PENTAIR PLC
10-Ks and 10-Qs
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Table of Contents
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 April 3, 2010
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) |
Registrant’s 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 | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
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 April 3, 2010, 98,650,967 shares of Registrant’s common stock were outstanding.
Pentair, Inc. and Subsidiaries
2
Table of Contents
| Three months ended | ||||||||
| April 3, | March 28, | |||||||
| In thousands, except per-share data | 2010 | 2009 | ||||||
|
Net sales
|
$ | 707,013 | $ | 633,840 | ||||
|
Cost of goods sold
|
493,311 | 464,608 | ||||||
|
Gross profit
|
213,702 | 169,232 | ||||||
|
Selling, general and administrative
|
132,890 | 117,275 | ||||||
|
Research and development
|
17,211 | 14,743 | ||||||
|
Operating income
|
63,601 | 37,214 | ||||||
|
Other (income) expense:
|
||||||||
|
Equity (income) losses of unconsolidated subsidiary
|
(84 | ) | 277 | |||||
|
Net interest expense
|
9,527 | 11,784 | ||||||
|
|
||||||||
|
Income from continuing operations before income taxes and noncontrolling interest
|
54,158 | 25,153 | ||||||
|
Provision for income taxes
|
18,129 | 7,432 | ||||||
|
Income from continuing operations
|
36,029 | 17,721 | ||||||
|
Gain on disposal of discontinued operations, net of tax
|
524 | 10 | ||||||
|
Net income before noncontrolling interest
|
36,553 | 17,731 | ||||||
|
Noncontrolling interest
|
1,232 | 466 | ||||||
|
Net income attributable to Pentair, Inc.
|
$ | 35,321 | $ | 17,265 | ||||
|
|
||||||||
|
Net income from continuing operations attributable to Pentair, Inc.
|
$ | 34,797 | $ | 17,255 | ||||
|
|
||||||||
|
Earnings per common share attributable to Pentair, Inc.
|
||||||||
|
Basic
|
||||||||
|
Continuing operations
|
$ | 0.35 | $ | 0.18 | ||||
|
Discontinued operations
|
0.01 | — | ||||||
|
Basic earnings per common share
|
$ | 0.36 | $ | 0.18 | ||||
|
|
||||||||
|
Diluted
|
||||||||
|
Continuing operations
|
$ | 0.35 | $ | 0.18 | ||||
|
Discontinued operations
|
0.01 | — | ||||||
|
Diluted earnings per common share
|
$ | 0.36 | $ | 0.18 | ||||
|
|
||||||||
|
Weighted average common shares outstanding
|
||||||||
|
Basic
|
98,030 | 97,375 | ||||||
|
Diluted
|
99,568 | 97,966 | ||||||
|
|
||||||||
|
Cash dividends declared per common share
|
$ | 0.19 | $ | 0.18 | ||||
See accompanying notes to condensed consolidated financial statements.
3
Table of Contents
| April 3, | December 31, | March 28, | ||||||||||
| In thousands, except share and per-share data | 2010 | 2009 | 2009 | |||||||||
|
Assets
|
||||||||||||
|
Current assets
|
||||||||||||
|
Cash and cash equivalents
|
$ | 46,783 | $ | 33,396 | $ | 34,708 | ||||||
|
Accounts and notes receivable, net
|
550,830 | 455,090 | 505,196 | |||||||||
|
Inventories
|
363,667 | 360,627 | 393,201 | |||||||||
|
Deferred tax assets
|
49,665 | 49,609 | 51,268 | |||||||||
|
Prepaid expenses and other current assets
|
43,580 | 47,576 | 47,848 | |||||||||
|
Total current assets
|
1,054,525 | 946,298 | 1,032,221 | |||||||||
|
|
||||||||||||
|
Property, plant and equipment, net
|
330,201 | 333,688 | 337,898 | |||||||||
|
|
||||||||||||
|
Other assets
|
||||||||||||
|
Goodwill
|
2,067,836 | 2,088,797 | 2,092,825 | |||||||||
|
Intangibles, net
|
472,398 | 486,407 | 504,921 | |||||||||
|
Other
|
56,224 | 56,144 | 56,964 | |||||||||
|
Total other assets
|
2,596,458 | 2,631,348 | 2,654,710 | |||||||||
|
Total assets
|
$ | 3,981,184 | $ | 3,911,334 | $ | 4,024,829 | ||||||
|
|
||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||
|
Current liabilities
|
||||||||||||
|
Short-term borrowings
|
$ | 3,731 | $ | 2,205 | $ | 7,404 | ||||||
|
Current maturities of long-term debt
|
51 | 81 | 630 | |||||||||
|
Accounts payable
|
229,502 | 207,661 | 196,767 | |||||||||
|
Employee compensation and benefits
|
77,496 | 74,254 | 75,664 | |||||||||
|
Current pension and post-retirement benefits
|
8,948 | 8,948 | 8,890 | |||||||||
|
Accrued product claims and warranties
|
37,803 | 34,288 | 38,639 | |||||||||
|
Income taxes
|
8,571 | 5,659 | 4,312 | |||||||||
|
Accrued rebates and sales incentives
|
24,653 | 27,554 | 20,754 | |||||||||
|
Other current liabilities
|
86,763 | 85,629 | 98,919 | |||||||||
|
Total current liabilities
|
477,518 | 446,279 | 451,979 | |||||||||
|
|
||||||||||||
|
Other liabilities
|
||||||||||||
|
Long-term debt
|
862,351 | 803,351 | 991,807 | |||||||||
|
Pension and other retirement compensation
|
231,733 | 234,948 | 270,443 | |||||||||
|
Post-retirement medical and other benefits
|
30,630 | 31,790 | 34,299 | |||||||||
|
Long-term income taxes payable
|
25,720 | 26,936 | 28,076 | |||||||||
|
Deferred tax liabilities
|
145,777 | 146,630 | 145,565 | |||||||||
|
Other non-current liabilities
|
95,399 | 95,060 | 97,260 | |||||||||
|
Total liabilities
|
1,869,128 | 1,784,994 | 2,019,429 | |||||||||
|
|
||||||||||||
|
Commitments and contingencies
|
||||||||||||
|
|
||||||||||||
|
Shareholders’ equity
|
||||||||||||
|
Common
shares par value $0.16 2/3; 98,650,967, 98,655,506 and 98,280,976 shares issued and outstanding, respectively
|
16,441 | 16,442 | 16,380 | |||||||||
|
Additional paid-in capital
|
475,135 | 472,807 | 454,736 | |||||||||
|
Retained earnings
|
1,518,726 | 1,502,242 | 1,457,231 | |||||||||
|
Accumulated other comprehensive income (loss)
|
(11,801 | ) | 20,597 | (44,835 | ) | |||||||
|
Noncontrolling interest
|
113,555 | 114,252 | 121,888 | |||||||||
|
Total shareholders’ equity
|
2,112,056 | 2,126,340 | 2,005,400 | |||||||||
|
Total liabilities and shareholders’ equity
|
$ | 3,981,184 | $ | 3,911,334 | $ | 4,024,829 | ||||||
See accompanying notes to condensed consolidated financial statements.
4
Table of Contents
| Three months ended | ||||||||
| April 3, | March 28, | |||||||
| In thousands | 2010 | 2009 | ||||||
|
Operating activities
|
||||||||
|
Net income before noncontrolling interest
|
$ | 36,553 | $ | 17,731 | ||||
|
Adjustments to reconcile net income to net cash provided by (used for) operating activities
|
||||||||
|
Gain on disposal of discontinued operations
|
(524 | ) | (10 | ) | ||||
|
Equity (income) losses of unconsolidated subsidiary
|
(84 | ) | 277 | |||||
|
Depreciation
|
14,564 | 15,170 | ||||||
|
Amortization
|
6,746 | 7,233 | ||||||
|
Deferred income taxes
|
1,617 | 7 | ||||||
|
Stock compensation
|
6,802 | 4,720 | ||||||
|
Excess tax benefits from stock-based compensation
|
(980 | ) | (64 | ) | ||||
|
(Gain) loss on sale of assets
|
(147 | ) | 19 | |||||
|
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
|
||||||||
|
Accounts and notes receivable
|
(99,054 | ) | (47,021 | ) | ||||
|
Inventories
|
(5,525 | ) | 21,069 | |||||
|
Prepaid expenses and other current assets
|
2,826 | 15,008 | ||||||
|
Accounts payable
|
22,479 | (18,052 | ) | |||||
|
Employee compensation and benefits
|
1,694 | (15,470 | ) | |||||
|
Accrued product claims and warranties
|
3,647 | (2,797 | ) | |||||
|
Income taxes
|
3,446 | (922 | ) | |||||
|
Other current liabilities
|
(1,584 | ) | (13,337 | ) | ||||
|
Pension and post-retirement benefits
|
(426 | ) | 1,801 | |||||
|
Other assets and liabilities
|
(2,363 | ) | (2,415 | ) | ||||
|
Net cash provided by (used for) continuing operations
|
(10,313 | ) | (17,053 | ) | ||||
|
|
||||||||
|
Investing activities
|
||||||||
|
Capital expenditures
|
(12,059 | ) | (15,979 | ) | ||||
|
Proceeds from sale of property and equipment
|
127 | 280 | ||||||
|
Other
|
292 | (40 | ) | |||||
|
Net cash provided by (used for) investing activities
|
(11,640 | ) | (15,739 | ) | ||||
|
|
||||||||
|
Financing activities
|
||||||||
|
Net short-term borrowings
|
1,526 | 7,494 | ||||||
|
Proceeds from long-term debt
|
200,000 | 135,000 | ||||||
|
Repayment of long-term debt
|
(141,025 | ) | (96,679 | ) | ||||
|
Excess tax benefits from stock-based compensation
|
980 | 64 | ||||||
|
Stock issued to employees, net of shares withheld
|
(1,938 | ) | 680 | |||||
|
Dividends paid
|
(18,837 | ) | (17,710 | ) | ||||
|
Net cash provided by (used for) financing activities
|
40,706 | 28,849 | ||||||
|
|
||||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
(5,366 | ) | (693 | ) | ||||
|
Change in cash and cash equivalents
|
13,387 | (4,636 | ) | |||||
|
Cash and cash equivalents, beginning of period
|
33,396 | 39,344 | ||||||
|
Cash and cash equivalents, end of period
|
$ | 46,783 | $ | 34,708 | ||||
See accompanying notes to condensed consolidated financial statements.
5
Table of Contents
Pentair Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
| Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||
| Additional | other | income | ||||||||||||||||||||||||||||||||||
| In thousands, except share | Common shares | paid-in | Retained | comprehensive | Total | Noncontrolling | attributable | |||||||||||||||||||||||||||||
| and per-share data | Number | Amount | capital | earnings | income (loss) | Pentair, Inc. | interest | Total | to Pentair, Inc. | |||||||||||||||||||||||||||
|
Balance — December 31, 2009
|
98,655,506 | $ | 16,442 | $ | 472,807 | $ | 1,502,242 | $ | 20,597 | $ | 2,012,088 | $ | 114,252 | $ | 2,126,340 | |||||||||||||||||||||
|
Net income
|
35,321 | 35,321 | 1,232 | 36,553 | $ | 35,321 | ||||||||||||||||||||||||||||||
|
Change in cumulative translation
adjustment
|
(31,827 | ) | (31,827 | ) | (1,929 | ) | (33,756 | ) | (31,827 | ) | ||||||||||||||||||||||||||
|
Changes in market value of derivative financial
instruments, net of ($357) tax
|
(571 | ) | (571 | ) | (571 | ) | (571 | ) | ||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Comprehensive income
|
$ | 2,923 | ||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Cash dividends — $0.19 per
common share
|
(18,837 | ) | (18,837 | ) | (18,837 | ) | ||||||||||||||||||||||||||||||
|
Share repurchases
|
||||||||||||||||||||||||||||||||||||
|
Exercise of stock options, net of
19,141 shares tendered for payment
|
107,672 | 18 | 1,523 | 1,541 | 1,541 | |||||||||||||||||||||||||||||||
|
Issuance of restricted shares, net
of cancellations
|
6,648 | 1 | 508 | 509 | 509 | |||||||||||||||||||||||||||||||
|
Amortization of restricted shares
|
1,171 | 1,171 | 1,171 | |||||||||||||||||||||||||||||||||
|
Shares surrendered by employees
to pay taxes
|
(118,859 | ) | (20 | ) | (3,970 | ) | (3,990 | ) | (3,990 | ) | ||||||||||||||||||||||||||
|
Stock compensation
|
3,096 | 3,096 | 3,096 | |||||||||||||||||||||||||||||||||
|
Balance — April 3, 2010
|
98,650,967 | $ | 16,441 | $ | 475,135 | $ | 1,518,726 | $ | (11,801 | ) | $ | 1,998,501 | $ | 113,555 | $ | 2,112,056 | ||||||||||||||||||||
| Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||
| Additional | other | income | ||||||||||||||||||||||||||||||||||
| In thousands, except share | Common shares | paid-in | Retained | comprehensive | Total | Noncontrolling | 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
|
17,265 | 17,265 | 466 | 17,731 | $ | 17,265 | ||||||||||||||||||||||||||||||
|
Change in cumulative translation
adjustment
|
(18,600 | ) | (18,600 | ) | 34 | (18,566 | ) | (18,600 | ) | |||||||||||||||||||||||||||
|
Changes in market value of derivative financial
instruments, net of ($250) tax
|
380 | 380 | 380 | 380 | ||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Comprehensive income
|
$ | (955 | ) | |||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Cash dividends — $0.18 per
common share
|
(17,710 | ) | (17,710 | ) | (17,710 | ) | ||||||||||||||||||||||||||||||
|
Exercise of stock options
|
29,178 | 5 | 675 | 680 | 680 | |||||||||||||||||||||||||||||||
|
Issuance of restricted shares, net
of cancellations
|
41,884 | 6 | 456 | 462 | 462 | |||||||||||||||||||||||||||||||
|
Amortization of restricted shares
|
1,903 | 1,903 | 1,903 | |||||||||||||||||||||||||||||||||
|
Shares surrendered by employees
to pay taxes
|
(67,005 | ) | (10 | ) | (1,527 | ) | (1,537 | ) | (1,537 | ) | ||||||||||||||||||||||||||
|
Stock compensation
|
1,988 | 1,988 | 1,988 | |||||||||||||||||||||||||||||||||
|
Balance — March 28, 2009
|
98,280,976 | $ | 16,380 | $ | 454,736 | $ | 1,457,231 | $ | (44,835 | ) | $ | 1,883,512 | $ | 121,888 | $ | 2,005,400 | ||||||||||||||||||||
|
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||||||||||||||||||||||||||||||||||||
6
Table of Contents
Pentair, Inc and Subsidiaries
Notes to condensed 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 2009 Annual Report on Form 10-K for the year ended December 31, 2009.
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
three months ended April 3, 2010, we have evaluated subsequent events for potential recognition and
disclosure through the date of this filing.
2. New Accounting Standards
In June 2009, the Financial Accounting Standards Board issued an amendment to the accounting and
disclosure requirements for the consolidation of variable interest entities. The guidance affects
the overall consolidation analysis and requires enhanced disclosures on involvement with variable
interest entities. The guidance is effective for fiscal years beginning after November 15, 2009.
We adopted the new guidance as of January 1, 2010, which did not have a material effect on our
condensed consolidated financial statements.
No other new accounting pronouncements issued or effective during the first three months of 2010
have had or are expected to have a material impact on the Consolidated Financial Statements.
3. Stock-based Compensation
Total stock-based compensation expense was $6.8 million and $4.7 million for the first quarter of
2010 and 2009, respectively.
During the first quarter of 2010, 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 three to four 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 and restricted stock units during the first
quarter of 2010 and 2009 was $3.7 million and $2.7 million, respectively.
During the first quarter of 2010, 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 date of grant.
Option awards are typically expensed over the vesting period. Total compensation expense for stock
option awards was $3.1 million and $2.0 million for the first quarter of 2010 and 2009,
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:
| April 3, | March 28, | |||||||
| 2010 | 2009 | |||||||
|
Expected stock price volatility
|
35.0 | % | 32.5 | % | ||||
|
Expected life
|
5.5 yrs | 5.2 yrs | ||||||
|
Risk-free interest rate
|
2.47 | % | 1.77 | % | ||||
|
Dividend yield
|
2.30 | % | 3.20 | % | ||||
The weighted-average fair value of options granted during the first quarter of 2010 and 2009 was
$7.84 and $5.09 per share, respectively.
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.
7
Table of Contents
Pentair, Inc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
4. Earnings Per Common Share
Basic and diluted earnings per share was calculated using the following:
| Three months ended | ||||||||
| April 3, | March 28, | |||||||
| In thousands | 2010 | 2009 | ||||||
|
Weighted average common shares outstanding — basic
|
98,030 | 97,375 | ||||||
|
Dilutive impact of stock options and restricted stock
|
1,538 | 591 | ||||||
|
Weighted average common shares outstanding — diluted
|
99,568 | 97,966 | ||||||
|
|
||||||||
|
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
|
4,821 | 8,601 | ||||||
5. Restructuring
During 2009 and 2008, we announced and initiated certain business restructuring initiatives aimed
at reducing our fixed cost structure and rationalizing our manufacturing footprint. These
initiatives included the closure of certain manufacturing facilities as well as the reduction in
hourly and salaried headcount. These actions were generally 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 of
$2.8 million in the first three months of 2009.
Restructuring accrual activity recorded on the Condensed Consolidated Balance Sheets is summarized
as follows for the three months ended April 3, 2010 and March 28, 2009:
| Three months ended | ||||||||
| April 3, | March 28, | |||||||
| In thousands | 2010 | 2009 | ||||||
|
Beginning balance
|
$ | 14,509 | $ | 34,174 | ||||
|
Costs incurred
|
— | 2,820 | ||||||
|
Cash payments and other
|
(5,286 | ) | (14,274 | ) | ||||
|
Ending balance
|
$ | 9,223 | $ | 22,720 | ||||
6. Inventories
Inventories were comprised of:
| April 3, | December 31, | March 28, | ||||||||||
| In thousands | 2010 | 2009 | 2009 | |||||||||
|
Raw materials and supplies
|
$ | 198,737 | $ | 200,931 | $ | 206,348 | ||||||
|
Work-in-process
|
39,985 | 38,338 | 50,088 | |||||||||
|
Finished goods
|
124,945 | 121,358 | 136,765 | |||||||||
|
Total inventories
|
$ | 363,667 | $ | 360,627 | $ | 393,201 | ||||||
7. Goodwill and Other Identifiable Intangible Assets
The changes in the carrying amount of goodwill for the three months ended April 3, 2010 and
March 28, 2009 by segment were as follows:
| Acquisitions/ | Foreign Currency | |||||||||||||||
| In thousands | December 31, 2009 | Divestitures | Translation/Other | April 3, 2010 | ||||||||||||
|
Water Group
|
$ | 1,802,913 | $ | — | $ | (17,388 | ) | $ | 1,785,525 | |||||||
|
Technical Products Group
|
285,884 | — | (3,573 | ) | 282,311 | |||||||||||
|
Consolidated Total
|
$ | 2,088,797 | $ | — | $ | (20,961 | ) | $ | 2,067,836 | |||||||
8
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Pentair, Inc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Notes to condensed consolidated financial statements (unaudited)
| Acquisitions/ | Foreign Currency | |||||||||||||||
| In thousands | December 31, 2008 | Divestitures | Translation/Other | March 28, 2009 | ||||||||||||
|
Water Group
|
$ | 1,818,470 | $ | (227 | ) | $ | (7,312 | ) | $ | 1,810,931 | ||||||
|
Technical Products Group
|
283,381 | — | (1,487 | ) | 281,894 | |||||||||||
|
Consolidated Total
|
$ | 2,101,851 | $ | (227 | ) | $ | (8,799 | ) | $ | 2,092,825 | ||||||
|
The detail
of acquired intangible assets consisted of the following:
|
||||||||||||||||
| April 3, 2010 | December 31, 2009 | March 28, 2009 | ||||||||||||||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||||||||||||||
| carrying | Accumulated | carrying | Accumulated | carrying | Accumulated | |||||||||||||||||||||||||||||||
| In thousands | amount | amortization | Net | amount | amortization | Net | amount | amortization | Net | |||||||||||||||||||||||||||
|
Finite-life intangibles
|
||||||||||||||||||||||||||||||||||||
|
Patents
|
$ | 15,455 | $ | (11,796 | ) | $ | 3,659 | $ | 15,458 | $ | (11,502 | ) | $ | 3,956 | $ | 15,424 | $ | (10,256 | ) | $ | 5,168 | |||||||||||||||
|
Non-compete agreements
|
— | — | — | 4,522 | (4,522 | ) | — | 4,522 | (4,479 | ) | 43 | |||||||||||||||||||||||||
|
Proprietary technology
|
72,965 | (25,255 | ) | 47,710 | 73,244 | (23,855 | ) | 49,389 | 72,199 | (19,097 | ) | 53,102 | ||||||||||||||||||||||||
|
Customer relationships
|
283,577 | (69,910 | ) | 213,667 | 288,122 | (66,091 | ) | 222,031 | 280,723 | (51,132 | ) | 229,591 | ||||||||||||||||||||||||
|
Trade names
|
1,537 | (269 | ) | 1,268 | 1,562 | (235 | ) | 1,327 | 1,520 | (113 | ) | 1,407 | ||||||||||||||||||||||||
|
Total finite-life intangibles
|
$ | 373,534 | $ | (107,230 | ) | $ | 266,304 | $ | 382,908 | $ | (106,205 | ) | $ | 276,703 | $ | 374,388 | $ | (85,077 | ) | $ | 289,311 | |||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Indefinite-life intangibles
|
||||||||||||||||||||||||||||||||||||
|
Trade names
|
$ | 206,094 | $ | — | $ | 206,094 | $ | 209,704 | $ | — | $ | 209,704 | $ | 215,610 | $ | — | $ | 215,610 | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Total intangibles, net
|
$ | 579,628 | $ | (107,230 | ) | $ | 472,398 | $ | 592,612 | $ | (106,205 | ) | $ | 486,407 | $ | 589,998 | $ | (85,077 | ) | $ | 504,921 | |||||||||||||||
Intangible asset amortization expense was approximately $5.5 million and $7.2 million for the
three months ended April 3, 2010 and March 28, 2009, respectively.
The estimated future amortization expense for identifiable intangible assets during the remainder
of 2010 and the next five years is as follows:
| In thousands | 2010 Q2-Q4 | 2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||||
|
Estimated amortization expense
|
$ | 18,773 | $ | 25,040 | $ | 24,228 | $ | 23,856 | $ | 23,531 | $ | 23,233 | ||||||||||||
Debt and the average interest rates on debt outstanding are summarized as follows:
| Average | ||||||||||||||||||||
| interest rate | Maturity | April 3, | December 31, | March 28, | ||||||||||||||||
| In thousands | April 3, 2010 | (Year) | 2010 | 2009 | 2009 | |||||||||||||||
|
Revolving credit facilities
|
0.87 | % | 2012 | $ | 257,300 | $ | 198,300 | $ | 252,800 | |||||||||||
|
Private placement — fixed rate
|
5.65 | % | 2013-2017 | 400,000 | 400,000 | 400,000 | ||||||||||||||
|
Private placement — floating rate
|
0.80 | % | 2012-2013 | 205,000 | 205,000 | 205,000 | ||||||||||||||
|
Senior notes
|
7.85 | % | 2009 | — | — | 133,900 | ||||||||||||||
|
Other
|
4.34 | % | 2010-2016 | 3,833 | 2,337 | 7,829 | ||||||||||||||
|
Total contractual debt obligations
|
866,133 | 805,637 | 999,529 | |||||||||||||||||
|
Deferred income related to swaps
|
— | — | 312 | |||||||||||||||||
9
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Pentair, Inc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
| Average | ||||||||||||||||||||
| interest rate | Maturity | April 3, | December 31, | March 28, | ||||||||||||||||
| In thousands | April 3, 2010 | (Year) | 2010 | 2009 | 2009 | |||||||||||||||
|
Total debt, including current
portion per balance sheet
|
866,133 | 805,637 | 999,841 | |||||||||||||||||
|
Less: Current maturities
|
(51 | ) | (81 | ) | (630 | ) | ||||||||||||||
|
Short-term borrowings
|
(3,731 | ) | (2,205 | ) | (7,404 | ) | ||||||||||||||
|
Long-term debt
|
$ | 862,351 | $ | 803,351 | $ | 991,807 | ||||||||||||||
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.
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
April 3, 2010, we had no commercial paper outstanding.
Total availability under our existing Credit Facility was $542.7 million as of April 3, 2010, which
would have been limited to $424.1 million based on the credit agreement’s leverage ratio covenant.
In addition to the Credit Facility, we have $40.0 million of uncommitted credit facilities, under
which we had $3.7 million of borrowings as of April 3, 2010.
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 financial covenants in our debt
agreements as of April 3, 2010.
On March 16, 2009, we announced the redemption of all of our remaining outstanding $133.9 million
aggregate principal 7.85% Senior Notes due 2009 (the “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 April 3, 2010 matures on a calendar year basis as follows:
| In thousands | 2010 Q2 -Q4 | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||||
|
Contractual debt
|
||||||||||||||||||||||||||||||||
|
obligation
maturities
|
$ | 3,782 | $ | 15 | $ | 362,306 | $ | 200,007 | $ | 8 | $ | 8 | $ | 300,007 | $ | 866,133 | ||||||||||||||||
9. Derivatives and Financial Instruments
Fair value measurements
The accounting guidance defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Assets and liabilities measured at fair value are classified using the following
hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement
date:
|
|
Level 1: | Valuation is based on observable inputs such as quoted market prices (unadjusted) for identical assets or liabilities in active markets. | ||
|
|
||||
|
|
Level 2: | Valuation is based on inputs such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | ||
|
|
||||
|
|
Level 3: | Valuation is based upon other unobservable inputs that are significant to the fair value measurement. |
In making fair value measurements, observable market data must be used when available. When inputs
used to measure fair value fall within different levels of the hierarchy, the level within which
the fair value measurement is categorized is based on the lowest level input that is significant to
the fair value measurement.
10
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Pentair, Inc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
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. 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 .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 $8.2 million, $8.1 million and $10.4 million at April 3, 2010,
December 31, 2009 and March 28, 2009, 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. 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 .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 $9.0 million, $8.3 million and $11.3 million at April 3,
2010, December 31, 2009 and March 28, 2009, respectively, and was recorded in
Other non-current
liabilities
.
The variable to fixed interest rate swaps are designated as cash-flow hedges. The fair value of
these swaps are recorded as assets or liabilities on the Condensed Consolidated Balance Sheets.
Unrealized income/expense is included in
Accumulated other comprehensive income
(“OCI”) and
realized income/expense and amounts due to/from swap counterparties, are included in earnings. We
realized incremental expense resulting from the swaps of $2.3 million and $1.5 million for the
three months ended April 3, 2010 and March 28, 2009, respectively.
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 Condensed Consolidated
Balance Sheets, with changes in their fair value included in
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 .50% for $105 million of debt and 3 month LIBOR plus .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 April 3, 2010, 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 defined by the accounting guidance.
10. 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 three months ended April 3, 2010 was 33.5% compared to 29.5%
for the three months ended March 28, 2009. We expect the effective tax rate for the remainder of
2010 to be between 33% and 34%, resulting in a full year effective income tax rate of between 33%
and 34%. 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 April 3, 2010 was $28.7 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.
11. Benefit Plans
Components of net periodic benefit cost for the three months ended April 3, 2010 and March 28,
2009 were as follows:
11
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Pentair, Inc and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Notes to condensed consolidated financial statements (unaudited)
| Three months ended | ||||||||||||||||
| Pension benefits | Post-retirement | |||||||||||||||
| April 3, | March 28, | April 3, | March 28, | |||||||||||||
| In thousands | 2010 | 2009 | 2010 | 2009 | ||||||||||||
|
Service cost
|
$ | 2,886 | $ | 3,067 | $ | 50 | $ | 54 | ||||||||
|
Interest cost
|
7,887 | 8,115 | 503 | 594 | ||||||||||||
|
Expected return on plan assets
|
(7,710 | ) | (7,563 | ) | — | — | ||||||||||
|
Amortization of transition obligation
|
6 | 14 | — | — | ||||||||||||
|
Amortization of prior year service cost (benefit)
|
8 | 6 | (7 | ) | (10 | ) | ||||||||||
|
Recognized net actuarial loss (gains)
|
406 | 18 | (823 | ) | (832 | ) | ||||||||||
|
Net periodic benefit cost
|
$ | 3,483 | $ | 3,657 | $ | (277 | ) | $ | (194 | ) | ||||||
12. Business Segments
Financial information by reportable segment for the three months ended April 3, 2010 and March 28,
2009 is shown below:
| Three months ended | ||||||||
| April 3, | March 28, | |||||||
| In thousands | 2010 | 2009 | ||||||
|
Net sales to external customers
|
||||||||
|
Water Group
|
$ | 478,038 | $ | 423,932 | ||||
|
Technical Products Group
|
228,975 | 209,908 | ||||||
|
Consolidated
|
$ | 707,013 | $ | 633,840 | ||||
|
|
||||||||
|
Intersegment sales
|
||||||||
|
Water Group
|
$ | 517 | $ | 289 | ||||
|
Technical Products Group
|
703 | 233 | ||||||
|
Intercompany sales eliminations
|
(1,220 | ) | (522 | ) | ||||
|
Consolidated
|
$ | — | $ | — | ||||
|
|
||||||||
|
Operating income (loss)
|
||||||||
|
Water Group
|
$ | 42,138 | $ | 26,976 | ||||
|
Technical Products Group
|
33,098 | 20,462 | ||||||
|
Unallocated corporate expenses and intercompany eliminations
|
(11,635 | ) | (10,224 | ) | ||||
|
Consolidated
|
$ | 63,601 | $ | 37,214 | ||||
13. Warranty
The changes in the carrying amount of service and product warranties for the three months ended
April 3, 2010 and March 28, 2009 and the year ended December 31, 2009 were as follows:
| April 3, | December 31, | March 28, | ||||||||||
| In thousands | 2010 | 2009 | 2009 | |||||||||
|
Balance at beginning of the year
|
$ | 24,288 | $ | 31,559 | $ | 31,559 | ||||||
|
Service and product warranty provision
|
14,924 | 55,232 | 11,644 | |||||||||
|
Payments
|
(11,276 | ) | (62,672 | ) | (14,441 | ) | ||||||
|
Acquired
|
— | 23 | — | |||||||||
|
Translation
|
(133 | ) | 146 | (123 | ) | |||||||
|
Balance at end of the period
|
$ | 27,803 | $ | 24,288 | $ | 28,639 | ||||||
14. Commitments and Contingencies
There have been no further material developments from the disclosures contained in our 2009 Annual
Report on Form 10-K.
12
Table of Contents
| ITEM 2. | MANAGEMENT’S 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 such 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 2009 Annual
Report on Form 10-K, may impact the achievement of forward-looking statements:
| • | general economic and political conditions, such as political instability, credit market uncertainty, the rate of economic growth or decline in our principal geographic or product markets or fluctuations in exchange rates; | |
| • | changes in general economic and industry conditions in markets in which we participate, such as: |
| • | magnitude, timing and scope of global economic recovery; | ||
| • | 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; | ||
| • | market acceptance of our new product introductions and enhancements; | ||
| • | 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; |
| • | 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 continued improvement in manufacturing activities and the achievement of related efficiencies, cost reductions and 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 benefits from our restructuring and other cost actions; | |
| • | 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 and protect the people that use them. In 2010, we
expect our Water Group and Technical Products Group to generate approximately 2/3 and 1/3 of our
total revenues, respectively.
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 $1.8 billion in 2009. 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.
Our Technical Products Group operates in a large global market with significant potential for
growth in industry segments such as energy, medical and security and defense. 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,
13
Table of Contents
new products, price increases and higher demand in targeted markets. In 2009, sales revenues in
our Technical Products Group declined significantly due to the impact of the global recession.
Key Trends and Uncertainties
The following trends and uncertainties affected our financial performance in 2009 and the first
quarter of 2010 and will likely impact our results in the future:
| • | Most markets we serve slowed dramatically in late 2008 and throughout 2009 as a result of the global recession. We believe these markets are stabilizing and we saw signs of a recovery during the first quarter of 2010 from first half 2009 levels. In response to market conditions over the past 18 months, we significantly restructured our operations to both reduce cost and reduce or relocate capacity. 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 2010 and beyond. | |
| • | We have also identified specific market opportunities that we have been and are pursuing that we find attractive, both within and outside the United States. We are reinforcing our businesses to more effectively address these opportunities through research and development and additional sales and marketing resources. Unless we successfully penetrate these product and geographic markets, our organic growth will be limited due to continuing stagnation or slower growth in other markets. | |
| • | New home building and new pool starts have contracted for each of the past four 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 saw stabilization of order rates at the end of 2009 and anticipate continuing stability, with volume increases in many markets, in 2010. We believe that housing construction will improve in 2010 from historically low levels in 2009, and we anticipate a stronger market will have a favorable impact on these businesses, but our participation in these trends appears to lag approximately six months from inception. | |
| • | Industrial, communications and commercial markets for all of our businesses, including commercial and industrial construction, also slowed significantly over the past year. Order rates and sales stabilized in our industrial and communications businesses somewhat in the fourth quarter of 2009 and first quarter of 2010, although commercial and industrial construction markets are still shrinking. We believe that the outlook for most of these markets is mixed, and we expect that commercial and industrial construction will continue to decline over 10% year-over-year in 2010. | |
| • | We experienced material cost and other deflation in a number of our businesses during the second half of 2009. We expect the current economic environment will result in continuing price volatility for many of our raw materials. We believe that the impact of higher commodity prices will impact us unfavorably for the remainder of 2010, but we are uncertain on the timing and impact of a return of cost inflation as the economy improves over the next year. | |
| • | Our unfunded pension liability increased from $147 million at year end 2007 to $257 million at year end 2008, primarily reflecting our reduced investment return and significantly lower asset values in our U.S. defined benefit plans at the end of that year. Primarily as a result of better investment returns and higher contributions in 2009, our unfunded pension liabilities declined to approximately $223 million as of the end of 2009. The contributions included a discretionary contribution of $25 million in December 2009 to improve plan balances and reduce future 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. Our target for free cash flow in 2010 is $225 million. We are continuing to target reductions in working capital, and particularly inventory, as a percentage of sales. 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. We believe that this seasonality will continue in the second and third quarters of 2010, as it did modestly in 2009, but are uncertain of the size and impact of the seasonal spike for the year, and contemplate that any seasonal impact will likely be less than we have historically seen. | |
| • | We experienced year over year unfavorable foreign currency effects on net sales and operating results in 2009 and the first three months of 2010, as a result of the strengthening of the U.S. dollar in relation to other foreign currencies. Our currency effect is primarily for the U.S. dollar against the euro, which may or may not trend favorably in the future. | |
| • | The effective income tax rate for the three months ended April 3, 2010 was 33.5% compared to 29.5% for the three months ended March 28, 2009. We expect the effective tax rate for the remainder of 2010 to be between 33% and 34%. 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. |
14
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Outlook
In 2010, our operating objectives include the following:
| • | Increasing our vertical market focus within each of our Global Business Units to grow in those markets in which we have competitive advantages; | |
| • | Leveraging our technological capabilities to increasingly generate innovative new products; | |
| • | Driving operations excellence through lean enterprise initiatives, with special focus on sourcing and supply management, cash flow management, and lean operations; and | |
| • | Stressing proactive talent development, particularly in international management and other key functional areas. |
On April 27, 2010, we announced our earnings for the first quarter of 2010 of $0.35 per share from
continuing operations on a diluted basis. As further noted below, our revenue increased 12% in the
quarter from the year-earlier period, with slightly higher growth in our water segment.
At the same time, we provided earnings guidance for the second quarter of 2010. We anticipate that
sales growth will be approximately 10% to 13% and reported earnings per share on a diluted basis
will range from $0.52 to $0.55 in the quarter.
On February 2, 2010, we initiated earnings guidance for the full year 2010 of a range of $1.75 to
$1.90 per share on a diluted basis, which we affirmed on April 27, 2010. We are cautiously
optimistic about our end markets both in the United States and in the Asia Pacific region, for the
balance of 2010. As noted above, however, a deterioration in general economic conditions in our
primary markets and geographies would adversely impact our anticipated annual revenues and
financial performance.
Our full year 2010 outlook is based on several variables. First, our guidance anticipates modest
organic revenue gains in our businesses as a whole of between 8-9% as a result of overall market
conditions, which we expect to bring our total revenue to approximately $2.9 billion for the full
year. Second, based upon that revenue expectation, we project net earnings of $1.75 to $1.90 per
share as a result of higher operating margins due to carryover of productivity gains from our
restructuring projects in 2009 and favorable commodities pricing in the first half of 2010, offset
somewhat by higher costs for certain raw materials, reinstatement of certain employee benefits and
wage increases and higher spending on research and development, and sales and marketing resources.
Third, we believe our tax rate and pension expense will be slightly higher than in 2009, with some
reduction in interest expense as a result of lower borrowing levels and continuing low interest
rates. We also believe that should we experience volume gains in excess of those we are
projecting, we will be able to convert those extra revenues into operating income at a rate of from
30% to 40%, consistent with our productivity and other factors. Our water businesses achieved the
bottom of that range of expected conversion rates for extra volume in the first quarter of 2010 due
to unfavorable mix and the timing of expenses for investments for growth initiatives and
pay-as-you-go restructuring.
Our guidance assumes an absence of significant acquisitions or divestitures in 2010. We continue
to look for smaller acquisitions to expand 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 2009 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 | ||||||||||||||||
| April 3, | March 28, | |||||||||||||||
| In thousands | 2010 | 2009 | $ change | % change | ||||||||||||
|
Net sales
|
$ | 707,013 | $ | 633,840 | $ | 73,173 | 11.5 | % | ||||||||
The components of the net sales change in 2010 from 2009 were as follows:
| % Change from 2009 | ||||
| Percentages | First quarter | |||
|
Volume
|
9.6 | |||
|
Price
|
(0.6 | ) | ||
|
Currency
|
2.5 | |||
|
Total
|
11.5 | |||
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Consolidated net sales
The 11.5 percent increase in consolidated net sales in the first quarter of 2010 from 2009 was
primarily driven by:
| • | higher sales of certain pump, pool and filtration products primarily related to the stabilization in the North American and Western European residential housing markets and other global markets following the global recession in 2009; | |
| • | higher sales volumes in the Technical Products Group; and | |
| • | favorable foreign currency effects. |
These increases were partially offset by:
| • | selective decreases in selling prices. |
Net sales by segment and the change from prior year period were as follows:
| Three months ended | ||||||||||||||||
| April 3, | March 28, | |||||||||||||||
| In thousands | 2010 | 2009 | $ change | % change | ||||||||||||
|
Water Group
|
$ | 478,038 | $ | 423,932 | $ | 54,106 | 12.8 | % | ||||||||
|
Technical Product Group
|
228,975 | 209,908 | 19,067 | 9.1 | % | |||||||||||
|
Net sales
|
$ | 707,013 | $ | 633,840 | $ | 73,173 | 11.5 | % | ||||||||
Water Group
The 12.8 percent increase in Water Group net sales in the first quarter of 2010 from 2009 was
primarily driven by:
| • | organic sales growth of approximately 10 percent (excluding foreign currency exchange) primarily due to higher sales of certain pump, pool and filtration products primarily related to the stabilization in the North American and Western European residential housing markets and other global markets following the global recession in 2009; | |
| • | continued growth in India, China and in other emerging markets in the Asia-Pacific region as well as Eastern Europe; and | |
| • | favorable foreign currency effects. |
These increases were partially offset by:
| • | selective decreases in selling prices. |
Technical Products Group
The 9.1 percent increase in Technical Product Group net sales in the first quarter 2010 from 2009
was primarily driven by:
| • | an increase in sales in industrial, general electronics, infrastructure and energy vertical markets; | |
| • | favorable foreign currency effects; and | |
| • | selective increases in selling prices. |
Gross Profit
| Three months ended | ||||||||||||||||
| April 3, | %of | March 28, | %of | |||||||||||||
| In thousands | 2010 | sales | 2009 | sales | ||||||||||||
|
Gross Profit
|
$ | 213,702 | 30.2 | % | $ | 169,232 | 26.7 | % | ||||||||
| Percentage point change | 3.5 pts | |||||||||||||||
The 3.5 percent increase in gross profit as a percentage of sales in the first quarter of 2010 from
2009 was primarily the result of:
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| • | the effect of certain fixed costs spread over higher sales volumes; | |
| • | cost savings from restructuring actions and other personnel reductions taken in response to the economic downturn and resulting volume decline in 2009; and | |
| • | material cost deflation and savings generated from our Pentair Integrated Management System (“PIMS”) initiatives including lean and supply management practices. |
These increases were partially offset by:
| • | selective decreases in selling prices primarily in our residential and commercial water businesses. |
Selling, general and administrative (SG&A)
| Three months ended | ||||||||||||||||
| April 3, | %of | March 28, | %of | |||||||||||||
| In thousands | 2010 | sales | 2009 | sales | ||||||||||||
|
SG&A
|
$ | 132,890 | 18.8 | % | $ | 117,275 | 18.5 | % | ||||||||
|
Percentage point change
|
0.3 pts | |||||||||||||||
The 0.3 percentage point increase in SG&A expense as a percentage of sales in the first quarter of
2010 from 2009 was primarily due to:
| • | continued investments in future growth with emphasis on growth in international markets, including personnel and business infrastructure investments. |
These increases were partially offset by:
| • | reduced costs related to restructuring actions taken throughout 2009 to consolidate facilities and streamline general and administrative costs. |
Research and development (R&D)
| Three months ended | ||||||||||||||||
| April 3, | % of | March 28, | % of | |||||||||||||
| In thousands | 2010 | sales | 2009 | sales | ||||||||||||
|
R&D
|
$ | 17,211 | 2.4 | % | $ | 14,743 | 2.3 | % | ||||||||
|
Percentage point change
|
0.1 pts | |||||||||||||||
The 0.1 percentage point increase in R&D expense as a percentage of sales in the first quarter of
2010 from the first quarter of 2009 was primarily due to:
| • | continued investments in the development of new products to generate growth. |
Operating income
Water Group
Water Group
| Three months ended | ||||||||||||||||
| April 3, | %of | March 28, | %of | |||||||||||||
| In thousands | 2010 | sales | 2009 | sales | ||||||||||||
|
Operating Income
|
$ | 42,138 | 8.8 | % | $ | 26,976 | 6.4 | % | ||||||||
|
Percentage point change
|
2.4 pts | |||||||||||||||
The 2.4 percentage point increase in Water segment operating income as a percentage of net sales in
the first quarter of 2010 as compared to 2009 was primarily the result of:
| • | higher gross margin due to increased sales into residential housing markets and other global markets following the global recession in 2009; |
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| • | cost savings from restructuring actions and other personnel reductions taken in response to the economic downturn and resulting volume decline in 2009; and | |
| • | savings generated from our PIMS initiatives including lean and supply management practices. |
These increases were offset by:
| • | selective decreases in selling prices primarily in our residential and commercial water businesses; | |
| • | period expenses associated with the completion of restructuring of certain manufacturing operations; and | |
| • | cost increases for certain raw materials. |
Technical Products Group
| Three months ended | ||||||||||||||||
| April 3, | %of | March 28, | %of | |||||||||||||
| In thousands | 2010 | sales | 2009 | sales | ||||||||||||
|
Operating Income
|
$ | 33,098 | 14.5 | % | $ | 20,462 | 9.7 | % | ||||||||
|
Percentage point change
|
4.8 pts | |||||||||||||||
The 4.8 percentage point increase in Technical Products Group operating income as a percentage of
sales in the first quarter of 2010 from 2009 was primarily the result of:
| • | higher gross margins due to higher sales volumes in the Technical Products Group; | |
| • | deflationary decreases related to certain raw materials, such as carbon steel; | |
| • | cost savings from restructuring actions and other personnel reductions taken in response to the economic downturn and resulting volume decline in 2009; | |
| • | savings generated from our PIMS initiatives including lean and supply management practices; and | |
| • | selective increases in selling prices to mitigate inflationary cost increases. |
These increases were partially offset by:
| • | period expenses associated with the consolidation of two manufacturing facilities; and | |
| • | continued investment in future growth with emphasis on growth in international markets, including personnel and business infrastructure investments. |
Net interest expense
| Three months ended | ||||||||||||||||
| April 3, | March 28, | |||||||||||||||
| In thousands | 2010 | 2009 | Difference | %change | ||||||||||||
|
Net interest expense
|
$ | 9,527 | $ | 11,784 | $ | (2,257 | ) | (19.2 | %) | |||||||
The 19.2 percentage point decrease in interest expense in the first quarter of 2010 from 2009 was
primarily the result of:
| • | favorable impact of lower debt levels in the first quarter of 2010. |
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Provision for income taxes
| Three months ended | ||||||||
| April 3, | March 28, | |||||||
| In thousands | 2010 | 2009 | ||||||
|
Income from continuing operations before income taxes and noncontrolling interest
|
$ | 54,158 | $ | 25,153 | ||||
|
Provision for income taxes
|
18,129 | 7,432 | ||||||
|
Effective tax rate
|
33.5 | % | 29.5 | % | ||||
The 4.0 percentage point increase in the effective tax rate in the first quarter of 2010 from 2009
was primarily the result of:
| • | certain discrete items in the first quarter of 2009 that did not recur in 2010; and | |
| • | the mix of global revenues. |
We estimate our effective income tax rate for the remaining quarters of this year will be between
33% and 34% resulting in a full year effective income tax rate of between 33% and 34%.
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
significant part over the past few years 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 economic situation, we do not currently plan to make any significant
acquisitions in 2010, although we may undertake smaller acquisitions. For the second year in a row
in 2010, we did not adopt an annual share repurchase program similar to those that we had
undertaken prior to 2009. We continue to focus 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.
Our current $800 million multi-currency revolving credit facility (the “Credit Facility”) 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 have ample borrowing capacity
for our currently projected needs (our capacity was $542.7 million at April 3, 2010, which would
have been limited to $424.1 million based on the credit agreement’s leverage ratio covenant).
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 and certain pumping 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.
Operating activities
Cash used for operating activities was $10.3 million in the first three months of 2010 compared to
$17.1 million in the same period of 2009. The decrease in cash used for operating activities was
due primarily to an increase in net income in 2010, partially offset by an increase in working
capital.
Investing activities
Capital expenditures in the first three months of 2010 were $12.1 million compared with $16.0
million in the prior year period. We currently anticipate capital expenditures for fiscal 2010
will be approximately $55 million to $65 million, primarily for capacity expansions in our low cost
country manufacturing facilities, new product development, and replacement equipment.
Financing activities
Net cash provided by financing activities was $40.7 million in the first three months of 2010
compared with $28.8 million in the prior year period. The increase primarily relates to
fluctuations in liquidity. 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 received/used for stock issued to employees, and tax benefits related to
stock-based compensation.
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
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sufficient to support our normal operations, dividend payments, stock repurchases (if and when
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 paper compared to the cost of borrowing under our Credit Facility.
In addition to the Credit Facility, we have $40.0 million of uncommitted credit facilities, under
which we had $3.7 million of borrowings as of April 3, 2010.
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 financial covenants in our debt
agreements as of April 3, 2010.
On March 16, 2009, we announced the redemption of all of our remaining outstanding $133.9 million
aggregate principal of the 7.85% Senior Notes due 2009 (the” 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 | Long-Term Debt Rating | Current Rating Outlook | ||
|
Standard & Poor’s
|
BBB- | Stable | ||
|
Moody’s
|
Baa3 | Stable |
Our long-term debt rating is an investment grade rating. Investment grade is a credit rating of
BBB- or higher by Standard & Poor’s or Baa3 or higher by Moody’s.
On March 28, 2010, Standard & Poor’s (“S&P”) affirmed our BBB- rating with a stable outlook. On
April 6, 2010, Moody’s affirmed our Baa3 rating and changed our current rating outlook from
negative to stable.
We believe the potential impact of a downgrade in our financial outlook is currently not material
to our liquidity exposure or cost of debt. A credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation, a specific class of
financial obligations, or a specific financial program. The credit rating takes into consideration
the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the
obligation and takes into account the currency in which the obligation is denominated. The ratings
outlook also highlights the potential direction of a short or long-term rating. It focuses on
identifiable events and short-term trends that cause ratings to be placed under observation by the
respective rating agencies. A change in rating outlook does not mean a rating change is
inevitable. Prior changes in our ratings outlook have had no immediate impact on our liquidity
exposure or on our cost of debt.
From time to time, we issue short-term commercial paper notes that have not been rated by S&P or
Moody’s. Even though our short-term commercial paper is unrated, we believe a downgrade in our
long-term debt rating could have a negative impact on our ability to issue unrated commercial paper
in the future.
We do not expect that a one rating downgrade of our long-term debt by either S&P or Moody’s would
substantially affect our ability to access the long-term debt capital markets. However, depending
upon market conditions, the amount, timing and pricing of new borrowings could be adversely
affected. If both of our long-term debt ratings were downgraded to below BBB-/Baa3, our
flexibility to access the term debt capital markets would be reduced.
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 annually. We
have the ability and sufficient capacity to meet these cash requirements, by using available cash
and internally generated funds, and to borrow under our committed and uncommitted credit
facilities.
Dividends paid in the first three months of 2010 were $18.8 million, or $0.19 per common share,
compared with $17.7 million, or $0.18 per common share, in the prior year period. We have
increased dividends every year for the last 34 years and expect to continue paying dividends on a
quarterly basis.
The total gross liability for uncertain tax positions at April 3, 2010 was $28.7 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.
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Table of Contents
Other financial measures
In addition to measuring our cash flow generation or usage based upon operating, investing, and
financing classifications included in the Condensed 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-Generally Accepted Accounting Principles 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:
| Three months ended | ||||||||
| April 3, | March 28, | |||||||
| In thousands | 2010 | 2009 | ||||||
|
Net cash provided by (used for) operating activities
|
$ | (10,313 | ) | $ | (17,053 | ) | ||
|
Capital expenditures
|
(12,059 | ) | (15,979 | ) | ||||
|
Proceeds from sale of property and equipment
|
127 | 280 | ||||||
|
Free cash flow
|
(22,245 | ) | (32,752 | ) | ||||
|
Net income from continuing operations attributable to Pentair, Inc.
|
34,797 | 17,255 | ||||||
|
Conversion of net income from continuing operations attributable to Pentair, Inc.
|
-64 | % | -190 | % | ||||
NEW ACCOUNTING STANDARDS
See Note 2 (New Accounting Standards) of ITEM 1.
CRITICAL ACCOUNTING POLICIES
In our 2009 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 April 3, 2010. For
additional information, refer to Item 7A of our 2009 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 April 3, 2010 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 April 3, 2010 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 Commission’s 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. | ||
| (a) | Changes in Internal Controls | |
| There was no change in our internal control over financial reporting that occurred during the quarter ended April 3, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Pentair, Inc.:
Golden Valley, Minnesota
Golden Valley, Minnesota
We have reviewed the accompanying condensed consolidated balance sheets of Pentair, Inc. and
subsidiaries (the “Company”) as of April 3, 2010 and March 28, 2009, and the related condensed
consolidated statements of income, cash flows, and shareholders’ equity for the three-month periods
ended April 3, 2010 and March 28, 2009. These interim condensed consolidated financial statements
are the responsibility of the Company’s 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, 2009, and the related consolidated statements of income, shareholders’ equity,
and cash flows for the year then ended (not presented herein); and in our report dated February 23,
2010, we expressed an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated balance sheet as of
December 31, 2009, is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it is derived.
Minneapolis, Minnesota
April 27, 2010
22
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There have been no further material developments from the disclosures contained in our 2009 Annual
Report on Form 10-K.
There have been no material changes from the risk factors previously disclosed in ITEM 1A. of our
2009 Annual Report on Form 10-K.
The following table provides information with respect to purchases we made of our common stock
during the first quarter of 2010:
| (c) | (c) | |||||||||||||||
| Total Number of | Dollar Value of | |||||||||||||||
| Shares Purchased as | Shares that May Yet | |||||||||||||||
| (a) | (b) | Part of Publicly | Be Purchased Under | |||||||||||||
| Total Number of | Average Price Paid | Announced Plans or | the Plans or | |||||||||||||
| Period | Shares Purchased | per Share | Programs | Programs | ||||||||||||
|
January 1 — January 30, 2010
|
84,351 | $ | 33.22 | — | $ | 0 | ||||||||||
|
January 31 — February 27, 2010
|
4,436 | $ | 31.92 | — | $ | 0 | ||||||||||
|
February 28 — April 3, 2010
|
49,820 | $ | 34.17 | — | $ | 0 | ||||||||||
|
Total
|
138,607 | — | ||||||||||||||
| (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 reflects 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) | We have not adopted a share repurchase plan for 2010. |
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(a) Exhibits
|
10.1
|
Pentair, Inc. 2008 Omnibus Stock Incentive Plan, as amended and restated through February 23, 2010 (incorporated by reference to the Appendix A contained in Pentair’s proxy statement for its 2010 annual meeting of shareholders).* | |
|
|
||
|
15
|
Letter Regarding Unaudited Interim Financial Information. | |
|
|
||
|
31.1
|
Certification of Chief Executive Officer. | |
|
|
||
|
31.2
|
Certification of Chief Financial Officer. | |
|
|
||
|
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. |
| * | A management contract or compensatory plan |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 27,
2010.
|
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 | ||||
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Table of Contents
Exhibit Index to Form 10-Q for the Period Ended April 3, 2010
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10.1
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Pentair, Inc. 2008 Omnibus Stock Incentive Plan, as amended and restated through February 23, 2010 (Incorporated by reference to Appendix A contained in Pentair’s Proxy Statement for its 2010 annual meeting of shareholders).* | |
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15
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Letter Regarding Unaudited Interim Financial Information. | |
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31.1
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Certification of Chief Executive Officer. | |
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31.2
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Certification of Chief Financial Officer. | |
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32.1
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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. | |
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32.2
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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. |
| * | A management contract or compensatory plan |
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TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits