Pentair Reports Full Year Sales Growth of 13 Percent and Net Income Per Diluted Share from Continuing Operations of $2.00

Full Year 2010 Highlights

- Reports full year sales up 13 percent year-over-year to $3.0 billion, with double digit growth in both Water and Technical Products

- Operating margins improved year-over-year to 11 percent, up 140 basis points compared to 2009 adjusted operating margins of 9.6 percent

- Diluted earnings per share from continuing operations (EPS) of $2.00, up 71 percent year-over-year on GAAP basis; up 36 percent compared to adjusted 2009 EPS

- Quarterly dividend increased for the 35th consecutive year to $0.20 per share in 2011

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

News provided by

Pentair

Feb 01, 2011, 07:00 ET

MINNEAPOLIS, Feb. 1, 2011 /PRNewswire/ -- Pentair, Inc. (NYSE: PNR) reported organic revenue growth of 13 percent for full year 2010, as revenues reached $3.0 billion compared to $2.7 billion in 2009. The company delivered EPS of $2.00 for the full year 2010, representing an increase of 71 percent as compared to $1.17 per share in the prior year. Adjusting 2009 EPS to exclude restructuring and impairment items and the impact from the early redemption of bonds, full year 2010 EPS increased 36 percent.

During 2010, Pentair generated $211 million in free cash flow, which represents a greater than 100 percent conversion of net income. Excluding the $25 million accelerated pension contribution at the end of the year, free cash flow was $236 million for the full year 2010, representing an approximate 120 percent conversion of net income.

"2010 was a year of tremendous progress. Organic sales grew 13 percent for the full year, reflecting broad-based growth across businesses and geographies," said Randall J. Hogan, chairman and chief executive officer. "Fast growth regions grew at an even faster pace, led by China sales up 26 percent and Latin America up 18 percent for the full year 2010, as we strengthened our presence through more localized capabilities. Expanded distribution and stepped up new product development helped fuel top-line growth, along with solid recovery in many end-markets. For the full year 2010, volume growth along with productivity offset material inflation and the impact of reinstated employee benefits, driving more than 140 basis points of margin expansion."

Total company fourth quarter sales increased 7 percent to $754 million, compared with $702 million in the fourth quarter of 2009, despite four fewer selling days. The company delivered fourth quarter operating income of $80 million, up 52 percent year-over-year or up 3 percent compared to adjusted operating income in the same period last year. Overall, operating margins of 10.6 percent for the fourth quarter 2010 decreased 40 basis points when compared to adjusted operating margins of a year ago, due mainly to higher material inflation and lower cost absorption from fewer selling days. The company delivered net income from continuing operations of $49 million, or $0.49 per share. This compares to EPS of $0.29 in the fourth quarter last year. Adjusting fourth quarter 2009 EPS to exclude restructuring and impairment items, year-over-year adjusted EPS increased 4 percent.

"We exit 2010 with confidence, as top-line strength continued in the fourth quarter with average daily sales accelerating from the third quarter," continued Hogan. "Fourth quarter operating margins came in as expected, negatively impacted by material inflation with only a modest benefit from pricing. Pricing actions were announced in the fourth quarter with realization beginning during the first quarter, helping to mitigate expected 2011 commodity inflation. We expect operating margins in both segments as well as Pentair to expand at least 100 basis points year over year for the first quarter and full year of 2011."

Fourth Quarter Business Highlights

Water sales grew 5 percent year-over-year to $501 million, including an unfavorable one-percentage point impact from foreign exchange. Within Water, U.S. sales grew 7 percent led by growth in municipal pumps and agricultural products. In fast growth regions, Water grew 16 percent led by 42 percent growth in China and double-digit increases in India and Southeast Asia. Within the five Water global business units, the fourth quarter sales were as follows:

Residential Flow sales were up 1 percent versus the year-ago quarter, as robust growth in the agricultural business and a stable U.S. residential pump business helped mitigate the impact of declines in specialty pumps.
Residential Filtration sales were up 1 percent as expanded distribution and new products in fast growth regions were partially offset by softness in Europe.
Pool sales were up 4 percent driven by continued dealer expansion and demand for energy-efficient Eco-Select products.
Engineered Flow sales were up 20 percent reflecting municipal pump sales from the final shipment for the Gulf Intracoastal Waterway project in New Orleans.
Filtration Solutions sales were up 9 percent led by growth in desalination and energy markets, along with increased system sales.

Water's fourth quarter reported operating income totaled $55 million, up 62 percent as compared to $34 million in the same period last year. When compared to fourth quarter 2009 adjusted operating income of $55 million, operating income remained flat in 2010. The benefits from volume growth and productivity continued to offset reinstated employee benefits and growth investments, while higher material inflation unfavorably impacted margins.

Technical Products delivered fourth quarter 2010 sales of $253 million, an increase of 11 percent versus the year-earlier period. Sales grew 13 percent, excluding the impact of foreign exchange, driven by solid demand across most key end-markets and one percentage point of pricing.

Industrial, general electronics and energy markets all posted strong double digit sales growth.
Sales in the U.S. increased 11 percent year-over-year. Fast growth regions were up 32 percent, led by robust growth of greater than 50 percent in China and India.

Technical Products' fourth quarter reported operating income totaled $38 million, up 18 percent compared to $32 million in the same quarter last year. When compared to fourth quarter 2009 adjusted operating income of $35 million, fourth quarter 2010 operating income increased 9 percent. Volume growth, productivity, and higher pricing offset the negative impact from material inflation and reinstated employee benefits.

Outlook

The company anticipates full year 2011 sales growing in the mid-single digit range to approximately $3.2 billion. This reflects expected recurring organic revenue growth in the high-single digits, partially offset by the negative year-over-year impact of the Gulf Intracoastal Waterway project, which contributed $56 million in full year 2010. Pentair continues to expect full year 2011 EPS to be between $2.20 and $2.35, which represents an increase of approximately 10 to 18 percent from 2010 EPS of $2.00. The company expects to generate free cash flow in excess of $240 million for 2011.

"The tremendous progress we made in 2010 positions us for another strong year. We expect to leverage our increased presence in fast growth regions, expanded innovation capabilities and continued application of lean disciplines to deliver continued, strong top-line growth and margin expansion," said Hogan. "We anticipate operating margins to expand over 100 basis points in 2011, reflecting volume leverage, price increases and productivity more than offsetting expected material inflation. Our growth investments are yielding positive results and position us well for sustainable, profitable growth in 2011 and beyond."

First quarter 2011 EPS is expected to be $0.42 to $0.45, which represents an increase of approximately 20 to 29 percent when compared to first quarter 2010 EPS of $0.35. The company expects first quarter 2011 revenue to be up high-single digits compared to the same period last year.

Earnings Conference Call

Pentair Chairman and CEO Randall J. Hogan and Chief Financial Officer John L. Stauch will discuss the company's fourth quarter and full year 2010 performance and first quarter 2011 outlook on a two-way conference call with investors and a live audio webcast at 9 a.m. Eastern today. Reconciliation of non-GAAP financial measures are set forth in the attachments to this earnings release and the fourth quarter and full year 2010 earnings conference call presentation, both of which can be found at Pentair's web site (www.pentair.com). Related financial charts and certain other information to be discussed on the conference call will be available on the company's website shortly before the conference call. The webcast and presentation will be archived at the same site following the conclusion of the conference call.

Caution concerning forward-looking statements

Any statements made about the company's anticipated financial results are forward-looking statements subject to risks and uncertainties such as the magnitude, timing and scope of recovery from the global economic downturn; the strength of housing and related markets; the risk that expected benefits from our recent restructuring and other cost reduction plans may not be fully realized, or may take longer to realize than expected; foreign currency effects; material inflation outpacing our productivity and pricing actions; retail, commercial and industrial demand; product introductions; pricing and other competitive pressures; and the company's ability to achieve its long-term strategic operating goals, as well as other risk factors set forth in our SEC filings. Forward-looking statements included herein are made as of the date hereof, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results.

About Pentair, Inc.

Pentair (www.pentair.com) is a global diversified industrial company headquartered in Minneapolis, Minnesota. Its Water Group is a global leader in providing innovative products and systems used worldwide in the movement, treatment, storage and enjoyment of water. Pentair's Technical Products Group is a leader in the global enclosures and thermal management markets, designing and manufacturing thermal management products and standard, modified, and custom enclosures that protect sensitive electronics and the people that use them. With 2010 revenues of $3.0 billion, Pentair employs over 14,000 people worldwide.

Pentair Contact:
Sara Zawoyski
Vice President, Investor Relations
Tel.: (763) 656-5575
E-mail: [email protected]

Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)

			Three months ended				Year ended
			December 31		December 31		December 31		December 31
In thousands, except per-share data			2010		2009		2010		2009
Net sales		$	753,858	$	702,251	$	3,030,773	$	2,692,468
Cost of goods sold			521,630		489,794		2,100,133		1,907,333
Gross profit			232,228		212,457		930,640		785,135
	% of net sales		30.8%		30.3%		30.7%		29.2%
Selling, general and administrative		136,542			145,346		529,329		507,303
	% of net sales		18.1%		20.7%		17.5%		18.8%
Research and development			16,081		14,619		67,156		57,884
	% of net sales		2.1%		2.1%		2.2%		2.2%
Operating income			79,605		52,492		334,155		219,948
	% of net sales		10.6%		7.5%		11.0%		8.2%

Other (income) expense:

Equity (income) losses of unconsolidated subsidiaries			(302)		688		(2,108)		1,379
Loss on early extinguishment of debt		—			—		—		4,804
Net interest expense			9,067		9,790		36,116		41,118
	% of net sales		1.2%		1.4%		1.2%		1.5%
Income from continuing operations before income taxes
and noncontrolling interest		70,840			42,014		300,147		172,647
Provision for income taxes			21,263		14,620		97,200		56,428
	effective tax rate		30.0%		34.8%		32.4%		32.7%
Income from continuing operations			49,577		27,394		202,947		116,219
Gain (loss) on disposal of discontinued operations, net of tax			(2,292)		134		(626)		(19)
Net income before noncontrolling interest			47,285		27,528		202,321		116,200
Noncontrolling interest			909		(1,824)		4,493		707
Net income attributable to Pentair, Inc.		$	46,376	$	29,352	$	197,828	$	115,493

Net income from continuing operations attributable to Pentair, Inc.		$	48,668	$	29,218	$	198,454	$	115,512

Earnings per common share attributable to Pentair, Inc.
*Basic*
Continuing operations		$	0.50	$	0.30	$	2.02	$	1.19
Discontinued operations			(0.02)		—		(0.01)		—
Basic earnings per common share		$	0.48	$	0.30	$	2.01	$	1.19

*Diluted*
Continuing operations		$	0.49	$	0.29	$	2.00	$	1.17
Discontinued operations			(0.02)		—		(0.01)		—
Diluted earnings per common share		$	0.47	$	0.29	$	1.99	$	1.17


Weighted average common shares outstanding
Basic			98,219		97,667		98,037		97,415
Diluted			99,606		99,226		99,294		98,522

Cash dividends declared per common share		$	0.19	$	0.18	$	0.76	$	0.72

Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)

		December 31		December 31
In thousands		2010		2009
Assets
Current assets
Cash and cash equivalents	$	46,056	$	33,396
Accounts and notes receivable, net		516,905		455,090
Inventories		405,356		360,627
Deferred tax assets		55,086		49,609
Prepaid expenses and other current assets		45,894		47,576
Total current assets		1,069,297		946,298

Property, plant and equipment, net		329,435		333,688

Other assets
Goodwill		2,066,044		2,088,797
Intangibles, net		453,570		486,407
Other		55,187		56,144
Total other assets		2,574,801		2,631,348
Total assets	$	3,973,533	$	3,911,334

Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings	$	4,933	$	2,205
Current maturities of long-term debt		18		81
Accounts payable		262,357		207,661
Employee compensation and benefits		107,995		74,254
Current pension and post-retirement benefits		8,733		8,948
Accrued product claims and warranties		42,295		34,288
Income taxes		5,964		5,659
Accrued rebates and sales incentives		33,559		27,554
Other current liabilities		80,942		85,629
Total current liabilities		546,796		446,279

Other liabilities
Long-term debt		702,521		803,351
Pension and other retirement compensation		215,482		234,948
Post-retirement medical and other benefits		30,325		31,790
Long-term income taxes payable		23,507		26,936
Deferred tax liabilities		167,005		146,630
Other non-current liabilities		86,295		95,060
Total liabilities		1,771,931		1,784,994

Shareholders' equity		2,201,602		2,126,340
Total liabilities and shareholders' equity	$	3,973,533	$	3,911,334

Days sales in accounts receivable (13 month moving average)		60		62
Days inventory on hand (13 month moving average)		82		90
Days in accounts payable (13 month moving average)		71		66

		Pentair, Inc. and Subsidiaries
		Condensed Consolidated Statements of Cash Flows (Unaudited)
				Year Ended
				December 31		December 31
In thousands				2010		2009
Operating activities
Net income before noncontrolling interest			$	202,321	$	116,200
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss on disposal of discontinued operations				626		19
Equity (income) losses of unconsolidated subsidiaries				(2,108)		1,379
Depreciation				57,995		64,823
Amortization				26,184		40,657
Deferred income taxes				30,716		30,616
Stock compensation				21,468		17,324
Excess tax benefits from stock-based compensation				(2,686)		(1,746)
Loss on sale of assets				466		985
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
	Accounts and notes receivable			(62,344)		11,307
	Inventories			(44,495)		66,684
	Prepaid expenses and other current assets			1,514		16,202
	Accounts payable			55,321		(13,822)
	Employee compensation and benefits			27,252		(22,431)
	Accrued product claims and warranties			8,068		(7,440)
	Income taxes			1,791		1,972
	Other current liabilities			561		(21,081)
	Pension and post-retirement benefits			(43,024)		(39,607)
	Other assets and liabilities			(9,250)		(2,141)
	Net cash provided by (used for) continuing operations			270,376		259,900
	Net cash provided by (used for) operating activities of discontinued operations			—		(1,531)
		Net cash provided by (used for) operating activities		270,376		258,369

Investing activities
Capital expenditures				(59,523)		(54,137)
Proceeds from sale of property and equipment				358		1,208
Divestitures				—		1,567
Other				(1,148)		(3,224)
		Net cash provided by (used for) investing activities		(60,313)		(54,586)

Financing activities
Net short-term borrowings				2,728		2,205
Proceeds from long-term debt				703,641		580,000
Repayment of long-term debt				(804,713)		(730,304)
Debt issuance costs				(50)		(50)
Excess tax benefits from stock-based compensation				2,686		1,746
Stock issued to employees, net of shares withheld				9,941		8,247
Repurchases of common stock				(24,712)		—
Dividends paid				(75,465)		(70,927)
Distribution to noncontrolling interest				(4,647)		—
		Net cash provided by (used for) financing activities		(190,591)		(209,083)

Effect of exchange rate changes on cash and cash equivalents				(6,812)		(648)
Change in cash and cash equivalents				12,660		(5,948)
Cash and cash equivalents, beginning of period				33,396		39,344
Cash and cash equivalents, end of period			$	46,056	$	33,396

Free cash flow
Net cash provided by (used for) continuing operations			$	270,376	$	259,900
Capital expenditures				(59,523)		(54,137)
Proceeds from sale of property and equipment				358		1,208
Free cash flow			$	211,211	$	206,971

Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment (Unaudited)

		First Qtr		Second Qtr		Third Qtr		Fourth Qtr		Year
In thousands		2010		2010		2010		2010		2010
*Net sales to external customers*
Water Group	$	478,038	$	549,318	$	512,587	$	501,338	$	2,041,281
Technical Products Group		228,975		246,849		261,148		252,520		989,492
Consolidated	$	707,013	$	796,167	$	773,735	$	753,858	$	3,030,773

*Intersegment sales*
Water Group	$	517	$	427	$	442	$	444	$	1,830
Technical Products Group		703		1,047		1,154		913		3,817
Intercompany sales eliminations		(1,220)		(1,474)		(1,596)		(1,357)		(5,647)
Consolidated	$	—	$	—	$	—	$	—	$	—

*Operating income (loss)*
Water Group	$	42,138	$	75,954	$	58,457	$	55,039	$	231,588
Technical Products Group		33,098		37,990		42,605		37,840		151,533
Unallocated corporate expenses and
intercompany eliminations		(11,635)		(13,818)		(10,239)		(13,274)		(48,966)
Consolidated	$	63,601	$	100,126	$	90,823	$	79,605	$	334,155

*Operating income as a percent of net sales*
Water		8.8%		13.8%		11.4%		11.0%		11.3%
Technical Products		14.5%		15.4%		16.3%		15.0%		15.3%
Consolidated		9.0%		12.6%		11.7%		10.6%		11.0%


		First Qtr		Second Qtr		Third Qtr		Fourth Qtr		Year
In thousands		2009		2009		2009		2009		2009
*Net sales to external customers*
Water Group	$	423,932	$	486,990	$	461,570	$	475,272	$	1,847,764
Technical Products Group		209,908		206,722		201,095		226,979		844,704
Consolidated	$	633,840	$	693,712	$	662,665	$	702,251	$	2,692,468

*Intersegment sales*
Water Group	$	289	$	198	$	284	$	510	$	1,281
Technical Products Group		233		600		544		834		2,211
Intercompany sales eliminations		(522)		(798)		(828)		(1,344)		(3,492)
Consolidated	$	—	$	—	$	—	$	—	$	—

*Operating income (loss)*
Water Group	$	26,976	$	49,781	$	53,085	$	33,903	$	163,745
Technical Products Group		20,462		23,578		24,356		31,959		100,355
Unallocated corporate expenses and
intercompany eliminations		(10,224)		(9,799)		(10,759)		(13,370)		(44,152)
Consolidated	$	37,214	$	63,560	$	66,682	$	52,492	$	219,948

*Operating income as a percent of net sales*
Water		6.4%		10.2%		11.5%		7.1%		8.9%
Technical Products		9.7%		11.4%		12.1%		14.1%		11.9%
Consolidated		5.9%		9.2%		10.1%		7.5%		8.2%

Pentair, Inc. and Subsidiaries
Reconciliation of the GAAP "As Reported" year ending December 31, 2009 to the "Adjusted" non-GAAP
excluding the effect of 2009 adjustments (Unaudited)


	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Year
In thousands, except per-share data	2009	2009	2009	2009	2009
Net sales	$ 633,840	$ 693,712	$ 662,665	$ 702,251	$ 2,692,468

Operating income - as reported	37,214	63,560	66,682	52,492	219,948
% of net sales	5.9%	9.2%	10.1%	7.5%	8.2%
Adjustments:
Restructuring and asset impairment	2,824	2,944	7,295	24,881	37,944
Operating income - as adjusted	40,038	66,504	73,977	77,373	257,892
% of net sales	6.3%	9.6%	11.2%	11.0%	9.6%

Net income from continuing operations attributable to Pentair, Inc. - as reported	17,255	32,006	37,033	29,218	115,512
Adjustments - tax affected
Restructuring and asset impairment, net of minority interest	1,864	1,943	4,815	17,549	26,171
Bond tender	—	3,171	—	—	3,171
Net income from continuing operations attributable to Pentair, Inc. - as adjusted	19,119	37,120	41,848	46,767	144,854

Continuing earnings per common share attributable to Pentair, Inc. - diluted
Diluted earnings per common share - as reported	$ 0.18	$ 0.33	$ 0.38	$ 0.29	$ 1.17
Adjustments	0.02	0.05	0.04	0.18	0.30
Diluted earnings per common share - as adjusted	$ 0.20	$ 0.38	$ 0.42	$ 0.47	$ 1.47


Weighted average common shares outstanding - Diluted	97,966	98,422	98,641	99,226	98,522

Pentair, Inc. and Subsidiaries
Reconciliation of the GAAP "As Reported" year ending December 31, 2009 to the "Adjusted" non-GAAP
excluding the effect of 2009 adjustments (Unaudited)


	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Year
In thousands	2009	2009	2009	2009	2009
*Water*
Net sales	$ 423,932	$ 486,990	$ 461,570	$ 475,272	$ 1,847,764

Operating income - as reported	26,976	49,781	53,085	33,903	163,745
% of net sales	6.4%	10.2%	11.5%	7.1%	8.9%
Adjustments - restructuring and asset impairment	1,464	1,460	2,639	21,336	26,899
Operating income - as adjusted	28,440	51,241	55,724	55,239	190,644
% of net sales	6.7%	10.5%	12.1%	11.6%	10.3%


Technical Products
Net sales	$ 209,908	$ 206,722	$ 201,095	$ 226,979	$ 844,704

Operating income - as reported	20,462	23,578	24,356	31,959	100,355
% of net sales	9.7%	11.4%	12.1%	14.1%	11.9%
Adjustments - restructuring and asset impairment	792	1,139	4,557	2,729	9,217
Operating income - as adjusted	21,254	24,717	28,913	34,688	109,572
% of net sales	10.1%	12.0%	14.4%	15.3%	13.0%