UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended October 1, 2011
OR
| ¨ | 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 x No ¨
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 x No ¨
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 | x | Accelerated filer | ¨ | |||
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | 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 ¨ No x
On October 1, 2011, 98,566,023 shares of Registrant’s common stock were outstanding.
Pentair, Inc. and Subsidiaries
2
| ITEM 1. | FINANCIAL STATEMENTS |
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
| Three months ended | Nine months ended | |||||||||||||||
| In thousands, except per-share data |
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
||||||||||||
| Net sales |
$ | 890,546 | $ | 773,735 | $ | 2,590,994 | $ | 2,276,915 | ||||||||
| Cost of goods sold |
618,484 | 537,193 | 1,782,137 | 1,578,503 | ||||||||||||
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| Gross profit |
272,062 | 236,542 | 808,857 | 698,412 | ||||||||||||
| Selling, general and administrative |
159,068 | 128,854 | 462,260 | 392,787 | ||||||||||||
| Research and development |
20,091 | 16,865 | 58,095 | 51,075 | ||||||||||||
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| Operating income |
92,903 | 90,823 | 288,502 | 254,550 | ||||||||||||
| Other (income) expense: |
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| Equity income of unconsolidated subsidiaries |
(574 | ) | (347 | ) | (1,481 | ) | (1,806 | ) | ||||||||
| Net interest expense |
17,373 | 8,953 | 41,311 | 27,049 | ||||||||||||
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| Income from continuing operations before income taxes and noncontrolling interest |
76,104 | 82,217 | 248,672 | 229,307 | ||||||||||||
| Provision for income taxes |
24,050 | 26,488 | 76,447 | 75,937 | ||||||||||||
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| Income from continuing operations |
52,054 | 55,729 | 172,225 | 153,370 | ||||||||||||
| Gain on disposal of discontinued operations, net of tax |
— | 549 | — | 1,666 | ||||||||||||
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| Net income before noncontrolling interest |
52,054 | 56,278 | 172,225 | 155,036 | ||||||||||||
| Noncontrolling interest |
962 | 1,228 | 3,880 | 3,584 | ||||||||||||
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| Net income attributable to Pentair, Inc. |
$ | 51,092 | $ | 55,050 | $ | 168,345 | $ | 151,452 | ||||||||
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| Net income from continuing operations attributable to Pentair, Inc. |
$ | 51,092 | $ | 54,501 | $ | 168,345 | $ | 149,786 | ||||||||
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| Earnings per common share attributable to Pentair, Inc. |
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| Basic |
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| Continuing operations |
$ | 0.52 | $ | 0.55 | $ | 1.71 | $ | 1.53 | ||||||||
| Discontinued operations |
— | 0.01 | — | 0.01 | ||||||||||||
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| Basic earnings per common share |
$ | 0.52 | $ | 0.56 | $ | 1.71 | $ | 1.54 | ||||||||
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| Diluted |
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| Continuing operations |
$ | 0.51 | $ | 0.55 | $ | 1.69 | $ | 1.51 | ||||||||
| Discontinued operations |
— | — | — | 0.01 | ||||||||||||
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| Diluted earnings per common share |
$ | 0.51 | $ | 0.55 | $ | 1.69 | $ | 1.52 | ||||||||
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| Weighted average common shares outstanding |
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| Basic |
98,472 | 98,298 | 98,228 | 98,105 | ||||||||||||
| Diluted |
99,802 | 99,514 | 99,759 | 99,326 | ||||||||||||
| Cash dividends declared per common share |
$ | 0.20 | $ | 0.19 | $ | 0.60 | $ | 0.57 | ||||||||
See accompanying notes to condensed consolidated financial statements.
3
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
| In thousands, except share and per-share data |
October 1, 2011 |
December 31, 2010 |
October 2, 2010 |
|||||||||
| Assets | ||||||||||||
| Current assets |
||||||||||||
| Cash and cash equivalents |
$ | 52,665 | $ | 46,056 | $ | 56,995 | ||||||
| Accounts and notes receivable, net |
556,688 | 516,905 | 490,221 | |||||||||
| Inventories |
459,916 | 405,356 | 410,072 | |||||||||
| Deferred tax assets |
61,411 | 56,349 | 50,991 | |||||||||
| Prepaid expenses and other current assets |
147,568 | 44,631 | 48,555 | |||||||||
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| Total current assets |
1,278,248 | 1,069,297 | 1,056,834 | |||||||||
| Property, plant and equipment, net |
394,922 | 329,435 | 327,602 | |||||||||
| Other assets |
||||||||||||
| Goodwill |
2,516,692 | 2,066,044 | 2,070,911 | |||||||||
| Intangibles, net |
619,262 | 453,570 | 461,378 | |||||||||
| Other |
73,319 | 55,187 | 56,033 | |||||||||
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| Total other assets |
3,209,273 | 2,574,801 | 2,588,322 | |||||||||
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| Total assets |
$ | 4,882,443 | $ | 3,973,533 | $ | 3,972,758 | ||||||
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| Liabilities and Shareholders’ Equity | ||||||||||||
| Current liabilities |
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| Short-term borrowings |
$ | 29,705 | $ | 4,933 | $ | 4,180 | ||||||
| Current maturities of long-term debt |
1,194 | 18 | 37 | |||||||||
| Accounts payable |
281,448 | 262,357 | 266,416 | |||||||||
| Employee compensation and benefits |
117,538 | 107,995 | 100,626 | |||||||||
| Current pension and post-retirement benefits |
8,733 | 8,733 | 8,948 | |||||||||
| Accrued product claims and warranties |
43,920 | 42,295 | 40,783 | |||||||||
| Income taxes |
26,283 | 5,964 | 22,202 | |||||||||
| Accrued rebates and sales incentives |
45,231 | 33,559 | 39,066 | |||||||||
| Other current liabilities |
163,550 | 80,942 | 90,286 | |||||||||
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| Total current liabilities |
717,602 | 546,796 | 572,544 | |||||||||
| Other liabilities |
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| Long-term debt |
1,317,454 | 702,521 | 673,265 | |||||||||
| Pension and other retirement compensation |
190,221 | 209,859 | 219,463 | |||||||||
| Post-retirement medical and other benefits |
26,933 | 30,325 | 28,506 | |||||||||
| Long-term income taxes payable |
23,891 | 23,507 | 23,857 | |||||||||
| Deferred tax liabilities |
228,737 | 169,198 | 147,772 | |||||||||
| Other non-current liabilities |
79,489 | 86,295 | 93,681 | |||||||||
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| Total liabilities |
2,584,327 | 1,768,501 | 1,759,088 | |||||||||
| Commitments and contingencies |
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| Shareholders’ equity |
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| Common shares par value $0.16 2/3; 98,566,023, 98,409,192 and 98,960,604 shares issued and outstanding, respectively |
16,427 | 16,401 | 16,493 | |||||||||
| Additional paid-in capital |
481,028 | 474,489 | 489,028 | |||||||||
| Retained earnings |
1,733,281 | 1,624,605 | 1,597,110 | |||||||||
| Accumulated other comprehensive loss |
(48,039 | ) | (22,342 | ) | (4,955 | ) | ||||||
| Noncontrolling interest |
115,419 | 111,879 | 115,994 | |||||||||
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| Total shareholders’ equity |
2,298,116 | 2,205,032 | 2,213,670 | |||||||||
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| Total liabilities and shareholders’ equity |
$ | 4,882,443 | $ | 3,973,533 | $ | 3,972,758 | ||||||
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See accompanying notes to condensed consolidated financial statements.
4
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
| Nine months ended | ||||||||
| In thousands |
October 1, 2011 |
October 2, 2010 |
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| Operating activities |
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| Net income before noncontrolling interest |
$ | 172,225 | $ | 155,036 | ||||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities |
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| Gain on disposal of discontinued operations |
— | (1,666 | ) | |||||
| Equity income of unconsolidated subsidiaries |
(1,481 | ) | (1,806 | ) | ||||
| Depreciation |
49,079 | 43,141 | ||||||
| Amortization |
29,807 | 19,742 | ||||||
| Deferred income taxes |
4,445 | 4,866 | ||||||
| Stock compensation |
14,695 | 16,598 | ||||||
| Excess tax benefits from stock-based compensation |
(3,137 | ) | (2,193 | ) | ||||
| Loss on sale of assets |
702 | 166 | ||||||
| Changes in assets and liabilities, net of effects of business acquisitions and dispositions |
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| Accounts and notes receivable |
22,657 | (36,216 | ) | |||||
| Inventories |
15,633 | (49,822 | ) | |||||
| Prepaid expenses and other current assets |
(26,380 | ) | (1,476 | ) | ||||
| Accounts payable |
(45,759 | ) | 60,162 | |||||
| Employee compensation and benefits |
(12,334 | ) | 21,600 | |||||
| Accrued product claims and warranties |
115 | 6,556 | ||||||
| Income taxes |
18,045 | 18,013 | ||||||
| Other current liabilities |
46,924 | 15,493 | ||||||
| Pension and post-retirement benefits |
(23,636 | ) | (15,197 | ) | ||||
| Other assets and liabilities |
(21,041 | ) | (3,754 | ) | ||||
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| Net cash provided by (used for) operating activities |
240,559 | 249,243 | ||||||
| Investing activities |
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| Capital expenditures |
(53,063 | ) | (42,981 | ) | ||||
| Proceeds from sale of property and equipment |
139 | 340 | ||||||
| Acquisitions, net of cash acquired |
(733,105 | ) | — | |||||
| Other |
(441 | ) | (1,232 | ) | ||||
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| Net cash provided by (used for) investing activities |
(786,470 | ) | (43,873 | ) | ||||
| Financing activities |
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| Net short-term borrowings |
24,772 | 1,975 | ||||||
| Proceeds from long-term debt |
1,370,423 | 493,821 | ||||||
| Repayment of long-term debt |
(771,793 | ) | (624,007 | ) | ||||
| Debt issuance costs |
(8,973 | ) | (50 | ) | ||||
| Excess tax benefits from stock-based compensation |
3,137 | 2,193 | ||||||
| Stock issued to employees, net of shares withheld |
11,788 | 7,861 | ||||||
| Repurchases of common stock |
(12,785 | ) | (2,786 | ) | ||||
| Dividends paid |
(59,669 | ) | (56,584 | ) | ||||
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| Net cash provided by (used for) financing activities |
556,900 | (177,577 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
(4,380 | ) | (4,194 | ) | ||||
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| Change in cash and cash equivalents |
6,609 | 23,599 | ||||||
| Cash and cash equivalents, beginning of period |
46,056 | 33,396 | ||||||
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| Cash and cash equivalents, end of period |
$ | 52,665 | $ | 56,995 | ||||
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See accompanying notes to condensed consolidated financial statements.
5
Pentair, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
| 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, 2010 |
98,409,192 | $ | 16,401 | $ | 474,489 | $ | 1,624,605 | $ | (22,342 | ) | $ | 2,093,153 | $ | 111,879 | $ | 2,205,032 | ||||||||||||||||||||
| Net income |
168,345 | 168,345 | 3,880 | 172,225 | $ | 168,345 | ||||||||||||||||||||||||||||||
| Change in cumulative translation adjustment |
(29,263 | ) | (29,263 | ) | (340 | ) | (29,603 | ) | (29,263 | ) | ||||||||||||||||||||||||||
| Changes in market value of derivative financial instruments, net of $2,303 tax |
3,566 | 3,566 | 3,566 | 3,566 | ||||||||||||||||||||||||||||||||
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| Comprehensive income |
$ | 142,648 | ||||||||||||||||||||||||||||||||||
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| Cash dividends - $0.60 per common share |
(59,669 | ) | (59,669 | ) | (59,669 | ) | ||||||||||||||||||||||||||||||
| Share repurchase |
(397,126 | ) | (66 | ) | (12,719 | ) | (12,785 | ) | (12,785 | ) | ||||||||||||||||||||||||||
| Exercise of stock options, net of 181,648 shares tendered for payment |
601,207 | 100 | 13,091 | 13,191 | 13,191 | |||||||||||||||||||||||||||||||
| Issuance of restricted shares, net of cancellations |
27,532 | 5 | 1,417 | 1,422 | 1,422 | |||||||||||||||||||||||||||||||
| Amortization of restricted shares |
743 | 743 | 743 | |||||||||||||||||||||||||||||||||
| Shares surrendered by employees to pay taxes |
(74,782 | ) | (13 | ) | (2,752 | ) | (2,765 | ) | (2,765 | ) | ||||||||||||||||||||||||||
| Stock compensation |
6,759 | 6,759 | 6,759 | |||||||||||||||||||||||||||||||||
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| Balance - October 1, 2011 |
98,566,023 | $ | 16,427 | $ | 481,028 | $ | 1,733,281 | $ | (48,039 | ) | $ | 2,182,697 | $ | 115,419 | $ | 2,298,116 | ||||||||||||||||||||
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| Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||
| Additional | other | income (loss) | ||||||||||||||||||||||||||||||||||
| 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 |
151,452 | 151,452 | 3,584 | 155,036 | $ | 151,452 | ||||||||||||||||||||||||||||||
| Change in cumulative translation adjustment |
(24,185 | ) | (24,185 | ) | (1,842 | ) | (26,027 | ) | (24,185 | ) | ||||||||||||||||||||||||||
| Changes in market value of derivative financial instruments, net of ($851) tax |
(1,367 | ) | (1,367 | ) | (1,367 | ) | (1,367 | ) | ||||||||||||||||||||||||||||
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| Comprehensive income (loss) |
$ | 125,900 | ||||||||||||||||||||||||||||||||||
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| Cash dividends - $0.57 per common share |
(56,584 | ) | (56,584 | ) | (56,584 | ) | ||||||||||||||||||||||||||||||
| Share repurchases |
(84,500 | ) | (14 | ) | (2,772 | ) | (2,786 | ) | (2,786 | ) | ||||||||||||||||||||||||||
| Exercise of stock options, net of 27,177 shares tendered for payment |
535,767 | 89 | 11,811 | 11,900 | 11,900 | |||||||||||||||||||||||||||||||
| Issuance of restricted shares, net of cancellations |
(7,689 | ) | (1 | ) | 625 | 624 | 624 | |||||||||||||||||||||||||||||
| Amortization of restricted shares |
2,878 | 2,878 | 2,878 | |||||||||||||||||||||||||||||||||
| Shares surrendered by employees to pay taxes |
(138,480 | ) | (23 | ) | (4,639 | ) | (4,662 | ) | (4,662 | ) | ||||||||||||||||||||||||||
| Stock compensation |
8,318 | 8,318 | 8,318 | |||||||||||||||||||||||||||||||||
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| Balance - October 2, 2010 |
98,960,604 | $ | 16,493 | $ | 489,028 | $ | 1,597,110 | $ | (4,955 | ) | $ | 2,097,676 | $ | 115,994 | $ | 2,213,670 | ||||||||||||||||||||
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See accompanying notes to condensed consolidated financial statements
6
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 for the year ended December 31, 2010, which are included in our Current Report on Form 8-K dated May 2, 2011.
Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be indicative of those for a full year.
Our fiscal year ends on December 31. We report our interim quarterly periods on a 13-week basis ending on a Saturday.
In connection with preparing the unaudited condensed consolidated financial statements for the nine months ended October 1, 2011, we have evaluated subsequent events for potential recognition and disclosure through the date of this filing.
2. New Accounting Standards
In June 2011, the Financial Accounting Standards Board (FASB) amended its guidance on the presentation of comprehensive income in financial statements to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items that are recorded in other comprehensive income. The new accounting guidance requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The provisions of this new guidance are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.
There were no other new accounting pronouncements issued or effective during the nine months ended of 2011 that have had or are expected to have a material impact on the Condensed Consolidated Financial Statements.
3. Stock-based Compensation
Total stock-based compensation expense was $4.2 million for each of the three months ended October 1, 2011 and October 2, 2010, and was $14.7 million and $16.6 million for the nine months ended October 1, 2011 and October 2, 2010, respectively.
During the first nine months of 2011, 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 was $2.2 million and $1.8 million for the three months ended October 1, 2011 and October 2, 2010, respectively, and was $8.0 million and $8.3 million for the nine months ended October 1, 2011 and October 2, 2010, respectively.
During the first nine months of 2011, 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 $2.0 million and $2.4 million for the three months ended October 1, 2011 and October 2, 2010, respectively, and $6.7 million and $8.3 million for the nine months ended October 1, 2011 and October 2, 2010, 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:
| October 1, | October 2, | |||||||
| 2011 | 2010 | |||||||
| Expected stock price volatility |
35.5 | % | 35.0 | % | ||||
| Expected life |
|
5.5yrs |
|
5.5yrs | ||||
| Risk-free interest rate |
1.84 | % | 1.54 | % | ||||
| Dividend yield |
2.06 | % | 2.33 | % | ||||
7
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
The weighted-average fair value of options granted during the third quarter of 2011 and 2010 were $10.00 and $8.74 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.
4. Earnings Per Common Share
Basic and diluted earnings per share were calculated using the following:
| Three months ended | Nine months ended | |||||||||||||||
| In thousands | October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
||||||||||||
| Weighted average common shares outstanding — basic |
98,472 | 98,298 | 98,228 | 98,105 | ||||||||||||
| Dilutive impact of stock options and restricted stock |
1,330 | 1,216 | 1,531 | 1,221 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Weighted average common shares outstanding — diluted |
99,802 | 99,514 | 99,759 | 99,326 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 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 |
3,078 | 4,088 | 2,143 | 3,761 | ||||||||||||
5. Restructuring
Restructuring accrual activity recorded on the Condensed Consolidated Balance Sheets is summarized as follows for the nine months ended October 1, 2011 and October 2, 2010 and year ended December 31, 2010:
| October 1, | December 31, | October 2, | ||||||||||
| In thousands |
2011 | 2010 | 2010 | |||||||||
| Beginning balance |
$ | 3,994 | $ | 14,509 | $ | 14,509 | ||||||
| Cash payments and other |
(1,274 | ) | (10,515 | ) | (7,524 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Ending balance |
$ | 2,720 | $ | 3,994 | $ | 6,985 | ||||||
|
|
|
|
|
|
|
|||||||
6. Acquisitions
On May 12, 2011, we acquired as part of our Water Group the Clean Process Technologies (“CPT”) division of privately held Norit Holding B.V. for $715.3 million (€502.7 million translated at the May 12, 2011 exchange rate). CPT’s results of operations have been included in our consolidated financial statements since the date of acquisition. CPT is a global leader in membrane solutions and clean process technologies in the high growth water and beverage filtration and separation segments. CPT provides sustainable purification systems and solutions for desalination, water reuse, industrial applications and beverage segments that effectively address the increasing challenges of clean water scarcity, rising energy costs and pollution. CPT’s product offerings include innovative ultrafiltration and nanofiltration membrane technologies, aseptic valves, CO2 recovery and control systems and specialty pumping equipment. Based in the Netherlands, CPT has broad sales diversity with the majority of 2010 revenues generated in European Union countries and Asia-Pacific region.
The fair value of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value acquired over the identifiable assets acquired and liabilities assumed is reflected as goodwill. Goodwill recorded as part of the purchase price allocation was $451.8 million, none of which is tax deductible. Identifiable intangible assets
8
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
acquired as part of the acquisition were $197.2 million, including definite-lived intangibles, such as customer relationships, proprietary technology and trade names with a weighted average amortization period of approximately 10 years.
The CPT business records certain long term contracts under the percentage-of-completion method of accounting. Under this method, sales and gross profit are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs at completion. We record costs and earnings in excess of billings on uncompleted contracts within Prepaid expenses and other current assets and billings in excess of costs and earnings on uncompleted contracts within Other current liabilities in the Condensed Consolidated Balance Sheets. Amounts included in Prepaid expenses and other current assets related to these contracts were $55.6 million at October 1, 2011. Amounts included in Other current liabilities related to these contracts were $16.9 million at October 1, 2011.
The total purchase price has been allocated to the estimated fair values of assets acquired and liabilities assumed as follows:
| (in thousands) |
||||
| Accounts and notes receivable |
$ | 70,038 | ||
| Inventories |
60,382 | |||
| Deferred tax assets |
4,926 | |||
| Prepaid expenses and other current assets |
40,252 | |||
| Property, plant and equipment |
69,010 | |||
| Goodwill |
451,809 | |||
| Intangibles |
197,231 | |||
| Accounts payable |
(41,061 | ) | ||
| Income taxes |
(3,937 | ) | ||
| Other current liabilities |
(59,229 | ) | ||
| Long-term debt |
(17,041 | ) | ||
| Deferred tax liabilities |
(57,069 | ) | ||
|
|
|
|||
| Purchase Price |
$ | 715,311 | ||
|
|
|
|||
CPT’s net sales and loss from continuing operations for the period from the acquisition date to October 1, 2011 were $142.2 million and $2.9 million, respectively, and include $11.1 million of non-recurring expenses for acquisition date fair value adjustments related to inventory and customer backlog.
The following pro forma consolidated condensed financial results of operations are presented as if the acquisitions described above had been completed at the beginning of each period presented:
| Three months ended | Nine months ended | |||||||||||||||
| In thousands, except share and per-share data |
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
||||||||||||
| Pro forma net sales |
$ | 890,546 | $ | 838,968 | $ | 2,712,770 | $ | 2,485,913 | ||||||||
| Pro forma income from continuing operations |
56,287 | 48,404 | 181,366 | 133,122 | ||||||||||||
| Gain on disposal of discontinued operations, net of tax |
— | 549 | — | 1,666 | ||||||||||||
| Pro forma net income from continuing operations attributable to Pentair, Inc. |
55,325 | 47,176 | 177,486 | 129,528 | ||||||||||||
| Pro forma earnings per common share - continuing operations |
||||||||||||||||
| Basic |
$ | 0.56 | $ | 0.48 | $ | 1.81 | $ | 1.32 | ||||||||
| Diluted |
$ | 0.55 | $ | 0.47 | $ | 1.78 | $ | 1.30 | ||||||||
| Weighted average common shares outstanding |
||||||||||||||||
| Basic |
98,472 | 98,298 | 98,228 | 98,105 | ||||||||||||
| Diluted |
99,802 | 99,514 | 99,759 | 99,326 | ||||||||||||
The 2010 unaudited pro forma net income was adjusted to include the impact of approximately $7.4 million and $12.9 million for the three and nine months ended October 2, 2010, respectively, in non-recurring items related to acquisition date fair value adjustments to inventory and customer backlog. The 2011 unaudited pro forma net income was adjusted to exclude the impact of these items.
Acquisition-related transaction costs of approximately $7.8 million associated with the CPT acquisition were excluded from the pro forma net income in each of the 2011 and 2010 periods presented.
These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as increased interest expense on acquisition debt. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.
9
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
On January 31, 2011 we acquired as part of our Water Group all of the outstanding shares of capital stock of Hidro Filtros do Brasil (“Hidro Filtros”) for cash of $14.9 million and a note payable of $2.1 million. The Hidro Filtros results of operations have been included in our consolidated financial statements since the date of acquisition. Hidro Filtros is a leading manufacturer of water filters and filtering elements for residential and industrial applications operating in Brazil and neighboring countries. Goodwill recorded as part of the purchase price allocation was $10.1 million, none of which is tax deductible. Identified intangible assets acquired as part of the acquisition were $6.3 million including definite-lived intangibles, primarily customer relationships of $5.5 million, with an estimated life of 13 years. The proforma impact of this acquisition was deemed to be not material.
Additionally, during the first nine months of 2011, we completed other small acquisitions with purchase prices totaling $4.6 million, consisting of $2.9 million in cash and $1.7 million as a note payable, adding to our Water Group. Total goodwill recorded as part of the purchase price allocation was $4.3 million, none of which is tax deductible. The proforma impact of these acquisitions was deemed to be not material.
Total transaction costs related to acquisition activities for the nine months ended October 1, 2011 were $7.8 million, which were expensed as incurred and recorded in Selling, general and administrative in our Condensed Consolidated Statements of Income.
7. Inventories
Inventories were comprised of:
| October 1, | December 31, | October 2, | ||||||||||
| In thousands |
2011 | 2010 | 2010 | |||||||||
| Raw materials and supplies |
$ | 236,159 | $ | 223,482 | $ | 222,964 | ||||||
| Work-in-process |
49,393 | 37,748 | 42,780 | |||||||||
| Finished goods |
174,364 | 144,126 | 144,328 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total inventories |
$ | 459,916 | $ | 405,356 | $ | 410,072 | ||||||
|
|
|
|
|
|
|
|||||||
8. Goodwill and Other Identifiable Intangible Assets
The changes in the carrying amount of goodwill by segment were as follows:
| In thousands |
December 31, 2010 | Acquisitions/ Divestitures |
Foreign Currency Translation/Other |
October 1, 2011 | ||||||||||||
| Water Group |
$ | 1,784,100 | $ | 466,182 | $ | (15,961 | ) | $ | 2,234,321 | |||||||
| Technical Products Group |
281,944 | — | 427 | 282,371 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Consolidated Total |
$ | 2,066,044 | $ | 466,182 | $ | (15,534 | ) | $ | 2,516,692 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| In thousands |
December 31, 2009 | Acquisitions/ Divestitures |
Foreign Currency Translation/Other |
October 2, 2010 | ||||||||||||
| Water Group |
$ | 1,802,913 | $ | — | $ | (14,754 | ) | $ | 1,788,159 | |||||||
| Technical Products Group |
285,884 | — | (3,132 | ) | 282,752 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Consolidated Total |
$ | 2,088,797 | $ | — | $ | (17,886 | ) | $ | 2,070,911 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
10
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
The detail of acquired intangible assets consisted of the following:
| October 1, 2011 | December 31, 2010 | October 2, 2010 | ||||||||||||||||||||||||||||||||||
| Gross | Gross | Gross | ||||||||||||||||||||||||||||||||||
| carrying | Accumulated | carrying | Accumulated | carrying | Accumulated | |||||||||||||||||||||||||||||||
| In thousands |
amount | amortization | Net | amount | amortization | Net | amount | amortization | Net | |||||||||||||||||||||||||||
| Finite-life intangibles |
||||||||||||||||||||||||||||||||||||
| Patents |
$ | 5,893 | $ | (3,908 | ) | $ | 1,985 | $ | 15,469 | $ | (12,695 | ) | $ | 2,774 | $ | 15,462 | $ | (12,400 | ) | $ | 3,062 | |||||||||||||||
| Proprietary technology |
131,972 | (37,094 | ) | 94,878 | 74,176 | (29,862 | ) | 44,314 | 74,102 | (28,306 | ) | 45,796 | ||||||||||||||||||||||||
| Customer relationships |
366,540 | (102,919 | ) | 263,621 | 282,479 | (82,901 | ) | 199,578 | 283,313 | (78,461 | ) | 204,852 | ||||||||||||||||||||||||
| Trade names |
1,537 | (500 | ) | 1,037 | 1,532 | (383 | ) | 1,149 | 1,538 | (345 | ) | 1,193 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total finite-life intangibles |
$ | 505,942 | $ | (144,421 | ) | $ | 361,521 | $ | 373,656 | $ | (125,841 | ) | $ | 247,815 | $ | 374,415 | $ | (119,512 | ) | $ | 254,903 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|||||||||||||||||||
| Indefinite-life intangibles |
||||||||||||||||||||||||||||||||||||
| Trade names |
257,741 | — | 257,741 | 205,755 | — | 205,755 | 206,475 | — | 206,475 | |||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total intangibles, net |
$ | 763,683 | $ | (144,421 | ) | $ | 619,262 | $ | 579,411 | $ | (125,841 | ) | $ | 453,570 | $ | 580,890 | $ | (119,512 | ) | $ | 461,378 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Intangible asset amortization expense was approximately $12.6 million and $6.3 million for the three months ended October 1, 2011 and October 2, 2010, respectively, and was approximately $29.8 million and $18.1 million for the nine months ended October 1, 2011 and October 2, 2010, respectively.
The estimated future amortization expense for identifiable intangible assets during the remainder of 2011 and the next five years is as follows:
| In thousands |
2011 Q4 | 2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||||
| Estimated amortization expense |
$ | 12,183 | $ | 39,853 | $ | 39,688 | $ | 39,314 | $ | 39,032 | $ | 38,050 | ||||||||||||
9. Debt
Debt and the average interest rates on debt outstanding are summarized as follows:
| In thousands |
Average interest rate October 1, 2011 |
Maturity (Year) |
October 1, 2011 |
December 31, 2010 |
October 2, 2010 |
|||||||||||||||
| Revolving credit facilities - USD |
1.98 | % | 2016 | $ | 127,600 | $ | 97,500 | $ | 68,200 | |||||||||||
| Revolving credit facilities - EUR |
2.94 | % | 2016 | 54,385 | — | — | ||||||||||||||
| Private placement - fixed rate |
5.65 | % | 2013-2017 | 400,000 | 400,000 | 400,000 | ||||||||||||||
| Private placement - floating rate |
0.82 | % | 2012-2013 | 205,000 | 205,000 | 205,000 | ||||||||||||||
| Public - fixed rate |
5.00 | % | 2021 | 500,000 | — | — | ||||||||||||||
| Other |
3.58 | % | 2011-2016 | 61,368 | 4,972 | 4,282 | ||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total debt, including current portion |
1,348,353 | 707,472 | 677,482 | |||||||||||||||||
| Less: Current maturities |
(1,194 | ) | (18 | ) | (37 | ) | ||||||||||||||
| Short-term borrowings |
(29,705 | ) | (4,933 | ) | (4,180 | ) | ||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Long-term debt |
$ | 1,317,454 | $ | 702,521 | $ | 673,265 | ||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
The fair value of total debt excluding the deferred gain on interest rate swaps was $1,400.1 million, $745.9 million and $712.4 million as of October 1, 2011, December 31, 2010 and October 2, 2010, respectively.
On May 9, 2011, we completed a public offering of $500 million aggregate principal amount of our 5.00% Senior Notes due 2021 (the “Notes”). The Notes are guaranteed by certain of our wholly-owned domestic subsidiaries that are also guarantors under our primary bank credit facility. We used the net proceeds from the offering of the Notes to finance in part the CPT acquisition.
11
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
On April 28, 2011, we entered into a Fourth Amended and Restated Credit Agreement (the “Credit Facility”). The Credit Facility replaced our previous $800 million revolving credit facility. The Credit Facility creates an unsecured, committed credit facility of up to $700 million, with multi-currency sub facilities to support investments outside the U.S. The Credit Facility expires on April 28, 2016. Borrowings under the Credit Facility currently bear interest at the rate of London Interbank Offered Rate (“LIBOR”) plus 1.75%. Interest rates and fees on the Credit Facility will vary based on our credit ratings. We used borrowings under the Credit Facility to fund a portion of the CPT acquisition and to fund ongoing operations.
Total availability under our existing Credit Facility was $518.0 million as of October 1, 2011, which was not limited by any of the credit agreement’s financial covenants as of that date.
Our debt agreements contain certain financial covenants, the most restrictive of which is a leverage ratio (total consolidated indebtedness, as defined, over consolidated net income before interest, taxes, depreciation, amortization and non-cash compensation expense, as defined) that may not exceed 3.75 to 1.0 as of October 1, 2011 and 3.5 to 1.0 as of the last date of each of our fiscal quarters thereafter. We were in compliance with all financial covenants in our debt agreements as of October 1, 2011.
In addition to the Credit Facility, we have various other credit facilities with an aggregate availability of $76.0 million, of which $40.0 million was outstanding at October 1, 2011. Borrowings under these credit facilities bear interest at variable rates. Additionally, as part of the CPT acquisition we assumed certain capital leases with an outstanding balance of $18.1 million at October 1, 2011.
We have $105 million of outstanding private placement debt maturing in May 2012. We classified this debt as long-term as of October 1, 2011 as we have the intent and ability to refinance such obligation on a long-term basis under the Credit Facility.
Debt outstanding at October 1, 2011 matures on a calendar year basis as follows:
| In thousands |
2011 Q4 | 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | ||||||||||||||||||||||||
| Contractual debt obligation maturities |
$ | 29,016 | $ | 2,344 | $ | 201,838 | $ | 1,354 | $ | 1,192 | $ | 300,774 | $ | 811,835 | $ | 1,348,353 | ||||||||||||||||
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|||||||||||||||||
10. Derivatives and Financial Instruments
Fair value measurements
Fair value is defined 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. | |
12
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
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.
Cash-flow Hedges
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 $7.6 million, $9.4 million and $7.6 million at October 1, 2011, December 31, 2010 and October 2, 2010, respectively, and was recorded in Other non-current liabilities on the Condensed Consolidated Balance Sheets.
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 $2.9 million, $6.4 million and $11.0 million at October 1, 2011, December 31, 2010 and October 2, 2010, respectively, and was recorded in Other non-current liabilities on the Condensed Consolidated Balance Sheets.
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 recorded in Net interest expense in our Condensed Consolidated Statements of Income. We realized incremental expense resulting from the swaps of $7.0 million and $6.9 million for the nine months ended October 1, 2011 and October 2, 2010, 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.
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.
In April 2011, as part of our planned debt issuance to fund the CPT acquisition, we entered into interest rate swap contracts to hedge movement in interest rates through the expected date of closing for a portion of the expected fixed rate debt offering. The swaps had a notional amount of $400 million with an average interest rate of 3.65%. In May 2011, upon the sale of the Notes, the swaps were terminated at a cost of $11.0 million. Because we used the contracts to hedge future interest payments, this amount is recorded in Prepaid expenses and other current assets within the Condensed Consolidated Balance Sheets and will be amortized as interest exposure over the life of the Notes.
We manage our economic and transaction exposure to certain market-based risks through the use of foreign currency derivative instruments. Our objective in holding derivatives is to reduce the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates.
Foreign currency contract
In March 2011, we entered into a foreign currency option contract to reduce our exposure to fluctuations in the euro related to the planned CPT acquisition. The contract had a notional amount of €286.0 million, a strike price of 1.4375 and a maturity date of May 13, 2011.
13
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
In May 2011, we sold the foreign currency option contract for $1.0 million. The net cost of $2.1 million is recorded in Selling, general and administrative on the Condensed Consolidated Statements on Income.
Fair value of financial information
Financial assets and liabilities measured at fair value on a recurring basis were as follows:
| In thousands |
Fair
Value October 1, 2011 |
(Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Cash-flow hedges |
$ | 10,504 | $ | — | $ | 10,504 | $ | — | ||||||||
| Deferred compensation plan (1) |
21,684 | 21,684 | — | — | ||||||||||||
| In thousands |
Fair
Value December 31, 2010 |
(Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Cash-flow hedges |
$ | 15,768 | $ | — | $ | 15,768 | $ | — | ||||||||
| Foreign currency contract |
1,183 | — | 1,183 | — | ||||||||||||
| Deferred compensation plan (1) |
24,126 | 24,126 | — | — | ||||||||||||
| In thousands |
Fair Value October 2, 2010 |
(Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Cash-flow hedges |
$ | 18,535 | $ | — | $ | 18,535 | $ | — | ||||||||
| Deferred compensation plan (1) |
22,699 | 22,699 | — | — | ||||||||||||
| (1) | Deferred compensation plan assets include mutual funds and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees. The fair value of these assets was based on quoted market prices. |
11. Income Taxes
The provision for income taxes consists of provisions for federal, state and foreign income taxes. We operate in an international environment with operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.
The effective income tax rate for the nine months ended October 1, 2011 was 30.7% compared to 33.1% for the nine months ended October 2, 2010. 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 was $24.6 million, $24.3 million and $24.6 million at October 1, 2011,
December 31, 2010 and October 2, 2010, respectively. We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Net interest expense, respectively, on the Condensed Consolidated Statements of Income, which is consistent with our past practices.
14
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
12. Benefit Plans
Components of net periodic benefit cost were as follows:
| Three months ended | ||||||||||||||||
| Pension benefits | Post-retirement | |||||||||||||||
| In thousands |
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
||||||||||||
| Service cost |
$ | 3,131 | $ | 2,886 | $ | 45 | $ | 50 | ||||||||
| Interest cost |
8,225 | 7,887 | 472 | 503 | ||||||||||||
| Expected return on plan assets |
(7,963 | ) | (7,710 | ) | — | — | ||||||||||
| Amortization of transition obligation |
— | 6 | — | — | ||||||||||||
| Amortization of prior year service cost (benefit) |
— | 8 | (7 | ) | (7 | ) | ||||||||||
| Recognized net actuarial loss (gains) |
971 | 406 | (826 | ) | (823 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net periodic benefit cost (income) |
$ | 4,364 | $ | 3,483 | $ | (316 | ) | $ | (277 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Nine months ended | ||||||||||||||||
| Pension benefits | Post-retirement | |||||||||||||||
| In thousands |
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
||||||||||||
| Service cost |
$ | 9,392 | $ | 8,658 | $ | 135 | $ | 150 | ||||||||
| Interest cost |
24,675 | 23,661 | 1,416 | 1,509 | ||||||||||||
| Expected return on plan assets |
(23,890 | ) | (23,130 | ) | — | — | ||||||||||
| Amortization of transition obligation |
— | 18 | — | — | ||||||||||||
| Amortization of prior year service cost (benefit) |
— | 24 | (21 | ) | (21 | ) | ||||||||||
| Recognized net actuarial loss (gains) |
2,914 | 1,218 | (2,479 | ) | (2,469 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net periodic benefit cost (income) |
$ | 13,091 | $ | 10,449 | $ | (949 | ) | $ | (831 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
13. Business Segments
Financial information by reportable segment is shown below:
| Three months ended | Nine months ended | |||||||||||||||
| In thousands |
October 1, 2011 |
October 2, 2010 |
October 1, 2011 |
October 2, 2010 |
||||||||||||
| Net sales to external customers |
||||||||||||||||
| Water Group |
$ | 614,557 | $ | 512,587 | $ | 1,761,919 | $ | 1,539,943 | ||||||||
| Technical Products Group |
275,989 | 261,148 | 829,075 | 736,972 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Consolidated |
$ | 890,546 | $ | 773,735 | $ | 2,590,994 | $ | 2,276,915 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Intersegment sales |
||||||||||||||||
| Water Group |
$ | 426 | $ | 442 | $ | 1,197 | $ | 1,386 | ||||||||
| Technical Products Group |
1,755 | 1,154 | 4,313 | 2,904 | ||||||||||||
| Other |
(2,181 | ) | (1,596 | ) | (5,510 | ) | (4,290 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Consolidated |
$ | — | $ | — | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating income (loss) |
||||||||||||||||
| Water Group |
$ | 59,608 | $ | 58,457 | $ | 200,657 | $ | 176,549 | ||||||||
| Technical Products Group |
48,611 | 42,605 | 144,959 | 113,693 | ||||||||||||
| Other |
(15,316 | ) | (10,239 | ) | (57,114 | ) | (35,692 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Consolidated |
$ | 92,903 | $ | 90,823 | $ | 288,502 | $ | 254,550 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
15
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
| In thousands |
October 1, 2011 |
December 31, 2010 |
October 2, 2010 |
|||||||||
| Identifiable assets (1) | ||||||||||||
| Water Group |
$ | 4,767,632 | $ | 3,409,556 | $ | 3,370,351 | ||||||
| Technical Products Group |
743,021 | 728,969 | 761,225 | |||||||||
|
Other (1) |
(628,210 | ) | (164,992 | ) | (158,818 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Consolidated |
$ | 4,882,443 | $ | 3,973,533 | $ | 3,972,758 | ||||||
|
|
|
|
|
|
|
|||||||
| (1) | All cash and cash equivalents are included in Other |
14. Warranty
The changes in the carrying amount of service and product warranties as were as follows:
| In thousands |
October 1, 2011 |
December 31, 2010 |
October 2, 2010 |
|||||||||
| Balance at beginning of the year |
$ | 30,050 | $ | 24,288 | $ | 24,288 | ||||||
| Service and product warranty provision |
38,892 | 56,553 | 46,401 | |||||||||
| Payments |
(40,611 | ) | (50,729 | ) | (39,843 | ) | ||||||
| Acquired |
3,551 | — | — | |||||||||
| Translation |
(197 | ) | (62 | ) | (63 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Balance at end of the period |
$ | 31,685 | $ | 30,050 | $ | 30,783 | ||||||
|
|
|
|
|
|
|
|||||||
15. Commitments and Contingencies
There have been no further material developments from the disclosures contained in our 2010 Annual Report on Form 10-K.
16
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
16. Financial Statements of Subsidiary Guarantors
Certain of the domestic subsidiaries (the “Guarantor Subsidiaries”) of Pentair, Inc. (the “Parent Company”), each of which is directly or indirectly wholly-owned by the Parent Company, jointly and severally, and fully and unconditionally, guarantee the Parent Company’s indebtedness under the Notes and the Credit Facility. The following supplemental financial information sets forth the Condensed Consolidated Statements of Income, the Condensed Consolidated Balance Sheets, and the Condensed Consolidated Statements of Cash Flows for the Parent Company, the Guarantor Subsidiaries, the non-Guarantor Subsidiaries, and total consolidated Pentair and subsidiaries.
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
For the three months ended October 1, 2011
| In thousands |
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
| Net sales |
$ | — | $ | 549,306 | $ | 416,131 | $ | (74,891 | ) | $ | 890,546 | |||||||||
| Cost of goods sold |
— | 383,206 | 310,011 | (74,733 | ) | 618,484 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
— | 166,100 | 106,120 | (158 | ) | 272,062 | ||||||||||||||
| Selling, general and administrative |
2,671 | 81,150 | 75,405 | (158 | ) | 159,068 | ||||||||||||||
| Research and development |
218 | 10,093 | 9,780 | — | 20,091 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating (loss) income |
(2,889 | ) | 74,857 | 20,935 | — | 92,903 | ||||||||||||||
| Earnings from investment in subsidiaries |
(35,644 | ) | 1,686 | (718 | ) | 34,676 | — | |||||||||||||
| Other (income) expense: |
||||||||||||||||||||
| Equity income of unconsolidated subsidiaries |
(512 | ) | — | (62 | ) | — | (574 | ) | ||||||||||||
| Net interest (income) expense |
(26,822 | ) | 37,676 | 6,519 | — | 17,373 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income (loss) from continuing operations before income taxes and noncontrolling interest |
60,089 | 35,495 | 15,196 | (34,676 | ) | 76,104 | ||||||||||||||
| Provision for income taxes |
8,997 | 13,150 | 1,903 | — | 24,050 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from continuing operations |
51,092 | 22,345 | 13,293 | (34,676 | ) | 52,054 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income before noncontrolling interest |
51,092 | 22,345 | 13,293 | (34,676 | ) | 52,054 | ||||||||||||||
| Noncontrolling interest |
— | — | 962 | — | 962 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income attributable to Pentair, Inc. |
$ | 51,092 | $ | 22,345 | $ | 12,331 | $ | (34,676 | ) | $ | 51,092 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income from continuing operations attributable to Pentair, Inc. |
$ | 51,092 | $ | 22,345 | $ | 12,331 | $ | (34,676 | ) | $ | 51,092 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
17
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
For the nine months ended October 1, 2011
| In thousands |
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
| Net sales |
$ | — | $ | 1,650,755 | $ | 1,156,342 | $ | (216,103 | ) | $ | 2,590,994 | |||||||||
| Cost of goods sold |
— | 1,138,037 | 859,570 | (215,470 | ) | 1,782,137 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
— | 512,718 | 296,772 | (633 | ) | 808,857 | ||||||||||||||
| Selling, general and administrative |
15,942 | 249,902 | 197,049 | (633 | ) | 462,260 | ||||||||||||||
| Research and development |
823 | 31,448 | 25,824 | — | 58,095 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating (loss) income |
(16,765 | ) | 231,368 | 73,899 | — | 288,502 | ||||||||||||||
| Earnings from investment in subsidiaries |
(126,938 | ) | 1,686 | (718 | ) | 125,970 | — | |||||||||||||
| Other (income) expense: |
||||||||||||||||||||
| Equity income of unconsolidated subsidiaries |
(1,295 | ) | — | (186 | ) | — | (1,481 | ) | ||||||||||||
| Net interest (income) expense |
(80,838 | ) | 114,269 | 7,880 | — | 41,311 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income (loss) from continuing operations before income taxes and noncontrolling interest |
192,306 | 115,413 | 66,923 | (125,970 | ) | 248,672 | ||||||||||||||
| Provision for income taxes |
23,961 | 39,932 | 12,554 | — | 76,447 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from continuing operations |
168,345 | 75,481 | 54,369 | (125,970 | ) | 172,225 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income before noncontrolling interest |
168,345 | 75,481 | 54,369 | (125,970 | ) | 172,225 | ||||||||||||||
| Noncontrolling interest |
— | — | 3,880 | — | 3,880 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income attributable to Pentair, Inc. |
$ | 168,345 | $ | 75,481 | $ | 50,489 | $ | (125,970 | ) | $ | 168,345 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income from continuing operations attributable to Pentair, Inc. |
$ | 168,345 | $ | 75,481 | $ | 50,489 | $ | (125,970 | ) | $ | 168,345 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
18
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
October 1, 2011
| In thousands |
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets |
||||||||||||||||||||
| Cash and cash equivalents |
$ | 4,816 | $ | 5,010 | $ | 42,839 | $ | — | $ | 52,665 | ||||||||||
| Accounts and notes receivable, net |
366 | 298,043 | 344,320 | (86,041 | ) | 556,688 | ||||||||||||||
| Inventories |
— | 201,372 | 258,544 | — | 459,916 | |||||||||||||||
| Deferred tax assets |
112,022 | 40,565 | 13,877 | (105,053 | ) | 61,411 | ||||||||||||||
| Prepaid expenses and other current assets |
17,095 | 21,762 | 145,412 | (36,701 | ) | 147,568 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total current assets |
134,299 | 566,752 | 804,992 | (227,795 | ) | 1,278,248 | ||||||||||||||
| Property, plant and equipment, net |
19,520 | 109,876 | 265,526 | — | 394,922 | |||||||||||||||
| Other assets |
||||||||||||||||||||
| Investments in/advances to subsidiaries |
2,834,569 | 563,756 | 649,722 | (4,048,047 | ) | — | ||||||||||||||
| Goodwill |
— | 1,471,582 | 1,045,110 | — | 2,516,692 | |||||||||||||||
| Intangibles, net |
— | 214,406 | 404,856 | — | 619,262 | |||||||||||||||
| Other |
69,916 | 5,452 | 23,000 | (25,049 | ) | 73,319 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total other assets |
2,904,485 | 2,255,196 | 2,122,688 | (4,073,096 | ) | 3,209,273 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
$ | 3,058,304 | $ | 2,931,824 | $ | 3,193,206 | $ | (4,300,891 | ) | $ | 4,882,443 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||
| Current liabilities |
||||||||||||||||||||
| Short-term borrowings |
$ | — | $ | — | $ | 29,705 | $ | — | $ | 29,705 | ||||||||||
| Current maturities of long-term debt |
2,719 | (2 | ) | 26,865 | (28,388 | ) | 1,194 | |||||||||||||
| Accounts payable |
4,669 | 152,721 | 210,316 | (86,258 | ) | 281,448 | ||||||||||||||
| Employee compensation and benefits |
39,319 | 25,149 | 53,070 | — | 117,538 | |||||||||||||||
| Current pension and post-retirement benefits |
8,733 | — | — | — | 8,733 | |||||||||||||||
| Accrued product claims and warranties |
12,235 | 20,431 | 11,254 | — | 43,920 | |||||||||||||||
| Income taxes |
26,011 | 1,531 | (1,259 | ) | — | 26,283 | ||||||||||||||
| Accrued rebates and sales incentives |
— | 33,855 | 11,376 | — | 45,231 | |||||||||||||||
| Other current liabilities |
25,831 | 42,854 | 131,604 | (36,739 | ) | 163,550 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total current liabilities |
119,517 | 276,539 | 472,931 | (151,385 | ) | 717,602 | ||||||||||||||
| Other liabilities |
||||||||||||||||||||
| Long-term debt |
1,232,600 | 2,417,895 | 941,979 | (3,275,020 | ) | 1,317,454 | ||||||||||||||
| Pension and other retirement compensation |
121,148 | (7,107 | ) | 76,180 | — | 190,221 | ||||||||||||||
| Post-retirement medical and other benefits |
17,332 | 34,651 | — | (25,050 | ) | 26,933 | ||||||||||||||
| Long-term income taxes payable |
23,891 | — | — | — | 23,891 | |||||||||||||||
| Deferred tax liabilities |
(79 | ) | 213,201 | 120,668 | (105,053 | ) | 228,737 | |||||||||||||
| Due to/ (from) affiliates |
(678,340 | ) | (283,366 | ) | 896,497 | 65,209 | — | |||||||||||||
| Other non-current liabilities |
39,537 | 1,604 | 38,348 | — | 79,489 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
875,606 | 2,653,417 | 2,546,603 | (3,491,299 | ) | 2,584,327 | ||||||||||||||
| Noncontrolling interest |
— | — | 115,419 | — | 115,419 | |||||||||||||||
| Shareholders’ equity attributable to Pentair, Inc. |
2,182,698 | 278,407 | 531,184 | (809,592 | ) | 2,182,697 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities and shareholders’ equity |
$ | 3,058,304 | $ | 2,931,824 | $ | 3,193,206 | $ | (4,300,891 | ) | $ | 4,882,443 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
19
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended October 1, 2011
| In thousands |
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
| Operating activities |
||||||||||||||||||||
| Net income before noncontrolling interest |
$ | 168,345 | $ | 75,481 | $ | 54,369 | $ | (125,970 | ) | $ | 172,225 | |||||||||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities |
||||||||||||||||||||
| Equity income of unconsolidated subsidiaries |
(1,295 | ) | — | (186 | ) | — | (1,481 | ) | ||||||||||||
| Depreciation |
4,232 | 20,780 | 24,067 | — | 49,079 | |||||||||||||||
| Amortization |
— | 11,494 | 18,313 | — | 29,807 | |||||||||||||||
| Earnings from investments in subsidiaries |
(126,938 | ) | 1,686 | (718 | ) | 125,970 | — | |||||||||||||
| Deferred income taxes |
6,890 | (536 | ) | (1,909 | ) | — | 4,445 | |||||||||||||
| Stock compensation |
14,695 | — | — | — | 14,695 | |||||||||||||||
| Excess tax benefits from stock-based compensation |
(3,137 | ) | — | — | — | (3,137 | ) | |||||||||||||
| Loss on sale of assets |
702 | — | — | — | 702 | |||||||||||||||
| Changes in assets and liabilities, net of effects of business acquisitions and dispositions |
||||||||||||||||||||
| Accounts and notes receivable |
(58,643 | ) | 67,192 | (8,111 | ) | 22,219 | 22,657 | |||||||||||||
| Inventories |
— | 38,199 | (22,566 | ) | — | 15,633 | ||||||||||||||
| Prepaid expenses and other current assets |
38,033 | (11,493 | ) | (64,380 | ) | 11,460 | (26,380 | ) | ||||||||||||
| Accounts payable |
61,962 | (28,241 | ) | (57,037 | ) | (22,443 | ) | (45,759 | ) | |||||||||||
| Employee compensation and benefits |
(6,326 | ) | (8,160 | ) | 2,152 | — | (12,334 | ) | ||||||||||||
| Accrued product claims and warranties |
— | (1,299 | ) | 1,414 | — | 115 | ||||||||||||||
| Income taxes |
30,411 | (2,429 | ) | (9,937 | ) | — | 18,045 | |||||||||||||
| Other current liabilities |
(34,504 | ) | 19,029 | 73,635 | (11,236 | ) | 46,924 | |||||||||||||
| Pension and post-retirement benefits |
(16,658 | ) | (9,816 | ) | 2,838 | — | (23,636 | ) | ||||||||||||
| Other assets and liabilities |
(60,635 | ) | 57,799 | (18,205 | ) | — | (21,041 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net cash provided by (used for) operating activities |
17,134 | 229,686 | (6,261 | ) | — | 240,559 | ||||||||||||||
| Investing activities |
||||||||||||||||||||
| Capital expenditures |
(6,509 | ) | (20,837 | ) | (25,717 | ) | — | (53,063 | ) | |||||||||||
| Proceeds from sale of property and equipment |
— | 82 | 57 | — | 139 | |||||||||||||||
| Acquisitions, net of cash acquired |
— | — | (733,105 | ) | — | (733,105 | ) | |||||||||||||
| Other |
1,533 | (1,295 | ) | (679 | ) | — | (441 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net cash provided by (used for) investing activities |
(4,976 | ) | (22,050 | ) | (759,444 | ) | — | (786,470 | ) | |||||||||||
| Financing activities |
||||||||||||||||||||
| Net short-term borrowings |
24,772 | — | — | — | 24,772 | |||||||||||||||
| Proceeds from long-term debt |
1,370,423 | — | — | — | 1,370,423 | |||||||||||||||
| Repayment of long-term debt |
(771,793 | ) | — | — | — | (771,793 | ) | |||||||||||||
| Debt issuance costs |
(8,973 | ) | — | — | — | (8,973 | ) | |||||||||||||
| Net change in advances to subsidiaries |
(568,347 | ) | (249,605 | ) | 817,952 | — | — | |||||||||||||
| Excess tax benefits from stock-based compensation |
3,137 | — | — | — | 3,137 | |||||||||||||||
| Stock issued to employees, net of shares withheld |
11,788 | — | — | — | 11,788 | |||||||||||||||
| Repurchases of common stock |
(12,785 | ) | — | — | — | (12,785 | ) | |||||||||||||
| Dividends paid |
(59,660 | ) | — | (9 | ) | — | (59,669 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net cash provided by (used for) financing activities |
(11,438 | ) | (249,605 | ) | 817,943 | — | 556,900 | |||||||||||||
| Effect of exchange rate changes on cash and cash equivalents |
895 | 43,575 | (48,850 | ) | — | (4,380 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Change in cash and cash equivalents |
1,615 | 1,606 | 3,388 | — | 6,609 | |||||||||||||||
| Cash and cash equivalents, beginning of period |
3,201 | 3,404 | 39,451 | — | 46,056 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Cash and cash equivalents, end of period |
$ | 4,816 | $ | 5,010 | $ | 42,839 | $ | — | $ | 52,665 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
20
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
For the three months ended October 2, 2010
| In thousands |
Parent Company |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | |||||||||||||||
| Net sales |
$ | — | $ | 533,704 | $ | 305,030 | $ | (64,999 | ) | $ | 773,735 | |||||||||
| Cost of goods sold |
— | 371,926 | 230,085 | (64,818 | ) | 537,193 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
— | 161,778 | 74,945 | (181 | ) | 236,542 | ||||||||||||||
| Selling, general and administrative |
(2,260 | ) | 84,655 | 46,640 | (181 | ) | 128,854 | |||||||||||||
| Research and development |
108 | 10,430 | 6,327 | — | 16,865 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income |
2,152 | 66,693 | 21,978 | — | 90,823 | |||||||||||||||
| Earnings from investment in subsidiaries |
(35,774 | ) | — | — | 35,774 | — | ||||||||||||||
| Other (income) expense: |
||||||||||||||||||||
| Equity income of unconsolidated subsidiaries |
— | (347 | ) | — | — | (347 | ) | |||||||||||||
| Net interest (income) expense |
(27,834 | ) | 38,462 | (1,675 | ) | — | 8,953 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income (loss) from continuing operations before income taxes and noncontrolling interest |
65,760 | 28,578 | 23,653 | (35,774 | ) | 82,217 | ||||||||||||||
| Provision for income taxes |
11,259 | 8,907 | 6,322 | — | 26,488 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from continuing operations |
54,501 | 19,671 | 17,331 | (35,774 | ) | 55,729 | ||||||||||||||
| Gain on disposal of discontinued operations, net of tax |
549 | — | — | — | 549 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income before noncontrolling interest |
55,050 | 19,671 | 17,331 | (35,774 | ) | 56,278 | ||||||||||||||
| Noncontrolling interest |
— | — | 1,228 | — | 1,228 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income attributable to Pentair, Inc. |
$ | 55,050 | $ | 19,671 | $ | 16,103 | $ | (35,774 | ) | $ | 55,050 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income from continuing operations attributable to Pentair, Inc. |
$ | 54,501 | $ | 19,671 | $ | 16,103 | $ | (35,774 | ) | $ | 54,501 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
21
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
For the nine months ended October 2, 2010
| Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
| In thousands |
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Net sales |
$ | — | $ | 1,577,215 | $ | 890,692 | $ | (190,992 | ) | $ | 2,276,915 | |||||||||
| Cost of goods sold |
— | 1,094,977 | 674,009 | (190,483 | ) | 1,578,503 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Gross profit |
— | 482,238 | 216,683 | (509 | ) | 698,412 | ||||||||||||||
| Selling, general and administrative |
(2,006 | ) | 249,353 | 145,949 | (509 | ) | 392,787 | |||||||||||||
| Research and development |
380 | 32,148 | 18,547 | — | 51,075 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income |
1,626 | 200,737 | 52,187 | — | 254,550 | |||||||||||||||
| Earnings from investment in subsidiaries |
(96,737 | ) | — | — | 96,737 | — | ||||||||||||||
| Other (income) expense: |
||||||||||||||||||||
| Equity income of unconsolidated subsidiaries |
— | (1,370 | ) | (436 | ) | — | (1,806 | ) | ||||||||||||
| Net interest (income) expense |
(83,341 | ) | 115,440 | (5,050 | ) | — | 27,049 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income (loss) from continuing operations before income taxes and noncontrolling interest |
181,704 | 86,667 | 57,673 | (96,737 | ) | 229,307 | ||||||||||||||
| Provision for income taxes |
31,918 | 30,326 | 13,693 | — | 75,937 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Income from continuing operations |
149,786 | 56,341 | 43,980 | (96,737 | ) | 153,370 | ||||||||||||||
| Gain on disposal of discontinued operations, net of tax |
1,666 | — | — | — | 1,666 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income before noncontrolling interest |
151,452 | 56,341 | 43,980 | (96,737 | ) | 155,036 | ||||||||||||||
| Noncontrolling interest |
— | — | 3,584 | — | 3,584 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income attributable to Pentair, Inc. |
$ | 151,452 | $ | 56,341 | $ | 40,396 | $ | (96,737 | ) | $ | 151,452 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income from continuing operations attributable to Pentair, Inc. |
$ | 149,786 | $ | 56,341 | $ | 40,396 | $ | (96,737 | ) | $ | 149,786 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
22
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
October 2, 2010
| Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
| In thousands |
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets |
||||||||||||||||||||
| Cash and cash equivalents |
$ | 9,326 | $ | 4,059 | $ | 43,610 | $ | — | $ | 56,995 | ||||||||||
| Accounts and notes receivable, net |
1,289 | 312,378 | 235,591 | (59,037 | ) | 490,221 | ||||||||||||||
| Inventories |
— | 242,716 | 167,356 | — | 410,072 | |||||||||||||||
| Deferred tax assets |
120,973 | 35,211 | 8,351 | (113,544 | ) | 50,991 | ||||||||||||||
| Prepaid expenses and other current assets |
3,277 | 11,141 | 51,155 | (17,018 | ) | 48,555 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total current assets |
134,865 | 605,505 | 506,063 | (189,599 | ) | 1,056,834 | ||||||||||||||
| Property, plant and equipment, net |
16,311 | 145,260 | 166,031 | 327,602 | ||||||||||||||||
| Investments in/advances to subsidiaries |
2,365,958 | 94,241 | 734,158 | (3,194,357 | ) | — | ||||||||||||||
| Goodwill |
— | 1,549,537 | 521,374 | — | 2,070,911 | |||||||||||||||
| Intangibles, net |
— | 269,886 | 191,492 | — | 461,378 | |||||||||||||||
| Other |
58,818 | 5,914 | 19,146 | (27,845 | ) | 56,033 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total other assets |
2,424,776 | 1,919,578 | 1,466,170 | (3,222,202 | ) | 2,588,322 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
$ | 2,575,952 | $ | 2,670,343 | $ | 2,138,264 | $ | (3,411,801 | ) | $ | 3,972,758 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||
| Current liabilities |
||||||||||||||||||||
| Short-term borrowings |
$ | — | $ | — | $ | 4,180 | $ | — | $ | 4,180 | ||||||||||
| Current maturities of long-term debt |
114,000 | 16 | 24,346 | (138,325 | ) | 37 | ||||||||||||||
| Accounts payable |
5,173 | 178,350 | 141,932 | (59,039 | ) | 266,416 | ||||||||||||||
| Employee compensation and benefits |
33,938 | 31,613 | 35,075 | — | 100,626 | |||||||||||||||
| Current pension and post-retirement benefits |
8,948 | — | — | — | 8,948 | |||||||||||||||
| Accrued product claims and warranties |
— | 23,491 | 17,292 | — | 40,783 | |||||||||||||||
| Income taxes |
12,165 | 8,037 | 2,000 | — | 22,202 | |||||||||||||||
| Accrued rebates and sales incentives |
— | 28,897 | 10,169 | — | 39,066 | |||||||||||||||
| Other current liabilities |
20,988 | 33,691 | 52,623 | (17,016 | ) | 90,286 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total current liabilities |
195,212 | 304,095 | 287,617 | (214,380 | ) | 572,544 | ||||||||||||||
| Other liabilities |
||||||||||||||||||||
| Long-term debt |
673,200 | 1,947,442 | 382,618 | (2,329,995 | ) | 673,265 | ||||||||||||||
| Pension and other retirement compensation |
139,825 | 5,856 | 73,782 | — | 219,463 | |||||||||||||||
| Post-retirement medical and other benefits |
18,665 | 37,686 | — | (27,845 | ) | 28,506 | ||||||||||||||
| Long-term income taxes payable |
23,857 | — | — | — | 23,857 | |||||||||||||||
| Deferred tax liabilities |
429 | 198,892 | 61,995 | (113,544 | ) | 147,772 | ||||||||||||||
| Due to/ (from) affiliates |
(619,173 | ) | (114,370 | ) | 767,246 | (33,703 | ) | — | ||||||||||||
| Other non-current liabilities |
46,261 | 4,108 | 43,312 | — | 93,681 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
478,276 | 2,383,709 | 1,616,570 | (2,719,467 | ) | 1,759,088 | ||||||||||||||
| Noncontrolling interest |
— | — | 115,994 | — | 115,994 | |||||||||||||||
| Shareholders’ equity attributable to Pentair, Inc. |
2,097,676 | 286,634 | 405,700 | (692,334 | ) | 2,097,676 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities and shareholders’ equity |
$ | 2,575,952 | $ | 2,670,343 | $ | 2,138,264 | $ | (3,411,801 | ) | $ | 3,972,758 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
23
Pentair, Inc. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended October 2, 2010
| Parent | Guarantor | Non-Guarantor | ||||||||||||||||||
| In thousands |
Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | |||||||||||||||
| Operating activities |
||||||||||||||||||||
| Net income before noncontrolling interest |
$ | 151,452 | $ | 56,341 | $ | 43,980 | $ | (96,737 | ) | $ | 155,036 | |||||||||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities |
||||||||||||||||||||
| Gain on disposal of discontinued operations |
(1,666 | ) | — | — | — | (1,666 | ) | |||||||||||||
| Equity income of unconsolidated subsidiaries |
— | (1,370 | ) | (436 | ) | — | (1,806 | ) | ||||||||||||
| Depreciation |
1,795 | 22,424 | 18,922 | — | 43,141 | |||||||||||||||
| Amortization |
604 | 11,698 | 7,440 | — | 19,742 | |||||||||||||||
| Earnings from investments in subsidiaries |
(96,737 | ) | — | — | 96,737 | — | ||||||||||||||
| Deferred income taxes |
4,391 | 39 | 436 | — | 4,866 | |||||||||||||||
| Stock compensation |
16,598 | — | — | — | 16,598 | |||||||||||||||
| Excess tax benefits from stock-based compensation |
(2,193 | ) | — | — | — | (2,193 | ) | |||||||||||||
| Loss on sale of assets |
166 | — | — | — | 166 | |||||||||||||||
| Changes in assets and liabilities, net of effects of business acquisitions and dispositions |
||||||||||||||||||||
| Accounts and notes receivable |
656 | (15,688 | ) | (27,558 | ) | 6,374 | (36,216 | ) | ||||||||||||
| Inventories |
— | (21,029 | ) | (28,793 | ) | — | (49,822 | ) | ||||||||||||
| Prepaid expenses and other current assets |
34,620 | (4,078 | ) | (31,132 | ) | (886 | ) | (1,476 | ) | |||||||||||
| Accounts payable |
(1,434 | ) | 51,884 | 16,010 | (6,298 | ) | 60,162 | |||||||||||||
| Employee compensation and benefits |
11,880 | 4,286 | 5,434 | — | 21,600 | |||||||||||||||
| Accrued product claims and warranties |
— | 5,777 | 779 | — | 6,556 | |||||||||||||||
| Income taxes |
(4,526 | ) | 22,916 | (377 | ) | — | 18,013 | |||||||||||||
| Other current liabilities |
(18,820 | ) | 603 | 32,900 | 810 | 15,493 | ||||||||||||||
| Pension and post-retirement benefits |
(12,070 | ) | (5,355 | ) | 2,228 | — | (15,197 | ) | ||||||||||||
| Other assets and liabilities |
(2,659 | ) | (8,747 | ) | 7,652 | — | (3,754 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Net cash provided by (used for) operating activities |
82,057 | 119,701 | 47,485 | — | 249,243 | |||||||||||||||
| Investing activities |
||||||||||||||||||||