Attached files
file | filename |
---|---|
EX-15 - EX-15 - PENTAIR plc | c54142exv15.htm |
EX-10.2 - EX-10.1 - PENTAIR plc | c54142exv10w2.htm |
EX-32.2 - EX-32.2 - PENTAIR plc | c54142exv32w2.htm |
EX-10.1 - EX-10.1 - PENTAIR plc | c54142exv10w1.htm |
EX-32.1 - EX-32.1 - PENTAIR plc | c54142exv32w1.htm |
EX-31.2 - EX-31.2 - PENTAIR plc | c54142exv31w2.htm |
EX-31.1 - EX-31.1 - PENTAIR plc | c54142exv31w1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 26, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 000-04689
Pentair, Inc.
(Exact name of Registrant as specified in its charter)
Minnesota | 41-0907434 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification number) | |
5500 Wayzata Blvd, Suite 800, Golden Valley, Minnesota | 55416 | |
(Address of principal executive offices) | (Zip code) |
Registrants telephone number, including area code: (763) 545-1730
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§223.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
On September 26, 2009, 98,340,837 shares of Registrants common stock were outstanding.
Pentair, Inc. and Subsidiaries
Page(s) | ||||||||
PART I FINANCIAL INFORMATION | ||||||||
ITEM 1. | Financial Statements (unaudited) |
|||||||
Condensed Consolidated Statements of Income for the three and nine months ended September 26, 2009 and
September 27, 2008 |
3 | |||||||
Condensed Consolidated Balance Sheets as of September 26, 2009, December 31, 2008 and September 27, 2008 |
4 | |||||||
Condensed Consolidated Statements of Cash Flows for the nine months ended September 26, 2009 and
September 27, 2008 |
5 | |||||||
Condensed Consolidated Statements of Changes in Shareholders Equity for the nine months ended
September 26, 2009 and September 27, 2008 |
6 | |||||||
Notes to Condensed Consolidated Financial Statements |
7 - 14 | |||||||
ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
15 - 25 | ||||||
ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk |
25 | ||||||
ITEM 4. | Controls and Procedures |
25 | ||||||
Report of Independent Registered Public Accounting Firm |
26 | |||||||
PART II OTHER INFORMATION | ||||||||
ITEM 1. | Legal Proceedings |
27 | ||||||
ITEM 1A. | Risk Factors |
27 | ||||||
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
28 | ||||||
ITEM 6. | Exhibits |
29 | ||||||
Signature |
30 |
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
Condensed Consolidated Statements of Income (Unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||
In thousands, except per-share data | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Net sales |
$ | 662,665 | $ | 855,815 | $ | 1,990,217 | $ | 2,584,339 | ||||||||
Cost of goods sold |
455,698 | 599,862 | 1,417,539 | 1,799,282 | ||||||||||||
Gross profit |
206,967 | 255,953 | 572,678 | 785,057 | ||||||||||||
Selling, general and administrative |
125,578 | 154,118 | 361,957 | 437,831 | ||||||||||||
Research and development |
14,707 | 16,221 | 43,265 | 47,303 | ||||||||||||
Legal settlement |
| | | 20,435 | ||||||||||||
Operating income |
66,682 | 85,614 | 167,456 | 279,488 | ||||||||||||
Other (income) expense: |
||||||||||||||||
Gain on sale of interest in subsidiaries |
| | | (109,648 | ) | |||||||||||
Equity losses of unconsolidated subsidiary |
135 | 669 | 691 | 2,433 | ||||||||||||
Loss on early extinguishment of debt |
| 4,611 | 4,804 | 4,611 | ||||||||||||
Net interest expense |
9,711 | 13,740 | 31,328 | 45,691 | ||||||||||||
Income from continuing operations before income taxes and noncontrolling interest |
56,836 | 66,594 | 130,633 | 336,401 | ||||||||||||
Provision for income taxes |
18,159 | 21,592 | 41,808 | 99,099 | ||||||||||||
Income from continuing operations |
38,677 | 45,002 | 88,825 | 237,302 | ||||||||||||
Loss from discontinued operations, net of tax |
| (1,514 | ) | | (3,652 | ) | ||||||||||
Loss on disposal of discontinued operations, net of tax |
(85 | ) | (268 | ) | (153 | ) | (7,405 | ) | ||||||||
Net income before noncontrolling interest |
38,592 | 43,220 | 88,672 | 226,245 | ||||||||||||
Noncontrolling interest |
1,644 | 2,100 | 2,531 | 2,100 | ||||||||||||
Net income attributable to Pentair, Inc. |
$ | 36,948 | $ | 41,120 | $ | 86,141 | $ | 224,145 | ||||||||
Net income from continuing operations attributable to Pentair, Inc. |
$ | 37,033 | $ | 42,902 | $ | 86,294 | $ | 235,202 | ||||||||
Earnings (loss) per common share attributable to Pentair, Inc. |
||||||||||||||||
Basic |
||||||||||||||||
Continuing operations |
$ | 0.38 | $ | 0.44 | $ | 0.89 | $ | 2.40 | ||||||||
Discontinued operations |
| (0.02 | ) | | (0.11 | ) | ||||||||||
Basic earnings per common share |
$ | 0.38 | $ | 0.42 | $ | 0.89 | $ | 2.29 | ||||||||
Diluted |
||||||||||||||||
Continuing operations |
$ | 0.38 | $ | 0.43 | $ | 0.88 | $ | 2.37 | ||||||||
Discontinued operations |
| (0.02 | ) | | (0.11 | ) | ||||||||||
Diluted earnings per common share |
$ | 0.38 | $ | 0.41 | $ | 0.88 | $ | 2.26 | ||||||||
Weighted average common shares outstanding |
||||||||||||||||
Basic |
97,496 | 97,827 | 97,495 | 98,049 | ||||||||||||
Diluted |
98,641 | 99,319 | 98,329 | 99,372 | ||||||||||||
Cash dividends declared per common share |
$ | 0.18 | $ | 0.17 | $ | 0.54 | $ | 0.51 |
See accompanying notes to condensed consolidated financial statements.
3
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
Condensed Consolidated Balance Sheets (Unaudited)
September 26 | December 31 | September 27 | ||||||||||
In thousands, except share and per-share data | 2009 | 2008 | 2008 | |||||||||
Assets |
||||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
$ | 50,214 | $ | 39,344 | $ | 93,544 | ||||||
Accounts and notes receivable, net |
423,125 | 461,081 | 511,779 | |||||||||
Inventories |
366,416 | 417,287 | 417,525 | |||||||||
Deferred tax assets |
52,997 | 51,354 | 50,061 | |||||||||
Prepaid expenses and other current assets |
48,446 | 63,113 | 53,383 | |||||||||
Current assets of discontinued operations |
| | 18,443 | |||||||||
Total current assets |
941,198 | 1,032,179 | 1,144,735 | |||||||||
Property, plant and equipment, net |
339,412 | 343,881 | 359,543 | |||||||||
Other assets |
||||||||||||
Goodwill |
2,127,082 | 2,101,851 | 2,128,430 | |||||||||
Intangibles, net |
506,837 | 515,508 | 534,898 | |||||||||
Other |
67,723 | 59,794 | 69,873 | |||||||||
Non-current assets of discontinued
operations |
| | 13,646 | |||||||||
Total other assets |
2,701,642 | 2,677,153 | 2,746,847 | |||||||||
Total assets |
$ | 3,982,252 | $ | 4,053,213 | $ | 4,251,125 | ||||||
Liabilities and Shareholders Equity |
||||||||||||
Current liabilities |
||||||||||||
Short-term borrowings |
$ | 16 | $ | | $ | | ||||||
Current maturities of long-term debt |
98 | 624 | 3,913 | |||||||||
Accounts payable |
199,002 | 217,898 | 224,646 | |||||||||
Employee compensation and benefits |
78,225 | 90,210 | 106,939 | |||||||||
Current pension and post-retirement benefits |
8,890 | 8,890 | 8,557 | |||||||||
Accrued product claims and warranties |
33,179 | 41,559 | 42,618 | |||||||||
Income taxes |
24,302 | 5,451 | 9,454 | |||||||||
Accrued rebates and sales incentives |
27,989 | 28,897 | 35,748 | |||||||||
Other current liabilities |
95,367 | 104,975 | 100,890 | |||||||||
Current liabilities of discontinued operations |
| | 252 | |||||||||
Total current liabilities |
467,068 | 498,504 | 533,017 | |||||||||
Other liabilities |
||||||||||||
Long-term debt |
814,857 | 953,468 | 1,035,150 | |||||||||
Pension and other retirement compensation |
264,472 | 270,139 | 164,776 | |||||||||
Post-retirement medical and other benefits |
32,019 | 34,723 | 34,218 | |||||||||
Long-term income taxes payable |
27,792 | 28,139 | 25,356 | |||||||||
Deferred tax liabilities |
153,984 | 146,559 | 183,780 | |||||||||
Other non-current liabilities |
102,924 | 101,612 | 96,941 | |||||||||
Non-current liabilities of discontinued operations |
| | 1,665 | |||||||||
Total liabilities |
1,863,116 | 2,033,144 | 2,074,903 | |||||||||
Commitments and contingencies |
||||||||||||
Shareholders equity |
||||||||||||
Common shares par value $0.16 2/3;
98,340,837, 98,276,919
and 98,626,687 shares issued and outstanding,
respectively |
16,389 | 16,379 | 16,438 | |||||||||
Additional paid-in capital |
462,069 | 451,241 | 456,144 | |||||||||
Retained earnings |
1,490,655 | 1,457,676 | 1,469,830 | |||||||||
Accumulated other comprehensive income (loss) |
31,700 | (26,615 | ) | 113,581 | ||||||||
Noncontrolling interest |
118,323 | 121,388 | 120,229 | |||||||||
Total shareholders equity |
2,119,136 | 2,020,069 | 2,176,222 | |||||||||
Total liabilities and shareholders equity |
$ | 3,982,252 | $ | 4,053,213 | $ | 4,251,125 | ||||||
See accompanying notes to condensed consolidated financial statements.
4
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended | ||||||||
September 26 | September 27 | |||||||
In thousands | 2009 | 2008 | ||||||
Operating activities |
||||||||
Net income before noncontrolling interest |
$ | 88,672 | $ | 226,245 | ||||
Adjustments to reconcile net income to net cash provided by (used for) operating activities |
||||||||
Loss from discontinued operations |
| 3,652 | ||||||
Loss on disposal of discontinued operations |
153 | 7,405 | ||||||
Equity losses of unconsolidated subsidiary |
691 | 2,433 | ||||||
Depreciation |
44,186 | 44,929 | ||||||
Amortization |
22,054 | 20,220 | ||||||
Deferred income taxes |
170 | 25,905 | ||||||
Stock compensation |
13,092 | 15,948 | ||||||
Excess tax benefits from stock-based compensation |
(754 | ) | (1,617 | ) | ||||
(Gain) loss on sale of assets |
(177 | ) | 87 | |||||
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 |
46,718 | (55,449 | ) | |||||
Inventories |
56,459 | (27,109 | ) | |||||
Prepaid expenses and other current assets |
16,061 | (15,785 | ) | |||||
Accounts payable |
(18,659 | ) | 2,230 | |||||
Employee compensation and benefits |
(17,883 | ) | (7,303 | ) | ||||
Accrued product claims and warranties |
(8,565 | ) | (6,572 | ) | ||||
Income taxes |
19,166 | (6,224 | ) | |||||
Other current liabilities |
(9,699 | ) | 9,040 | |||||
Pension and post-retirement benefits |
(12,251 | ) | 592 | |||||
Other assets and liabilities |
747 | 13,143 | ||||||
Net cash
provided by (used for) continuing operations |
240,181 | 142,122 | ||||||
Net cash
provided by (used for) operating activities of discontinued operations |
(1,531 | ) | (5,243 | ) | ||||
Net cash
provided by (used for) operating activities |
238,650 | 136,879 | ||||||
Investing activities |
||||||||
Capital expenditures |
(39,306 | ) | (39,769 | ) | ||||
Proceeds from sale of property and equipment |
817 | 4,304 | ||||||
Acquisitions, net of cash acquired |
| (1,609 | ) | |||||
Divestitures |
1,506 | 29,526 | ||||||
Other |
(3,272 | ) | (7 | ) | ||||
Net cash
provided by (used for) investing activities |
(40,255 | ) | (7,555 | ) | ||||
Financing activities |
||||||||
Net short-term borrowings (repayments) |
(16 | ) | (14,180 | ) | ||||
Proceeds from long-term debt |
490,000 | 479,405 | ||||||
Repayment of long-term debt |
(628,776 | ) | (486,492 | ) | ||||
Debt issuance costs |
(50 | ) | (114 | ) | ||||
Excess tax benefits from stock-based compensation |
754 | 1,617 | ||||||
Proceeds from exercise of stock options |
1,729 | 5,140 | ||||||
Repurchases of common stock |
| (37,342 | ) | |||||
Dividends paid |
(53,162 | ) | (50,541 | ) | ||||
Net cash provided by (used for) financing activities |
(189,521 | ) | (102,507 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
1,996 | (4,068 | ) | |||||
Change in cash and cash equivalents |
10,870 | 22,749 | ||||||
Cash and cash equivalents, beginning of period |
39,344 | 70,795 | ||||||
Cash and cash equivalents, end of period |
$ | 50,214 | $ | 93,544 | ||||
See accompanying notes to condensed consolidated financial statements.
5
Pentair Inc.
Condensed Consolidated Statements of Changes in Shareholders Equity
Condensed Consolidated Statements of Changes in Shareholders Equity
Accumulated | ||||||||||||||||||||||||||||||||||||
Additional | other | Comprehensive | ||||||||||||||||||||||||||||||||||
In thousands, except share | Common shares | paid-in | Retained | comprehensive | Total | Noncontrolling | income attributable | |||||||||||||||||||||||||||||
and per-share data | Number | Amount | capital | earnings | income (loss) | Pentair, Inc. | interest | Total | to Pentair, Inc. | |||||||||||||||||||||||||||
Balance December 31, 2008 |
98,276,919 | $ | 16,379 | $ | 451,241 | $ | 1,457,676 | $ | (26,615 | ) | $ | 1,898,681 | $ | 121,388 | $ | 2,020,069 | ||||||||||||||||||||
Net income |
86,141 | 86,141 | 2,531 | 88,672 | $ | 86,141 | ||||||||||||||||||||||||||||||
Change in cumulative translation
adjustment |
55,883 | 55,883 | (5,596 | ) | 50,287 | 55,883 | ||||||||||||||||||||||||||||||
Changes in market value of
derivative financial instruments |
2,432 | 2,432 | 2,432 | 2,432 | ||||||||||||||||||||||||||||||||
Comprehensive income |
$ | 144,456 | ||||||||||||||||||||||||||||||||||
Cash dividends $0.54 per
common share |
(53,162 | ) | (53,162 | ) | (53,162 | ) | ||||||||||||||||||||||||||||||
Exercise of stock options, net of
104,554 shares tendered for payment |
110,612 | 18 | 1,295 | 1,313 | 1,313 | |||||||||||||||||||||||||||||||
Issuance of restricted shares, net
of cancellations |
28,987 | 4 | 509 | 513 | 513 | |||||||||||||||||||||||||||||||
Amortization of restricted shares |
5,385 | 5,385 | 5,385 | |||||||||||||||||||||||||||||||||
Shares surrendered by employees
to pay taxes |
(75,681 | ) | (12 | ) | (1,751 | ) | (1,763 | ) | (1,763 | ) | ||||||||||||||||||||||||||
Stock compensation |
5,390 | 5,390 | 5,390 | |||||||||||||||||||||||||||||||||
Balance September 26, 2009 |
98,340,837 | $ | 16,389 | $ | 462,069 | $ | 1,490,655 | $ | 31,700 | $ | 2,000,813 | $ | 118,323 | $ | 2,119,136 | |||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||||||
Additional | other | Comprehensive | ||||||||||||||||||||||||||||||||||
In thousands, except share | Common shares | paid-in | Retained | comprehensive | Total | Noncontrolling | income attributable | |||||||||||||||||||||||||||||
and per-share data | Number | Amount | capital | earnings | income (loss) | Pentair, Inc. | interest | Total | to Pentair, Inc. | |||||||||||||||||||||||||||
Balance December 31, 2007 |
99,221,831 | $ | 16,537 | $ | 476,242 | $ | 1,296,226 | $ | 121,866 | $ | 1,910,871 | $ | | $ | 1,910,871 | |||||||||||||||||||||
Net income |
224,145 | 224,145 | 2,100 | 226,245 | $ | 224,145 | ||||||||||||||||||||||||||||||
Change in cumulative translation
adjustment |
(8,708 | ) | (8,708 | ) | (4,831 | ) | (13,539 | ) | (8,708 | ) | ||||||||||||||||||||||||||
Changes in market value of
derivative financial instruments |
423 | 423 | 423 | 423 | ||||||||||||||||||||||||||||||||
Comprehensive income |
$ | 215,860 | ||||||||||||||||||||||||||||||||||
Cash dividends $0.51 per
common share |
(50,541 | ) | (50,541 | ) | (50,541 | ) | ||||||||||||||||||||||||||||||
Share repurchases |
(1,094,059 | ) | (182 | ) | (37,910 | ) | (38,092 | ) | (38,092 | ) | ||||||||||||||||||||||||||
Exercise of stock options, net of
109,451 shares tendered for payment |
298,375 | 50 | 4,502 | 4,552 | 4,552 | |||||||||||||||||||||||||||||||
Issuance of restricted shares, net
of cancellations |
276,661 | 46 | 391 | 437 | 437 | |||||||||||||||||||||||||||||||
Amortization of restricted shares |
6,892 | 6,892 | 6,892 | |||||||||||||||||||||||||||||||||
Shares surrendered by employees
to pay taxes |
(76,121 | ) | (13 | ) | (2,553 | ) | (2,566 | ) | (2,566 | ) | ||||||||||||||||||||||||||
Stock compensation |
8,580 | 8,580 | 8,580 | |||||||||||||||||||||||||||||||||
PRF acquisition |
122,960 | 122,960 | ||||||||||||||||||||||||||||||||||
Balance September 27, 2008 |
98,626,687 | $ | 16,438 | $ | 456,144 | $ | 1,469,830 | $ | 113,581 | $ | 2,055,993 | $ | 120,229 | $ | 2,176,222 | |||||||||||||||||||||
6
Pentair, Inc. and Subsidiaries
Notes to consolidated financial statements (unaudited)
Notes to consolidated financial statements (unaudited)
1. Basis of Presentation and Responsibility for Interim Financial Statements
We prepared the unaudited condensed consolidated financial statements following the requirements of
the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those
rules, certain footnotes or other financial information that are normally required by accounting
principles generally accepted in the United States can be condensed or omitted.
We are responsible for the unaudited financial statements included in this document. The financial
statements include all normal recurring adjustments that are considered necessary for the fair
presentation of our financial position and operating results. As these are condensed financial
statements, one should also read our consolidated financial statements and notes thereto, which are
included in our 2008 Annual Report on Form 10-K for the year ended December 31, 2008.
Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the
year. Therefore, the results and trends in these interim financial statements may not be
indicative of those for a full year.
Our fiscal year ends on December 31. We report our interim quarterly periods on a 13-week basis
ending on a Saturday.
In connection with preparing the unaudited condensed consolidated financial statements for the nine
months ended September 26, 2009, we have evaluated subsequent events for potential recognition and
disclosure through October 20, 2009.
2. New Accounting Standards
On January 1, 2009 we adopted new accounting guidance that changes the accounting and reporting for
minority interests. Minority interests have been recharacterized as noncontrolling interests and
are reported as a component of equity separate from the parents equity. Purchases or sales of
equity interests that do not result in a change in control will be accounted for as equity
transactions. In addition, net income attributable to the noncontrolling interest will be included
in consolidated net income on the face of the income statement and upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value with any gain or
loss recognized in earnings. We have classified noncontrolling interest (previously minority
interest) as a component of equity for all periods presented.
No other new accounting pronouncements issued or effective during the first nine months of 2009 has
had or is expected to have a material impact on the Consolidated Financial Statements.
3. Stock-based Compensation
Total stock-based compensation expense was $4.0 million and $4.1 million for the three months ended
September 26, 2009 and September 27, 2008, respectively, and was $13.1 million and $16.0 million
for the nine months ended September 26, 2009 and September 27, 2008, respectively.
During the first nine months of 2009, restricted shares and restricted stock units of our common
stock were granted under the 2008 Omnibus Stock Incentive Plan to eligible employees with a vesting
period of two to five years after issuance. Restricted share awards and restricted stock units are
valued at market value on the date of grant and are typically expensed over the vesting period.
Total compensation expense for restricted share awards was $2.4 million and $2.0 million for the
three months ended September 26, 2009 and September 27, 2008, respectively, and was $7.7 million
and $7.5 million for the nine months ended September 26, 2009 and September 27, 2008, respectively.
During the first nine months of 2009, option awards were granted under the 2008 Omnibus Stock
Incentive Plan with an exercise price equal to the market price of our common stock on the
effective date of grant and are typically expensed over the vesting period. Total compensation
expense for stock option awards was $1.6 million and $2.1 million for the three months ended
September 26, 2009 and September 27, 2008, respectively, and was $5.4 million and $8.5 million for
the nine months ended September 26, 2009 and September 27, 2008, respectively.
We estimated the fair value of each stock option award on the date of grant using a Black-Scholes
option pricing model, modified for dividends and using the following assumptions:
September 26 | September 27 | |||||||
2009 | 2008 | |||||||
Expected stock price volatility |
32.5 | % | 27.0 | % | ||||
Expected life |
5.2 yrs | 4.8 yrs | ||||||
Risk-free interest rate |
2.47 | % | 3.11 | % | ||||
Dividend yield |
2.60 | % | 1.90 | % |
7
Pentair, Inc. and Subsidiaries
Notes to consolidated financial statements (unaudited)
Notes to consolidated financial statements (unaudited)
There were no options granted during the third quarter of 2009. The weighted-average fair value of
options granted during the third quarter of 2008 was $8.35 per share.
These estimates require us to make assumptions based on historical results, observance of trends in
our stock price, changes in option exercise behavior, future expectations and other relevant
factors. If other assumptions had been used, stock-based compensation expense, as calculated and
recorded under the accounting guidance could have been affected.
We based the expected life assumption on historical experience as well as the terms and vesting
periods of the options granted. For purposes of determining expected volatility, we considered a
rolling average of historical volatility measured over a period approximately equal to the expected
option term. The risk-free rate for periods that coincide with the expected life of the options is
based on the U.S. Treasury Department yield curve in effect at the time of grant.
4. Earnings Per Common Share
Basic and diluted earnings per share were calculated using the following:
Three months ended | Nine months ended | |||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||
In thousands | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Weighted average common shares outstanding basic |
97,496 | 97,827 | 97,495 | 98,049 | ||||||||||||
Dilutive impact of stock options and restricted stock |
1,145 | 1,492 | 834 | 1,323 | ||||||||||||
Weighted average common shares outstanding diluted |
98,641 | 99,319 | 98,329 | 99,372 | ||||||||||||
Stock options excluded from the calculation of
diluted earnings
per share because the exercise price was greater
than the average
market price of the common shares |
6,424 | 3,503 | 6,188 | 4,594 |
5. Restructuring
During 2008 and the first nine months of 2009, we announced and initiated certain business
restructuring initiatives aimed at reducing our fixed cost structure and rationalizing our
manufacturing footprint. These initiatives included the reduction in hourly and salaried headcount
of approximately 2,400 employees, of which 1,700 were in the Water Group and 700 were in the
Technical Products Group. We expect these restructuring actions to generally be completed by the
end of 2009.
Restructuring related costs included in Selling, general and administrative expenses on the
Condensed Consolidated Statements of Income include costs for severance and related benefits, asset
impairment charges, and other restructuring costs as follows:
Three months ended | Nine months ended | |||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||
In thousands | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Severance and related benefits |
$ | 4,595 | $ | 10,607 | $ | 10,363 | $ | 13,193 | ||||||||
Asset impairment |
2,700 | 4,600 | 2,700 | 4,600 | ||||||||||||
Total restructuring costs |
$ | 7,295 | $ | 15,207 | $ | 13,063 | $ | 17,793 | ||||||||
Restructuring accrual activity recorded on the Condensed Consolidated Balance Sheets is summarized
as follows for the nine months ended September 26, 2009 and September 27, 2008:
September 26 | September 27 | |||||||
In thousands | 2009 | 2008 | ||||||
Beginning balance |
$ | 34,174 | $ | | ||||
Costs incurred |
10,363 | 13,193 | ||||||
Cash payments and other |
(27,808 | ) | (4,061 | ) | ||||
Ending balance |
$ | 16,729 | $ | 9,132 | ||||
8
Pentair, Inc. and Subsidiaries
Notes to consolidated financial statements (unaudited)
Notes to consolidated financial statements (unaudited)
6. Acquisitions
On June 28, 2008, we entered into a transaction with GE Water & Process Technologies (a unit of
General Electric Company) (GE) that was accounted for as an acquisition of an 80.1 percent
ownership interest in GEs global water softener and residential water filtration business in
exchange for a 19.9 percent interest in our global water softener and residential water filtration
business. The acquisition was effected through the formation of two new entities (collectively,
Pentair Residential Filtration or PRF), a U.S. entity and an international entity, into which
we and GE contributed certain assets, properties, liabilities and operations representing our
respective global water softener and residential water filtration businesses. We are an 80.1
percent owner of PRF and GE is a 19.9 percent owner.
The following pro forma condensed financial results of operations are presented as if the
acquisitions described above had been completed at the beginning of the first quarter of 2008.
Nine months ended | ||||
September 27 | ||||
In thousands, except share and per-share data | 2008 | |||
Pro forma net sales from continuing operations |
$ | 2,638,812 | ||
Pro forma net income from continuing operations |
235,202 | |||
Income (loss) from discontinued operations, net of tax |
(11,057 | ) | ||
Pro forma net income |
224,145 | |||
Pro forma earnings per common share continuing operations |
||||
Basic |
$ | 2.40 | ||
Diluted |
$ | 2.37 | ||
Weighted average common shares outstanding |
||||
Basic |
98,049 | |||
Diluted |
99,372 |
These pro forma condensed consolidated financial results have been prepared for comparative
purposes only and include certain adjustments, such as increased interest expense on acquisition
debt. They do not reflect the effect of costs or synergies that would have been expected to result
from the integration of these acquisitions. The pro forma information does not purport to be
indicative of the results of operations that actually would have resulted had the combination
occurred at the beginning of each period presented, or of future results of the consolidated
entities.
7. Discontinued Operations
On December 15, 2008, we sold our Spa and Bath (Spa/Bath) business to Balboa Water Group in a
cash transaction for $8.3 million including certain price adjustments based on working capital at
closing. In the second and third quarters of 2009 we reported purchase price and tax adjustments
relating to the disposal of Spa/Bath. The results of Spa/Bath have been reported as discontinued
operations for all periods presented. The assets and liabilities of Spa/Bath have been
reclassified as discontinued operations for all periods presented. Goodwill of $5.6 million was
included in the assets of Spa/Bath.
On February 28, 2008, we sold our National Pool Tile (NPT) business to Pool Corporation in a cash
transaction for approximately $30.0 million subject to certain price adjustments. The results of
NPT have been reported as discontinued operations for all periods presented.
The assets and liabilities of NPT have been reclassified as discontinued operations for all periods
presented. Goodwill of $16.8 million was included in the assets of NPT.
In 2004, we completed the sale of our former Tools Group to The Black & Decker Corporation. In the
second quarter of 2009, we reported an additional loss from discontinued operations of $0.6 million
related to a prior year tax item for the Tools Group.
Operating results of the discontinued operations for the three and nine months ended September 26,
2009 and September 27, 2008, respectively, are summarized below:
Three months ended | Nine months ended | |||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||
In thousands | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Net sales |
$ | | $ | 8,352 | $ | | $ | 37,075 | ||||||||
Loss from discontinued operations before income taxes |
| (1,960 | ) | | (5,977 | ) | ||||||||||
Income tax benefit on operations |
| 446 | | 2,325 | ||||||||||||
Loss from discontinued operations, net of income taxes |
| (1,514 | ) | | (3,652 | ) | ||||||||||
Gain (loss) on disposal of discontinued operations, before taxes |
(894 | ) | (433 | ) | 35 | (7,021 | ) | |||||||||
Income tax (expense) benefit on gain |
809 | 165 | (188 | ) | (384 | ) | ||||||||||
Loss on disposal of discontinued operations, net of tax |
$ | (85 | ) | $ | (268 | ) | $ | (153 | ) | $ | (7,405 | ) | ||||
9
Pentair, Inc. and Subsidiaries
Notes to consolidated financial statements (unaudited)
Notes to consolidated financial statements (unaudited)
Net assets and liabilities of discontinued operations consist of the following:
September 27 | ||||
In thousands | 2008 | |||
Accounts and notes receivable, net |
$ | 5,461 | ||
Inventories |
12,861 | |||
Other current assets |
121 | |||
Current assets of discontinued operations |
18,443 | |||
Property, plant and equipment, net |
3,810 | |||
Goodwill |
5,601 | |||
Other non-current assets |
4,235 | |||
Non-current assets of discontinued operations |
13,646 | |||
Total assets |
$ | 32,089 | ||
Accounts payable |
$ | 1,282 | ||
Other current liabilities |
(1,030 | ) | ||
Current liabilities of discontinued operations |
252 | |||
Deferred income tax |
735 | |||
Other non-current liabilities |
930 | |||
Non-current liabilities of discontinued operations |
1,665 | |||
Total liabilities |
1,917 | |||
Net assets of discontinued operations |
$ | 30,172 | ||
8. Inventories
Inventories were comprised of:
September 26 | December 31 | September 27 | ||||||||||
In thousands | 2009 | 2008 | 2008 | |||||||||
Raw materials and supplies |
$ | 188,741 | $ | 212,792 | $ | 212,508 | ||||||
Work-in-process |
42,380 | 53,241 | 50,434 | |||||||||
Finished goods |
135,295 | 151,254 | 154,583 | |||||||||
Total inventories |
$ | 366,416 | $ | 417,287 | $ | 417,525 | ||||||
9. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended September 26, 2009 and
September 27, 2008 by segment were as follows:
Foreign Currency | ||||||||||||||||
In thousands | December 31, 2008 | Acquisitions/Other | Translation | September 26, 2009 | ||||||||||||
Water Group |
$ | 1,818,470 | $890 | $ | 19,437 | $ | 1,838,797 | |||||||||
Technical Products Group |
283,381 | | 4,904 | 288,285 | ||||||||||||
Consolidated Total |
$ | 2,101,851 | $890 | $ | 24,341 | $ | 2,127,082 | |||||||||
Foreign Currency | ||||||||||||||||
In thousands | December 31, 2007 | Acquisitions/Other | Translation | September 27, 2008 | ||||||||||||
Water Group |
$ | 1,706,626 | $ | 132,485 | $ | 1,270 | $ | 1,840,381 | ||||||||
Technical Products Group |
292,493 | (46 | ) | (4,398 | ) | 288,049 | ||||||||||
Consolidated Total |
$ | 1,999,119 | $ | 132,439 | $ | (3,128 | ) | $ | 2,128,430 | |||||||
In 2008, goodwill allocated to divested businesses was $22.4 million.
10
Pentair, Inc. and Subsidiaries
Notes to consolidated financial statements (unaudited)
Notes to consolidated financial statements (unaudited)
Intangible assets, other than goodwill, were comprised of:
September 26, 2009 | December 31, 2008 | September 27, 2008 | ||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||||||||||||||
carrying | Accumulated | carrying | Accumulated | carrying | Accumulated | |||||||||||||||||||||||||||||||
In thousands | amount | amortization | Net | amount | amortization | Net | amount | amortization | Net | |||||||||||||||||||||||||||
Finite-life intangibles |
||||||||||||||||||||||||||||||||||||
Patents |
$ | 15,457 | $ | (11,205 | ) | $ | 4,252 | $ | 15,427 | $ | (9,774 | ) | $ | 5,653 | $ | 15,451 | $ | (9,319 | ) | $ | 6,132 | |||||||||||||||
Non-compete agreements |
4,522 | (4,522 | ) | | 4,722 | (4,566 | ) | 156 | 4,722 | (4,454 | ) | 268 | ||||||||||||||||||||||||
Proprietary technology |
73,325 | (22,382 | ) | 50,943 | 72,375 | (17,652 | ) | 54,723 | 73,462 | (16,371 | ) | 57,091 | ||||||||||||||||||||||||
Customer relationships |
289,490 | (61,749 | ) | 227,741 | 283,015 | (46,841 | ) | 236,174 | 289,872 | (42,973 | ) | 246,899 | ||||||||||||||||||||||||
Brand names |
1,574 | (197 | ) | 1,377 | 961 | (77 | ) | 884 | 1,602 | (40 | ) | 1,562 | ||||||||||||||||||||||||
Total finite-life
intangibles |
$ | 384,368 | $ | (100,055 | ) | $ | 284,313 | $ | 376,500 | $ | (78,910 | ) | $ | 297,590 | $ | 385,109 | $ | (73,157 | ) | $ | 311,952 | |||||||||||||||
Indefinite-life
intangibles |
||||||||||||||||||||||||||||||||||||
Brand names |
222,524 | | 222,524 | 217,918 | | 217,918 | 222,946 | | 222,946 | |||||||||||||||||||||||||||
Total intangibles, net |
$ | 606,892 | $ | (100,055 | ) | $ | 506,837 | $ | 594,418 | $ | (78,910 | ) | $ | 515,508 | $ | 608,055 | $ | (73,157 | ) | $ | 534,898 | |||||||||||||||
Intangible asset amortization expense was approximately $7.7 million and $5.9 million for the
three months ended September 26, 2009 and September 27, 2008, respectively, and was approximately
$21.1 million and $18.3 million for the nine months ended September 26, 2009 and September 27,
2008, respectively.
The estimated future amortization expense for identifiable intangible assets during the remainder
of 2009 and the next five years is as follows:
In thousands | 2009 Q4 | 2010 | 2011 | 2012 | 2013 | 2014 | ||||||||||||||||||
Estimated
amortization
expense |
$ | 6,310 | $ | 25,040 | $ | 24,949 | $ | 24,036 | $ | 23,763 | $ | 23,439 |
10. Debt
Debt and the average interest rates on debt outstanding are summarized as follows:
Average | ||||||||||||||||||||
interest rate | Maturity | September 26 | December 31 | September 27 | ||||||||||||||||
In thousands | September 26, 2009 | (Year) | 2009 | 2008 | 2008 | |||||||||||||||
Commercial paper |
0.73 | % | | $ | 1,999 | $ | 249 | $ | 25,392 | |||||||||||
Revolving credit facilities |
0.88 | % | 2012 | 207,800 | 214,200 | 267,900 | ||||||||||||||
Private placement fixed rate |
5.65 | % | 2013-2017 | 400,000 | 400,000 | 400,000 | ||||||||||||||
Private placement floating rate |
1.02 | % | 2012-2013 | 205,000 | 205,000 | 205,000 | ||||||||||||||
Senior notes |
7.85 | % | 2009 | | 133,900 | 133,900 | ||||||||||||||
Other |
4.24 | % | 2009-2016 | 172 | 275 | 6,246 | ||||||||||||||
Total contractual debt obligations |
814,971 | 953,624 | 1,038,438 | |||||||||||||||||
Deferred income related to swaps |
| 468 | 625 | |||||||||||||||||
Total debt, including current
portion per balance sheet |
814,971 | 954,092 | 1,039,063 | |||||||||||||||||
Less: Current maturities |
(98 | ) | (624 | ) | (3,913 | ) | ||||||||||||||
Short-term borrowings |
(16 | ) | | | ||||||||||||||||
Long-term debt |
$ | 814,857 | $ | 953,468 | $ | 1,035,150 | ||||||||||||||
We have a multi-currency revolving Credit Facility (Credit Facility). The Credit Facility
creates an unsecured, committed revolving credit facility of up to $800 million, with
multi-currency sub facilities to support investments outside the U.S. The Credit Facility expires
on June 4, 2012. Borrowings under the Credit Facility bear interest at the rate of LIBOR plus
0.625%. Interest rates and fees on the Credit Facility vary based on our credit ratings.
Total availability under our existing Credit Facility was $590.2 million as of September 26, 2009.
We are authorized to sell short-term commercial paper notes to the extent availability exists under
the Credit Facility. We use the Credit Facility as back-up liquidity to support 100% of commercial
paper outstanding. Our use of commercial paper as a funding vehicle depends upon the relative
interest rates for our paper compared to the cost of borrowing under our Credit Facility. As of
September 26, 2009, we had $2.0 million of commercial paper outstanding.
11
Pentair, Inc. and Subsidiaries
Notes to consolidated financial statements (unaudited)
Notes to consolidated financial statements (unaudited)
The commercial paper and Notes (as defined below) were classified as long-term as we had the intent
to refinance and have as a practice refinanced such obligations on a long-term basis under the
Credit Facility.
In addition to the Credit Facility, we have $25.0 million of uncommitted credit facilities, under
which we had no borrowings as of September 26, 2009.
Our debt agreements contain certain financial covenants, the most restrictive of which is a
leverage ratio (total consolidated indebtedness, as defined, over consolidated EBITDA, as defined)
that may not exceed 3.5 to 1.0. We were in compliance with all covenants in our debt agreements as
of September 26, 2009.
On July 8, 2008, we commenced a cash tender offer for all of our outstanding $250 million aggregate
principal 7.85% Senior Notes due 2009 (the Notes). Upon expiration of the tender offer on August
4, 2008, we purchased $116.1 million aggregate principal amount of the Notes. As a result of this
transaction, we recognized a loss of $4.6 million on early extinguishment of debt in the third
quarter of 2008. The loss included the write off of $0.1 million in unamortized deferred financing
fees in addition to recognition of $0.6 million in previously unrecognized swap gains, and cash
paid of $5.1 million related to the tender premium and other costs associated with the purchase.
On March 16, 2009, we announced the redemption of all of our remaining outstanding $133.9 million
aggregate principal of Notes. The Notes were redeemed on April 15, 2009 at a redemption price of
$1,035.88 per $1,000 of principal outstanding plus accrued interest thereon. As a result of this
transaction, we recognized a loss of $4.8 million on early extinguishment of debt in the second
quarter of 2009. The loss included the write off of $0.1 million in unamortized deferred financing
fees in addition to recognition of $0.3 million in previously unrecognized swap gains, and cash
paid of $5.0 million related to the redemption and other costs associated with the purchase.
Debt outstanding at September 26, 2009 matures on a calendar year basis as follows:
In thousands | 2009 Q4 | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | |||||||||||||||||||||||||
Contractual debt
obligation maturities |
$42 | $88 | $6 | $314,805 | $200,007 | $8 | $300,015 | $814,971 |
11. Derivatives and Financial Instruments
Fair Value of Financial Instruments
On January 1, 2008, we adopted new accounting guidance on fair value measurements. The new
guidance defines fair value, established a framework for measuring fair value under U.S. generally
accepted accounting principles, and expands disclosures about fair value measurements. The new
guidance was effective for us beginning January 1, 2008 for certain financial assets and
liabilities. The new guidance is effective for non-financial assets and liabilities recognized or
disclosed at fair value on a nonrecurring basis beginning January 1, 2009.
The accounting guidance establishes a valuation hierarchy for disclosure of the inputs to valuation
used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as
follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets
or inputs that are observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial instrument. Level 3 inputs
are unobservable inputs based upon our own assumptions used to measure assets and liabilities at
fair value. A financial asset or liabilitys classification within the hierarchy is determined
based on the lowest level of input that is significant to the fair value measurement.
Cash-flow Hedges
In August 2007, we entered into a $105 million interest rate swap agreement with a major financial
institution to exchange variable rate interest payment obligations for a fixed rate obligation
without the exchange of the underlying principal amounts in order to manage interest rate exposures
on our private placement debt. The effective date of the swap was August 30, 2007. The swap
agreement has a fixed interest rate of
4.89% and expires in May 2012. The fixed interest rate of 4.89% plus the 0.50% interest rate spread
over LIBOR results in an effective fixed interest rate of 5.39%. The fair value of the swap was a
liability of $9.0 million, $10.7 million and $4.0 million at September 26, 2009, December 31, 2008
and September 27, 2008, respectively, and was recorded in Other non-current liabilities.
In September 2005, we entered into a $100 million interest rate swap agreement with several major
financial institutions to exchange variable rate interest payment obligations for fixed rate
obligations without the exchange of the underlying principal amounts in order to manage interest
rate exposures on our private placement debt. The effective date of the fixed rate swap was April
25, 2006. The swap agreement has a fixed interest rate of 4.68% and expires in July 2013. The
fixed interest rate of 4.68% plus the 0.60% interest rate spread over LIBOR results in an effective
fixed interest rate of 5.28%. The fair value of the swap was a liability of $9.3 million, $11.6
million and $3.1 million at September 26, 2009, December 31, 2008 and September 27, 2008,
respectively, and was recorded in Other non-current liabilities.
The variable to fixed interest rate swaps are designated as and are effective as cash-flow hedges.
The fair value of these swaps are recorded as assets or liabilities on the Consolidated Balance
Sheets, with changes in their fair value included in Accumulated other comprehensive
12
Pentair, Inc. and Subsidiaries
Notes to consolidated financial statements (unaudited)
Notes to consolidated financial statements (unaudited)
income (OCI). Derivative gains and losses included in OCI are reclassified into earnings at the time
the related interest expense is recognized or the settlement of the related commitment occurs.
Failure of one or more of our swap counterparties would result in the loss of any benefit to us of
the swap agreement. In this case, we would continue to be obligated to pay the variable interest
payments per the underlying debt agreements which are at variable interest rates of 3 month LIBOR
plus 0.50% for $105 million of debt and 3 month LIBOR plus 0.60% for $100 million of debt.
Additionally, failure of one or all of our swap counterparties would not eliminate our obligation
to continue to make payments under our existing swap agreements if we continue to be in a net pay
position.
At September 26, 2009, our interest rate swaps are carried at fair value measured on a recurring
basis. Fair values are determined through the use of models that consider various assumptions,
including time value, yield curves, as well as other relevant economic measures, which are inputs
that are classified as Level 2 in the valuation hierarchy.
12. Income Taxes
The provision for income taxes consists of provisions for federal, state and foreign income taxes.
We operate in an international environment with operations in various locations outside the U.S.
Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the
various locations and the applicable rates.
The effective income tax rate for the nine months ended September 26, 2009 was 32.0% compared to
29.5% for the nine months ended September 27, 2008. We expect the effective tax rate for the
remainder of 2009 to be between 32% and 33%, resulting in a full year effective income tax rate of
between 32% and 33%. We continue to actively pursue initiatives to reduce our effective tax rate.
The tax rate in any quarter can be affected positively or negatively by adjustments that are
required to be reported in the specific quarter of resolution.
The total gross liability for uncertain tax positions at September 26, 2009 is estimated to be
approximately $29.1 million. We record penalties and interest related to unrecognized tax benefits
in Provision for income taxes and Net interest expense, respectively, which is consistent with our
past practices.
13. Benefit Plans
Components of net periodic benefit cost for the three months and nine months ended September 26,
2009 and September 27, 2008 were as follows:
Three months ended | ||||||||||||||||
Pension benefits | Post-retirement | |||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||
In thousands | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Service cost |
$ | 3,067 | $ | 3,527 | $ | 54 | $ | 65 | ||||||||
Interest cost |
8,115 | 8,175 | 594 | 634 | ||||||||||||
Expected return on plan assets |
(7,563 | ) | (7,475 | ) | | | ||||||||||
Amortization of transition obligation |
14 | 12 | | | ||||||||||||
Amortization of prior year service
cost (benefit) |
6 | 45 | (10 | ) | (34 | ) | ||||||||||
Recognized net actuarial loss (gains) |
18 | 68 | (832 | ) | (825 | ) | ||||||||||
Net periodic benefit cost |
$ | 3,657 | $ | 4,352 | $ | (194 | ) | $ | (160 | ) | ||||||
Nine months ended | ||||||||||||||||
Pension benefits | Post-retirement | |||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||
In thousands | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Service cost |
$ | 9,200 | $ | 10,585 | $ | 161 | $ | 195 | ||||||||
Interest cost |
24,346 | 24,523 | 1,783 | 1,902 | ||||||||||||
Expected return on plan assets |
(22,689 | ) | (22,425 | ) | | | ||||||||||
Amortization of transition obligation |
42 | 36 | | | ||||||||||||
Amortization of prior year service
cost (benefit) |
17 | 133 | (31 | ) | (102 | ) | ||||||||||
Recognized net actuarial loss (gains) |
53 | 204 | (2,494 | ) | (2,475 | ) | ||||||||||
Net periodic benefit cost |
$ | 10,969 | $ | 13,056 | $ | (581 | ) | $ | (480 | ) | ||||||
13
Pentair, Inc. and Subsidiaries
Notes to consolidated financial statements (unaudited)
Notes to consolidated financial statements (unaudited)
14. Business Segments
Financial information by reportable segment for the three and nine months ended September 26, 2009
and September 27, 2008 is shown below:
Three months ended | Nine months ended | |||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||
In thousands | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Net sales to external customers |
||||||||||||||||
Water Group |
$ | 461,570 | $ | 557,976 | $ | 1,372,492 | $ | 1,696,780 | ||||||||
Technical Products Group |
201,095 | 297,839 | 617,725 | 887,559 | ||||||||||||
Consolidated |
$ | 662,665 | $ | 855,815 | $ | 1,990,217 | $ | 2,584,339 | ||||||||
Intersegment sales |
||||||||||||||||
Water Group |
$ | 284 | $ | 305 | $ | 771 | $ | 816 | ||||||||
Technical Products Group |
544 | 765 | 1,377 | 2,937 | ||||||||||||
Other |
(828 | ) | (1,070 | ) | (2,148 | ) | (3,753 | ) | ||||||||
Consolidated |
$ | | $ | | $ | | $ | | ||||||||
Operating income (loss) |
||||||||||||||||
Water Group |
$ | 53,085 | $ | 49,684 | $ | 129,842 | $ | 174,194 | ||||||||
Technical Products Group |
24,356 | 47,585 | 68,396 | 142,654 | ||||||||||||
Other |
(10,759 | ) | (11,655 | ) | (30,782 | ) | (37,360 | ) | ||||||||
Consolidated |
$ | 66,682 | $ | 85,614 | $ | 167,456 | $ | 279,488 | ||||||||
Other sales and operating loss is primarily composed of unallocated corporate expenses, costs
related to our captive insurance subsidiary and our intermediate finance companies, and
intercompany eliminations.
15. Warranty
The changes in the carrying amount of service and product warranties for the nine months ended
September 26, 2009 and September 27, 2008 and the year December 31, 2008 were as follows:
September 26 | December 31 | September 27 | ||||||||||
In thousands | 2009 | 2008 | 2008 | |||||||||
Balance at beginning of the year |
$ | 31,559 | $ | 39,077 | $ | 39,077 | ||||||
Service and product warranty provision |
43,625 | 62,655 | 47,516 | |||||||||
Payments |
(52,190 | ) | (70,373 | ) | (54,088 | ) | ||||||
Acquired |
| 599 | 184 | |||||||||
Translation |
185 | (399 | ) | (71 | ) | |||||||
Balance at end of the period |
$ | 23,179 | $ | 31,559 | $ | 32,618 | ||||||
16. Commitments and Contingencies
Environmental and Litigation
Horizon Litigation
The Horizon litigation against our subsidiary Essef Corporation and certain of its subsidiaries by
Celebrity Cruise Lines, Inc. (Celebrity) was settled by payment of $35 million to Celebrity in
August 2008, a portion of which was covered by insurance. As a result of the settlement, we
recorded a charge of $20.4 million in the second quarter of 2008 which is shown on the line Legal
settlement in the Condensed Consolidated Statements of Income.
There have been no further material developments from the disclosures contained in our 2008
Annual Report on Form 10-K.
14
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This report contains statements that we believe to be forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give
our current expectations or forecasts of future events. Forward-looking statements generally can
be identified by the use of forward-looking terminology such as may, will, expect, intend,
estimate, anticipate, believe, project, or continue, or similar words or the negative
thereof. From time to time, we also may provide oral or written forward-looking statements in
other materials we release to the public. Any or all of our forward-looking statements in this
report and in any public statements we make could be materially different from actual results.
They can be affected by assumptions we might make or by known or unknown risks or uncertainties.
Consequently, we cannot guarantee any forward-looking statements. Investors are cautioned not to
place undue reliance on any forward-looking statements. Investors should also understand that it
is not possible to predict or identify all risk factors and should not consider the following list
to be a complete statement of all potential risks and uncertainties.
The following factors and those discussed in ITEM 1A, Risk Factors, included in our 2008 Annual
Report on Form 10-K, may impact the achievement of forward-looking statements:
| general economic and political conditions, such as credit market uncertainty, inflation or deflation, the rate of economic growth or decline in our principal geographic or product markets, fluctuations in exchange rates or political instability; | |
| changes in general economic and industry conditions in markets in which we participate, such as: |
| continued deterioration in or stabilization of the global economy; | ||
| continued deterioration in or stabilization of the North American and Western European housing markets; | ||
| the strength of product demand and the markets we serve; | ||
| the intensity of competition, including that from foreign competitors; | ||
| pricing pressures; | ||
| the financial condition of our customers; | ||
| the introduction of new products and enhancements by competitors; | ||
| our ability to maintain and expand relationships with large customers; | ||
| our ability to source raw material commodities from our suppliers without interruption and at reasonable prices; and | ||
| our ability to source components from third parties, in particular from foreign manufacturers, without interruption and at reasonable prices; |
| changes in statutory or regulatory matters, including proposed changes in tax, environmental and health-care mandates; | |
| our ability to access capital markets and obtain anticipated financing under favorable terms; | |
| our ability to identify, complete and integrate acquisitions successfully and to realize expected synergies on our anticipated timetable; | |
| changes in our business strategies, including acquisition, divestiture and restructuring activities; | |
| any impairment of goodwill and indefinite-lived intangible assets as a result of deterioration in our markets; | |
| domestic and foreign governmental and regulatory policies; | |
| changes in operating factors, such as manufacturing activities and the achievement of related efficiencies, inventory risks due to shifts in market demand and costs associated with moving production to lower-cost locations; | |
| our ability to generate savings from our excellence in operations initiatives consisting of lean enterprise, supply management and cash flow practices; | |
| our ability to generate savings from our restructuring and other cost reduction actions; | |
| our ability to commercialize new product introductions and enhancements successfully; | |
| unanticipated developments that could occur with respect to contingencies such as litigation, intellectual property matters, product liability exposures and environmental matters; and | |
| our ability to accurately evaluate the effects of contingent liabilities such as tax, product liability, environmental and other claims. |
The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing
factors may occur that would impact our business. We assume no obligation, and disclaim any duty,
to update the forward-looking statements in this report.
Overview
We are a focused diversified industrial manufacturing company comprised of two operating segments:
Water and Technical Products. Our Water Group is a global leader in providing innovative products
and systems used worldwide in the movement, storage, treatment and enjoyment of water. Our
Technical Products Group is a leader in the global enclosures and thermal management markets,
designing and manufacturing standard, modified and custom enclosures that house and protect
sensitive electronics and electrical components; thermal management products; and accessories. In
2009, we expect our Water Group and Technical Products Group to generate approximately 2/3 and 1/3
of total revenues, respectively.
15
Our Water Group has progressively become a more important part of our business portfolio with sales
increasing from approximately $125 million in 1995 to approximately $2.2 billion in 2008. We
believe the water industry is structurally attractive as a result of a growing demand for clean
water and the large global market size (of which we have identified a target market totaling $60
billion). Our vision is to be a leading global provider of innovative products and systems used in
the movement, storage, treatment and enjoyment of water.
On February 28, 2008, we sold our National Pool Tile (NPT) business to Pool Corporation in a cash
transaction. The results of NPT have been reported as discontinued operations for all periods
presented. The assets and liabilities of NPT have been reclassified as discontinued operations for
all periods presented.
On June 28, 2008, we entered into a transaction with GE Water & Process Technologies (a unit of
General Electric Company) (GE) that was accounted for as an acquisition of an 80.1 percent
ownership interest in GEs global water softener and residential water filtration
business in exchange for a 19.9 percent interest in our global water softener and residential water
filtration business. The acquisition was effected through the formation of two new entities
(collectively, Pentair Residential Filtration or PRF), a U.S. entity and an international
entity, into which we and GE contributed certain assets, properties, liabilities and operations
representing our respective global water softener and residential water filtration businesses. We
are an 80.1 percent owner of PRF and GE is a 19.9 percent owner.
With the formation of Pentair Residential Filtration, we believe we are better positioned to serve
residential customers with industry-leading technical applications in the areas of water
conditioning, whole house filtration, point of use water management and water sustainability and
expect to improve our revenue growth by selling GEs existing residential water treatment products
through our sales channels.
On December 15, 2008, we sold our Spa and Bath (Spa/Bath) business to Balboa Water Group in a
cash transaction. The results of Spa/Bath have been reported as discontinued operations for all
periods presented. The assets and liabilities of Spa/Bath have been reclassified as discontinued
operations for all periods presented.
Our Technical Products Group operates in a large global market with significant potential for
growth in industry segments such as defense, security, medical and networking. We believe we have
the largest industrial and commercial distribution network in North America for enclosures and the
highest brand recognition in the industry in North America. From mid-2001 through 2003, the
Technical Products Group experienced significantly lower sales volumes as a result of severely
reduced capital spending in the industrial and commercial markets and over-capacity and weak demand
in the data communication and telecommunication markets. From 2004 through 2008, sales volumes
increased due to the addition of new distributors, new products, price increases and higher demand
in targeted markets.
Key Trends and Uncertainties
The following trends and uncertainties affected the first nine months of our financial performance
in 2009 and will likely impact our results in the future:
| Many markets we serve have slowed dramatically as a result of rapidly deteriorating economic conditions. We have identified specific product and geographic markets we serve that we believe will stagnate, contract or continue contracting in 2009, as noted below. We have restructured our operations serving those markets in order to reduce or relocate capacity, to reduce labor and material costs, to optimize our manufacturing footprint and to simplify our business structure until our capacity is aligned with our anticipated volume prospects in these markets. If these markets continue to stagnate or shrink further, we may undertake additional restructuring activities. We have also identified specific markets in which we participate that we believe will continue to grow over this period and are selectively reinforcing our businesses in these markets. Because our businesses are significantly affected by general economic trends, further deterioration in our most important markets addressed below would likely have an adverse impact on our results of operations for 2009 and beyond. |
| New home building and new pool starts have contracted for each of the past three years in the United States and have slowed significantly in Europe as well. Overall, we believe approximately 55% of sales by our water businesses (flow, filtration and pool equipment), are used in residential applications for new construction, remodeling and repair, replacement and refurbishment. We expect the current recession to continue to adversely impact our sales in our Water Group for the balance of 2009. We have seen some stabilization of order rates in the third quarter of 2009 and anticipate continuing stability, but not significant volume increases, for the balance of 2009. If sales of products into these domestic residential end-markets were to slow appreciably, we would again be in a position to need to reduce our investments in businesses in those markets, and further restructure our operations by closing or downsizing facilities, reducing headcount and taking other market-related actions. |
| Industrial, communications and commercial markets for all of our businesses, including commercial and industrial construction, also slowed significantly over the past year. We are uncertain about the course of the economy and hence the strength of many of these markets both in the United States and around the world for the balance of 2009 and beyond. Order rates over the second and third quarters in most of our businesses participating in these markets continued to decrease significantly on a year-over-year basis. Sales in these markets marginally decreased sequentially from the second to the third quarter. We believe that our commercial and industrial markets in most of our businesses will continue to be weak in the fourth quarter, reflecting the uncertainty in these markets. We have reduced investments in businesses in these markets, and further restructured our operations by closing or downsizing facilities, reducing headcount and taking other market-related actions. |
| We experienced material cost and other inflation in a number of our businesses during 2008. To offset this inflation, we implemented productivity improvements and selective increases in selling prices to help mitigate inflationary cost increases we experienced in base materials such as carbon steel, copper and resins and other costs such as health care and other employee benefit costs. We expect the current economic environment will result in continued price volatility for many of our raw materials. Material costs have declined over the past year; and we are unsure whether and to what extent commodity prices and employment costs will increase as the economy recovers and employment mandates come into effect. We believe that we were realizing these cost decreases in our results of operations in the second and third quarters of 2009. We believe that the impact of lower commodity prices will continue to positively impact our results into 2010, although these benefits will likely be reduced somewhat by increasing costs as the economy recovers. |
16
| As a result of the dramatic fall in securities and other investment markets over 2008, our unfunded pension liabilities increased from fiscal year end 2007 to fiscal year end 2008 from $147 million to $257 million, or an increase of $110 million, primarily reflecting our reduced investment return and significantly lower asset values in our U.S. defined benefit plans through the end of 2008. This will increase our 2009 contributions to the plans to approximately $20-$25 million, an increase of over $10 million from 2008. These amounts differ from the expected contribution amounts described in our 2008 Form 10-K due to regulatory changes enacted during the first quarter of 2009 that had the effect of reducing our required contributions. |
| We have a long-term goal to consistently generate free cash flow that equals or exceeds 100% conversion of our net income. We define free cash flow as cash flow from continuing operating activities less capital expenditures plus proceeds from sale of property and equipment. In the current economic climate, we have focused in particular upon maximizing free cash flow by reducing working capital in order to maximize our repayment of indebtedness and maintain our investment grade credit rating. Free cash flow for the first nine months of 2009 approximated $202 million, or conversion of 234% of net income, compared to $106 million, or 45% conversion, in the first nine months of 2008, and $164 million, or 72% conversion of our net income for full year 2008. Our target for free cash flow in 2009 continues to be greater than $225 million. See our discussion of Other financial measures under the caption Liquidity and Capital Resources in this report. |
| We experience seasonal demand in a number of markets within our Water Group. End-user demand for pool equipment follows warm weather trends and is normally at seasonal highs from April to August. The magnitude of the sales spike is partially mitigated by employing some advance sale early buy programs (generally including extended payment terms and/or additional discounts). Demand for residential and agricultural water systems is also impacted by economic conditions and weather patterns, particularly by heavy flooding and droughts. While we believe that this seasonality will continue in future years, due to the unknown impact of the current economic situation, this seasonality spike in 2009 was smaller than in prior years. While we experienced a seasonal increase in sales in the pool equipment business in the second and third quarters of 2009, the increase has not matched that of prior pool seasons. In addition, our primary geographic markets did not have unusual weather, which further limited seasonal impact in our residential and agricultural water systems. |
| We experienced year over year favorable foreign currency effects on net sales and operating results in the first nine months of 2008, due to the weakening of the U.S. dollar in relation to other foreign currencies, which reversed in the fourth quarter of 2008 and first nine months of 2009. Our currency effect is primarily for the U.S. dollar against the euro, which may or may not trend favorably in the future. |
| On June 28, 2008, we formed Pentair Residential Filtration in order to expand our product lines, accelerate opportunities to provide our customers complete water filtration systems, increase revenue growth and exploit cost synergy opportunities. The one-time gain on the transaction increased diluted earnings per share, on an after tax basis, by 86 cents in the second quarter of 2008. Integration and inventory step-up costs arising out of the formation of the PRF business amounted to approximately $7 million in 2008. We anticipate substantially all facility closures and related integration expenses to be completed by the end of the fourth quarter of 2009. |
| The effective income tax rate for the nine months ended September 26, 2009 was 32.0% compared to 29.5% for the nine months ended September 27, 2008. We expect the effective tax rate for the remainder of 2009 to be between 32% and 33%, resulting in a full year effective income tax rate of between 32% and 33%. We continue to actively pursue initiatives to reduce our effective tax rate. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution. |
Outlook
In 2009, our operating objectives include the following:
| Completing the restructuring of operations we started in late 2008 and 2009, while investing in more favorable markets and geographies; | |
| Increasing our vertical market focus within each of our Global Business Units to grow in those markets in which we have competitive advantages; | |
| Driving operating excellence through lean enterprise initiatives, with special focus on sourcing and supply management, cash flow management, and lean operations; | |
| Stressing proactive talent development, particularly in international management and other key functional areas; and | |
| Completing integration of the PRF business and prior acquisitions, and realizing identified synergistic opportunities. |
Our sales revenue for the third quarter of 2009 was approximately $663 million, a decrease of 22.6%
compared to sales revenue in the third quarter of 2008, and below our earlier estimates. Sales
revenue for the first nine months of 2009 dropped from approximately $2.58 billion in 2008 to $1.99
billion in 2009, or 23.0%. Water Group sales declines moderated from 22% in the first quarter of
2009 to 18% in the second quarter and 17% in the third quarter, compared to the same periods in
2008, reflecting some stabilization of order rates. Our Technical Products Group saw a bigger
decline in sales from 26% in the first quarter of 2009 to 32% in each of the second quarter and
third quarters, compared to the same periods in 2008.
17
In December 2008, we initiated earnings guidance for the year 2009 that anticipated our earnings to
be $1.70 to $2.00 per share on a diluted basis. On April 21, 2009, we revised our full year
guidance for 2009 to equal or exceed $1.40 per share on a diluted basis, due to the significantly
lower volume of sales and order activity we saw in the first quarter, as well as the continued
uncertainty about the economic performance trajectory for the calendar year both in the United
States and globally. On October 20, 2009, we updated our full year adjusted earnings per share
guidance to $1.40 to $1.44, on a fully-diluted basis. As noted above, significant deterioration in
general economic conditions in our primary markets and geographies beyond what we have seen in the
first nine months would adversely impact our revenues and financial performance.
This outlook is based on several variables. First, our guidance anticipates revenue declines in
our businesses throughout 2009 of approximately 20% compared to 2008 as a result of overall market
conditions, bringing our total revenue to approximately $2.6-$2.7 billion for the full year.
Second, we expect to benefit in the second half of 2009 from restructuring and other market-related
expense reduction efforts taken during 2008 and early in 2009. Third, we anticipate that our manufacturing
productivity initiatives, in particular our materials sourcing programs, will improve through our
lean enterprise initiatives and commodity price deflation for the next few quarters.
We believe
that sales for the fourth quarter of 2009 will range from
approximately $655 to $670
million, compared to $768 million achieved in the fourth quarter of 2008, or a decrease of
approximately 14%. This drop would be a sequential improvement over the reduction in revenues
realized in the first three quarters, as we expect our comparisons with prior year results will
improve due to the impact of the global recession on our businesses beginning in the fourth quarter
of 2008. While we have seen some improvements in certain markets and regions in the second and
third quarters, we believe the order rates in most of our markets have only begun to stabilize
somewhat in September 2009. We do not expect any significant strengthening of our end markets
generally until sometime in 2010.
We have heightened our focus on increasing the conversion of our net income into free cash flow
from that achieved in 2008. In addition, we are taking actions we believe will help maintain our
liquidity, increase our capital resources, and repay indebtedness at a faster rate than would
otherwise be the case. We did not implement our stock buyback program for 2009, as we have in the
past, nor do we currently intend to make any significant cash acquisitions until business
conditions stabilize.
We believe economic conditions will hold up in the fourth quarter of 2009 which would give us the
flexibility to increase expenditures in our selling, marketing and R&D efforts to maximize organic
sales growth in favorable markets in 2009 and to anticipate growth in 2010. Conversely, if economic
conditions worsen in North America and Europe, then we expect that our sales, manufacturing
productivity and cash flow would likely deteriorate from the current forecast. In that event, we
would further reduce discretionary capital spending and selling, marketing and R&D costs as well as
accelerate ongoing or undertake new restructuring actions in order to minimize the impact of these
declines on our earnings per share.
Our guidance assumes an absence of significant acquisitions or divestitures in 2009. We are
expanding our geographic reach internationally, expand our presence in our various channels to
market and acquire technologies and products to broaden our businesses capabilities to serve
additional markets. We may also consider the divestiture or closure of discrete business units to
further focus our businesses on their most attractive markets.
The ability to achieve our operating objectives will depend, to a certain extent, on factors
outside our control. See Forward-looking statements in this report and Risk Factors under ITEM
1A in our 2008 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Net sales
Consolidated net sales and the change from the prior year period were as follows:
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||||||||||||||||||
In thousands | 2009 | 2008 | $ change | %change | 2009 | 2008 | $ change | %change | ||||||||||||||||||||||||
Net sales |
$ | 662,665 | $ | 855,815 | $ | (193,150 | ) | (22.6 | %) | $ | 1,990,217 | $ | 2,584,339 | $ | (594,122 | ) | (23.0 | %) | ||||||||||||||
The components of the net sales change in 2009 from 2008 were as follows:
% Change from 2008 | ||||||||
Percentages | Three months | Nine months | ||||||
Volume |
(22.2 | ) | (22.1 | ) | ||||
Price |
0.7 | 1.5 | ||||||
Currency |
(1.1 | ) | (2.4 | ) | ||||
Total |
(22.6 | ) | (23.0 | ) | ||||
18
Consolidated net sales
The 22.6 percent and 23.0 percent decreases in consolidated net sales in the third quarter and
first nine months, respectively, of 2009 from 2008 were primarily driven by:
| lower sales of certain pump, pool and filtration products primarily related to the downturn in the North American and Western European residential housing markets and other global markets; | |
| lower Technical Products Group sales in both the Electrical and Electronics businesses; and | |
| unfavorable foreign currency effects. |
These decreases were partially offset by:
| selective increases in selling prices to mitigate inflationary cost increases; and |
| an increase in sales volume due to the formation of PRF. |
Net sales by segment and the change from the prior year period were as follows:
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||||||||||||||||||
In thousands | 2009 | 2008 | $ change | % change | 2009 | 2008 | $ change | % change | ||||||||||||||||||||||||
Water Group |
$ | 461,570 | $ | 557,976 | $ | (96,406 | ) | (17.3 | %) | $ | 1,372,492 | $ | 1,696,780 | $ | (324,288 | ) | (19.1 | %) | ||||||||||||||
Technical Products
Group |
201,095 | 297,839 | (96,744 | ) | (32.5 | %) | 617,725 | 887,559 | (269,834 | ) | (30.4 | %) | ||||||||||||||||||||
Total |
$ | 662,665 | $ | 855,815 | $ | (193,150 | ) | (22.6 | %) | $ | 1,990,217 | $ | 2,584,339 | $ | (594,122 | ) | (23.0 | %) | ||||||||||||||
Water Group
The 17.3 percent and 19.1 percent decreases in Water Group net sales in the third quarter and first
nine months, respectively, of 2009 from 2008 were primarily driven by:
| organic sales decline (excluding acquisitions and foreign currency exchange) primarily due to lower sales of certain pump, pool and filtration products primarily related to the downturn in the North American and Western European residential housing markets and other global markets; and |
| unfavorable foreign currency effects. |
These decreases were partially offset by:
| selective increases in selling prices to mitigate inflationary cost increases; and |
| an increase in sales volume due to the formation of PRF. |
Technical Products Group
The 32.5 percent and 30.4 percent decreases in Technical Product Group net sales in the third
quarter and first nine months, respectively, of 2009 from 2008 were primarily driven by:
| a decrease in sales to electrical markets resulting from lower capital spending by customers in the industrial vertical market; |
| a decrease in sales to electronics markets that was largely attributable to reduced spending in the data communication, general electronics, and telecommunication vertical markets; and |
| unfavorable foreign currency effects. |
These decreases were partially offset by:
| selective increases in selling prices to mitigate inflationary cost increases which favorably impacted the first two quarters of 2009 as compared to 2008. |
19
Gross profit
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 26 | %of | September 27 | %of | September 26 | %of | September 27 | %of | |||||||||||||||||||||||||
In thousands | 2009 | sales | 2008 | sales | 2009 | sales | 2008 | sales | ||||||||||||||||||||||||
Gross Profit |
$ | 206,967 | 31.2 | % | $ | 255,953 | 29.9 | % | $ | 572,678 | 28.8 | % | $ | 785,057 | 30.4 | % | ||||||||||||||||
Percentage point
change |
1.3 | pts | (1.6 | )pts |
The 1.3 percent increase in gross profit as a percentage of sales in the third quarter of 2009 from
2008 was primarily the result of:
| savings generated from our Pentair Integrated Management System (PIMS) initiatives, including lean and supply management practices; | |
| lower material cost for key commodities such as carbon steel; | |
| cost savings from restructuring actions and other personnel reductions taken in response to the current economic downturn and resulting volume decline; and | |
| selective increases in selling prices in our Water Group to mitigate inflationary cost increases. |
These increases were partially offset by:
| lower sales of certain pump, pool and filtration products primarily related to the downturn in the North American and Western European residential housing markets and other global market downturns; and |
| lower sales volume in our Technical Products Group and lower fixed cost absorption resulting from that volume decline. |
The 1.6 percent decrease in gross profit as a percentage of sales in the first nine months of 2009
from 2008 was primarily the result of:
| lower sales of certain pump, pool and filtration products primarily related to the downturn in the North American and Western European residential housing markets and other global market downturns; | |
| lower sales volume in our Technical Products Group and lower fixed cost absorption resulting from that volume decline; and | |
| inflationary increases related to raw materials for the first two quarters of 2009 and labor costs. |
These decreases were partially offset by:
| cost savings from restructuring actions and other personnel reductions taken in response to the current economic downturn and resulting volume decline; | |
| selective increases in selling prices in our Water and Technical Products Groups to mitigate inflationary cost increases; and | |
| savings generated from our PIMS initiatives, including lean and supply management practices. |
Selling, general and administrative (SG&A)
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 26 | %of | September 27 | %of | September 26 | %of | September 27 | %of | |||||||||||||||||||||||||
In thousands | 2009 | sales | 2008 | sales | 2009 | sales | 2008 | sales | ||||||||||||||||||||||||
*SG&A |
$ | 125,578 | 19.0 | % | $ | 154,118 | 18.0 | % | $ | 361,957 | 18.2 | % | $ | 458,266 | 17.7 | % | ||||||||||||||||
Percentage point
change |
1.0 | pts | 0.5 | pts |
* | Includes litigation settlement in the nine months ended September 27, 2008 of $20.4 million, which is presented on a separate line in the Condensed Consolidated Statements of Income |
The 1.0 and 0.5 percentage point increases in SG&A expense as a percentage of sales in the third
quarter and first nine months, respectively, of 2009 from 2008 was primarily due to:
| lower sales volume and the resultant loss of leverage on the SG&A expense spending; |
| expense associated with restructuring actions in both our Water and Technical Products Groups during the first nine months of 2009; |
20
| continued investments in future growth with emphasis on growth in international markets, including personnel and business infrastructure investments; and | |
| higher costs associated with the integration of and intangible amortization related to the June 2008 formation of PRF. |
These increases were offset by:
| 2008 charges for the Horizon litigation settlement, which were non-recurring in 2009; and | |
| reduced costs related to productivity actions taken throughout 2008 and the first nine months of 2009 to consolidate facilities and streamline general and administrative costs. |
Research and development (R&D)
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 26 | %of | September 27 | %of | September 26 | %of | September 27 | %of | |||||||||||||||||||||||||
In thousands | 2009 | sales | 2008 | sales | 2009 | sales | 2008 | sales | ||||||||||||||||||||||||
R&D |
$ | 14,707 | 2.2 | % | $ | 16,221 | 1.9 | % | $ | 43,265 | 2.2 | % | $ | 47,303 | 1.8 | % | ||||||||||||||||
Percentage point
change |
0.3 | pts | 0.4 | pts |
The 0.3 and 0.4 percentage point increases in R&D expense as a percentage of sales in the third
quarter and first nine months, respectively, of 2009 were primarily due to:
| lower sales volume and the resultant loss of leverage on the R&D expense spending. |
Operating income
Water Group
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 26 | %of | September 27 | %of | September 26 | %of | September 27 | %of | |||||||||||||||||||||||||
In thousands | 2009 | sales | 2008 | sales | 2009 | sales | 2008 | sales | ||||||||||||||||||||||||
Operating income |
$ | 53,085 | 11.5 | % | $ | 49,684 | 8.9 | % | $ | 129,842 | 9.5 | % | $ | 174,194 | 10.3 | % | ||||||||||||||||
Percentage point
change |
2.6 | pts | (0.8 | )pts |
The 2.6 percentage point increase in Water Group operating income as a percentage of net sales in
the third quarter of 2009 as compared to 2008 was primarily the result of:
| selective increases in selling prices to mitigate inflationary cost increases; |
| cost savings from restructuring actions and other personnel reductions taken in response to the current economic downturn and resulting volume decline; and |
| savings generated from our PIMS initiatives, including lean and supply management practices. |
These increases were offset by:
| lower sales of certain pump, pool and filtration products resulting from the downturn in the North American and Western European residential housing markets; and |
| restructuring actions taken in the third quarter of 2009. |
The 0.8 percentage point decrease in Water Group operating income as a percentage of net sales in
the first nine months of 2009 as compared to 2008 was primarily the result of:
| lower sales of certain pump, pool and filtration products resulting from the downturn in the North American and Western European residential housing markets; | |
| inflationary increases related to raw materials and labor; | |
| restructuring actions taken in the first nine months of 2009; and | |
| higher costs associated with the integration of and intangible amortization related to the June 2008 formation of PRF. |
21
These decreases were partially offset by:
| selective increases in selling prices to mitigate inflationary cost increases; | |
| cost savings from restructuring actions and other personnel reductions taken in response to the current economic downturn and resulting volume decline; | |
| savings generated from our PIMS initiatives including lean and supply management practices, and | |
| 2008 charges for the Horizon litigation settlement, which were non-recurring in 2009. |
Technical Products Group
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 26 | %of | September 27 | %of | September 26 | %of | September 27 | %of | |||||||||||||||||||||||||
In thousands | 2009 | sales | 2008 | sales | 2009 | sales | 2008 | sales | ||||||||||||||||||||||||
Operating income |
$ | 24,356 | 12.1 | % | $ | 47,585 | 16.0 | % | $ | 68,396 | 11.1 | % | $ | 142,654 | 16.1 | % | ||||||||||||||||
Percentage point
change |
(3.9 | )pts | (5.0 | )pts |
The 3.9 and 5.0 percentage point decreases in Technical Products Group operating income as a
percentage of sales in the third quarter and first nine months, respectively, of 2009 from 2008
were primarily the result of:
| a decrease in sales to electrical markets resulting from lower capital spending by customers in the industrial vertical market; |
| a decrease in sales into electronics markets that was largely attributable to reduced spending in the general electronics, data communication and telecommunication vertical markets; and |
| lower fixed cost absorption resulting from the sales volume declines. |
These decreases were partially offset by:
| cost savings from restructuring actions and other personnel reductions taken in response to the current economic downturn and resulting volume decline; |
| savings generated from our PIMS initiatives, including lean and supply management practices; and |
| lower material cost for key commodities such as carbon steel. |
Net interest expense
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||||||||||||||||||
In thousands | 2009 | 2008 | Difference | %change | 2009 | 2008 | Difference | %change | ||||||||||||||||||||||||
Net interest expense |
$ | 9,711 | $ | 13,740 | $ | (4,029 | ) | (29.3 | %) | $ | 31,328 | $ | 45,691 | $ | (14,363 | ) | (31.4 | %) | ||||||||||||||
The 29.3 and 31.4 percentage point decreases in interest expense in the third quarter and first
nine months, respectively, of 2009 from 2008 were primarily the result of:
| favorable impact of lower interest rates and lower debt levels in part attributable to the redemption on April 15, 2009 of our 7.85% Senior Notes due 2009 (the Notes). |
Provision for income taxes
Three months ended | Nine months ended | |||||||||||||||
September 26 | September 27 | September 26 | September 27 | |||||||||||||
In thousands | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Income before income taxes |
$ | 56,836 | $ | 66,594 | $ | 130,633 | $ | 336,401 | ||||||||
Provision for income taxes |
18,159 | 21,592 | 41,808 | 99,099 | ||||||||||||
Effective tax rate |
31.9 | % | 32.4 | % | 32.0 | % | 29.5 | % | ||||||||
The 0.5 percentage point decrease in the third quarter of 2009 from 2008 was primarily the
result of:
| favorable adjustments in the third quarter of 2009 related to prior years tax returns. |
22
The 2.5 percentage point increase in the effective tax rate in the first nine months of 2009 from
2008 was primarily the result of:
| a portion of the gain on the formation of PRF in 2008 being taxed at a rate of 0%. |
This increase was partially offset by:
| favorable adjustments in 2009 related to prior years tax returns. |
We estimate our effective income tax rate for the remaining quarters of this year will be between
32% and 33% resulting in a full year effective income tax rate of between 32% and 33%.
LIQUIDITY AND CAPITAL RESOURCES
We generally fund cash requirements for working capital, capital expenditures, equity investments,
acquisitions, debt repayments, dividend payments and share repurchases from cash generated from
operations, availability under existing committed revolving credit facilities, and in certain
instances, public and private debt and equity offerings. We have grown our businesses in the past
in significant part through acquisitions, financed by credit provided under our revolving credit
facilities and, from time to time, by private or public debt issuance. Our primary revolving
credit facilities have generally been adequate for these purposes, although we have negotiated
additional credit facilities as needed to allow us to complete acquisitions; these are temporary
loans that have in the past been repaid within less than a year.
In light of the current global economic situation, we do not currently plan to make any significant
acquisitions in 2009, and we have not continued the annual share repurchase programs in 2009 that
we have undertaken over the past few years. We are focusing on increasing our cash flow and
maximizing debt repayment for the foreseeable future. Our intent is to maintain investment grade
ratings and a solid liquidity position.
We experience seasonal cash flows primarily due to seasonal demand in a number of markets within
our Water Group. We generally borrow in the first quarter of our fiscal year for operational
purposes, which usage reverses in the second quarter as the seasonality of our businesses peaks.
End-user demand for pool equipment follows warm weather trends and is at seasonal highs from April
to August. The magnitude of the sales spike is partially mitigated by employing some advance sale
early buy programs (generally including extended payment terms and/or additional discounts).
Demand for residential and agricultural water systems is also impacted by weather patterns,
particularly by heavy flooding and droughts.
Cash contribution requirements for our pension plans are either based upon the applicable country
regulation (principally the U.S.) or are funded on a pay-as-you-go basis. We expect that our 2009
contributions to the plans will be $20 million to $25 million, an increase of over $10 million from
2008. The increase in 2009 expected contributions relates primarily to the impact of reduced
investment return and significantly lower asset values for our U.S. qualified pension plans.
Contribution requirements in the U.S. are governed by the Pension Protection Act of 2006. Our
contribution requirements could continue or increase in years subsequent to 2009 unless there is an
improvement in the funded status of our U.S. qualified pension plans.
Operating activities
Cash provided by operating activities was $238.7 million in the first nine months of 2009 compared
with cash provided by operating activities of $136.9 million in the prior year comparable period.
The increase in cash provided by operating activities was primarily due to cash generated from
working capital reductions, primarily due to increased management of receivables and inventory
balances in the first nine months of 2009, offset by a decrease in net income after adjusting for
the $109.6 million gain in 2008, versus the same period of last year. In the future, we expect our
working capital ratios to improve as sales stabilize and as we are able to further capitalize on
our PIMS initiatives.
Investing activities
Capital expenditures in the first nine months of 2009 were $39.3 million compared with $39.8
million in the prior year period. We currently anticipate capital expenditures for fiscal 2009
will be approximately $45 million to $50 million, primarily for capacity expansions in our low cost
country manufacturing facilities, new product development, and replacement equipment.
On December 15, 2008, we sold our Spa/Bath business to Balboa Water Group in a cash transaction for
$8.3 million including certain price adjustments based on working capital at closing. The results
of Spa/Bath have been reported as discontinued operations for all periods presented. The assets
and liabilities of Spa/Bath have been reclassified as discontinued operations for all periods
presented.
On February 28, 2008, we sold our NPT business to Pool Corporation in a cash transaction for
approximately $30.0 million subject to certain price adjustments. The results of NPT have been
reported as discontinued operations for all periods presented. The assets and liabilities of NPT
have been reclassified as discontinued operations for all periods presented.
Financing activities
Net cash used for financing activities was $189.5 million in the first nine months of 2009 compared
with $102.5 million used for financing activities in the prior year period. Financing activities
included draw downs and repayments on our revolving credit facilities to fund our operations in the
normal course of business, payments of dividends, cash used to repurchase company stock in 2008,
cash received from stock option exercises, and tax benefits related to stock-based compensation.
23
Our current $800 million multi-currency revolving credit facility (the Credit Facility) was
entered into in the second quarter of 2007 and does not expire until June 4, 2012. The agent banks
under the Credit Facility are J. P. Morgan, Bank of America, Wells Fargo, U. S. Bank and Bank of
Tokyo-Mitsubishi. We had borrowing capacity of $590.2 million at September 26, 2009.
The Credit Facility creates an unsecured, committed revolving credit facility of up to $800
million, with multi-currency sub facilities to support investments outside the U.S. Borrowings
under the Credit Facility bear interest at the rate of LIBOR plus 0.625%. Interest rates and fees
on the Credit Facility vary based on our credit ratings. We believe that internally generated
funds and funds available under our Credit Facility will be sufficient to support our normal
operations, dividend payments, stock repurchases (if authorized) and debt maturities over the life
of the Credit Facility.
We are authorized to sell short-term commercial paper notes to the extent availability exists under
the Credit Facility. We use the Credit Facility as back-up liquidity to support 100% of commercial
paper outstanding. Our use of commercial paper as a funding vehicle depends upon the relative
interest rates for our commercial paper compared to the cost of borrowing under our Credit
Facility. As of September 26, 2009, we had $2.0 million of commercial paper outstanding. We
classify any outstanding commercial paper as long-term as we have the intent to refinance and have
as a practice refinanced such obligations on a long-term basis under the Credit Facility.
Our debt agreements contain certain financial covenants, the most restrictive of which is a
leverage ratio (total consolidated indebtedness, as defined, over consolidated EBITDA, as defined)
that may not exceed 3.5 to 1.0. We were in compliance with all covenants under our debt agreements
as of September 26, 2009.
In addition to the Credit Facility, we have $25.0 million of uncommitted credit facilities, under
which we had no borrowings as of September 26, 2009.
On July 8, 2008, we commenced a cash tender offer for all of our outstanding $250 million aggregate
principal of Notes. Upon expiration of the tender offer on August 4, 2008, we purchased $116.1
million aggregate principal amount of the Notes. As a result of this transaction, we recognized a
loss of $4.6 million on early extinguishment of debt in the third quarter of 2008. The loss
included the write off of $0.1 million in unamortized deferred financing fees in addition to
recognition of $0.6 million in previously unrecognized swap gains, and cash paid of $5.1 million
related to the tender premium and other costs associated with the purchase.
On March 16, 2009, we announced the redemption of all of our remaining outstanding $133.9 million
aggregate principle of Notes to take advantage of lower interest rates available under the Credit
Facility. The Notes were redeemed on April 15, 2009 at a redemption price of $1,035.88 per $1,000
of principal outstanding plus accrued interest thereon utilizing funds on hand and drawings under
our Credit Facility.
No other significant debt obligations mature until 2012. As a result of this transaction, we
recognized a loss of $4.8 million on early extinguishment of debt in the second quarter of 2009.
The loss included the write off of $0.1 million in unamortized deferred financing fees in addition
to recognition of $0.3 million in previously unrecognized swap gains, and cash paid of $5.0 million
related to the redemption and other costs associated with the purchase.
Our current credit ratings are as follows:
Rating Agency | Credit Rating | Current Rating Outlook | ||
Standard & Poors
|
BBB- | Stable | ||
Moodys
|
Baa3 | Negative |
On March 6, 2009, Standard & Poors (S&P) lowered our credit rating from BBB to BBB- and changed
the outlook from negative to stable. S&Ps rating action reflects their expectation that the
difficult global economic environment will likely delay improvement in our credit metrics,
resulting in metrics that are more consistent with a BBB- rating. On May 1, 2009, Moodys
Investors Service affirmed its Baa3 rating and changed the outlook from stable to negative. Our
credit rating continues to be an investment grade rating, which is a credit rating of BBB- or
higher by S&P and Baa3 or higher by Moodys.
Borrowings under our Credit Facility are at interest rates that vary based upon our credit rating.
As a result of the rating action by S&P, the borrowing rate increased from LIBOR plus 0.50% to
LIBOR plus 0.625%.
In the event of a one rating downgrade, our flexibility to access the debt capital markets may be
reduced and the pricing of new debt will be adversely impacted. Additionally, the cost of
borrowings under our Credit Facility would increase by an additional 0.125%.
We expect to continue to have cash requirements to support working capital needs and capital
expenditures, to pay interest and service debt, and to pay dividends to shareholders. In order to
meet these cash requirements, we intend to use available cash and internally generated funds, and
to borrow under our committed and uncommitted credit facilities.
Dividends paid in the first nine months of 2009 were $53.2 million, or $0.54 per common share,
compared with $50.5 million, or $0.51 per common share, in the prior year period. We have
increased dividends every year for the last 33 years and expect to continue paying dividends on a
quarterly basis.
The total gross liability for uncertain tax positions at September 26, 2009 was approximately $29.1
million. We are not able to reasonably estimate the amount by which the estimate will increase or
decrease over time; however, at this time, we do not expect a significant payment related to these
obligations within the next twelve months.
24
There have been no material changes with respect to the contractual obligations, other than noted
above, or off-balance sheet arrangements described in our 2008 Annual Report on Form 10-K.
Other financial measures
In addition to measuring our cash flow generation or usage based upon operating, investing, and
financing classifications included in the Consolidated Statements of Cash Flows, we also measure
our free cash flow and our conversion of net income. We have a long-term goal to consistently
generate free cash flow that equals or exceeds 100% conversion of net income. Free cash flow and
conversion of net income are non-GAAP financial measures that we use to assess our cash flow
performance. We believe free cash flow and conversion of net income are important measures of
operating performance because they provide us and our investors a measurement of cash generated
from operations that is available to pay dividends and repay debt. In addition, free cash flow and
conversion of net income are used as a criterion to measure and pay compensation-based incentives.
Our measure of free cash flow and conversion of net income may not be comparable to similarly
titled measures reported by other companies. The following table is a reconciliation of free cash
flow and a calculation of the conversion of net income with cash flows from continuing operations:
Nine months ended | ||||||||
September 26 | September 27 | |||||||
In thousands | 2009 | 2008 | ||||||
Net cash provided by (used for) continuing operations |
$ | 240,181 | $ | 142,122 | ||||
Capital expenditures |
(39,306 | ) | (39,769 | ) | ||||
Proceeds from sale of property and equipment |
817 | 4,304 | ||||||
Free cash flow |
201,692 | 106,657 | ||||||
Net income from continuing operations attributable to Pentair, Inc. |
86,294 | 235,202 | ||||||
Conversion of net income from continuing operations attributable to Pentair, Inc. |
234 | % | 45 | % | ||||
Our free cash flow target for 2009 is greater than $225 million.
NEW ACCOUNTING STANDARDS
See Note 2 (New Accounting Standards) of ITEM 1.
CRITICAL ACCOUNTING POLICIES
In our 2008 Annual Report on Form 10-K, we identified the critical accounting policies which affect
our more significant estimates and assumptions used in preparing our consolidated financial
statements. We have not changed these policies from those previously disclosed in our Annual
Report.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There have been no material changes in our market risk during the quarter ended September 26, 2009.
For additional information, refer to Item 7A of our 2008 Annual Report on Form 10-K.
ITEM 4. | CONTROLS AND PROCEDURES |
(a) | Evaluation of Disclosure Controls and Procedures | |
We maintain a system of disclosure controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter ended September 26, 2009 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act). Based upon their evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the quarter ended September 26, 2009 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. | ||
(b) | Changes in Internal Controls | |
There was no change in our internal control over financial reporting that occurred during the quarter ended September 26, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. |
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pentair, Inc.:
Pentair, Inc.:
We have reviewed the accompanying condensed consolidated balance sheets of Pentair, Inc. and
subsidiaries (the Company) as of September 26, 2009 and September 27, 2008, and the related
condensed consolidated statements of income for the three-month and nine-month periods ended
September 26, 2009 and September 27, 2008, and of cash flows and shareholders equity for the
nine-month periods ended September 26, 2009 and September 27, 2008. These interim financial
statements are the responsibility of the Companys management.
We conducted our reviews in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such
condensed consolidated interim financial statements for them to be in conformity with accounting
principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Pentair, Inc. and subsidiaries
as of December 31, 2008, and the related consolidated statements of income, shareholders equity,
and cash flows for the year then ended prior to retrospective adjustment for the adoption of new
guidance related to the accounting for noncontrolling interests; and in our report dated
February 23, 2009, we expressed an unqualified opinion on those consolidated financial statements.
We also audited the adjustments described in Note 2 that were applied to reclassify the December
31, 2008 consolidated balance sheet of Pentair, Inc. and subsidiaries (not presented herein) for
the adoption. In our opinion, such adjustments are appropriate and have been properly applied to
the previously issued consolidated balance sheet in deriving the accompanying retrospectively
adjusted condensed consolidated balance sheet as of December 31, 2008.
Deloitte & Touche LLP
Minneapolis, MN
October 20, 2009
October 20, 2009
26
PART II OTHER INFORMATION
ITEM 1. | Legal Proceedings |
Environmental and Litigation
There have been no further material developments from the disclosures contained in our 2008 Annual
Report on Form 10-K.
ITEM 1A. | Risk Factors |
There have been no material changes from the risk factors previously disclosed in ITEM 1A. of our
2008 Annual Report on Form 10-K.
27
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The following table provides information with respect to purchases we made of our common stock during the third quarter of 2009: |
(c) | (d) | |||||||||||||||
(a) | Total Number of Shares | Dollar Value of Shares | ||||||||||||||
Total Number | (b) | Purchased as Part of | that May Yet Be | |||||||||||||
of Shares | Average Price | Publicly Announced Plans | Purchased Under the | |||||||||||||
Period | Purchased | Paid per Share | or Programs | Plans or Programs | ||||||||||||
June 28
July 25, 2009 |
7,644 | $ | 25.82 | | $ | 0 | ||||||||||
July 26 August 22, 2009 |
434 | $ | 25.54 | | $ | 0 | ||||||||||
August 23 September 26, 2009 |
9,592 | $ | 28.70 | | $ | 0 | ||||||||||
Total |
17,670 | |
(a) | The purchases in this column reflect shares deemed surrendered to us by participants in our Omnibus Stock Incentive Plan and the Outside Directors Nonqualified Stock Option Plan (the Plans) to satisfy the exercise price or withholding of tax obligations related to the exercise of stock options and non-vested shares. | |
(b) | The average price paid in this column relects the per share value of shares deemed surrendered to us by participants in the Plans to satisfy the exercise price for the exercise price of stock options and withholding tax obligations due upon stock option exercises and vesting of restricted shares. | |
(c) | Our board of directors has not authorized a share repurchase plan for 2009. | |
(d) | Our board of directors has not authorized a share repurchase plan for 2009. |
28
ITEM 6. | Exhibits |
(a) | Exhibits | |||||
10.1 | Pentair, Inc. 2008 Omnibus Stock Incentive Plan, as amended and restated through July 28, 2009. | |||||
10.2 | Pentair, Inc. Non-Qualified Deferred Compensation Plan, as amended and restated through July 28, 2008. | |||||
15 | Letter Regarding Unaudited Interim Financial Information. | |||||
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||
32.1 | Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||
32.2 | Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
29
SIGNATURE
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, thereunto duly authorized, on
October 20, 2009.
PENTAIR, INC. Registrant |
||||
By | /s/ John L. Stauch | |||
John L. Stauch | ||||
Executive Vice President and Chief Financial Officer | ||||
By | /s/ Mark C. Borin | |||
Mark C. Borin | ||||
Corporate Controller and Chief Accounting Officer |
30
Exhibit Index to Form 10-Q for the Period Ended September 26, 2009
10.1 | Pentair, Inc. 2008 Omnibus Stock Incentive Plan, as amended and restated through July 28, 2009. |
|||
10.2 | Pentair, Inc. Non-Qualified Deferred Compensation Plan, as amended and restated through July 28, 2008. |
|||
15 | Letter Regarding Unaudited Interim Financial Information. |
|||
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|||
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|||
32.1 | Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |