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Pentair Reports Second Quarter Net Income Per Share from Continuing Operations of $0.33; Adjusted EPS of $0.38

July 21, 2009

  • Reports second quarter sales of $694 million, down 23 percent year-over-year.
  • Delivers $131 million of free cash flow; on track to deliver over $225 million for full year.
  • Effectively executing against restructuring actions as all events are on schedule or completed.
  • Introduces third quarter adjusted EPS guidance of $0.35 to $0.45 and maintains full year sales, earnings and free cash flow guidance.

All financial information and period-to-period references are on a continuing operations basis unless otherwise noted. Reconciliations to discontinued operations as well as GAAP and Non-GAAP reconciliations are in the attached financial tables.

MINNEAPOLIS, Jul 21, 2009 (BUSINESS WIRE) -- Pentair, Inc. (NYSE: PNR) today announced second quarter 2009 net earnings per diluted share from continuing operations (EPS) of $0.33. This represents a decrease of 77 percent as compared to the $1.41 of EPS in the second quarter last year. Current period results include a negative $0.02 per share impact from restructuring charges and a negative $0.03 per share charge from the early redemption of bonds. Adjusting for these items, second quarter 2009 EPS was $0.38, compared to adjusted second quarter 2008 EPS of $0.70, a decrease of 46 percent.

Total company sales decreased 23 percent to $694 million, compared with $898 million in the second quarter of 2008. The company delivered second quarter operating income of $64 million. On an adjusted basis, the company delivered operating income of $67 million versus $120 million in the year-ago quarter. The company's adjusted operating income in the current quarter excludes the impact of additional severance charges associated with the second quarter elimination of 100 positions not included in prior restructuring. Overall, adjusted operating margins for the second quarter contracted 370 basis points to 9.6 percent. The positive impact from productivity and price did not offset the significant negative impact related to lower volumes.

Total company free cash flow was positive $131 million for the quarter. Year-to-date the company has generated $98 million of free cash flow, which is $39 million more than was generated in the first half of 2008. The company said it remains on track to achieve free cash flow greater than $225 million for 2009, driven by improvements in working capital.

"Overall we continue to make tremendous progress against our cost actions as well as to drive strong free cash flow generation. While a few of our markets are showing signs of improvement, most continue to remain soft, as expected," said Randall J. Hogan, Pentair chairman and chief executive officer.

SECOND QUARTER BUSINESS HIGHLIGHTS

The Water Group delivered $487 million in sales, an 18 percent decline year-over-year. Sales were down 17 percent excluding the formation of the Pentair Residential Filtration (PRF) business with General Electric's (GE) Water and Process Technologies unit, which added two points of growth, and foreign exchange, which reduced sales by three points.

  • Global Flow Technologies sales were down 17 percent versus the year-ago quarter, as sales increases of pump equipment for North American municipal markets did not outpace declines in residential, commercial and agricultural markets.
  • Global Filtration sales were down 14 percent, or down 17 percent in local currencies and excluding the increased sales associated with the formation of PRF. Sales increases in desalination markets did not offset declines in residential, industrial and foodservice markets.
  • Global Pool and Spa sales were down 16 percent as a sequential uptick in second quarter sales associated with the summer pool season was not enough to overcome the prolonged decline in North American residential pool markets.

The Water Group's second quarter reported operating income totaled $50 million, down 16 percent as compared to $59 million in the same period last year. In the quarter, the Water Group had $1 million in pre-tax restructuring charges associated with severance from recently announced additional headcount reductions. Excluding these items, second quarter 2009 adjusted operating income was $51 million, down 38 percent versus second quarter 2008 adjusted operating income of $82 million. Adjusted operating margins of 10.5 percent were down 330 basis points as benefits from productivity and price did not offset the negative impact from volume declines, inflation, pay-as-you-go restructuring costs, and integration expenses associated with the formation of PRF.

Technical Products delivered second quarter 2009 sales of $207 million, a decrease of 32 percent versus the year-earlier period. Sales were down 30 percent excluding the impact of foreign exchange.

  • Global Electrical sales were down 28 percent as industrial customers dramatically slowed their capital projects and distributors aggressively reduced inventory levels.
  • Global Electronic sales were down 32 percent as each major vertical market contracted led by Datacom, which was down over 50 percent.

Technical Products' second quarter reported operating income totaled $24 million, down 53 percent compared to $50 million in the same quarter last year. Adjusting for a restructuring charge, operating income was $25 million. Adjusted operating margins were 12.0 percent, down 440 basis points versus the second quarter 2008. In the quarter, the benefits from productivity and price did not offset the negative impact from volume declines and foreign exchange.

"Second quarter results were generally in line with our expectations and guidance. Sales came in at the low end, as our Technical Products and Water European businesses could not overcome extremely soft April and May months. North America residential markets are beginning to improve or at least stabilize while commercial and industrial markets remain uncertain," Hogan said. "Also as expected, the solid progress we are making to reduce fixed and variable cost enabled margins in Water to rise back up above ten percent while Technical Products achieved twelve percent adjusted margins. So, our actions are yielding solid results and we continue to position our businesses for significant upside when markets recover."

OUTLOOK

The company introduces its third quarter reported 2009 EPS guidance range of $0.32 to $0.42. Adjusting for charges associated with new restructuring actions, third quarter EPS is expected to be $0.35 to $0.45, down approximately 29 percent year-over-year when using the midpoint of the guidance range. Third quarter sales are expected to be down over 20 percent.

The company maintains its full year 2009 EPS guidance to equal or exceed $1.40, which would be down 46 percent when compared to reported full year 2008 EPS or down 36 percent when 2008 EPS is adjusted for non-recurring items (see attached 2008 reconciliation table). The company expects full year 2009 EPS on both a reported and adjusted basis will be comparable as restructuring and other charges in 2009 are expected to be similar in size to anticipated gains from other nonrecurring items.

"We anticipate that the benefits we have achieved and expect to realize from our productivity actions will continue to accelerate in the second half of 2009," said Hogan. "We remain excited about our new product introductions, global growth prospects in many markets and our ability to support infrastructure projects included in the government stimulus package. A good example is last week's announcement that our Engineered Flow business won a $65 million municipal water contract, which highlights our strength in this key North American market."

"We expect the second half of 2009 will show continued earnings improvement as we realize more benefits from our productivity and cost actions and our year over year sales comparisons become less difficult," Hogan added.

EARNINGS CONFERENCE CALL

Pentair Chairman and CEO Randall J. Hogan and Chief Financial Officer John L. Stauch will discuss the company's performance and third quarter and full year 2009 guidance on a two-way conference call with investors and a live audio webcast at 12:00 p.m. Eastern today. Reconciliation of non-GAAP financial measures are set forth in the attachments to this second quarter 2009 earnings release and in the second quarter 2009 earning release conference call presentation, both of which can be found at Pentair's web site (www.pentair.com). Related financial charts and certain other information to be discussed on the conference call will be available on the company's website shortly before the conference call. The web cast and presentation will be archived at the same site following the conclusion of the conference call.

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 the breadth and severity of the global economic downturn; the strength of housing and related markets; the ability to implement our restructuring and other cost reduction plans successfully and the risk that expected benefits 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, as well as other risk factors set forth in our SEC filings. 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.

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 2008 revenues of $3.35 billion, Pentair employs approximately 13,100 people worldwide.

Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
Three months ended Six months ended
June 27 June 28 June 27 June 28
In thousands, except per-share data 2009 2008 2009 2008
Net sales $ 693,712 $ 898,378 $ 1,327,552 $ 1,728,524
Cost of goods sold 497,233 619,968 961,841 1,199,420
Gross profit 196,479 278,410 365,711 529,104
% of net sales 28.3 % 31.0 % 27.6 % 30.6 %
Selling, general and administrative 119,104 145,610 236,379 283,713
% of net sales 17.1 % 16.2 % 17.8 % 16.4 %
Research and development 13,815 15,818 28,558 31,082
% of net sales 2.0 % 1.8 % 2.2 % 1.8 %
Legal settlement -- 20,435 -- 20,435
Operating income 63,560 96,547 100,774 193,874
% of net sales 9.2 % 10.7 % 7.6 % 11.2 %
Other (income) expense:
Gain on sale of interest in subsidiaries -- (109,648 ) -- (109,648 )
Equity losses of unconsolidated subsidiary 279 847 556 1,764
Loss on early extinguishment of debt 4,804 -- 4,804 --
Net interest expense 9,833 15,862 21,617 31,951
% of net sales 1.4 % 1.8 % 1.6 % 1.9 %

Income from continuing operations before income taxes and noncontrolling interest

48,644 189,486 73,797 269,807
Provision for income taxes 16,217 49,649 23,649 77,507
Income from continuing operations 32,427 139,837 50,148 192,300
Loss from discontinued operations, net of tax -- (1,102 ) -- (2,138 )
Loss on disposal of discontinued operations, net of tax (78 ) -- (68 ) (7,137 )
Net income before noncontrolling interest 32,349 138,735 50,080 183,025
Noncontrolling interest 421 -- 887 --
Net income attributable to Pentair, Inc. $ 31,928 $ 138,735 $ 49,193 $ 183,025
Net income from continuing operations attributable to Pentair, Inc. $ 32,006 $ 139,837 $ 49,261 $ 192,300
Earnings (loss) per common share attributable to Pentair, Inc.
Basic
Continuing operations $ 0.33 $ 1.43 $ 0.51 $ 1.96
Discontinued operations - (0.01 ) - (0.09 )
Basic earnings per common share $ 0.33 $ 1.42 $ 0.51 $ 1.87
Diluted
Continuing operations $ 0.33 $ 1.41 $ 0.50 $ 1.93
Discontinued operations - (0.01 ) - (0.09 )
Diluted earnings per common share $ 0.33 $ 1.40 $ 0.50 $ 1.84
Weighted average common shares outstanding
Basic 97,507 98,062 97,445 98,172
Diluted 98,422 99,509 98,145 99,462
Cash dividends declared per common share $ 0.18 $ 0.17 $ 0.36 $ 0.34
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
June 27 December 31 June 28
In thousands 2009 2008 2008
Assets
Current assets
Cash and cash equivalents $ 38,118 $ 39,344 $ 74,616
Accounts and notes receivable, net 462,106 461,081 551,653
Inventories 362,743 417,287 424,277
Deferred tax assets 51,465 51,354 51,961
Prepaid expenses and other current assets 50,111 63,113 46,104
Current assets of discontinued operations -- -- 20,527
Total current assets 964,543 1,032,179 1,169,138
Property, plant and equipment, net 340,884 343,881 375,453
Other assets
Goodwill 2,106,026 2,101,851 2,152,628
Intangibles, net 504,674 515,508 554,216
Other 61,118 59,794 78,734
Non-current assets of discontinued operations -- -- 13,853
Total other assets 2,671,818 2,677,153 2,799,431
Total assets $ 3,977,245 $ 4,053,213 $ 4,344,022
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings $ 6,143 $ -- $ 217
Current maturities of long-term debt 122 624 4,442
Accounts payable 212,973 217,898 237,302
Employee compensation and benefits 71,674 90,210 98,640
Current pension and post-retirement benefits 8,890 8,890 8,557
Accrued product claims and warranties 36,780 41,559 47,155
Income taxes 14,668 5,451 19,246
Accrued rebates and sales incentives 26,286 28,897 36,578
Other current liabilities 84,491 104,975 129,775
Current liabilities of discontinued operations -- -- 771
Total current liabilities 462,027 498,504 582,683
Other liabilities
Long-term debt 883,281 953,468 1,024,160
Pension and other retirement compensation 270,588 270,139 171,923
Post-retirement medical and other benefits 32,847 34,723 35,094
Long-term income taxes payable 26,906 28,139 24,442
Deferred tax liabilities 150,167 146,559 188,498
Other non-current liabilities 96,016 101,612 95,544
Non-current liabilities of discontinued operations -- -- 1,483
Total liabilities 1,921,832 2,033,144 2,123,827
Shareholders' equity 2,055,413 2,020,069 2,220,195
Total liabilities and shareholders' equity $ 3,977,245 $ 4,053,213 $ 4,344,022
Days sales in accounts receivable (13 month moving average) 61 57 56
Days inventory on hand (13 month moving average) 89 79 75
Days in accounts payable (13 month moving average) 62 59 58
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended
June 27 June 28
In thousands 2009 2008
Operating activities
Net income before noncontrolling interest $ 50,080 $ 183,025
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss from discontinued operations -- 2,138
Loss on disposal of discontinued operations 68 7,137
Equity losses of unconsolidated subsidiary 556 1,764
Depreciation 29,634 30,335
Amortization 14,601 13,101
Deferred income taxes 464 21,037
Stock compensation 9,087 11,932
Excess tax benefits from stock-based compensation (582 ) (776 )
Gain on sale of assets (286 ) (443 )
Gain on sale of interest in subsidiaries -- (109,648 )

Changes in assets and liabilities, net of effects of business acquisitions and dispositions

Accounts and notes receivable 1,556 (83,345 )
Inventories 55,703 (20,776 )
Prepaid expenses and other current assets 13,532 (7,854 )
Accounts payable (3,436 ) 11,869
Employee compensation and benefits (21,821 ) (18,265 )
Accrued product claims and warranties (4,792 ) (2,366 )
Income taxes 9,066 3,182
Other current liabilities (23,234 ) 31,084
Pension and post-retirement benefits (1,433 ) 3,320
Other assets and liabilities (2,205 ) 4,986
Net cash provided by (used for) continuing operations 126,558 81,437
Net cash provided by (used for) operating activities of discontinued operations (1,408 ) (5,963 )
Net cash provided by (used for) operating activities 125,150 75,474
Investing activities
Capital expenditures (28,850 ) (26,191 )
Proceeds from sale of property and equipment 563 3,802
Acquisitions, net of cash acquired or received -- 6,237
Divestitures 920 29,959
Other (10 ) --
Net cash provided by (used for) investing activities (27,377 ) 13,807
Financing activities
Net short-term borrowings (repayments) 6,024 (13,965 )
Proceeds from long-term debt 400,000 279,405
Repayment of long-term debt (470,187 ) (297,740 )
Debt issuance costs (50 ) (50 )
Excess tax benefits from stock-based compensation 582 776
Proceeds from exercise of stock options 996 2,175
Repurchases of common stock -- (21,721 )
Dividends paid (35,433 ) (33,747 )
Net cash provided by (used for) financing activities (98,068 ) (84,867 )
Effect of exchange rate changes on cash and cash equivalents (931 ) (593 )
Change in cash and cash equivalents (1,226 ) 3,821
Cash and cash equivalents, beginning of period 39,344 70,795
Cash and cash equivalents, end of period $ 38,118 $ 74,616
Free cash flow
Net cash provided by (used for) continuing operations $ 126,558 $ 81,437
Capital expenditures (28,850 ) (26,191 )
Proceeds from sale of property and equipment 563 3,802
Free cash flow $ 98,271 $ 59,048
Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment (Unaudited)
First Qtr Second Qtr Six Months First Qtr Second Qtr Six Months
In thousands 2009 2009 2009 2008 2008 2008
Net sales to external customers
Water $ 423,932 $ 486,990 $ 910,922 $ 544,686 $ 594,118 $ 1,138,804
Technical Products 209,908 206,722 416,630 285,460 304,260 589,720
Consolidated $ 633,840 $ 693,712 $ 1,327,552 $ 830,146 $ 898,378 $ 1,728,524
Intersegment sales
Water $ 289 $ 198 $ 487 $ 372 $ 139 $ 511
Technical Products 233 600 833 1,138 1,034 2,172
Other (522 ) (798 ) (1,320 ) (1,510 ) (1,173 ) (2,683 )
Consolidated $ -- $ -- $ -- $ -- $ -- $ --
Operating income (loss)
Water $ 26,976 $ 49,781 $ 76,757 $ 65,035 $ 59,475 $ 124,510
Technical Products 20,462 23,578 44,040 45,337 49,732 95,069
Other (10,224 ) (9,799 ) (20,023 ) (13,045 ) (12,660 ) (25,705 )
Consolidated $ 37,214 $ 63,560 $ 100,774 $ 97,327 $ 96,547 $ 193,874
Operating income as a percent of net sales
Water 6.4 % 10.2 % 8.4 % 11.9 % 10.0 % 10.9 %
Technical Products 9.7 % 11.4 % 10.6 % 15.9 % 16.3 % 16.1 %
Consolidated 5.9 % 9.2 % 7.6 % 11.7 % 10.8 % 11.2 %
Pentair, Inc. and Subsidiaries
Reconciliation of the GAAP "As Reported" year ending December 31, 2009 to the "Adjusted" non-GAAP
excluding the effect of 2009 adjustments (Unaudited)
First Quarter Second Quarter Third Quarter Fourth Quarter Year
In thousands, except per-share data 2009 2009 2009 2009 2009
Net sales $ 633,840 $ 693,712 $ 675,000-$705,000 $ 670,000-$700,000 approx $2,700M
Operating income - as reported 37,214 63,560 65,000 - 75,000 69,000 - 79,000 approx 244,000
% of net sales 5.9 % 9.2 % approx 10% approx 11% approx 9.0%
Adjustments:
Restructuring & other 2,824 2,944 5,000 -- approx 11,000
Operating income - as adjusted 40,038 66,504 70,000 - 80,000 69,000 - 79,000 approx 255,000
% of net sales 6.3 % 9.6 % approx 11% approx 11% approx 9.5%

Net income from continuing operations attributable to Pentair, Inc. - as reported

17,255 32,006 31,200 - 41,200 44,400 - 55,200 approx 137,000
Adjustments - tax affected
Restructuring & other 1,864 5,114 3,300 approx (10,000) --

Net income from continuing operations attributable to Pentair, Inc. - as adjusted

19,119 37,120 34,500 - 44,500 34,400 - 45,200 approx 137,000
Continuing earnings per common share attributable to Pentair, Inc. - diluted
Diluted earnings per common share - as reported $ 0.18 $ 0.33 $ 0.32 - $0.42 $ 0.45 - $0.56 $1.40 or above
Adjustments 0.02 0.05 0.03 (0.10 ) --
Diluted earnings per common share - as adjusted $ 0.20 $ 0.38 $ 0.35 - $0.45 $ 0.35 - $0.46 $1.40 or above
Weighted average common shares outstanding - Diluted 97,966 98,422 98,500 98,500 approx 98,500
Pentair, Inc. and Subsidiaries
Reconciliation of the GAAP "As Reported" year ending December 31, 2008 to the "Adjusted" non-GAAP
excluding the effect of 2008 adjustments (Unaudited)
First Quarter Second Quarter Third Quarter Fourth Quarter Year
In thousands, except per-share data 2008 2008 2008 2008 2008
Net sales $ 830,146 $ 898,378 $ 855,815 $ 767,637 $ 3,351,976
Operating income - as reported 97,327 96,547 85,614 45,197 324,685
% of net sales 11.7 % 10.7 % 10.0 % 5.9 % 9.7 %
Adjustments:
Restructuring and asset impairment -- 2,586 15,207 28,377 46,170
Horizon settlement -- 20,435 -- -- 20,435
Operating income - as adjusted 97,327 119,568 100,821 73,574 391,290
% of net sales 11.7 % 13.3 % 11.8 % 9.6 % 11.7 %

Net income from continuing operations attributable to Pentair, Inc. - as reported

52,463 139,837 42,902 21,161 256,363
Adjustments - tax affected
Restructuring and asset impairment -- 1,707 10,037 18,729 30,473
Horizon settlement -- 13,487 -- -- 13,487
Gain on PRF transaction -- (85,832 ) -- -- (85,832 )
Bond tender -- -- 3,043 -- 3,043

Net income from continuing operations attributable to Pentair, Inc. - as adjusted

52,463 69,199 55,982 39,890 217,534
Continuing earnings per common share attributable to Pentair, Inc. - diluted
Diluted earnings per common share - as reported $ 0.53 $ 1.41 $ 0.43 $ 0.22 $ 2.59
Adjustments -- (0.71 ) 0.13 0.19 (0.39 )
Diluted earnings per common share - as adjusted $ 0.53 $ 0.70 $ 0.56 $ 0.41 $ 2.20
Weighted average common shares outstanding - Diluted 99,558 99,509 99,319 98,299 99,068
Pentair, Inc. and Subsidiaries
Reconciliation of the GAAP "As Reported" year ending December 31, 2009 to the "Adjusted" non-GAAP
excluding the effect of 2009 adjustments (Unaudited)
First Quarter Second Quarter Third Quarter Fourth Quarter Year
In thousands 2009 2009 2009 2009 2009
Water
Net sales $ 423,932 $ 486,990 $ 455,000-$475,000 $ 450,000-$470,000 approx $1,840M
Operating income - as reported 26,976 49,781 50,000-55,000 49,000-54,000 178,500-183,500
% of net sales 6.4% 10.2% 10.5% - 12.0% 10.5% - 12.0% approx 10.0%
Adjustments - restructuring 1,464 1,460 -- -- approx 3,000
Operating income - as adjusted 28,440 51,241 50,000-55,000 49,000-54,000 181,500-186,500
% of net sales 6.7% 10.5% 10.5% - 12.0% 10.5% - 12.0% approx 10.0%
Technical Products
Net sales $ 209,908 $ 206,722 $ 215,000-$220,000 $ 220,000-$225,000 approx $860M
Operating income - as reported 20,462 23,578 22,000-27,000 28,000-33,000 106,500-111,500
% of net sales 9.7% 11.4% 10.0% - 12.6% 12.4% - 15.0% approx 12.7%
Adjustments - restructuring 792 1,139 5,000 -- approx 7,000
Operating income - as adjusted 21,254 24,717 27,000-32,000 28,000-33,000 113,500-118,500
% of net sales 10.1% 12.0% 12.3% - 14.9% 12.4% - 15.0% approx 13.5%
Pentair, Inc. and Subsidiaries
Reconciliation of the GAAP "As Reported" year ending December 31, 2008 to the "Adjusted" non-GAAP
excluding the effect of 2008 adjustments (Unaudited)
First Quarter Second Quarter Third Quarter Fourth Quarter Year
In thousands 2008 2008 2008 2008 2008
Water
Net sales $ 544,686 $ 594,118 $ 557,976 $ 509,362 $ 2,206,142
Operating income - as reported 65,035 59,475 49,684 32,163 206,357
% of net sales 11.9% 10.0% 8.9% 6.3% 9.4%
Adjustments
Restructuring and asset impairment -- 2,157 13,438 19,628 35,223
Horizon settlement -- 20,435 -- -- 20,435
Operating income - as adjusted 65,035 82,067 63,122 51,791 262,015
% of net sales 11.9% 13.8% 11.3% 10.2% 11.9%
Technical Products
Net sales $ 285,460 $ 304,260 $ 297,839 $ 258,275 $ 1,145,834
Operating income - as reported 45,337 49,732 47,585 26,661 169,315
% of net sales 15.9% 16.3% 16.0% 10.3% 14.8%
Adjustments - restructuring and asset impairment -- 429 633 7,209 8,271
Operating income - as adjusted 45,337 50,161 48,218 33,870 177,586
% of net sales 15.9% 16.4% 16.2% 13.1% 15.5%

SOURCE: Pentair, Inc.

Pentair, Inc.
Todd Gleason, 763-656-5570
Vice President, Strategic Planning & Investor Relations
E-mail: todd.gleason@pentair.com

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