Exhibit 99.1
Pentair, Inc.
5500 Wayzata Blvd., Suite 800
Golden Valley, MN 55416
763 545 1730 Tel
763 656 5204 Fax
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News Release | |  |
Pentair’s Second Quarter 2006 EPS Increases 12% to $0.67 on 9% Sales Gain
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Second Quarter 2006 Highlights |
„ | | Earnings per share of $0.67 from continuing operations was up 12%. |
„ | | Net sales of $862.0 million increased 9%, of which 4% was organic and the remainder was from the impact of acquisitions. |
„ | | Technical Products Group surpassed its 15 percent operating margin goal and achieved its 18th consecutive quarter of sequential margin improvement, excluding the impact of stock option expensing. |
„ | | Sales in Asia grew approximately 30% in local currencies. |
„ | | The FARADYNE pump motor joint venture is on-schedule to begin production of four-inch submersible pump motors in the third quarter of 2006. |
„ | | Cash flow of $128.5 million brings YTD Free Cash Flow to $27.2 million. |
GOLDEN VALLEY, Minn. — July 25, 2006 — Pentair (NYSE: PNR) today announced its second quarter 2006 results, highlighting earnings per share (EPS) from continuing operations of $0.67, an increase of 12 percent over the same period last year, on sales of $862.0 million, a gain of nine percent. Excluding the impact of acquisitions and negligible currency exchange, second quarter sales increased approximately four percent. Pentair realized a net EPS benefit of approximately five cents per share from the net impact of one-time tax-related items that were partially offset by one-time reorganization costs in the quarter.
Pentair Chairman and Chief Executive Officer, Randall J. Hogan, said: “We realized good growth in our residential, commercial and municipal pump markets; in Asian markets; and in the industrial and commercial markets of our Technical Products Group. Our Thermal Management acquisition has exceeded its sales, operating income and margin targets for the first six months of 2006, and the Technical Products Group, as a whole, has surpassed our 15 percent return on sales goal.
“Although our residential Water markets remained relatively strong, we did see some weakness in the Spa & Bath area due to softer housing markets, and sales of pool equipment were adversely affected by inventory adjustments at several large distributors. Growth in our European Water business slowed in the second quarter with good growth in pump sales being somewhat offset by lower pool equipment sales due to an unseasonably cool, wet European spring.”
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Hogan added: “We continue to build toward the promise of higher growth and higher performance in our two attractive business segments. Based upon our second quarter performance and not withstanding the mixed economic outlook, we are reiterating our previous EPS guidance of between $2.08 and $2.18 for the year and are initiating third quarter EPS guidance in a range between $0.46 and $0.50.”
Pentair’s full year 2005 EPS from continuing operations was $1.80 with EPS from continuing operations in the third quarter 2005 of $0.43, both reflecting the impact of stock option expensing per SFAS 123R.
Second Quarter 2006 Financial Comments
Earnings:
EPS from continuing operations of $0.67 was 12 percent higher than second quarter 2005 EPS from continuing operations of $0.60. Operating income totaled $108.0 million, approximately one percent higher than the $107.2 million reported in the same period last year. Return on sales of 12.5 percent in the second quarter was lower by 110 basis points than that of a year ago as higher Technical Products Group margins were offset by Water Group investments and higher corporate costs. Pentair realized a net EPS benefit of approximately five cents per share from the net impact of one-time tax-related items that were partially offset by one-time reorganization costs in the quarter.
Revenue:
Net sales totaled $862.0 million, up nine percent from $788.5 million in the same period a year ago. Sales growth, excluding the impact of acquisitions and negligible currency exchange, was approximately four percent.
Cash:
Cash flow totaled $128.5 million, bringing free cash flow for the first half of 2006 to $27.2 million. This compares favorably to the second quarter of 2005, when cash flow totaled $112.8 million, bringing free cash flow for the first half of 2005 to $11.4 million.
Water Group Second Quarter Comments
„ | | Water Group sales of $605.5 million increased 3.4 percent over the same period last year. |
| „ | | Pump growth included record sales of Aurora and Sta-Rite pumps and strong sales of water systems in commercial, municipal, and residential pump markets. Wet weather in the northeastern U.S. contributed to the strong quarter, as did new customers in several vertical markets including wastewater and fire protection systems, and new products, including control boxes, variable speed drive pumps, and end-suction pumps. |
| „ | | Pool sales were up from year-ago levels driven by new products including electronic control packages and high-efficiency variable speed pumps. This performance came despite a decline in Spa & Bath sales, and slower pool building markets in Florida and California. |
| „ | | Filtration growth reflected improved industrial sales that more than offset weaker sales in residential and original equipment manufacturer (OEM) markets. Filtration also saw stronger activity in its Ecolab partnership and in point-of-use residential filtration. |
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| „ | | Efforts to capture additional share in global desalination projects produced another record quarter for our CodeLine pressure vessel business. |
| „ | | New products contributed to sales gains, particularly in Pool and in Europe. Pool benefited from previously launched products including variable speed pumps, control systems, and robotic cleaners, while product launches in Europe included an energy-efficient variable speed pump for residential markets, a new in-ground fire suppression system, and a complete cabinet-sized water softener for point-of-use applications. |
„ | | Operating income for the Group totaled $84.2 million, down nine percent over the same period last year. Return on sales was 13.9 percent, down 180 basis points compared to last year. |
| „ | | Margin gains in Pump operations — driven by sourcing activities, pricing, and volume — were offset by mix, material cost inflation, and plant consolidation-related inefficiencies in Pool and Filtration operations. |
| „ | | Planned investments for growth continued with approximately $7 million incurred in the quarter. |
| „ | | Operating income from international businesses was down from year-ago levels due primarily to reorganization costs and continuing investments in Asia and in Europe. |
„ | | The FARADYNE joint venture is progressing well as field-testing is complete. Production of submersible motors is expected to begin shortly, and motors should be available in the third quarter, as anticipated. |
Technical Products Group Second Quarter Comments
„ | | Sales of $256.5 million for the quarter increased $54 million or 26 percent over the same quarter last year. Excluding the impact of the newly acquired Thermal Management businesses and negligible foreign currency exchange, organic growth was approximately seven percent. |
| „ | | Excluding acquisitions, sales in North American markets grew in the mid-single digits, resulting from share gains in targeted petrochemical, food & beverage, and commercial construction markets driven by new products and focused vertical marketing efforts. |
| „ | | In Europe, growth in test & measurement and automation & control markets, and in ATCA was offset by several end-of-life telecom programs and transition of OEM business to our China operations. New products and an expanded customer base bolstered sales. |
| „ | | Strong growth in Asia benefited from continued market penetration in China, strong growth in Japan as those markets continued their recovery, and OEM program transitions from our North American and European operations. |
„ | | Volume growth, supply management savings, cost reductions, and improved productivity combined to set new earnings records. Operating income of $39.7 million set a new record, breaking the previous $37.7 million record set in the first quarter of 2006. |
| „ | | Margins totaled 15.5 percent, up 70 basis points on a sequential quarter basis. The second quarter was the Group’s 18th consecutive quarter of sequential margin improvement, excluding the impact of stock option expensing. |
„ | | Increased sales together with the rapid implementation of lean and supply management practices drove significant profit improvements in the newly acquired Thermal Management business. The business exceeded its sales, operating income and margin targets for the first six months. |
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As announced in a June 29, 2006 news release, a jury verdict was rendered against Pentair for $193 million, exclusive of pre-judgment interest and attorney’s fees, in the commercial damages portion of the previously disclosed Horizon litigation. Based on the information available to the Company at this time, no adjustment to previously established reserves was deemed necessary in the second quarter. Pentair’s EPS guidance does not reflect any potential impact of this litigation.
A Pentair conference call scheduled for 11:00 a.m. CDT today will be webcast live via http://www.pentair.com. A link to the conference call is posted on the site’s “Financial Information” page and will be archived at the same location.
About Pentair, Inc.
Pentair, Inc. (NYSE: PNR) is a diversified operating company headquartered in Minnesota. Its Water Group is a global leader in providing innovative products and systems used worldwide in the movement, treatment, storage and enjoyment of water. Pentair’s Technical Products Group is a leader in global enclosures and thermal management markets, designing and manufacturing thermal management products and standard, modified, and custom enclosures that house and protect sensitive electronics and electrical components. With 2005 revenues of $2.95 billion, Pentair employs approximately 15,000 people worldwide.
Caution concerning forward-looking statements
Any statements made about the company’s anticipated financial results are forward-looking statements subject to risks and uncertainties such as continued economic growth; the ability to successfully appeal and limit damages payable arising out of the Horizon litigation; foreign currency effects; retail and industrial demand; product introductions; and pricing and other competitive pressures. Forward-looking statements included herein are made as of the date hereof, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results.
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Pentair Contacts: | | |
Rachael Jarosh | | Mark Cain |
Communications | | Investor Relations |
Tel.: (763) 656-5280 | | Tel.: (763) 656-5278 |
E-mail: rachael.jarosh@pentair.com | | E-mail: mark.cain@pentair.com |
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Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
| | | | | | | | | | | | | | | | |
| | Three months ended | | | Six months ended | |
| | July 1 | | | July 2 | | | July 1 | | | July 2 | |
In thousands, except per-share data | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
|
Net sales | | $ | 862,022 | | | $ | 788,523 | | | $ | 1,633,411 | | | $ | 1,498,158 | |
Cost of goods sold | | | 599,333 | | | | 553,290 | | | | 1,148,214 | | | | 1,058,787 | |
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Gross profit | | | 262,689 | | | | 235,233 | | | | 485,197 | | | | 439,371 | |
% of net sales | | | 30.4 | % | | | 29.8 | % | | | 29.7 | % | | | 29.3 | % |
Selling, general and administrative | | | 139,831 | | | | 117,467 | | | | 268,920 | | | | 238,092 | |
% of net sales | | | 16.2 | % | | | 14.9 | % | | | 16.5 | % | | | 15.9 | % |
Research and development | | | 14,883 | | | | 10,532 | | | | 29,746 | | | | 21,959 | |
% of net sales | | | 1.7 | % | | | 1.3 | % | | | 1.8 | % | | | 1.4 | % |
|
Operating income | | | 107,975 | | | | 107,234 | | | | 186,531 | | | | 179,320 | |
% of net sales | | | 12.5 | % | | | 13.6 | % | | | 11.4 | % | | | 12.0 | % |
Gain on sale of investment | | | — | | | | 5,199 | | | | — | | | | 5,199 | |
Net interest expense | | | 12,553 | | | | 11,696 | | | | 25,837 | | | | 22,972 | |
% of net sales | | | 1.4 | % | | | 1.5 | % | | | 1.6 | % | | | 1.5 | % |
|
Income from continuing operations before income taxes | | | 95,422 | | | | 100,737 | | | | 160,694 | | | | 161,547 | |
% of net sales | | | 11.1 | % | | | 12.8 | % | | | 9.8 | % | | | 10.8 | % |
Provision for income taxes | | | 26,789 | | | | 39,358 | | | | 48,990 | | | | 59,987 | |
Effective tax rate | | | 28.1 | % | | | 39.1 | % | | | 30.5 | % | | | 37.1 | % |
|
Income from continuing operations | | | 68,633 | | | | 61,379 | | | | 111,704 | | | | 101,560 | |
Loss on disposal of discontinued operations, net of tax | | | — | | | | — | | | | (1,451 | ) | | | — | |
|
Net income | | $ | 68,633 | | | $ | 61,379 | | | $ | 110,253 | | | $ | 101,560 | |
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Earnings (loss) per common share | | | | | | | | | | | | | | | | |
Basic | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.68 | | | $ | 0.61 | | | $ | 1.11 | | | $ | 1.01 | |
Discontinued operations | | | — | | | | — | | | | (0.01 | ) | | | — | |
|
Basic earnings per common share | | $ | 0.68 | | | $ | 0.61 | | | $ | 1.10 | | | $ | 1.01 | |
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| | | | | | | | | | | | | | | | |
Diluted | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.67 | | | $ | 0.60 | | | $ | 1.09 | | | $ | 0.99 | |
Discontinued operations | | | — | | | | — | | | | (0.01 | ) | | | — | |
|
Diluted earnings per common share | | $ | 0.67 | | | $ | 0.60 | | | $ | 1.08 | | | $ | 0.99 | |
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| | | | | | | | | | | | | | | | |
Weighted average common shares outstanding | | | | | | | | | | | | | | | | |
Basic | | | 100,509 | | | | 100,769 | | | | 100,498 | | | | 100,566 | |
Diluted | | | 102,429 | | | | 102,967 | | | | 102,457 | | | | 102,645 | |
| | | | | | | | | | | | | | | | |
Cash dividends declared per common share | | $ | 0.14 | | | $ | 0.13 | | | $ | 0.28 | | | $ | 0.26 | |
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Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
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| | July 1 | | | December 31 | | | July 2 | |
In thousands | | 2006 | | | 2005 | | | 2005 | |
|
Assets | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 48,331 | | | $ | 48,500 | | | $ | 41,853 | |
Accounts and notes receivable, net | | | 502,982 | | | | 423,847 | | | | 457,878 | |
Inventories | | | 380,219 | | | | 349,312 | | | | 339,460 | |
Deferred tax assets | | | 45,922 | | | | 48,971 | | | | 49,077 | |
Prepaid expenses and other current assets | | | 27,659 | | | | 24,394 | | | | 27,734 | |
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Total current assets | | | 1,005,113 | | | | 895,024 | | | | 916,002 | |
| | | | | | | | | | | | |
Property, plant and equipment, net | | | 312,146 | | | | 311,839 | | | | 324,477 | |
| | | | | | | | | | | | |
Other assets | | | | | | | | | | | | |
Goodwill | | | 1,729,179 | | | | 1,718,207 | | | | 1,614,248 | |
Intangibles, net | | | 263,600 | | | | 266,533 | | | | 254,233 | |
Other | | | 80,167 | | | | 62,152 | | | | 60,538 | |
|
Total other assets | | | 2,072,946 | | | | 2,046,892 | | | | 1,929,019 | |
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Total assets | | $ | 3,390,205 | | | $ | 3,253,755 | | | $ | 3,169,498 | |
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| | | | | | | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | |
Short-term borrowings | | $ | 4,869 | | | $ | — | | | $ | — | |
Current maturities of long-term debt | | | 6,970 | | | | 4,137 | | | | 6,469 | |
Accounts payable | | | 224,237 | | | | 207,320 | | | | 195,702 | |
Employee compensation and benefits | | | 83,071 | | | | 95,552 | | | | 80,584 | |
Accrued product claims and warranties | | | 41,346 | | | | 43,551 | | | | 43,940 | |
Current liabilities of discontinued operations | | | — | | | | 192 | | | | 192 | |
Income taxes | | | 22,533 | | | | 17,518 | | | | 45,123 | |
Accrued rebates and sales incentives | | | 35,723 | | | | 45,374 | | | | 38,177 | |
Other current liabilities | | | 83,937 | | | | 111,026 | | | | 97,367 | |
|
Total current liabilities | | | 502,686 | | | | 524,670 | | | | 507,554 | |
| | | | | | | | | | | | |
Long-term debt | | | 801,898 | | | | 748,477 | | | | 727,631 | |
Pension and other retirement compensation | | | 164,480 | | | | 152,780 | | | | 138,830 | |
Post-retirement medical and other benefits | | | 73,723 | | | | 73,949 | | | | 70,309 | |
Deferred tax liabilities | | | 125,418 | | | | 125,785 | | | | 143,377 | |
Other non-current liabilities | | | 79,838 | | | | 70,455 | | | | 67,576 | |
Non-current liabilities of discontinued operations | | | — | | | | 2,029 | | | | 2,031 | |
|
Total liabilities | | | 1,748,043 | | | | 1,698,145 | | | | 1,657,308 | |
| | | | | | | | | | | | |
Shareholders’ equity | | | 1,642,162 | | | | 1,555,610 | | | | 1,512,190 | |
|
Total liabilities and shareholders’ equity | | $ | 3,390,205 | | | $ | 3,253,755 | | | $ | 3,169,498 | |
|
| | | | | | | | | | | | |
Days sales in accounts receivable (13 month moving average) | | | 54 | | | | 54 | | | | 53 | |
Days inventory on hand (13 month moving average) | | | 71 | | | | 70 | | | | 68 | |
Days in accounts payable (13 month moving average) | | | 56 | | | | 56 | | | | 56 | |
Debt/total capital | | | 33.1 | % | | | 32.6 | % | | | 32.7 | % |
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Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | | | | | | |
| | Six months ended | |
| | July 1 | | | July 2 | |
In thousands | | 2006 | | | 2005 | |
|
Operating activities | | | | | | | | |
Net income | | $ | 110,253 | | | $ | 101,560 | |
Adjustments to reconcile net income to net cash used for operating activities | | | | | | | | |
Loss on disposal of discontinued operations | | | 1,451 | | | | — | |
Depreciation | | | 30,386 | | | | 28,962 | |
Amortization | | | 9,476 | | | | 8,074 | |
Deferred income taxes | | | 181 | | | | 2,572 | |
Stock compensation | | | 12,484 | | | | 13,306 | |
Excess tax benefits from stock-based compensation | | | (2,605 | ) | | | (7,809 | ) |
Gain on sale of investment | | | — | | | | (5,199 | ) |
Changes in assets and liabilities, net of effects of business acquisitions and dispositions | | | | | | | | |
Accounts and notes receivable | | | (74,193 | ) | | | (72,729 | ) |
Inventories | | | (28,032 | ) | | | (22,340 | ) |
Prepaid expenses and other current assets | | | (2,809 | ) | | | (4,036 | ) |
Accounts payable | | | 12,382 | | | | 4,590 | |
Employee compensation and benefits | | | (16,832 | ) | | | (29,912 | ) |
Accrued product claims and warranties | | | (1,793 | ) | | | 1,228 | |
Income taxes | | | 6,443 | | | | 18,285 | |
Other current liabilities | | | (19,933 | ) | | | 787 | |
Pension and post-retirement benefits | | | 8,722 | | | | 7,370 | |
Other assets and liabilities | | | 1,565 | | | | (5,144 | ) |
|
Net cash provided by continuing operations | | | 47,146 | | | | 39,565 | |
Net cash provided by (used for) operating activities of discontinued operations | | | 48 | | | | (630 | ) |
|
Net cash provided by operating activities | | | 47,194 | | | | 38,935 | |
Investing activities | | | | | | | | |
Capital expenditures | | | (20,217 | ) | | | (39,077 | ) |
Proceeds from sale of property and equipment | | | 221 | | | | 11,553 | |
Acquisitions, net of cash acquired | | | (19,694 | ) | | | (10,513 | ) |
Divestitures | | | (24,007 | ) | | | (190 | ) |
Other | | | (4,273 | ) | | | 23,596 | |
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Net cash used for investing activities | | | (67,970 | ) | | | (14,631 | ) |
Financing activities | | | | | | | | |
Net short-term borrowings | | | 4,763 | | | | — | |
Proceeds from long-term debt | | | 414,233 | | | | 186,610 | |
Repayment of long-term debt | | | (358,141 | ) | | | (186,993 | ) |
Proceeds from exercise of stock options | | | 2,939 | | | | 6,355 | |
Repurchases of common stock | | | (18,330 | ) | | | — | |
Excess tax benefits from stock-based compensation | | | 2,605 | | | | 7,809 | |
Dividends paid | | | (28,458 | ) | | | (26,648 | ) |
|
Net cash provided by (used for) financing activities | | | 19,611 | | | | (12,867 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | 996 | | | | (1,079 | ) |
|
Change in cash and cash equivalents | | | (169 | ) | | | 10,358 | |
Cash and cash equivalents, beginning of period | | | 48,500 | | | | 31,495 | |
|
Cash and cash equivalents, end of period | | $ | 48,331 | | | $ | 41,853 | |
|
| | | | | | | | |
Free cash flow | | | | | | | | |
Net cash provided by operating activities | | $ | 47,194 | | | $ | 38,935 | |
Less capital expenditures | | | (20,217 | ) | | | (39,077 | ) |
Proceeds from sale of property and equipment | | | 221 | | | | 11,553 | |
|
Free cash flow | | $ | 27,198 | | | $ | 11,411 | |
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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 | | 2006 | | | 2006 | | | 2006 | | | 2005 | | | 2005 | | | 2005 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Net sales to external customers | | | | | | | | | | | | | | | | | | | | | | | | |
Water | | $ | 517,169 | | | $ | 605,516 | | | $ | 1,122,685 | | | $ | 512,088 | | | $ | 585,657 | | | $ | 1,097,745 | |
Technical Products | | | 254,220 | | | | 256,506 | | | | 510,726 | | | | 197,547 | | | | 202,866 | | | | 400,413 | |
|
Consolidated | | $ | 771,389 | | | $ | 862,022 | | | $ | 1,633,411 | | | $ | 709,635 | | | $ | 788,523 | | | $ | 1,498,158 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
Intersegment sales | | | | | | | | | | | | | | | | | | | | | | | | |
Water | | $ | 50 | | | $ | 55 | | | $ | 105 | | | $ | 22 | | | $ | 187 | | | | 209 | |
Technical Products | | | 889 | | | | 1,312 | | | | 2,201 | | | | 402 | | | | 630 | | | | 1,032 | |
Other | | | (939 | ) | | | (1,367 | ) | | | (2,306 | ) | | | (424 | ) | | | (817 | ) | | | (1,241 | ) |
|
Consolidated | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
| | | | | | | | | | �� | | | | | | | | | | | | | | |
Operating income (loss) | | | | | | | | | | | | | | | | | | | | | | | | |
Water | | $ | 55,587 | | | $ | 84,191 | | | $ | 139,778 | | | $ | 60,489 | | | $ | 92,167 | | | $ | 152,656 | |
Technical Products | | | 37,704 | | | | 39,678 | | | | 77,382 | | | | 25,172 | | | | 26,325 | | | | 51,497 | |
Other | | | (14,735 | ) | | | (15,894 | ) | | | (30,629 | ) | | | (13,575 | ) | | | (11,258 | ) | | | (24,833 | ) |
|
Consolidated | | $ | 78,556 | | | $ | 107,975 | | | $ | 186,531 | | | $ | 72,086 | | | $ | 107,234 | | | $ | 179,320 | |
|
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Operating income as a percent of net sales | | | | | | | | | | | | | | | | | | | | | | |
Water | | | 10.8 | % | | | 13.9 | % | | | 12.5 | % | | | 11.8 | % | | | 15.7 | % | | | 13.9 | % |
Technical Products | | | 14.8 | % | | | 15.5 | % | | | 15.2 | % | | | 12.7 | % | | | 13.0 | % | | | 12.9 | % |
Consolidated | | | 10.2 | % | | | 12.5 | % | | | 11.4 | % | | | 10.2 | % | | | 13.6 | % | | | 12.0 | % |