UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998March 27, 1999
Commission File No. 001-11625
PENTAIR, INC.
(Exact name of Registrant as specified in its
charter)
Minnesota
41-90743441-0907434
(State of incorporation)
(IRS Employer Identification No.)
1500 County B2 West, Suite 400
St. Paul, Minnesota
55113-3105
(Address of principal executive offices)
(Zip Code)
(651) 636-7920
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to
file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of Registrant's
only class of common stock on September 30, 1998March 27, 1999 was
38,402,505.42,604,349.
PENTAIR, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 4. Results of Votes of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature Page
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PENTAIR, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
($ expressed in thousands except per share amounts)
Nine Months EndedFirst Quarter Ended
September 30 September 30March 27, 1999 March 31, 1998
1997 1998 1997
Net sales $1,413,535 $1,315,533 $476,780 $482,089$470,493 $464,965
Operating costs:
Cost of goods sold 974,729 918,341 329,154 339,799320,659 320,155
Selling, general
and Administrative 303,558 278,388 100,965 99,533administrative 103,396 100,921
Restructuring charge 38,000 0
Total operating costs 1,278,287 1,196,729 430,119 439,332462,055 421,076
Operating Income 135,248 118,804 46,661 42,7578,438 43,889
Interest expense - net 16,565 16,146 5,596 6,0514,910 5,353
Income before income taxes 118,683 102,658 41,065 36,7063,528 38,536
Provision for income taxes 44,764 40,550 15,269 14,4991,288 14,827
Net income 73,919 62,108 25,796 22,2072,240 23,709
Preferred dividend
requirements 3,533 3,646 1,171 1,2120 1,184
Income available to
common shareholders $ 70,3862,240 $ 58,462 $ 24,625 $ 20,99522,525
Basic Earnings
per Common Share $1.83 $1.54 $0.64 $0.55$0.05 $0.59
Diluted Earnings
per Common Share $1.70 $1.43 $0.60 $0.51$0.05 $0.54
Weighted Average
Common Shares
Outstanding 38,440 37,943 38,506 38,03642,225 38,291
Outstanding Assuming
Dilution 43,229 43,027 43,014 43,12643,074 43,291
PENTAIR, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited) (in thousands)
September 30,March 27, December 31,
1999 1998 1997
ASSETS
Current assets
Cash and cash equivalents $ 33,794 $ 34,340$31,059 $32,039
Accounts and notes receivable 369,516 369,220406,994 396,062
Inventories 290,816 266,409282,311 278,581
Deferred income taxes 43,386 30,397
Other current assets 36,128 35,40112,274 11,490
Total current assets 730,254 705,370776,024 748,569
Property, Plant & Equipment - net 287,108 293,554295,098 308,258
Goodwill 435,119 429,279460,021 474,488
Other assets 52,860 44,65956,476 23,351
TOTAL ASSETS $1,505,341 $1,472,862$1,587,619 $1,554,666
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts and notes payable $ 114,763 $ 152,592$125,448 $155,962
Compensation and other
benefits accruals 71,094 70,75861,904 69,893
Income taxes 4,395 15,15818,404 7,111
Accrued product claims and warranties 31,124 35,11429,029 29,475
Accrued rebates 15,912 21,6588,994 19,682
Accrued restructuring charge 37,561 0
Accrued expenses and other liabilities 67,650 62,19462,263 59,796
Current maturities of long-term debt 76,084 34,70348,667 52,874
Total current liabilities 381,022 392,177392,270 394,793
Long-term debt 282,989 294,549312,544 288,026
Pensions and other retirement
compensation 58,178 52,47060,412 60,564
Postretirement medical and other benefits 41,723 45,13541,636 41,868
Reserves - insurance subsidiary 34,523 32,31330,694 29,441
Other liabilities 27,365 25,65646,433 30,162
Deferred income taxes 0 447
Commitments and contingencies
Preferred stock - atstock-at liquidation value 54,547 59,696
Unearned compensation relating to ESOP (3,390) (6,315)0 53,638
Common stock - par value, $.16 2/3 6,402 6,3657,101 6,417
Additional paid-in capital 181,615 186,486236,064 184,145
Accumulated other comprehensive income (2,449) (5,085)(4,062) (3,962)
Retained earnings 442,816 389,415464,527 469,127
Total shareholders' equity 679,541 630,562703,630 709,365
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,505,341 $1,472,862$1,587,619 $1,554,666
See Notes to Consolidated Financial Statements.
PENTAIR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (in thousands)
Nine MonthsFirst Quarter
Ended
September 30March 27 March 31
1999 1998 1997
Cash provided by (used for)
Operating activities
Net income $73,919 $62,108$2,240 $23,709
Adjustments to reconcile to cash flow:
Restructuring charge 38,000 0
Depreciation 41,192 41,76914,188 13,922
Amortization 10,818 9,589
Gain on sale of securities 0 (5,932)4,422 4,620
Deferred income taxes (1,010) (854)930 187
Changes in assets and liabilities,
net of effects of
acquisitions/dispositions
Accounts receivable (7,374) (60,754)(24,853) (26,660)
Inventories (20,490) (50,451)(8,521) (6,034)
Accounts payable (35,120) 19,901(27,963) (33,158)
Compensation and benefits (920) 11,930(6,748) (9,765)
Income taxes (10,566) (17,434)(3,844) (4,967)
Pensions and other
retirement compensation 3,917 4,3432,123 1,449
Reserves - insurance subsidiary 2,210 3,3881,253 (1,835)
Other assets/liabilities - net (15,778) 11,039(15,405) (10,876)
Cash provided byused for operating activities 40,798 28,642(24,178) (49,408)
Investing activities
Capital expenditures (29,717) (55,873)(7,427) (4,570)
Payments for acquisition of businesses (17,955) (210,651)
Proceeds from sale of businesses 13,001(33) (12)
Other 88 0
Net proceeds from sales of marketable securities 0 46,696
Other 631 886
Cash used for investing activities (34,040) (218,942)(7,372) (4,582)
Financing activities
Borrowings 72,998 215,62629,000 69,058
Debt payments (46,663) (11,398)
Repurchase of stock (12,372) 0(3,694) (21,438)
Unearned ESOP compensation decrease 2,925 2,9700 975
Employee stock plans and other 2,704 2,7543,404 1,175
Repurchase of stock (3,351) 0
Dividends paid (20,833) (19,012)(6,840) (6,920)
Cash provided by(used for)by financing activities (1,241) 190,94018,519 42,850
Effects of currency exchange rate changes (6,063) 1,429
Increase(decrease)12,051 2,354
(Decrease) in cash and cash equivalents (546) 2,069(980) (8,786)
Cash and cash equivalents
- beginning of period 32,039 34,340 22,973
- end of period $33,794 $25,042$31,059 $25,554
See Notes to Consolidated Financial Statements.
PENTAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited condensed
consolidated financial statements have been prepared
in accordance with instructions for Form 10-Q and,
accordingly, do not include all information and
footnotes required by generally accepted accounting
principles for complete financial statements. In
the opinion of management, all adjustments,
consisting only of normal recurring accruals,
considered necessary for a fair presentation have
been included.
These statements should be read in conjunction with
the financial statements and footnotes included in
the Company's Annual Report on Form 10-K for the
year ended December 31, 1997,1998, previously filed with
the Commission.
The results of operations for the ninethree months ended
September 30, 1998March 27, 1999 are not necessarily indicative of the
operating results to be expected for the full year.
Income tax provisions for interim periods are based
on the current best estimate of the effective annual
federal, state and foreign income tax rates.
2. AdoptionSubsequent Events
Web Tool & Manufacturing, Inc.
Pentair significantly increased its penetration of
New Accounting Standards
In 1997,fast-growing technology markets with the Company adopted the following new
accounting standards: Statementacquisition
of Financial
Accounting Standard (FAS) No. 128, "Earnings per
Share", StatementWEB Tool & Manufacturing, Inc. of Financial Accounting Standard
(FAS) No. 130 "Reporting Comprehensive Income",Elk Grove
Village, Illinois which closed on April 2, 1999. WEB
designs, manufactures, and Statementmarkets custom server
subracks and chassis for computer technology
applications. The purchase price was not disclosed,
but Pentair said that WEB is profitable and is
expected to be accretive to Pentair earnings in
1999. The cash transaction was financed through bank
borrowings.
Essef Corporation
On April 30, 1999, Pentair announced that it had
entered into a merger agreement to acquire Essef
Corporation (Nasdaq: ESSF) of Financial Accounting Standard (FAS) No.
131 "Disclosures about Segments of an Enterprise and
Related Information".
FAS 128 requires the reporting of earningsChardon, Ohio, for
$19.09 per share, (EPS)payable in two forms: basic EPScash. Essef is a global
leader in the manufacture of composite water tanks,
pumps, filters, and diluted EPS.other water equipment. The
merger excludes Essef's Anthony & Sylvan pool
construction business, which will be split off to
its shareholders at the time of closing of this
acquisition. The cash purchase price will be
approximately $312 million. Pentair has historically reported its EPS on a fully
diluted basis,will also assume
approximately $100 million of Essef debt. Pentair,
which reflectswill finance the dilution resulting
from employee stock optionsacquisition through available
lines of credit, expects Essef to be accretive to
earnings over the first 12 months after acquisition.
The merger agreement, which was approved by the
boards of both Pentair and convertible
securities relatedEssef, is subject to
employee benefit plans,Essef shareholder approval, regulatory approval
under the Hart-Scott-Rodino Act, and is
directly comparable to the new diluted EPS reported.
See also Note 3.
FAS 130 establishes standardscompletion of
due diligence by Pentair. Essef's annual sales, for
the reportingbusinesses being acquired, are estimated by
industry analysts to be approximately $350 million.
Completion of comprehensive income and its components.
Comprehensive incomethe transaction is defined as the change in
equity during the period from transactions and other
events and circumstances from non-owner sources.
See also Note 4.
FAS 131 requires the Company to report information
about its operating segments based upon how the
Company manages its operations. The Company manages
its businesses in three distinct operating groups
and has realigned its external reportable segments
to conform with these internal management
structures. The three reportable segments --
Professional Tools and Equipment, Water and Fluid
Technologies, and Electrical and Electronic
Enclosures - replace the Specialty Products and
General Industrial Equipment segments which had been
reported since 1991.
Prior year financial statements have been restated
accordingly.currently targeted
for July 31, 1999.
3. Earnings per common share
Basic earnings per common share is computed by
dividing net income, after deducting preferred stock
dividends, by the average common shares outstanding
during the period.
Diluted earnings per common share is computed by
dividing net income after adjusting the tax benefits
on deductible ESOP dividends by the average common
shares outstanding plus the incremental shares that
would have been outstanding upon the assumed
exercise of dilutive stock options and upon the
assumed conversion of each series preferred stock.
The tax benefits applicable to preferred dividends
paid to ESOPs are recorded in the following ways:
for allocated shares, they are credited to income
tax expense and included in the earnings per share
calculation; for unallocated shares, they are
credited to retained earnings and excluded from the
earnings per share calculation.
Effective December 15, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128). Earnings per
share amounts presented for 1997 have been restated
for the adoption of SFAS No. 128. The following table reflects the calculation of
basic and diluted earnings per share.
September 30 September 30
(In thousands except per share amounts)
March 27, March 31,
1999 1998
1997
Earnings per share
Net income $73,919 $62,108Income from continuing operations $2,240 $23,709
Preferred dividend requirements 3,533 3,6460 1,184
Income available to common shareholders 70,386 58,4622,240 22,525
Weighted average shares outstanding 38,440 37,94342,225 38,291
Basic Earnings per Common Share $1.83 $1.54$0.05 $0.59
Earnings per share - assuming dilution
Income available to common shareholders 70,386 58,4622,240 22,525
Add back preferred dividend requirements
due to conversion into common shares 3,533 3,6460 1,184
Elimination of tax benefit on preferred
ESOP dividend due to conversion into
common shares (1,088) (1,114)0 (407)
Addition of tax benefit on ESOP dividend
assuming conversion to common shares -
at common dividend rate 629 5810 235
Income available to common
shareholders assuming dilution 73,460 61,5752,240 23,537
Weighted average shares outstanding 38,440 37,94342,225 38,291
Dilutive impact of stock
options outstanding 462 437298 496
Assumed conversion of preferred stock 4,327 4,647551 4,504
Weighted average shares
and potentially dilutive shares outstanding 43,229 43,02743,074 43,291
Diluted Earnings per Common Share $1.70 $1.43$0.05 $0.54
4. Comprehensive Income
(in thousands)
Nine Months Ended September 30
1998 1997
Net Income $73,919 $62,108
Other Comprehensive Income, net of tax:
Foreign Currency Translation Adjustments 2,578 (8,604)
Unrealized Gains on Securities 0 (1,965)
Minimum Pension Liability Adjustment 58 1,034
Total Comprehensive Income $76,555 $52,573
Three Months Ended September 30
1998 1997
Net Income $25,796 $22,207
Other Comprehensive Income, net of tax:
Foreign Currency Translation Adjustments 3,152 (2,178)
Unrealized Gains on Securities 0 (3,309)
Minimum Pension Liability Adjustment 0 0
Total Comprehensive Income $28,948 $16,720
First Quarter Ended
March 27, 1999 March 31, 1998
Net Income $2,240 $23,709
Other Comprehensive Income, net of tax:
Foreign Currency Translation Adjustments (100) (92)
Minimum Pension Liability Adjustment 0 0
Total Comprehensive Income $2,140 $23,617
5. Inventories
(In thousands) September 30, December 31,
1998 1997
Finished goods $157,601 $131,847
Work in process 63,159 58,047
Raw materials and supplies 70,056 76,515
Total $290,816 $266,409
(In thousands) March 27,December 31,
1999 1998
Finished goods $160,893 $147,780
Work in process 66,474 64,421
Raw materials and supplies 54,944 66,380
Total $282,311 $278,581
6. Property Plant and Equipment
(In thousands) September 30, December 31,
1998 1997
Land and land improvements $14,864 $14,278
Buildings 124,768 119,996
Machinery and equipment 396,561 374,967
Construction in progress 27,409 19,113
Accumulated depreciation (276,494) (234,800)
Net Property Plant
and Equipment $287,108 $293,554
(In thousands) March 27,December 31,
1999 1998
Land and land improvements $15,040 $15,699
Buildings 129,292 131,989
Machinery and equipment 418,948 419,418
Construction in progress 25,706 25,883
Accumulated depreciation (293,888) (284,731)
Net Property Plant and Equipment$295,098 $308,258
7. The long-term debt is summarized as follows:
(in thousands)
September 30, December 31,
1998 1997
Revolving credit facilities $95,815 $102,119
Private placement debt 233,716 197,858
Other 29,542 29,275
TOTAL 359,073 329,252
Current maturities (76,084) (34,703)
Total long-term debt $282,989 $294,549
March 27,December 31,
1999 1998
Revolving credit facilities$130,495 $103,479
Private placement debt 180,716 180,716
Other 50,000 56,705
TOTAL 361,211 340,900
Current maturities (48,667) (52,874)
Total long-term debt $312,544 $288,026
Debt agreements contain various restrictive
covenants, including a limitation on the payment of
dividends and certain other restricted payments.
Under the most restrictive covenants, $148$153 million
of the September 30, 1998March 27, 1999 retained earnings were
unrestricted for such purposes.
8. Capital Stock
Preferred - authorized 2,800,0000
outstanding - Series 1988 103,3180
outstanding - Series 1990 1,461,6640
Common - authorized 122,200,000
outstanding 38,402,50542,604,349
Subsequent to year-end, both Series 1988 and Series
1990 preferred stock classes were redeemed and all
shares were converted to common stock on January 4,
1999 and January 15, 1999, respectively.
On December 29, 1997,14, 1998, the Company announced that the
Pentair board had authorized the Company to
repurchase within
the next 12 months ofon an annual basis up to 350,000400,000 shares
of Pentair common stock. Any purchases would be
made periodically in the open market, by block
purchases or private transactions. The share
repurchase is intended to offset the dilution caused
by stock issuances under employee stock compensation
plans. TheAs of March 27, 1999, the Company hashad
repurchased 350,00095,500 shares through
September 30, 1998.under the authorization.
9. Supplemental Statement of Cash Flows Information
The following is supplemental information relating
to the Statement of Cash Flows ($000's):
Nine Months Ended September 30
1998 1997
Interest paid $17,098 $13,348
Income tax payments 50,277 52,045
First Quarter Ended
March 27, 1999 March 31, 1998
Interest paid $3,134 $4,947
Income tax payments 5,561 21,062
10. Reclassifications
Certain reclassifications have been made to prior
years' financial statements to conform to the
current year presentation.
11. Accounting Developments
In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company
must adopt this standard no later than January 1,
2000. The Company is reviewing the requirements of
this standard, which are quite complex. Although
the Company expects that this standard will not
materially affect its financial position and results
of operations, it has not yet determined the impact
of this standard on its financial statements.
12. Special Restructuring Charge
In the first quarter of 1999, the Company recorded a
special restructuring charge of $38.0 million ($24.1
million after-tax or $.56 per share). As shown
below, only $.4 million had been spent through March
27, 1999.
The restructuring plan comprises consolidation of
certain operations, overhead reductions, and
outsourcing of specific product lines in each of the
Company's three business segments. Pentair
anticipates a net reduction of approximately 700
jobs, less than seven percent of the company's
global workforce. Pentair's Electrical and
Electronic Enclosures Group already has initiated a
major overhead reduction in its European enclosure
businesses -- principally at the Schroff operation
in Straubenhardt, Germany -- and manufacturing
rationalization in its North American facilities.
This Group will absorb $16.7 million of the charge,
with anticipated savings of more than $4.0 million
in the remaining quarters of 1999 and more than $9.0
million in 2000. The Professional Tools and
Equipment Group will accelerate its already-strong
performance by consolidating distribution
operations, and by combining the headquarters of the
two power tool businesses, Delta and Porter-Cable.
In the service equipment businesses, products are
being outsourced to offshore manufacturers, and the
Jonesboro, Arkansas, manufacturing operation of
Lincoln Automotive will be closed. Restructuring
charges of $16.8 million in this Group will deliver
anticipated savings of more than $14.0 million in
2000. The Water and Fluid Technologies Group will
reduce the workforce at its Lincoln Industrial
business and outsource some product manufacturing.
Approximately 50 percent of the company's U.S.
manufacturing facility will be closed. This Group's
charge will be $4.5 million, with anticipated
savings of $0.4 million in late 1999 and more than
$2.0 million in the year 2000.
The components of the restructuring charge and
related reserve balances remaining at March 27, 1999
were (in millions):
Personnel Asset Exit
Costs Disposals Costs Total
1999 Restructuring Charge $27.5 $7.0 $3.5 $38.0
1999 Spending To Date (0.4) 0.0 0.0 (0.4)
Remaining Reserve $27.1 $7.0 $3.5 $37.6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
BUSINESS SEGMENT INFORMATION
Selected information for business segments for the
nine monthsquarter ended September 30,March 27, 1999 and March 31, 1998
and 1997
follows:
Segment Information ($000s):
1998 - Nine Months
1999 PTE WFT EEE Other Total
Net sales from
external customers $586,320 $404,496 $422,719 $0 $1,413,535$199,531 $127,609 $143,353 $ 0 $470,493
Intersegment net sales 5,034 4,8001,014 898 0 (9,834)(1,912) 0
Segment profit (loss)
- operating income 67,413 53,099 42,404 (27,668) 135,2485,437 12,012 (4,350) (4,661) 8,438
Segment assets 457,156 515,407 483,483 49,295 1,505,341
1997 - Nine Months484,106 508,090 509,762 85,661 1,587,619
1998
Net sales from
external customers $508,047 $264,216 $432,914 $110,356 $1,315,533$185,668 $133,875 $145,422 $ 0 $464,965
Intersegment net sales 7,320 5,0932,521 1,751 0 (12,413)(4,272) 0
Segment profit (loss)
- operating income 49,693 34,070 41,983 (6,942) 118,80419,149 14,223 13,722 (3,205) 43,889
Segment assets 401,116 520,331 517,667 170,243 1,609,357
1998 - Third Quarter PTE WFT EEE Other Total
Net sales from
external customers $203,455 $134,130 $139,195 $0 $476,780
Intersegment net sales 1,664 1,348 0 (3,012) 0
Segment profit (loss)
- operating income 24,115 19,935 13,060 (10,449) 46,661
1997 - Third Quarter
Net sales from
external customers $182,085 $101,688 $146,301 $52,015 $482,089
Intersegment net sales 2,434 1,474 0 (3,908) 0
Segment profit (loss)
- - operating income 18,992 11,655 12,737 (627) 42,757423,686 514,561 470,344 75,751 1,484,342
PTE = Professional Tools and Equipment
WFT = Water and Fluid Technologies
EEE = Electrical and Electronic Enclosures
Other = Corporate leadership expenses, captive
insurance company, intermediate financial companies,
charges that do not relate to current operations,
divested
operations (Federal Cartridge, 1997), intercompany eliminations and all cash and cash
equivalents.
Second quarter 1998 included unusually heavy
expenses associated with acquisition activities.equivalents
RESULTS OF OPERATIONS
Consolidated Results.
Sales and income in the first quarter of 1999 were
affected by our adoption of a standard "4-4-5 week"
quarter for Pentair reporting. The first quarter
ended on March 27, 1999, with about 4 percent fewer
work days than the same period last year. Pentair's
fiscal year will continue to end on December 31.
Also, operating profits of the segments are now
reported net of all their administrative and related
costs. The prior year segment data was restated for
such reporting change.
Consolidated net sales increased to $1,413.5$470.5 million
for the first nine months of 1998,in 1999, representing a 7.5%1.2% increase over 1997. The growth is attributed
to excellent performance in the tools and equipment
businesses and acquisitions (primarily the pump
businesses purchased from General Signal), net of
the divestiture of Federal Cartridge.1998.
Operating income for 1999 includes a restructuring
charge of $38.0 million ($24.1 million after-tax or
$.56 per share). Excluding the restructuring
charge, operating income increased to $135.2 million in
1998, up 13.8% over 1997,5.8%, and
operating income as a percent of sales improved from
9.0%9.4% to 9.6%9.9%. Gross profit margins increased in
19981999 to 31.0%31.8% versus 30.2%31.1% in 1997.1998. This is
primarily due to internal cost reduction efforts.
Selling, general and administrative expense (SG&A)
as a percent of sales was 21.5%22.0% in 19981999 as compared
to 21.2%21.7% in 1997,
largely due to lower than anticipated sales volumes.1998. Net income excluding the
restructuring charge increased 19.0%11.2% over the nine-month
period of 1997.first
quarter 1998. Earnings per share forexcluding the
nine-
month period of 1998 of $1.70restructuring charge was $.61, an increase of 18.9%13.0%.
Consolidated netThe tax rate reduction to 36.5 percent is consistent
with the pattern of reductions effected over the
last two years. It is anticipated that the tax rate
in the future quarters of 1999 will remain at
approximately 36.5 percent, before the effect of new
acquisitions. The Essef acquisition will add
approximately 1.4 percentage points to the full year
tax rate, due to non-deductible amortization of
goodwill.
Professional Tools and Equipment Segment
First quarter sales declinedin the Professional Tools and
Equipment Group continued relatively strong, driven
by a good domestic economy and demand for newly
introduced products. A healthy economic outlook, an
array of new products, and continued distribution
expansion are expected to $476.8 million
formaintain high single-digit
sales growth in the thirdsecond quarter of 1998,1999.
Net sales increased to $200.5 million in 1999,
representing a 1.0%
decrease compared to the third quarter of 1997,
which included the seasonally strong sales of the
Federal cartridge business (divested in November,
1997), and a partial-quarter contribution of the
former General Signal pump businesses from August
23, 1997 forward. Excluding acquisitions and
divestitures, Pentair sales rose by 4.9% quarter-
over-quarter.6.6% increase over 1998. Operating
income excluding the restructuring charge increased
to $46.7$22.2 million in the
third quarter of1999, up 16.0% over 1998, up 9.1% over the comparable
quarter of 1997, and
operating income as a percent of sales improved from
8.9%10.2% to 9.8%11.1%.
Third quarter
gross profit margins increasedHousing starts are one critical factor driving
performance in the tools businesses. Although starts
in 1999 are expected to be down slightly from the
high levels we experienced in 1998, to 31.0%
versus 29.5% in 1997. This is primarily due to
internal cost reduction efforts. Third quarter
selling, general and administrative expense (SG&A)
as a percent of sales was 21.2% in 1998 as compared
to 20.6% in 1997. Third quarter net income
increased 16.2% over the same quarter of 1997.
Earnings per share for the third quarter of 1998 of
$0.60 represented an increase of 17.6%. The third
quarter of 1998 is Pentair's 20th consecutive
quarter in which earnings per share improved over
the same quarter in prior years.
The effect of foreign currency translation for 1998
on Pentair's sales has been unfavorable, but not
material. The weakening of the Canadian dollar
unfavorably impacted earnings per share by
approximately $0.02 during the third quarter of
1998.
Professional Tools and Equipment Segment
This segment continued to perform extremely well as
a result of high demand from retail markets
will likely make up for slower construction markets.
Water and severalFluid Technologies Segment
While 1998 was a year of consolidating new
tool introductions, such as Porter-
Cable's cordless nailer, calledoperations, building efficiency, and outsourcing,
1999 will be a year for accelerating internal sales
growth. Working from the Bammer. In the
equipment businesses, the benefits of recent
acquisitionsstrong base established
last year, a step up in top line growth is expected
through entry into new markets and closer cooperation among these
units are beginning to be reflected in increased
sales and lower costs.accelerated
product development.
Net sales decreased to $128.5 million in 1999,
representing a 5.2% decrease from 1998. Operating
income excluding the restructuring charge increased
to $591.4$16.5 million for the first
nine months ofin 1999, up 15.9% over 1998, representing a 14.7% increase
over 1997. Operating income increased to $67.4
million for the first nine months of 1998, up 35.7%
over 1997, and
operating income as a percent of sales improved from
9.6%10.5% to 11.4%12.8%. Profits in the Group benefited from
continued productivity improvements and cost
reductions, while the diminution in overall sales is
largely attributable to the deliberate reduction in
the sales of the formerly unprofitable Layne &
Bowler pump line, begun in the second quarter of
1998.
First quarter orders rose strongly in the pump and
control valve businesses. This level of order
intake, driven in part by the recent introduction of
new products, is expected to generate second quarter
sales growth in the mid-to-high single digits for
this segment.
Electrical and Electronic Enclosures Segment
In the Electrical and Electronic Enclosures Group,
reduced capital spending in key industrial and
electronic markets, and continued weakness in
European enclosure markets, resulted in first
quarter sales below those of the same period last
year. Net sales increaseddecreased to $205.2$143.4 million in 1999,
representing a 1.4% decrease from 1998.
In North American markets, a high level of quoting
activity late in the first quarter, much of which
originated from the automotive industry, may
indicate a return to higher industrial capital
spending for the second quarter of 1999. Although
European markets are expected to continue to be
weak, Pentair is improving its competitive position
by implementing overhead reductions in its
underperforming German enclosures operation. Initial
savings from that reduction are expected in the
third quarter of 1998, representing an 11.2% increase over
1997.1999.
Operating income increasedexcluding the restructuring charge
decreased to $24.1$12.4 million for the third quarter ofin 1999, down 9.7% from
1998, up 27.0% over the
comparable quarter of 1997, andas operating income as a percent of sales
improveddeclined from 10.3%9.4% to 11.8%8.7%.
In summary, the Company is encouraged by what is
happening in the North American market and organic
sales are expected to grow in the mid-to-high single
digits in the second quarter of 1999. In Europe,
necessary actions are being taken to structure the
business appropriately for the conditions there, and
there is cautious optimism about sales growth in
that market.
SPECIAL RESTRUCTURING CHARGE
In the first quarter of 1999, the Company recorded a
special restructuring charge of $38.0 million ($24.1
million after-tax or $.56 per share).
The restructuring plan comprises consolidation of
certain operations, overhead reductions, and
outsourcing of specific product lines in each of the
Company's three business segments. Pentair
anticipates a net reduction of approximately 700
jobs, less than seven percent of the company's
global workforce. Pentair's Electrical and
Electronic Enclosures Group already has initiated a
major overhead reduction in its European enclosure
businesses -- principally at the Schroff operation
in Straubenhardt, Germany -- and manufacturing
rationalization in its North American facilities.
This Group will absorb $16.7 million of the charge,
with anticipated savings of more than $4.0 million
in the remaining quarters of 1999 and more than $9.0
million in 2000. The Professional Tools and
Equipment Group will accelerate its already-strong
performance by consolidating distribution
operations, and by combining the headquarters of the
two power tool businesses, Delta and Porter-Cable.
In the service equipment businesses, products are
being outsourced to offshore manufacturers, and the
Jonesboro, Arkansas, manufacturing operation of
Lincoln Automotive will be closed. Restructuring
charges of $16.8 million in this Group will deliver
anticipated savings of more than $14.0 million in
2000. The Water and Fluid Technologies Segment
In this segment, efforts are continuing to focus on
bringingGroup will
reduce the pump businesses we acquired from
General Signal up to our performance standards.
Great progress has been madeworkforce at its Lincoln Industrial
business and outsource some product manufacturing.
Approximately 50 percent of Lincoln's U.S.
manufacturing facility will be closed. This Group's
charge will be $4.5 million, with anticipated
savings of $0.4 million in rationalizing the
Pump Group product line, streamlining manufacturing
operations,late 1999 and taking advantage of joint purchasing
opportunities among all the pump businesses.
Similarly, the results of efforts to improve
productivity and production capacitymore than
$2.0 million in the water
conditioning control valve business favorably
impactedyear 2000.
The components of the first nine months. As for overseas
markets, European sales continue to experience
double-digit growth over 1997.
Net sales increased to $409.3 million for the first
nine months of 1998, representing a 52.0% increase
over 1997. Excluding the effects of acquisitions,
sales grew 5.6% due to improving European marketsrestructuring charge and
increased penetration in distribution channels.
Operating income increased to $53.1 million for the
first nine months of 1998, up 55.9% over 1997, and
operating income as a percent of sales improved from
12.7% to 13.0%.
Net sales increased to $135.5 million for the third
quarter of 1998, representing a 31.3% increase over
1997. Operating income increased to $19.9 million
for the third quarter of 1998, up 71.0% over the
comparable quarter of 1997, and operating income as
a percent of sales improved from 11.3% to 14.7%.
Electrical and Electronic Enclosures Segment
Sales in the Electrical and Electronic Enclosure
segmentrelated reserve balances remaining at March 27, 1999
were down five percent compared to the third
quarter of 1997. This shortfall was principally due
to lower automotive and machine tool capital
spending in North America. Despite this, global
margins improved due to aggressive cost controls.
Although most industrial markets have been soft for
the past 12 months, the EEE segment has had success
in targeted, high-growth markets. The EEE segment
throughout, but especially in North America, entered
into several key contracts with major telecom and
datacom customers in the third quarter as its
penetration of these markets gained momentum.
Net sales were $422.7 million for the first nine
months of 1998, representing a 2.4% decrease over
1997. Operating income increased to $42.4 million
for the first nine months of 1998, up 1.0% over
1997, and operating income as a percent of sales
improved from 9.7% to 10.0%.
Net sales of $139.2 million for the third quarter of
1998, decreased 4.9% from 1997. Operating income
increased to $13.1 million for the third quarter of
1998, up 2.5% over the comparable quarter of 1997,
and operating income as a percent of sales improved
from 8.7% to 9.4%.(in millions):
Personnel Asset Exit
Costs Disposals Costs Total
1999 Restructuring Charge $27.5 $7.0 $3.5 $38.0
1999 Spending To Date (0.4) 0.0 0.0 (0.4)
Remaining Reserve $27.1 $7.0 $3.5 $37.6
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $40.8negative
$24.2 million in 19981999 compared to $28.6negative $49.4
million in 1997.
This improvement was achieved despite a one-time $17
million tax payment in1998. The Company believes that cash
flow from operations will continue to exceed its
needs for capital programs, smaller acquisitions and
dividends during the first quarter of 1998
associated with the Federal Cartridge divestiture.year.
Capital expenditures were $29.7$7.4 million in 19981999
compared to $55.9$4.6 million in 1997.1998. The Company had a
negative free cash flow of $11.1$31.6 million in 19981999
compared to a negative $27.2$54.0 million in 1997.1998. Free
cash flow, a measure of the internal financing of
operational cash needs, is defined as cash from
operations less capital expenditures. One of Pentair's primary
financial goalsThe Company is
to maximizetargeting continued growth in free cash flow while
supporting the operationsas a
percent of all of its businesses.sales through improved profitability and
working capital ratios. Historically, cumulative free cash
flow is negative during the first partfew months of each
fiscal year and positive thereafter.
1997 included the seasonally
high accounts receivable of Federal Cartridge ($45
million approximately) which was divestedBorrowings in the fourthfirst quarter of 1997.1999 financed
operating needs and capital expenditures. The
percentage of long-term debt to total capital was
29%31% at September 30, 1998March 27, 1999 compared to 32%29% at December
31, 1997. Current maturities of private
placement long-term debt will be funded with
revolving credit borrowings. Pentair believes that
cash flow from operations will continue to exceed
its needs for capital programs and smaller
acquisitions.1998. The Company has significantsufficient financing
capacity to continue its current acquisition program
and to support its ongoing stock repurchase program.
OUTLOOK
Pentair should continueThe stock repurchase is intended to achieve relatively good
performance inoffset the
likely event of a slower but more
stable economic climate in 1999, due to limited
exposure in "at-risk" international markets,
operations in three diverse product and customer
markets, and its proven ability to take advantage of
cost containment programs, new product development,
multi-channel distribution, and the pursuit of value-
addeddilution caused by stock issuances under employee
stock compensation plans. Significant acquisitions
(above approximately $250 million), such as Essef,
require increased credit facilities. The Company
believes it can obtain adequate financing for
acquisitions.
OUTLOOK
While the outlook for each of its segments in 19981999
is encouraging, Pentair wishes to furtherbelieves it must improve its
performance on a company-wide basis in
profitabilitymanagement of total capital and generation ofthereby increase
free cash flow.
The
Company has implemented a program (named "PACE" -
Pentair Accelerating Competitive Excellence) to
reducePentair's top line growth in the total costscoming months will
be driven by new product introductions in the tools
and water businesses, and expanded distribution and
improved productivity in the enclosures businesses.
Improved order levels and stronger backlogs in our
tool and water segments, combined with several
growth initiatives in place across the organization,
should accelerate revenues in the second quarter and
beyond. Meanwhile, the benefits of its operations over the next two years$60 million
cost savings project and to maintain those reductions in
future years through improvements in purchasing and
supply management and reengineeringour restructuring
activities will reinforce the profitability of support
services.all
the operating groups.
In addition, Pentair continues to look for
synergistic acquisitions in each of its business
segments, in line with its pattern over the past
three years. Pentair will continue to pursue
complementary acquisitions to fold into current
operations, but will also carefully review larger
targets which would significantly expand its current
segments. Other acquisitions are possible, but only
if they present Pentair extraordinary opportunities.
Acquisition and internal growth initiatives, coupled
with the savings anticipated from our cost-reduction
activities, are expected to generate consistent and
attractive results for Pentair shareholders in 1999
and beyond.
YEAR 2000 ISSUE
Background
The Year 2000 Issueissue is the result of computer
programs and embedded computer chips orginallyoriginally
having been designed and developed using two digits
rather than four digits to define the applicable
year. Any of the Company's internal use computer
programs and hardware as well as its products that
are date-date sensitive may recognize a date using "00"
as the Year 1900 rather than the Year 2000. This
could result in a system failure or miscalculations
causing disruptions of operations, including, among
other things, a temporary inability to process
transactions or engage in normal business activities
for both the Company and its customers who rely on
its products.
State of Readiness
The Company hasCompany's businesses have had its " Y2K"Y2K Project"
programprograms in place since as long ago as 1995 to
address Year 2000 issuesproblems in critical business
areas for its products,information management systems, non-informationnon-
information systems with embedded technology,
suppliers and customers.Thecustomers. The Company has largely
completed its review and compliance planning for its
critical information systems (IS). Depending onCertain of the
progress of its separate business units,
the Company is currently in or hasCompany's larger businesses have completed the
implementation of required actions for compliance. It is anticipatedcompliance;
the balance of the business units are in the process
of implementation. In many cases, implementation
includes installation of new Enterprise Resource
Planning ("ERP") systems designed to enable these
businesses to operate more efficiently and to
provide better management reporting. Pentair
anticipates that
the implementation and testing phases
will be substantially complete throughout the
company by the secondthird quarter of 1999.
The Company is also in the process of reviewing and
replacing, where necessary, its other automated
communications and manufacturing systems. The
Company estimates that it will also substantially complete this phase
by the second quarter of 1999.
Very fewNone of the Company's products are date-sensitive.
Any known date-sensitive products have been or willbelieved to be
corrected or replaced by a new product.date dependent.
The Company has certain integratedclose working relationships with a
large number of its suppliers and customers. These
include, among others, utility and telecommunication
providers, of energy,
telecommunications, raw materials and components suppliers,
and financial institutions, managed care
organizations and large retail establishments. The
Company has been reviewing, and continues to review,
with its critical suppliers and major customers the
status of their Year 2000 readiness. The Company's
business units have established plans for ongoing
monitoring of suppliers during 1999.
Costs to Address the Year 2000 Issue
As a result of the numerous different IS systems
used by businesses that the Company has acquired in
recent years and also as a result of changing
business requirements, the Company has an ongoing
IS
development plan with scheduled replacements of
systemshardware and software occurring in 1999 throughout
the organization. Year 2000 compliance is a by-productby-
product of our development plan.
The estimated cost associated with the total IS
development plan over the five-year period from 1995
to 1999 is anticipated to be approximately $50 million.$55
million, which is approximately 80% complete. The
estimated cost specifically attributable to Year
2000 compliance, apart from other IS development
activities, amounts to approximately $10 million, of
which $6.5$8 million washad been spent through September 30,December 31,
1998. Pentair has not deferred any significant IS
projects as a result of the implementation of the
Y2K Project.
Risks Represented by the Year 2000 Issue
Pentair believes that completed and planned
modifications and conversions of its internal
systems and equipment will allow it to be Year 2000
compliant in a timely manner. However, there can be
no absolute assurance in every single respect, that the Company's internal systems or
equipment, ornor those of third parties on which
Pentair relies, will be Year 2000 compliant , in all
material respects, in a timely manner ormanner. Nor can
Pentair give any assurance that the
Company'sits own or third
parties' contingency plans will mitigate the effects
of any noncompliance. ThePentair believes that non-
compliance with Year 2000 non-compliance of the systems or equipment of
Pentair or third partiesissues would likely result
in some reduction of the Company's operations andfor
the first part of the year 2000, which could have a
material adverse effect on the Company's businesses
or their financial condition. Based on its
assessments to date, Pentair believes it will not
experience any material disruption as a result of
Y2K issues in internal manufacturing processes,
information processing, interfacing with major
customers or processing orders and billing.
However, if critical utility service providers
experience difficulties, which affect Pentair, or
its business units, a shutdown of some or consolidated financial statements.all
operations at individual facilities could occur.
Pentair is developing contingency plans to provide
for continuity of processing (in the event of a Y2K
disruption) which will be based on the outcome of
its Y2K compliance reviews and the results of third
party verification efforts. Assuming no major
disruption in service from utility companies or
similar critical third-party providers, Pentair
believes that theit will be able to manage its Year
2000 transition without material effect on Pentair's
results of operations or financial condition.
The most reasonably likely worst case scenario of
failure by Pentair or its suppliers or customers to
resolve Year 2000 issues would be its exposurea temporary
slowdown or cessation of manufacturing operations at
one or more of Pentair's facilities, and/or a
temporary inability on the part of Pentair to timely
process orders and to deliver finished products to
customers. Delays in meeting customer orders would
reduce or delay sales and affect the riskstiming of
third
party non-compliance, however, the Company has no reasonbillings to believe that its exposure to such risks is any
greater than the exposure to such risk that affects its
competitors generally.and payments received from customers and
could result in complaints, charges or claims, or
temporarily increasing working capital.
Contingency Plans
Pentair has not yet developedPentair's businesses are in the process of
developing Year 2000 specific
contingency plans.plans, based on
their review of their internal and external
compliance progress. A full review will be done
atfollowing the end of the second quarter of 1999 to
assess issues relatedPentair's vulnerability to internal non-compliancenon-
compliance and potential third party failures.third-party failures and
actions which can be taken to reduce unfavorable
impacts. Possible plans may include arranging
substitutes for energy,alternative or additional suppliers and service
providers, increasing inventory levels, of inventoryproviding
additional back-up systems and developing alternate
sources of raw materials.
THE EURO CONVERSION
On January 1, 1999, eleven of the fifteen member
countries of the European Union (EU) will establish
fixed conversion rates through the European Central
Bank (ECB) between their existing local currenciesreplacing or
upgrading equipment and the Euro, the EU's future single currency. The
participating countries have agreed to adopt the
Euro as their common legal currency on that date.
The Euro will then trade on currency exchanges and
be available for non-cash transactions.
Following introduction of the Euro, the local
currencies will remain legal tender between January
1, 1999 and January 1, 2002. During the transition
period, goods and services may be paid for using
either the Euro or the local currency under the EU's
"no compulsion, no prohibition" principle. If cross-
border payments are made in a local currency during
this transition period, the amount will first be
converted into the Euro and then converted from the
Euro into the second local currency at the rates
fixed by the ECB. Beginning no later than January
1, 2002, the participating countries will issue new
Euro-denominated bills and coins for use in cash
transactions. By no later than July 1, 2002, the
participating countries will withdraw all bills and
coins denominated in local currencies, making
conversion to the Euro complete.
The Company is in the process of reviewing the
Euro's impact on the Company's business and pricing
strategies. The Company has made significant
investments in its IS systems in Europe over the
past few years. The Company expects that it will be
able to manage customer orders, invoices, payments
and accounts in Euros and in local currencies
according to customer needs by January 1, 1999. The
Company has not developed contingency plans at this
time since the Company believes its IS systems are
ready for the Euro. The introduction of the Euro
is not expected to have a material impact on the
Company's overall currency risk or its ability to transact
business.
The Company does have derivatives outstanding beyond
January 1, 1999 in several of the European local
currencies. The Company uses derivatives in a
strategic manner to minimize interest rate and
foreign currency risk. The instruments are not
purchased as speculative investments. The Company
believes the impact of the introduction of the Euro
on the Company's derivative positions will not be
material.software.
NOTIFICATION REGARDING FORWARD-LOOKING INFORMATION
Except for historical information contained herein,It should be noted that certain statements herein
which are not historical facts, including without
limitation those regarding 1) the timeliness of
product introductions and deliveries; 2)
expectations regarding market growth and
developments; 3) expectations for growth and
profitability; and 4) statements preceded by
"believes", "anticipates", "expects", "estimates" or
similar expressions are forward-looking statements.
Because such statements
that involve risks and
uncertainties, including,actual results may differ materially
from the results currently expected by the Company.
Factors that could cause such differences include,
but are not limited to, 1) general economic
conditions, such as the rate of economic growth in
the Company's principal geographic markets or
fluctuations in exchange rates; 2) industry
conditions, such as the strength of product demand,
the intensity of competition, pricing pressures, the
acceptability of new product introductions, the
introduction of new products by competitors, changes
in technology or the ability of the Company to
source components from third parties without
interruption and at reasonable prices and the
financial condition of the Company's customers; 3)
operating factors, such as continued improvement in
manufacturing activities and the achievement of
related efficiencies therein, and inventory risks
due to shifts in market demand; and, 4) the
expectations, uncertainties, costs and risks
associated with Year 2000 issues, such as the
Company's expectations as to when it will complete
the remediation and testing phases of its Year 2000
programs as well as contingency plans; its estimated
costs of achieving Year 2000 readiness; and the
Company's belief that its internal systems and
equipment will be compliant in a timely manner.
Factors that may cause these differences include,
but are not limited to, the effectavailability of
economic conditions,
product demandqualified personnel and market acceptance risks, customer
mix,other IT resources; the
impact of competitive productsability to identify and pricing,
product development, commercializationremediate all date-sensitive
computer coding or the ability to identify and
technological difficulties, production efficiency
improvement opportunities, capacity and supply
constraintsreplace all embedded computer chips in affected
systems or difficulties, the results of
financing efforts, actual purchases under agreementsequipment; and the effectactions of
the Company's accounting policies.
The actual results that the Company achieves may
differ materially from these forward-looking
statements duegovernmental agencies or other third parties with
respect to such risks and uncertainties.Year 2000 problems.
The Company undertakes no obligation to revise any
forward-looking statements in order to reflect
events or circumstances that may arise after the
date hereof. Readers are urged to carefully review
and consider the various disclosures made by the
Company in this report and in the Company's other
filings with the Securities and Exchange Commission
from time to time that advise interested parties of
the risks and uncertainties that may affect the
Company's financial condition and results of
operations.
Forward-Looking Statements
The preceding "Year 2000 Issue" and "Euro Conversion"
discussions contain various forward-looking statements,
which represent the Company's beliefs or expectations
regarding future events. When used in these discussions,
the words "believes", "anticipates", "expects", "estimates"
and similar expressions are intended to identify forward-
looking statements. Forward-looking statements include,
without limitation, the Company's expectations as to when
it will complete the remediation and testing phases of its
Year 2000 and Euro programs as well as contingency plans; its
estimated costs of achieving Year 2000 and Euro related readiness;
and the Company's belief that its internal systems and equipment
will be compliant in a timely manner. All forward-looking statements
involve a number of risks and uncertainties that could cause
the actual results to differ materially from the projected results.
Factors that may cause these differences include, but are not
limited to, the availability of qualified personnel and other
IS resources; the ability to identify and remediate all
date-sensitive computer coding or the ability to identify and
replace all embedded computer chips in affected systems or equipment;
and the actions of governmental agencies or other third parties with
respect to Year 2000 and Euro problems.
PART II - OTHER INFORMATION
ITEM 4 -Submission of Matters to a Vote of Security
Holders
The Annual Meeting of Shareholders of Pentair, Inc.
was held on April 28, 1999, for the purpose of
electing certain members to the board of directors,
approving the appointment of auditors, and voting on
the proposals described below. Proxies for the
meeting were solicited pursuant to Section 14(a) of
the Securities Exchange Act of 1934.
PROPOSAL 1
All of management's nominees for directors as listed
in the proxy statement were elected with the
following votes.
Shares Shares Broker
Voted For Withheld Non-Votes
Winslow H. Buxton32,464,778294,129 0
Barbara B. Grogan32,427,686331,221 0
Stuart Maitland32,471,620287,287 0
Augusto Meozzi32,345,416 413,491 0
Joseph R. Collins32,458,713300,194 0
PROPOSAL 2
The appointment of Deloitte & Touche LLP as
independent auditors of the Company for 1999 was
ratified with the following vote.
Shares
Shares Voted Shares Broker
Voted For Against Abstaining Non-Votes
32,565,699 92,231 100,977 0
PROPOSAL 3
To amend the Restated Articles of Incorporation
increasing the total number of shares authorized to
be issued from 125,000,000 to 250,000,000.
PROPOSAL 3 PASSED.
Shares
Shares Voted Shares Broker
Voted For Against Abstaining Non-Votes
29,831,342 2,776,978 150,587 0
PROPOSAL 4
To amend the Restated Articles of Incorporation to
increase from 15,000,000 to 30,000,000 the number of
authorized shares designated as preferred shares.
PROPOSAL 4 DID NOT PASS.
Shares
Shares Voted Shares Broker
Voted For Against Abstaining Non-Votes
17,027,720 13,272,044 191,760 2,267,382
PROPOSAL 5
To amend the Restated Articles of Incorporation to
eliminate all currently authorized series of
preferred shares of the Company. PROPOSAL 5 PASSED.
Shares
Shares Voted Shares Broker
Voted For Against Abstaining Non-Votes
29,238,861 1,007,373 245,290 2,267,382
ITEM 5 - Other Information
On April 30, 1999, Pentair Inc. significantly expanded its positionannounced that it had
entered into a merger agreement to acquire Essef
Corporation (Nasdaq: ESSF) of Chardon, Ohio, for
$19.09 per share, payable in fast-growing electronic enclosure markets on October
30, 1998, when it acquired The Walker Dickson Group
Limited (WDG) of Edinburgh, Scotland. WDG designs,
manufactures and markets custom and standard
enclosures, subracks and systems for
telecommunications, computer networking and general
electronics applications. Pentair said that WDG's
anticipated annual sales arecash. Essef is a global
leader in the $40 to $50
million range; themanufacture of composite water tanks,
pumps, filters, and other water equipment. The cash
purchase price iswill be approximately equal to one year's sales.$312 million.
Pentair will also said WDG is
profitable and is expectedassume approximately $100 million
of Essef debt. Pentair, which will finance the
acquisition through available lines of credit,
expects Essef to be accretive to earnings over the
first 12 months after acquisition. The merger
agreement, which was approved by the boards of both
Pentair earnings inand Essef, is subject to Essef shareholder
approval, regulatory approval under the Hart-Scott-
Rodino Act, and completion of due diligence by
Pentair. Essef's 1999 sales are estimated by
industry analysts to be approximately $350 million,
exclusive of its Anthony & Sylvan pool construction
business, which will be split-off by Essef to its
current shareholders at the closing of the
acquisition. Completion of the transaction is
targeted for July 31, 1999. The cash transaction was
financed through bank borrowings.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are included
with this Form 10-Q Report as required by Item 601
of Regulation S-K.
Exhibit Description
Number
3.1 Restated Articles of Incorporation as amended through April 28, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the first
quarter ended September 30, 1998.of 1999.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the
undersigned hereunto duly authorized.
/s/ Richard W. Ingman
Executive Vice President and
Chief Financial Officer
November 13, 1998May 11, 1999