                  197         236         364       5,435
Net interest expense       13,020      11,263      51,881      44,989
       % of net sales         1.7%        1.5%        1.6%        1.5%
----------------------------------------------------------------------
Income from continuing
 operations before
 income taxes              47,339      55,845     255,469     283,518
       % of net sales         6.4%        7.6%        8.1%        9.6%
Provision for income
 taxes                      8,717      16,889      71,702      98,469
       Effective tax
        rate                 18.4%       30.2%       28.1%       34.7%
----------------------------------------------------------------------
Income from continuing
 operations                38,622      38,956     183,767     185,049
Gain (loss) on
 disposal of
 discontinued
 operations, net of
 tax                           15          --         (36)         --
----------------------------------------------------------------------
Net income                $38,637     $38,956    $183,731    $185,049
======================================================================

Earnings per common
 share
Basic
Continuing operations       $0.39       $0.39       $1.84       $1.84
Discontinued
 operations                    --          --          --          --
----------------------------------------------------------------------
Basic earnings per
 common share               $0.39       $0.39       $1.84       $1.84
======================================================================

Diluted
Continuing operations       $0.39       $0.38       $1.81       $1.80
Discontinued
 operations                    --          --          --          --
----------------------------------------------------------------------
Diluted earnings per
 common share               $0.39       $0.38       $1.81       $1.80
======================================================================


Weighted average
 common shares
 outstanding
Basic                      98,747     100,605      99,784     100,665
Diluted                   100,233     102,314     101,371     102,618

Cash dividends
 declared per common
 share                      $0.14       $0.13       $0.56       $0.52
                    Pentair, Inc. and Subsidiaries
          Condensed Consolidated Balance Sheets (Unaudited)


                                               December 31 December 31
In thousands                                      2006        2005
----------------------------------------------------------------------
                    Assets

Current assets
Cash and cash equivalents                         $54,820     $48,500
Accounts and notes receivable, net                422,134     423,847
Inventories                                       398,857     349,312
Deferred tax assets                                50,578      48,971
Prepaid expenses and other current assets          31,239      24,394
----------------------------------------------------------------------
Total current assets                              957,628     895,024

Property, plant and equipment, net                330,372     311,839

Other assets
Goodwill                                        1,718,771   1,718,207
Intangibles, net                                  287,011     266,533
Other                                              71,197      62,152
----------------------------------------------------------------------
Total other assets                              2,076,979   2,046,892
----------------------------------------------------------------------
Total assets                                   $3,364,979  $3,253,755
======================================================================

     Liabilities and Shareholders' Equity

Current liabilities
Short-term borrowings                             $14,563         $--
Current maturities of long-term debt                7,625       4,137
Accounts payable                                  206,286     207,320
Employee compensation and benefits                 88,882      95,552
Current pension and post-retirement benefits        7,918          --
Accrued product claims and warranties              44,093      43,551
Current liabilities of discontinued operations         --         192
Income taxes                                       22,493      17,518
Accrued rebates and sales incentives               39,419      45,374
Other current liabilities                          90,003     111,026
----------------------------------------------------------------------
Total current liabilities                         521,282     524,670

Other liabilities
Long-term debt                                    721,873     748,477
Pension and other retirement compensation         207,676     152,780
Post-retirement medical and other benefits         47,842      73,949
Deferred tax liabilities                          109,781     125,785
Other non-current liabilities                      86,526      70,455
Non-current liabilities of discontinued
 operations                                            --       2,029
----------------------------------------------------------------------
Total liabilities                               1,694,980   1,698,145

Shareholders' equity                            1,669,999   1,555,610
----------------------------------------------------------------------
Total liabilities and shareholders' equity     $3,364,979  $3,253,755
======================================================================

Days sales in accounts receivable (13 month
 moving average)                                       54          54
Days inventory on hand (13 month moving
 average)                                              76          70
Days in accounts payable (13 month moving
 average)                                              56          56
Debt/total capital                                   30.8%       32.6%
                    Pentair, Inc. and Subsidiaries
     Condensed Consolidated Statements of Cash Flows (Unaudited)


                                                     Year ended
                                               -----------------------
                                               December 31 December 31
In thousands                                      2006        2005
----------------------------------------------------------------------
Operating activities
Net income                                       $183,731    $185,049
Adjustments to reconcile net income to net
 cash provided by operating activities
Loss on disposal of discontinued operations            36          --
Depreciation                                       56,899      56,565
Amortization                                       18,197      15,995
Deferred income taxes                             (11,085)      5,898
Stock compensation                                 25,377      24,186
Excess tax benefits from stock-based
 compensation                                      (3,043)     (8,676)
Gain on sale of assets, net                          (364)     (5,435)
Changes in assets and liabilities, net of
 effects of business acquisitions
     Accounts and notes receivable                 15,873     (20,946)
     Inventories                                  (39,354)    (19,201)
     Prepaid expenses and other current assets     (5,052)       (120)
     Accounts payable                             (18,935)      6,629
     Employee compensation and benefits           (13,229)    (21,394)
     Accrued product claims and warranties            456      (1,099)
     Income taxes                                   9,556      10,357
     Other current liabilities                    (13,784)      4,609
     Pension and post-retirement benefits          19,398      16,512
     Other assets and liabilities                   6,886        (439)
----------------------------------------------------------------------
      Net cash provided by continuing
       operations                                 231,563     248,490
      Net cash provided by (used for)
       operating activities of discontinued
       operations                                      48        (632)
----------------------------------------------------------------------
            Net cash provided by operating
             activities                           231,611     247,858

Investing activities
Capital expenditures                              (51,078)    (62,471)
Proceeds from sale of property and equipment          684      17,111
Acquisitions, net of cash acquired                (29,286)   (150,534)
Divestitures                                      (24,007)    (10,155)
Proceeds from sale of investment                    1,153      23,835
Other                                              (7,523)     (2,071)
----------------------------------------------------------------------
            Net cash used for investing
             activities                          (110,057)   (184,285)

Financing activities
Net short-term borrowings                          13,831          --
Proceeds from long-term debt                      608,975     413,279
Repayment of long-term debt                      (631,755)   (395,978)
Excess tax benefits from stock-based
 compensation                                       3,043       8,676
Proceeds from exercise of stock options             4,066       8,380
Repurchases of common stock                       (59,359)    (25,000)
Dividends paid                                    (56,583)    (53,134)
----------------------------------------------------------------------
            Net cash used for financing
             activities                          (117,782)    (43,777)

Effect of exchange rate changes on cash             2,548      (2,791)
----------------------------------------------------------------------
Change in cash and cash equivalents                 6,320      17,005
Cash and cash equivalents, beginning of period     48,500      31,495
----------------------------------------------------------------------
Cash and cash equivalents, end of period          $54,820     $48,500
======================================================================

Free cash flow
Net cash provided by operating activities        $231,611    $247,858
Less capital expenditures                         (51,078)    (62,471)
Proceeds from sale of property and equipment          684      17,111
----------------------------------------------------------------------
Free cash flow                                   $181,217    $202,498
======================================================================
                    Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment for
                           2006 (Unaudited)



                 First Qtr Second Qtr Third Qtr Fourth Qtr    Year
In thousands       2006      2006       2006      2006        2006
----------------------------------------------------------------------

Net sales to
 external
 customers
Water            $517,169   $605,516  $531,703   $500,837  $2,155,225
Technical
 Products         254,220    256,506   246,317    242,201     999,244
----------------------------------------------------------------------
Consolidated     $771,389   $862,022  $778,020   $743,038  $3,154,469
======================================================================

Intersegment
 sales
Water                 $50        $55      $140       $214        $459
Technical
 Products             889      1,312     1,133        623       3,957
Other                (939)    (1,367)   (1,273)      (837)     (4,416)
----------------------------------------------------------------------
Consolidated          $--        $--       $--        $--         $--
======================================================================

Operating income
 (loss)
Water             $55,587    $84,191   $36,226    $36,494    $212,498
Technical
 Products          37,704     39,678    37,050     34,473     148,905
Other             (14,735)   (15,894)  (12,983)   (10,805)    (54,417)
----------------------------------------------------------------------
Consolidated      $78,556   $107,975   $60,293    $60,162    $306,986
======================================================================

Operating income
 as a percent of
 net sales
Water                10.7%      13.9%      6.8%       7.3%        9.9%
Technical
 Products            14.8%      15.5%     15.0%      14.2%       14.9%
Consolidated         10.2%      12.5%      7.7%       8.1%        9.7%


                    Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment for
                           2005 (Unaudited)



                 First Qtr Second Qtr Third Qtr Fourth Qtr    Year
In thousands       2005      2005       2005      2005        2005
----------------------------------------------------------------------

Net sales to
 external
 customers
Water            $512,088   $585,657  $515,945   $517,815  $2,131,505
Technical
 Products         197,547    202,866   200,363    214,298     815,074
----------------------------------------------------------------------
Consolidated     $709,635   $788,523  $716,308   $732,113  $2,946,579
======================================================================

Intersegment
 sales
Water                 $22       $187      $280      $(341)       $148
Technical
 Products             402        630       407        770       2,209
Other                (424)      (817)     (687)      (429)     (2,357)
----------------------------------------------------------------------
Consolidated          $--        $--       $--        $--         $--
======================================================================

Operating income
 (loss)
Water             $60,489    $92,167   $58,964    $55,520    $267,140
Technical
 Products          25,172     26,325    27,778     29,954     109,229
Other             (13,575)   (11,258)   (9,862)   (18,602)    (53,297)
----------------------------------------------------------------------
Consolidated      $72,086   $107,234   $76,880    $66,872    $323,072
======================================================================

Operating income
 as a percent of
 net sales
Water                11.8%      15.7%     11.4%      10.7%       12.5%
Technical
 Products            12.7%      13.0%     13.9%      14.0%       13.4%
Consolidated         10.2%      13.6%     10.7%       9.1%       11.0%

CONTACT: Pentair
Rachael Jarosh, Communications and Investor Relations,
763-656-5280
E-mail: rachael.jarosh@pentair.com

SOURCE: Pentair, Inc.

Categories: Press Releases