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 June 28, 2003
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
Commission file number 1-11625
Pentair, Inc.
(Exact name of Registrant as specified in its charter)
Minnesota
41-0907434
(I.R.S. Employer Identification number)
5500 Wayzata Blvd, Suite 800, Golden Valley, Minnesota
55416
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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
On June 28, 2003, 49,362,760 shares of the Registrant’s common stock were outstanding.
Pentair, Inc. and Subsidiaries
Part I Financial Information
Item 1.
Financial Statements
Condensed Consolidated Statements of Income for the three and six months ended June 28, 2003 and June 29, 2002
Condensed Consolidated Balance Sheets as of June 28, 2003, December 31, 2002, and June 29, 2002
Condensed Consolidated Statements of Cash Flows for the six months ended June 28, 2003 and June 29, 2002
Notes to Condensed Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
Part II Other Information
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Item 6.
Exhibits and Reports on Form 8-K
Signature
PART I FINANCIAL INFORMATION
Condensed Consolidated Statements of Income (Unaudited)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative
Research and development
Operating income
Net interest expense
Income before income taxes
Provision for income taxes
Net income
Earnings per common share
Basic
Diluted
Weighted average common shares outstanding
Cash dividends declared per common share
See accompanying notes to condensed consolidated financial statements.
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Condensed Consolidated Balance Sheets (Unaudited)
Current assets
Cash and cash equivalents
Accounts and notes receivable, net
Inventories
Deferred tax assets
Prepaid expenses and other current assets
Net assets of discontinued operations
Total current assets
Property, plant and equipment, net
Other assets
Goodwill
Other
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings
Current maturities of long-term debt
Accounts payable
Employee compensation and benefits
Accrued product claims and warranties
Income taxes
Other current liabilities
Total current liabilities
Long-term debt
Pension and other retirement compensation
Post-retirement medical and other benefits
Deferred tax liabilities
Other noncurrent liabilities
Total liabilities
Shareholders’ equity
Common shares par value $0.162/3; 49,362,760, 49,222,450, and 49,234,764 shares issued and outstanding, respectively
Additional paid-in capital
Retained earnings
Unearned restricted stock compensation
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
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Condensed Consolidated Statements of Cash Flows (Unaudited)
Operating activities
Depreciation
Other amortization
Deferred income taxes
Stock compensation
Changes in assets and liabilities, net of effects of business acquisitions
Accounts and notes receivable
Pension and post-retirement benefits
Other assets and liabilities
Net cash provided by continuing operations
Net cash provided by (used for) discontinued operations
Net cash provided by operating activities
Investing activities
Capital expenditures
Proceeds (payments) from sale of businesses
Acquisitions, net of cash acquired
Equity investments
Net cash used for investing activities
Financing activities
Net short-term borrowings
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from exercise of stock options
Dividends paid
Net cash used for financing activities
Effect of exchange rate changes on cash
Change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
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Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited)
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 made certain reclassifications to the 2002 condensed consolidated financial statements to conform to the 2003 presentation.
We are responsible for the unaudited financial statements included in this document. The financial statements include all normal recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read our consolidated financial statements and notes thereto which are included in our 2002 Annual Report on Form 10-K.
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 the same as those for the full year.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This new standard nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a cost associated with an exit activity that does not involve an entity newly acquired in a business combination or with a disposal activity covered by SFAS No. 144, be recognized when the liability is incurred, rather than the date of an entity’s commitment to an exit plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 on January 1, 2003 did not have a material effect on our consolidated financial position or results of operations.
In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Interpretation No. 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees. It also clarifies that at the time an entity issues a guarantee, the issuing entity must recognize an initial liability for the fair value of the obligations it assumes under that guarantee. However, the provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations does not apply to product warranties, guarantees accounted for as derivatives, or other guarantees of an entity’s own future performance. We adopted the disclosure requirements of this interpretation as of December 31, 2002. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of this new standard did not have an effect on our consolidated financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (VIE), an Interpretation of ARB No. 51, which requires all VIEs to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the VIE. In addition, the interpretation expands disclosure requirements for both VIEs that are consolidated as well as VIEs from which the entity is the holder of a significant amount of the beneficial interests, but not the majority. The disclosure requirements of this interpretation are effective for all financial statements issued after January 31, 2003. The consolidation requirements of this interpretation are effective for all periods beginning after June 15, 2003. Because we have no variable interest entities, we do not expect that the adoption of this new standard will have an effect on our consolidated financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance of SFAS No. 148 is effective for our financial statements issued in 2003. As allowed by SFAS No. 123, we will continue to account for stock-based compensation in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, which results in no charge to earnings when options are issued at fair market value. The adoption of this new standard did not have a material impact on our consolidated financial position or results of operations.
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Notes to condensed financial statements (unaudited) — (continued)
The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested stock compensation awards in each period:
As reported — net income
Less estimated stock-based employee compensation determined under fair value based method, net of tax
Pro forma — net income
Earnings per common share — basic
As reported
Pro forma
Earnings per common share — diluted
Basic and diluted earnings per share were calculated using the following:
Weighted average common shares outstanding — basic
Dilutive impact of stock options
Weighted average common shares outstanding — diluted
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
Inventories were comprised of:
Raw materials and supplies
Work-in-process
Finished goods
Total inventories
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Comprehensive income and its components, net of tax, are as follows:
Changes in cumulative translation adjustment
Changes in market value of derivative financial instruments classified as cash flow hedges
Comprehensive income
Changes in the carrying amount of goodwill for the six months ended June 28, 2003 by segment is as follows:
Balance December 31, 2002
Acquired, net of purchase price adjustments
Foreign currency translation
Balance June 28, 2003
Segment information is presented consistent with the basis described in the 2002 Annual Report on Form 10-K. Segment results for the three and six months ended June 28, 2003 and June 29, 2002 are shown below:
Net sales to external customers
Tools
Water
Enclosures
Corporate/other
Consolidated
Intersegment sales
Operating income (loss)
Other operating income (loss) is primarily composed of unallocated corporate expenses, our captive insurance subsidiary, intermediate finance companies, divested operations, and intercompany eliminations.
We completed two acquisitions during the six months ended June 28, 2003 in our Water segment. In addition, we acquired two businesses during the year ended December 31, 2002 in our Tools and Water segments. All of the acquisitions during this time period
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have been accounted for as purchases, and have resulted in the recognition of goodwill and other intangibles in our financial statements. Goodwill arises because the purchase prices for these targets reflect a number of factors, the greatest of which includes the future earnings and cash flow potential of these companies.
We make an initial allocation of the purchase price at the date of acquisition based upon our understanding of the fair market value of the acquired assets and liabilities. We obtain this information during due diligence and through various other sources. As we obtain additional information about these assets and liabilities and learn more about the newly acquired business, we are able to refine the estimates of fair market value and more accurately allocate the purchase price during the first 12 months of ownership.
The following briefly describes our acquisition activity for the six months ended June 28, 2003. For a description of our acquisition activity for the year-ended December 31, 2002, refer to our notes to consolidated financial statements included in our 2002 Annual Report on Form 10-K.
During the six-month period ended June 28, 2003, we completed two product line acquisitions for total consideration of approximately $17.1 million in cash including transaction costs. HydroTemp Manufacturing Co., Inc. designs and manufactures heat pumps for swimming pool applications and Letro Products, Inc. designs and manufactures swimming pool accessories including cleaners. We acquired these companies to complement our existing pool and spa equipment business unit of our Water segment. The aggregated annual revenue of the acquired businesses is approximately $17 million. We are continuing to evaluate the initial purchase accounting allocations for acquisitions completed during the six months ended June 28, 2003 and will adjust the allocations as additional information relative to the fair market values of the assets and liabilities of the businesses become known. Pro forma information on these acquisitions and other related disclosures have not been provided as these acquisitions are not considered material to our operations.
In the first quarter of 2003, we made purchase price adjustments relative to our fourth quarter 2002 acquisition of Plymouth Products in which we received $1.9 million. The adjustment primarily related to final determination of closing date net assets.
In January 2003, we completed a final adjustment to the selling price related to the disposition of Lincoln Industrial in which we paid $2.4 million. This had no effect on earnings for the six months ended June 28, 2003 as the amount was offset by previously established reserves.
In April 2003, we invested an additional $5.6 million in certain joint venture operations of an Asian supplier for bench top power tools. This additional investment increased our ownership percentage to 49 percent from 40 percent. We hold options to increase our ownership interest in these joint ventures to 100 percent. Our portion of the earnings of these joint ventures is included in cost of goods sold; however, it is not material.
The changes in the carrying amount of service and product warranties for the quarter ended June 28, 2003 are as follows:
Service and product warranty provision
Payments
Acquired
Translation
In July 2003, we acquired certain assets of two privately held companies to augment existing Water segment businesses for approximately $4.3 million. TwinPumps, Inc., of Oldwick, New Jersey, designs and manufactures vortex and chopper pumps for municipal wastewater applications. K&M Plastics, Incorporated, of Elk Grove, Illinois, designs and manufactures blow-molded brine tanks and pressure vessels for residential and commercial water conditioning and filtration applications.
On July 25, 2003, we completed financing arrangements totaling $700 million, comprised of a $200 million private placement of senior notes with a 10-year maturity and a new committed $500 million revolving credit facility with maturity in three years. The $500 million credit facility replaced two existing revolving credit facilities totaling $632 million. The $200 million private placement includes $100 million of variable rate senior notes with an interest rate equal to the three-month LIBOR rate plus 1.15 percent and $100 million of fixed rate senior notes (of which $50 million will be funded on October 15, 2003) with an average interest rate of 4.98
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percent. The $150 million proceeds received in the third quarter of 2003 from the private placement were used to pay down debt under the revolving credit facility.
The following table contains information about our revolving credit facility and our private placements at June 28, 2003 and July 25, 2003.
Credit available under revolving credit facility
Less debt outstanding under revolving credit facility
Credit available
Private placements
In addition, we have $65 million of uncommitted credit facilities of which $25 million was outstanding at July 25, 2003.
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FORWARD-LOOKING STATEMENTS
This report contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expected,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or the negative thereof or similar words. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. They can be affected by assumptions we might make or by known or unknown risks or uncertainties. Consequently, we cannot guarantee any forward-looking statements. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties.
The following factors may impact the achievement of forward-looking statements:
The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business. We assume no obligation, and disclaim any duty, to update the forward-looking statements in this report.
BUSINESS OVERVIEW
We are a diversified industrial manufacturer operating in three segments: Tools, Water, and Enclosures. Our Tools segment manufactures and markets a wide range of power tools under several brand names — Porter-Cable™, Delta®, Delta Shopmaster™, Delta Industrial™, Biesemeyer®, FLEX™, Ex-Cell™, Air America®, Charge Air Pro®, 2 x 4™, Oldham®, Contractor SuperDuty™, Viper®, Hickory Woodworking®, The Woodworker’s Choice®, and United States Saw® — generating approximately 40 percent of 2002 total revenues. Our Water segment manufactures and markets essential products for the transport, storage, and treatment of water and wastewater and generates approximately 35 percent of 2002 total revenues. Brand names within the Water segment include Myers®, Fairbanks Morse®, Hydromatic®, Aurora®, Water Ace®, Shur-Dri®, Fleck®, SIATA™, CodeLine™, Structural™, WellMate™, Verti-line™, Layne & Bowler™, American Plumber™, Armor™, National Pool Tile™, Rainbow Lifegard™, Paragon Aquatics™, Kreepy Krauly™, and Pentair Pool Products™. Our Enclosures segment accounts for approximately 25 percent of 2002 total revenues, and designs, manufactures, and markets standard, modified and custom enclosures that protect sensitive controls and components for markets that include industrial machinery, data communications, networking, telecommunications, test and measurement, automotive, medical, security, defense, and general electronics. The segment goes to market under four primary brands: Hoffman®, Schroff®, Pentair Electronic Packaging™, and Taunus™.
Our diversification has enabled us to provide shareholders with relatively consistent operating results despite difficult markets that may occur in one or another segment at times.
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RESULTS OF OPERATIONS
The components of the net sales change in 2003 from 2002 were as follows:
Volume
Price
Currency
Total
Net sales in the second quarter and first half of 2003 totaled $719.0 million and $1,356.5 million, compared with $708.1 million and $1,311.2 million for the same periods in 2002. The $10.9 million or 1.5 percent increase in second quarter 2003 net sales and the $45.3 million or 3.5 percent increase in first half 2003 net sales was primarily due to:
These increases were partially offset by:
Sales by segment and the change from the prior year period were as follows:
The 6.7 percent and 3.7 percent declines in Tools segment sales in the second quarter and first half of 2003 were primarily driven by:
The decline in organic sales volume in the second quarter and first half of 2003 was offset in part by sales attributable to the fourth quarter 2002 acquisition of Oldham Saw.
The 9.5 percent and 12.6 percent increases in Water segment sales in the second quarter and first half of 2003 were primarily driven by:
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The 4.4 percent and 2.1 percent increases in Enclosures segment sales in the second quarter and first half of 2003 were primarily driven by:
Percentage point change
The 0.6 percentage point and 1.1 percentage point increases in gross profit as a percent of sales in the second quarter and first half of 2003 from 2002 were primarily the result of:
Selling, general and administrative (SG&A)
SG&A
The 0.3 percentage point and 0.5 percentage point increases in SG&A expense as a percent of sales in the second quarter and first half of 2003 from 2002 were primarily due to:
Research and development (R&D)
R&D
The 0.3 percentage point increases in R&D expense as a percent of sales in the second quarter and first half of 2003 from 2002 were primarily due to additional investments related to new product development initiatives in our Tools and Water segments.
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The 2.0 percentage point and 0.9 percentage point declines in Tools segment operating income as a percent of sales in the second quarter and first half of 2003 from 2002 were primarily the result of:
These decreases were partially offset by:
The 0.7 percentage point and 1.3 percentage point declines in Water segment operating income as a percent of sales in the second quarter and first half of 2003 from 2002 were primarily the result of:
The 3.1 percentage point and 3.4 percentage point increases in Enclosures segment operating income as a percent of sales in the second quarter and first half of 2003 from 2002 were primarily the result of:
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Net interest expense was $9.8 million and $19.8 million in the second quarter and first half of 2003 compared with $10.5 million and $24.2 million for the same periods in 2002. The $0.7 million and the $4.4 million declines primarily reflected lower interest rates on our variable rate debt and the write-off in March 2002 of $1.8 million of deferred financing costs related to excess capacity on certain credit facilities that we no longer used.
Effective tax rate
Our effective tax rate in the second quarter and first half of 2003 was 34 percent compared with 33 percent for the same periods in 2002. The one percentage point increase was primarily due to the anticipated mix of our 2003 U.S. and foreign earnings and the fact that many of our tax savings programs have relatively fixed benefits so as profitability improves our effective tax rate trends higher.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements for working capital, capital expenditures, equity investments, acquisitions, debt repayments, and dividend payments are generally funded from cash generated from operations, availability under existing committed revolving credit facilities, and in certain instances, equity and public debt transactions.
The following table presents selected working capital measurements calculated from our monthly operating results based on a 13-month moving average and indicates our emphasis on working capital management:
Days of sales in accounts receivable
Days inventory on hand
Days in accounts payable
Cash conversion cycle
Cash provided by operating activities was $77.7 million in the first half of 2003, or $24.8 million lower compared with the same period in 2002. The decrease was primarily attributable to year-over-year variances in tax payments and increased working capital resulting from higher inventories in our Tools segment and our pool and spa equipment business.
Capital expenditures in the first half of 2003 were $18.9 million compared with $15.3 million in the prior year period. We anticipate capital expenditures in 2003 to be approximately $45 million primarily, in the areas of new product development and general maintenance capital.
During the six-month period ended June 28, 2003, we completed two product line acquisitions for total consideration of approximately $17.1 million in cash including transaction costs. HydroTemp Manufacturing Co., Inc. designs and manufactures heat pumps for swimming pool applications and Letro Products, Inc. designs and manufactures swimming accessories including pool cleaners. We acquired these companies to complement our existing pool and spa equipment business unit of our Water segment. The aggregated annual revenue of the acquired businesses is approximately $17 million.
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In April 2003, we invested an additional $5.6 million in certain joint venture operations of an Asian supplier for bench top power tools. This additional investment increased our ownership percentage to 49 percent from 40 percent. We hold options to increase our ownership interest in these joint ventures to 100 percent.
At June 28, 2003, our capital structure consisted of $728.5 million in total indebtedness and $1,171.5 million in shareholders’ equity. The ratio of debt-to-total capital at June 28, 2003 was 38.3 percent, compared with 39.9 percent at December 31, 2002 and 37.4 percent at June 29, 2002. Our targeted debt-to-total capital ratio is approximately 40 percent. We will exceed this target from time to time as needed for operational purposes and/or acquisitions.
On July 25, 2003, we completed financing arrangements totaling $700 million, comprised of a $200 million private placement of senior notes with a 10-year maturity and a new committed $500 million revolving credit facility with maturity in three years. The $500 million credit facility replaced two existing revolving credit facilities totaling $632 million. The $200 million private placement includes $100 million of variable rate senior notes with an interest rate equal to the three-month LIBOR rate plus 1.15 percent and $100 million of fixed rate senior notes (of which $50 million will be funded on October 15, 2003) with an average interest rate of 4.98 percent. The $150 million proceeds received in the third quarter of 2003 from the private placement were used to pay down debt under the revolving credit facility.
Credit available under existing facilities, as limited by our most restrictive financial covenant, was approximately $234 million at July 25, 2003 and is based on a ratio of total debt to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). In addition, our debt agreements contain certain financial covenants that restrict the amount we pay for dividends and require us to maintain certain financial ratios and a minimum net worth. We were in compliance with all covenants at June 28 and July 25, 2003.
Our current credit ratings are as follows:
Rating Agency
Long-Term Debt Rating
Standard & Poor’s
Moody’s
We will continue to have cash requirements to support working capital needs and capital expenditures, to pay interest and service debt and to pay dividends to shareholders. In order to meet these cash requirements, we intend to use available cash and internally generated funds and to borrow under our committed and uncommitted credit facilities. We believe that cash provided from these sources will be adequate to meet our cash requirements for the foreseeable future.
There have been no material changes with respect to the contractual obligations as described in our Annual Report on Form 10-K for the year ended December 31, 2002.
Dividends paid in the first half of 2003 were $19.7 million or $0.40 per common share compared with $17.7 million or $0.36 per common share in the prior year period.
Pension
Total net periodic pension benefits cost is expected to be approximately $15 million for 2003 compared with approximately $13 million in 2002. Our 2003 pension contributions are expected to be in the range of $20 million to $25 million compared to approximately $19 million in 2002.
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Subsequent Event
NEW ACCOUNTING STANDARDS
See Note 2 (New Accounting Standards) of ITEM 1.
CRITICAL ACCOUNTING POLICIES
In our Annual Report on Form 10-K for the year ended December 31, 2002, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our consolidated financial statements. We have not changed these policies from those previously disclosed in our annual report.
There have been no material changes in our market risk during the six months ended June 28, 2003. For additional information, refer to Item 7A on page 30 of our 2002 Annual Report on Form 10-K.
We maintain a system of disclosure controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter ended June 28, 2003 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the quarter ended June 28, 2003 in timely alerting them to material information relating to Pentair, Inc. (including its consolidated subsidiaries) required to be included in reports we file with the Securities and Exchange Commission.
There was no change in our internal control over financial reporting that occurred during the quarter ended June 28, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Environmental and Product Liability Claims
There have been no further material developments regarding the above from that contained in our 2002 Annual Report on Form 10-K.
The following supplements and amends the discussion set forth under Item 3. Legal Proceedings in our Annual Report on Form 10-K for the year ended December 31, 2002.
Horizon Litigation
On June 25, 2003, the United States Court of Appeals for the Second Circuit dismissed Essef’s appeal of the trial verdict. A motion for panel rehearing and rehearing en banc has been filed. We believe we have sufficient reserves to cover any uninsured awards or settlements for this matter.
We are occasionally a party to litigation arising in the normal course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities based on the expected eventual disposition of these matters. We believe the effect on our consolidated results of operations and financial position, if any, for the disposition of all currently pending matters will not be material.
At Pentair’s Annual Meeting of Shareholders held on April 30, 2003, the shareholders voted on the following items:
Proposal 1. – Election of Directors
Nominees
Votes For
Votes Withheld
Charles A. Haggerty
Randall J. Hogan
The other directors whose terms of office continued after the Annual Meeting are as follows: terms expiring at the 2004 annual meeting – William H. Hernandez, William T. Monahan and Karen E. Welke; and terms expiring at the 2005 annual meeting – Barbara B. Grogan, Stuart Maitland and Augusto Meozzi.
Proposal 2. – Approval of amendment to the Executive Officer Performance Plan for Section 162(m) purposes
Votes Against
Votes Abstain
39,634,542
Proposal 3. – Approval of amendment to the Omnibus Stock Incentive Plan for Section 162(m) purposes
38,463,937
Amended and Restated Credit Agreement dated as of July 25, 2003 among Pentair, Inc., various subsidiaries of Pentair, Inc., and various financial institutions listed therein, and Bank of America, N.A., as Administrative Agent. (Incorporated by reference to Exhibit 10.21 contained in Pentair’s Current Report on Form 8-K filed July 29, 2003).
Note Purchase Agreement dated as of July 25, 2003 for $50,000,000 4.93% Senior Notes, Series A, due July 25, 2013, $100,000,000 Floating Rate Senior Notes, Series B, due July 25, 2013, and $50,000,000 5.03% Senior Notes, Series C, due October 15, 2013. (Incorporated by reference to Exhibit 10.22 contained in Pentair’s Current Report on Form 8-K filed July 29, 2003).
Certification of Chief Executive Officer Pursuant to Rule 13a-14 of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Rule 13a-14 of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The Registrant filed the following Current Report on Form 8-K during the quarter ended June 28, 2003:
On April 17, 2003, Pentair furnished under Items 7 and 9 a Current Report on Form 8-K dated April 17, 2003 announcing earnings for the quarter ended March 29, 2003.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 12, 2003.
PENTAIR, INC.
Registrant
By:
David D. Harrison
Executive Vice President and Chief Financial Officer
(Chief Accounting Officer)
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Exhibit Index to Form 10-Q for the Period Ended June 28, 2003
1