Pentair Annual Report 1999

Plain-text annual report

what’s behind the name? Pentair, Inc. Summary Annual Report 1999 what’s behind the name? Acquisition know-how. We acquired three strategic businesses in 1999 that will boost our revenues by 50 percent, making us a $3 billion company in the year 2000. Manufacturing excellence. The mind- set in our plants is for continuous improvement. Customer-focused work teams, with clear productivity goals and a commitment to quality, help us deliver superior products on time and at competitive prices. Consistent, strong performance. We have been proﬁtable since our second year in business. Our 14,000 employees give us our competitive edge. Rapid growth. We’re making it happen throughout the Company, in each business segment, geographically, and ﬁnancially. Innovation across the board. From products to processes to services, we’re ﬁnding new and better ways of doing business. Pentair is a diversiﬁed manufacturer serving customers worldwide in three core businesses: professional tools and equipment, water and ﬂuid technologies, and electrical and electronic enclosures. Pentair brands are recognized market leaders in their categories. Pentair’s manufacturing and marketing competencies enable the company to deliver high-value products to customers and consistent earnings to investors. Pentair stock is traded on the New York Stock Exchange under the symbol PNR. page 1 operating groups ﬁnancial highlights Years ended December 31 Delta Porter-Cable DeVilbiss Air Power Century In thousands, except per share data and percentages 1999 1998 Change Net sales $2,367,753 $1,937,578 22.2% Operating income $ 252,331* $ 193,192 30.6% Net income $ 127,439* $ 106,840 19.3% professional tools and equipment group Diluted earnings per share Cash dividends per common share $ $ 2.89* .64 $ $ 2.46 17.5% .60 Return on average common shareholders’ equity 15.2%* 16.6% Common shares outstanding at year-end 48,317 38,504 Stock price at year-end Capital expenditures Total debt to capital ratio $ $ 38 1⁄2 60,629 51% $ $ 39 13⁄16 53,843 33% Number of employees 13,900 10,500 *excludes restructuring charge of $38.0 million pre-tax, $24.13 million after-tax, or $0.56 per share. . 8 7 6 3 2 . 6 7 3 9 1 . 1 9 3 8 1 . 1 7 6 5 1 . 9 2 0 4 1 . 7 1 6 2 1 . * 4 7 2 1 . 8 6 0 1 . 6 1 9 . 5 4 7 . 5 0 6 . 1 0 5 * 9 8 2 . 6 4 2 . 1 1 2 . 3 7 1 . 1 4 1 . 7 1 1 . sales income from continuing operations earnings per share diluted 4 9 5 9 6 9 7 9 8 9 9 9 $ millions 4 9 5 9 6 9 7 9 8 9 9 9 $ millions 4 9 5 9 6 9 7 9 8 9 9 9 $ per share from continuing operations Pentair Pump and Pool Lincoln Industrial Pentair Water Treatment water and ﬂuid technologies group Hoffman Pentair Electronic Packaging Pentair Enclosures Europe electrical and electronic enclosures group 2 page to our shareholders Of the many ﬁne qualities behind the Pentair name, the one that has always been a trademark is consistent, strong ﬁnancial performance. In 1999, for the eighth consecutive year, we achieved record sales and pre-charge earnings from continuing businesses. In addition, we continued our growth momentum, strengthened our senior management team, and engineered increased productivity at all of our operations. Winslow H. Buxton Chairman and CEO We managed more aggressively in 1999, taking substantial actions to ensure the vigorous growth and long-term success of Pentair. We built critical mass in our three business segments through a combination of organic growth and major acquisitions; enhanced our ﬁnancial structure through new debt and equity offerings; and took a one-time charge against earnings to accelerate the restructuring programs necessary to support our rapid growth. Joseph R. Collins Vice Chairman We continued to increase our global reach, penetrate new markets, introduce new products, win new customers, achieve internal economies of scale, and hone the core competencies beﬁtting an organization of our size and potential. Our sales in 1999 were up 22 percent to $2.37 billion, and our pre-charge operating income was up 31 percent to $252.3 million. Pre-charge earnings per Randall J. Hogan President and COO share (EPS) for 1999 reached $2.89 – 18 percent ahead of 1998 EPS. Cash EPS, deﬁned as regular EPS plus the after-tax impact of goodwill amortization, was $3.38 in 1999 versus $2.75 in 1998, an improvement of 23 percent. Operating margins for the year improved by 70 basis points, while margins excluding the impact of acquisitions improved by 160 basis points. The fourth quarter of 1999 was our 25th consecutive quarter of achieving year-to-year earnings growth. And we are doing all we can to continue this record. 1999 was a great year for Pentair, with one exception. Stock market ﬂuctuations made headline news regularly throughout the year, and we rode the roller coaster along with most everyone else. In light of our unwavering commitment to building shareholder value, we are disappointed that our record ﬁnancial performance in 1999 was not reﬂected in the price of our stock. page 3 to our shareholders However, we are conﬁdent that the downturn was due primarily to the market’s prevailing interest in technology stocks, and we believe that as our performance and market position strengthen, investors will ultimately recognize Pentair’s consistently excellent performance and prospects. We are certain that the bold steps we took to build the business in 1999 will generate considerable value for all Pentair stakeholders in the near future and the coming years. Revenues projected at $3 billion in 2000 We reached a major milestone in 1999 on the road to achieving our long-term growth goals. The successful completion of our two largest acquisitions ever — Essef Corporation and DeVilbiss Air Power Company — built critical mass in two of our chosen market segments and assured us of generating more than $3 billion in revenues in 2000. On August 10, 1999, we acquired Essef Corporation of Chardon, Ohio, for $18.97 per share, or $310 million, and the assumption of approximately $120 million of debt. Essef manufactures products used in moving, treating, Pentair’s and storing water — including pumps, tanks, ﬁltration systems, and pool and spa manufacturing equipment. Essef is expected to drive sales in our Water and Fluid Technologies excellence Group to nearly $900 million in 2000. Water is a strong growth market that will was publicly provide us with inﬁnite opportunities. recognized in October 1999 Pentair excels at manufacturing by focusing on the people who do the work. Since the Company was founded in 1966, Pentair has empowered the people closest to the tasks to get the job done. when Porter-Cable Today, plant employees are the “experts on the ﬂoor,” determining work processes, setting goals, was named one and even selecting the equipment they use. They run their areas as if they were their own businesses; and when they exceed their goals, they share in the proﬁts. This way of working gives of the top 10 employees a heightened sense of responsibility for the success of the products they produce and manufacturing the company they represent. plants in IndustryWeek magazine selected the Porter-Cable facility in Jackson, Tennessee, as one of the top Pentair’s manufacturing excellence was publicly recognized in October 1999 when North America. 10 manufacturing plants in North America. Porter-Cable was chosen from more than 400 plants nominated for the award. IndustryWeek credited Porter-Cable’s American Integrated Manufacturing System — or AIMS program — for the plant’s success. AIMS focuses on employee involvement, a commitment 4 page In early September, we acquired DeVilbiss Air Power Company of Jackson, Tennessee, for approximately $460 million. With this acquisition, we gained new product lines and signiﬁcant market share in product categories new to us. DeVilbiss Air Power Company is number one in retail air compressors, number one in cold water pressure washers, and a strong number three in retail generators. We expect the addition of DeVilbiss Air Power Company will drive sales in our Professional Tools and Equipment Group to more than $1.5 billion in the year 2000. This acquisition positions us for future growth in North American markets. We continue to make smaller strategic acquisitions to support growth in our three business segments. In April 1999, we increased our penetration of the fast-growing global electronic packaging market with the acquisition of WEB Tool and Manufacturing of Chicago, Illinois. WEB, a high-volume manufacturer of stamped enclosures and assemblies for computer applications, increased our custom enclosure capabilities and strengthened our ability to serve datacom and telecom markets. To fund our unusually high degree of acquisition activity in 1999, we issued new debt and equity. In early October, we successfully completed parallel offerings of 5.5 million new shares of common stock and $250 million of long-term public debt; both offerings were oversubscribed by investors. The offerings enabled us to bring to quality, and a virtual war against waste. The program’s slogan is People, Productivity, Quality. AIMS was implemented in 1992 after Porter-Cable made a strategic decision to sell its professional-quality power tools through home centers. Anticipating considerably higher production volumes, the factory reorganized into cells, formed work teams, and opened communication lines between the plant ﬂoor and management. Through these initiatives, the operation was transformed. The AIMS effort allowed Porter-Cable to successfully compete with and become one of the giants of the power tool industry, meet the volume and order-ﬁll requirements of home centers, and take good care of all customers. During the last seven years, Porter-Cable sales have increased 300 percent, driven by manufacturing and distribution excellence. Naturally, when the IndustryWeek award was presented in Jackson, the employees of Porter-Cable, like Darell Wilson, pictured at right, were the guests of honor. page 5 to our shareholders our total debt to capital ratio to the 50 percent range by year-end, and to return Pentair to a strong ﬁnancial structure that supports strategic future growth. With acquisitions like DeVilbiss Air Power, Essef, and WEB, we continue to solidify our business interests in tools and equipment, water, and enclosures. In October 1999, in a move to further tighten this focus, we announced our intent to explore strategic alternatives for Lincoln Industrial. A Pentair business since 1986, Lincoln Industrial is the global market leader in automated grease lubrication. At this time, we are exploring options to ensure that Lincoln Industrial is optimally positioned to grow in the lubrication and pump markets it serves. Initiatives target customer access and service In 1999, we undertook many separate initiatives designed to reduce costs and increase our abilities to access and serve our customers more efﬁciently. Our global expansion is being accelerated so that we can accommodate the needs of large, multinational customers. E-business capabilities are being developed so that we can provide customers with faster, smoother transactions and service. Motivated, We also are implementing new enterprise systems to better manage activities enthusiastic within our operating units, and to consolidate and improve services. people working Much of our success can be attributed to our well-developed core together to competencies. Operating expertise, acquisition and integration know-how, achieve common goals are the Pentair looks at its strategies and growth plans in terms of the leadership that will be required to bring those plans to fruition. In 1999, a new, more aggressive talent management process driving force was launched to deliver more consistent talent identiﬁcation and development. Personal in the top competencies necessary for successful leadership were deﬁned, with an emphasis on ethics, problem-solving skills, people skills, business skills, and self-management skills — qualities performance that reﬂect the tenets of Pentair’s Code of Business Conduct. of Pentair businesses. Pentair business units determined their talent needs; promising employees within those business units were identiﬁed; and development-planning discussions were held. As part of the overall talent management process, a two-year Executive Development Program was established, with a new class beginning each year. The ﬁrst class of 22 high-potential middle managers was organized in 1999. Participants received personal competency-based development guidance, 360-degree feedback, and training that gave them tools to increase their effectiveness in their jobs. Training included sessions on 6 page product innovation, excellent channel management, and people-powered performance keep our businesses and brands in leadership positions in their markets. We continue to strengthen these core competencies and develop other skill sets necessary to support Pentair’s projected growth in size and scope. Meeting the demands of the future The acquisitions, stock offering, and restructuring activities we undertook in 1999 were necessary phases in our corporate evolution. Pentair’s future business plan is based on fewer, larger business units and consolidated world-class services. Our current initiatives will result in a streamlined organization that is better able to focus on the critical competencies of manufacturing and operating excellence, product innovation, acquisition and integration, talent management, e-business, and customer service. Our corporate evolution has dictated changes in every area of our business. In a move to ﬁne-tune our senior management team, Enclosures Group President and Pentair Executive Vice President Randall J. Hogan was promoted to president and chief operating ofﬁcer of Pentair, effective December 1, 1999. Randy has 23 years of experience in strategy development and implementation, operations and ﬁscal management, global market growth, acquisitions, and marketing. His broad background, strong personal effectiveness, leadership techniques, ﬁnance, marketing, strategic planning, and global business practices. Six members of the ﬁrst Executive Development class are pictured at Pentair’s corporate headquarters following a training session in Minneapolis. Front row, left to right: Jochen Enderle, Pentair Enclosures Europe; Roma Anderson, Pentair Water Treatment; and Lori Stiegmann, Porter-Cable. Back row, left to right: Scott Kiefer, Porter-Cable; JoEllen Lawler, Pentair Corporate; and Gene Caston, Hoffman. An important feature of the talent management process is the assignments that take employees across business and group lines. Ultimately, this cross-training initiative will result in a more collaborative and uniﬁed organization. In implementing the ﬁrst phase of the talent management process, development efforts targeted management-level employees. Pentair plans to expand this initiative over the next several years to include other employee groups. page 7 to our shareholders leadership skills, and depth of talent make him well suited to the tasks ahead of Pentair. David D. Harrison rejoined Pentair in February 2000 as executive vice president and chief ﬁnancial ofﬁcer, succeeding retiring CFO Richard Ingman. Dave was a strong participant in Pentair’s mid-1990s reengineering strategy, and his return to the Company gives us considerable depth in ﬁnancial management and investor relations. Simpliﬁed and focused Our leadership team is more focused than ever before. Over the last ﬁve years, we have acquired and divested to concentrate all our assets in three areas of enterprise – tools and equipment, water, and enclosures. Each of these three areas has long legs, meaning each offers opportunities for added value in the short-term, as well as attractive returns in the long-term. Our tools and equipment businesses help meet the basic requirements of shelter and transportation. Our water businesses serve the fundamental human need for safe, clean Pentair’s water. Our enclosure businesses play a critical role in advancing industry and commitment to technology by housing and protecting sensitive electronic equipment. From its communities this perspective, Pentair’s business mix and operating strategies are clear-cut took on new and easy to understand. scope and meaning in June Pentair has long been giving back to the communities in which it operates. In 1998, the Company’s philanthropic activities were formalized with the establishment of The Pentair Foundation. 1999 when the The Foundation has two major areas of focus: Education and Community. Funding is Foundation directed to educational programs and community-based organizations that serve socially and economically disadvantaged people, with the goal of creating positive change in their lives. entered into a The Foundation provided $2.09 million in grants to 163 organizations in 1999. partnership with Habitat for Humanity International. Pentair’s commitment to its communities took on new scope and meaning in June 1999 when the Foundation launched its ﬁrst company-wide initiative. The Foundation entered into a partnership with Habitat for Humanity International to build ten houses in two years. Under the banner of “Businesses Building Homes,” nearly 400 Pentair employee volunteers in ﬁve locations participated in the construction projects in 1999. Pentair’s corporate ofﬁce staff kicked off the national program by helping to build a Habitat home in Columbia Heights, Minnesota. Then, employee volunteers from Pentair businesses— 8 page We are uniquely equipped to serve our three growth markets, and as a result, to meet the expectations of our shareholders. Across the board, Pentair has top-performing businesses, extraordinary people, broad ﬁnancial strength, and the know-how to succeed. Advantage: top-performing businesses Our businesses are ﬁrst or second in their markets, managing their brands so that they maintain leadership positions in their distribution channels. They’ve made product innovation a key strategy across the board and introduced integrated product offerings that provide complete, ready-to-go solutions and the convenience of one-stop shopping. They continue to broaden their scope to provide new products and services to existing customers, and to reﬁne their processes so that innovation, product performance, and transaction excellence are integral parts of their offerings. Working to achieve manufacturing excellence, Pentair businesses are transforming their facilities into operations that rank among the world’s best. Advantage: extraordinary people Motivated, enthusiastic people working together to achieve common goals are the driving force in the top performance of Pentair businesses. In a work environment where communications Porter-Cable in Jackson, Tennessee; Lincoln Industrial in St. Louis, Missouri; Fairbanks Morse in Kansas City, Kansas; and Hoffman Enclosures in Anoka, Minnesota — followed suit by building Habitat houses in their own communities. Greg Linder, who coordinated the volunteer effort at Hoffman Enclosures and acted as the site crew leader, is pictured using a Delta saw to cut temporary supports for a front porch. At every build, Pentair provided Delta/Porter-Cable power tool packages to the Habitat for Humanity local afﬁliate. Five additional Foundation-sponsored Habitat homes are scheduled to be built in 2000 by Delta International Machinery Corporation in Tupelo, Mississippi; Pentair Water Treatment in Milwaukee, Wisconsin; Century Manufacturing in Bloomington, Minnesota; Pentair Pump and Pool in Ashland, Ohio; and Pentair Electronic Packaging in Warwick, Rhode Island. The Foundation’s total contribution for the two-year Habitat program will be $464,500. page 9 to our shareholders are open and informal, we attempt to use to the fullest the diverse strengths and abilities of our people by encouraging fresh thinking and new ways of doing things. We help employees increase their knowledge and skills by offering developmental opportunities, management experience, and chances to make signiﬁcant contributions to the organization. Pentair employees also have the opportunity to contribute to their communities through voluntarism and service on community councils within Pentair businesses. Through community councils, The Pentair Foundation donates a portion of Pentair proﬁts to charitable programs in plant communities. In 1999, The Pentair Foundation invested $2.09 million in education and community-based programs nationwide. Advantage: broad ﬁnancial strengths Pentair’s excellent ﬁnancial results enable us to serve the best interests of our stakeholders, and still build the business for tomorrow. To continue meeting expectations, Pentair is striving to achieve benchmark ﬁnancial performance deﬁned as: Though our 15%+ revenue growth one-year jump 20% return on equity from $2 billion 30-40% total debt to capital to $3 billion in We continue to benchmark against other top-performing industrial companies annualized sales in categories including return on sales, free cash ﬂow, and earnings per share. is signiﬁcant, we have set even Advantage: the know-how to succeed more aggressive We believe we have the leadership, businesses, and resources to double our growth goals revenues to $6 billion by the year 2005. We are on track to achieving our over the next performance and growth goals by remaining close to our businesses, staying ﬁve years. prudent and practical in our outlook, and practicing our proven competencies. Our future is more assured by our efforts to expand geographically, build new enterprise systems and services, and extend our reach through new e-business and e-commerce initiatives. 10 page We believe that e-commerce and e-business are key to securing strategic We believe market position, and we have a number of active projects in the works to develop we have the our abilities in these areas. We see our e-commerce and e-business initiatives as leadership, opportunities to gain quick access to our markets, improve the speed and accuracy businesses, of our transactions, better meet the needs of our customers, and improve and resources relationships with our suppliers. to double our We are also working to increase the visibility of the Pentair name. revenues to While continuing to build our business brands in their own markets, we have $6 billion by begun positioning the Pentair name as an enterprise umbrella in appropriate the year 2005. new business-to-business markets to build recognition and support for the Company as a whole. Pentair is developing into a great company. By designing, manufacturing, and marketing innovative products on a global basis, we are building recognition and respect for our performance, market leadership, and values. We continue to be guided by our Code of Business Conduct, which sets the standard for the way we do business. Of course, nothing happens without people, and we gratefully acknowledge the support of all our stakeholders, who collectively make Pentair the exceptional company it is. We are optimistic that 2000 will be another in a long string of great years. On behalf of Pentair, Winslow H. Buxton Chairman and CEO Joseph R. Collins Vice Chairman Randall J. Hogan President and COO page 11 what’s behind the craftsmanship? professional tools and equipment group What do an intricate wood inlay, a newly shingled roof, and a jumpstart have in common? They’re all made possible by Pentair products. The pros you trust with your most important projects probably use Delta table saws; the crew that’s building your new garage may have Porter-Cable power tools on site; and the mechanic who maintains your car most likely has a shop equipped with Lincoln lubricating and lifting equipment, a Charge Air Pro air compressor, and more than one Century battery charger.You may own a few Pentair tools yourself. Pentair tools help discriminating professionals and do-it-yourselfers produce the best in craftsmanship and service. page 13 . 8 3 7 0 1 , . 3 9 4 8 . 1 7 4 7 . 7 2 8 4 5 2 9 4 . 5 9 6 9 7 9 8 9 9 9 $ millions professional tools and equipment group The Professional Tools and Equipment Group serves professionals who rely upon tools to make their living, as well as discriminating do-it-yourselfers who prefer professional-grade products. Comprising the Group are four businesses operating in two industries. Porter-Cable and Delta supply products to portable power tool and woodworking machinery markets, respectively. Century and DeVilbiss Air Power Company provide products to equipment markets. In 1999, the Group upheld a performance record that included four consecutive years of double-digit sales growth and six consecutive years of double-digit operating income growth. Sales for the Group totaled $1.074 billion in 1999, a 26 percent gain over the sales previous year. Operating income for the Group before the restructuring charge was $122.2 million, up 23 percent from 1998. The acquisition of DeVilbiss Air Power Company for approximately $460 million strengthened Pentair’s product offerings, provided leading market share in new product categories, and presented opportunities for increasing the Group’s overall effectiveness in the areas of manufacturing, sales, distribution, and customer service. The acquisition is expected to drive Group sales to more than $1.5 billion in 2000. The Group restructured certain aspects of its tool businesses in 1999 and early 2000. Delta’s main ofﬁce was relocated from Pittsburgh, Pennsylvania, to Jackson, Tennessee, to share headquarters with Porter-Cable. A state-of-the-art 675,000-square- foot Delta/Porter-Cable distribution center was built in Jackson to improve fulﬁllment capabilities. And the companies’ retail sales forces were consolidated to provide better coverage and service to customers. With the acquisition of DeVilbiss Air Power Company on September 3, 1999, Jackson, Tennessee, became an increasingly important strategic location for Pentair. At the time of the acquisition, both DeVilbiss Air Power and Pentair’s Porter-Cable tool business had headquarters, manufacturing, and distribution centers there. Then, in the ﬁrst quarter of 2000, they were joined by Pentair’s Delta International Machinery Corp. Delta, formerly based in Pittsburgh, combined its headquarters with Porter-Cable in Jackson in a move to heighten the competitiveness of Pentair’s Tools businesses. DeVilbiss Air Power Company is the In addition, a state-of-the-art 675,000-square-foot distribution center North American market leader in cold was constructed in Jackson to consolidate and streamline order fulﬁllment water pressure washers. and customer service for Delta and Porter-Cable. Consequently, the Delta distribution center in Memphis was closed. Operating these three businesses from one city increases Pentair’s ability to take advantage of distribution, manufacturing, and administrative synergies, while better serving customers and managing costs. 14 page brands Delta, Biesemeyer, Porter-Cable, FLEX, Century, Lincoln, Blackhawk, Guardian, Marquette, Pro-Arc, Solar, Booster Pac, Truck Pac, Rescue Pac, Viper, T-Tech, Electri Pac, Air America, Ex-Cell, Power Back, Charge Air Pro, 2 by 4. locations Jackson, Tennessee; Tupelo, Mississippi; Mesa, Arizona; Bloomington, Minnesota; Decatur, Arkansas; Guelph, Ontario, Canada; Steinheim, Germany; Taichung, Taiwan. Similarly, the Group took steps to streamline its equipment businesses by combining Lincoln Automotive with Century. Lincoln Automotive’s headquarters in St. Louis, Missouri, and manufacturing plant in Jonesboro, Arkansas, were folded into the Century operation in Bloomington, Minnesota. The realignment created one large business unit with a strong sales force and extensive product lines. Known for innovation, the Group continues to introduce new products that have wide consumer appeal. Porter-Cable’s 19.2-Volt cordless tools and Delta’s new “Platinum Edition” woodworking tools sold particularly well in 1999. Century introduced a new product that has no equivalent in the marketplace; the Electri Pac provides hours of reliable AC energy that allows users to power just about anything that requires 110-Volt electricity. Lincoln Automotive received Motor Magazine’s Tool Innovation Award for the Power-Luber, a cordless, rechargeable grease gun that provides a continuous ﬂow of grease at uniform pressure. Products developed in the last ﬁve years account for approximately 50 percent of the Group’s tool sales. Pentair businesses continue to win customer recognition. In 1999, for the fourth consecutive year, Porter-Cable received Home Depot’s Vendor of the Year award in the Hardware category. Porter-Cable also was named Vendor of the Year by Lowe’s. Holding the ﬁrst or second position in all served tool and equipment markets is the objective of the Professional Tools and Equipment Group. Leveraging their position in all channels in 1999, the businesses in this Group strengthened their reputations and built consumer preference for their brands. With the acquisition of DeVilbiss Air Power, Pentair gained new product lines and signiﬁcant market share in product categories new to the Company. Pentair became the market leader in retail air compressors and cold water pressure washers, and a strong third in retail generators. DeVilbiss Air Power products are sold under several brand names including Ex-Cell, Air America, and Charge Air Pro. The company also private labels its products for customers such as Sears, W.W. Grainger, and Snap-On. These respected product lines not only expand the Group’s product offerings, but increase its ability to meet customer needs and leverage its distribution strengths. Porter-Cable branded air compressors Beyond the retail market, Pentair believes DeVilbiss Air Power products are manufactured by DeVilbiss Air can produce growth in the Group’s industrial tool and equipment channels. Power Company in Jackson, Tennessee. With some focused product development, generators, pressure washers, and compressors can all be sold into industrial tool channels by Porter-Cable, and into service channels by the equipment sales force. page 15 what’s behind the smiles? water and ﬂuid technologies group The enjoyment of safe, clean water—swimming in a pool, lingering in a warm shower, or quenching your thirst with ice-cold lemonade—is a beneﬁt of Pentair water products. So is a quickly extinguished ofﬁce building ﬁre, and a dry basement after a rain storm. Our pumps, valves, controls, tanks, and ﬁlters are used in a myriad of processes including water pressure boosting, water softening, water purifying, and transport. You’ll ﬁnd our water products in components and systems worldwide, ensuring safe, abundant supplies of water. Next time you turn on a faucet, remember the name that’s behind the ﬂow, the purity, and the quality of your water: Pentair. page 17 . 6 9 6 6 . 9 7 3 5 . 0 4 0 4 . 3 2 2 3 . 5 7 3 2 5 9 6 9 7 9 8 9 9 9 $ millions water and ﬂuid technologies group Providing the equipment and expertise for moving, treating, storing, and enjoying water is the focus of the Water and Fluid Technologies Group. The Group consists of three global businesses: Pentair Pump and Pool, Pentair Water Treatment, and Lincoln Industrial. These businesses manufacture products and systems sold into residential, commercial, industrial, municipal, and recreational markets. Pentair Pump and Pool is one of the top ten pump businesses in the world, and one of the top ﬁve in North America. It is the second largest water and wastewater pump business in North America. Its product offerings range from light-duty household utility pumps to sales massive, high-ﬂow turbine pumps designed for municipal water applications. In 1999, Pentair Pump and Pool became a leader among pool and spa equipment providers when it gained a complete line of pool and spa accessories through the acquisition of Essef. Pentair Water Treatment holds the number one position in the worldwide water treatment control valve market. It manufactures a wide range of control valves for residential, commercial, and industrial water conditioning systems. With the acquisition of Essef, Pentair Water Treatment added a complete line of composite pressure vessels and storage tanks to its product offerings. These tanks make it possible to provide customers with complete water treatment systems. The Water and Fluid Technologies Group reported 1999 sales of $669.6 million, a 25 percent gain over 1998. The Group’s operating income before the restructuring charge totaled $85.7 million, up 30 percent from 1998. The Group’s performance beneﬁted from supply management initiatives, higher labor productivity, The acquisition of Essef Corporation of Chardon, Ohio, on August 10, 1999, expanded Pentair’s considerable position in global water markets. The addition of Essef’s market-leading water storage tank products reinforced Pentair’s number one position in water conditioning control valves. Similarly, Pentair’s strong position in pumps and water systems for residential applications was enhanced by Essef’s residential pressure tanks, which are key components of household well water systems. The acquisition also gave Pentair a strong position in the swimming pool Structural brand water pressure vessels and spa equipment industry. Swimming pool and spa equipment is a new, are used in a variety of industrial and but very attractive, area of focus for Pentair. Studies of this market indicate commercial applications. that “Baby Boomer” demographics, combined with trends toward greater use of hydrotherapy, and a preference for stay-at-home recreation and ﬁtness, will drive growth in the pool and spa equipment market far into the future. 18 page and continued good sales in water treatment markets. Steps taken to optimize plant capacities and rationalize product lines also paid off. In late 1999, Essef’s Codeline pressure tank operation in Escondido, California, was closed, and product manufacturing was transferred to an existing facility in Chardon, Ohio. The transfer makes better use of the capacity at the Chardon facility and streamlines manufacturing within the water group businesses. The transition was completed in early 2000. Concurrently, a product rationalization project at the Chardon facility resulted in new efﬁciencies in manufacturing and improved delivery times at this operation. In August 1999, the Pentair water businesses were structured into global geographic regions, delineating the Group’s expansion in North American, Asian, European, Middle Eastern, and Indian markets. The new organizations that support these regions are intended to streamline and coordinate manufacturing, sales, distribution, customer service, and technical support worldwide for our pump, pool, and water treatment customers. Clean, safe water is a basic human need that transcends all cultures and geographic boundaries. The vision of the Water and Fluid Technologies Group is to be the leading global supplier of products and systems used in the transportation, treatment, storage, and enjoyment of water. Pentair continues to pursue aggressive growth strategies to enhance brands Myers, Water Ace, Shur-Dri, Aplex, Fairbanks Morse, Layne & Bowler, Aurora, Hydromatic, Verti-Line, WellMate, PacFab, Purex Triton, National Pool Tile, Rainbow Lifegard, Paragon Aquatics, American Products, Compool, Kreepy Krauly, Fleck, SIATA, Structural, CodeLine, Lincoln, ORSCO. locations Ashland and Chardon, Ohio; North Aurora, Illinois; Kansas City, Kansas; Sanford, North Carolina; Moorpark, El Monte, Mountain View, and Anaheim, California; Brookﬁeld, Wisconsin; St. Louis, Missouri; Buc, France; Florence and Milan, Italy; Herentals, Belgium; Walldorf, Germany; New Delhi and Goa, India. the strong brand names, reputable products, and worldwide distribution capabilities of its Water and Fluid Technologies businesses. Once the acquisition was ﬁnalized, Pentair reorganized Essef to take advantage of synergies with existing Pentair businesses. Essef’s PacFab pool and spa equipment business was combined with the Pentair Pump Group to form a new business unit called Pentair Pump and Pool. Essef’s Structural pressure tank business was combined with Pentair’s Fleck Controls unit to form Pentair Water Treatment. In the short term, Essef creates opportunities for the Group to: boost sales by leveraging existing distribution channels, extract value from economies of scale and synergies that exist among the water businesses, and offer new CodeLine pressure vessels serve as products to water treatment customers. Essef’s broad geographic presence, the heart of a municipal water ﬁltration and its unique ﬁltration and resin tank technologies offer considerable potential facility in Spain. in domestic and global water markets. Essef provides a platform for growth in developing markets, while accelerating the Group’s sales to nearly $900 million in 2000. page 19 what’s behind the technology? electrical and electronic enclosures group Advancements in electronic technology are making voice, video, and data communi- cations accessible to an ever-changing, ever-growing population. The intricate components and equipment that make up the infrastructure of the fast-growing telecom and datacom markets are housed in Pentair enclosures and systems. So are the sophisticated electronics that serve the industrial and electrical industries. On the factory ﬂoor or in remote outdoor environments, Pentair enclosure products provide complete protection against every imaginable hazard: heat, cold, water, and earthquakes, to name a few. Because of Pentair’s standard and custom packaging solutions, the electronic systems that keep our world humming are safe and reliable. page 21 electrical and electronic enclosures group . 7 3 3 6 . 4 9 7 5 . 0 4 6 5 . 8 8 4 5 . 5 2 4 5 The Electrical and Electronic Enclosures Group is made up of Hoffman Enclosures, Pentair Enclosures Europe, and Pentair Electronic Packaging. Its premier brands are Schroff and Hoffman. Primary products manufactured by the Group are metal and composite enclosures that house and protect sensitive controls and components. The Group has a solid leadership position in global enclosure markets. Hoffman, the leading North American producer of electrical enclosures, sells through a distributor network to original equipment manufacturers (OEMs) as well as construction, petrochemical, and general manufacturing industries. Pentair Enclosures, a leader in European and sales Asian electronic enclosure markets, sells direct to electronics, datacom, and telecom 5 9 6 9 7 9 8 9 9 9 $ millions manufacturers. Pentair Electronic Packaging is a North American organization that provides custom and off-the-shelf enclosure packaging solutions to datacom and telecom OEMs via sales representatives and direct sales people. The Group prides itself in having the best design and manufacturing capabilities in the industry, and a full spectrum of products ranging from standard to modiﬁed to tailor-made solutions. The enclosure businesses also provide integration services for their customers, and manage the outsourcing of non-core operations. Pentair has a worldwide presence, with enclosure facilities in the U.S., in all key European markets, and in Japan. The Electrical and Electronic Enclosures Group achieved 1999 sales of $633.7 million, a 12 percent gain over 1998 levels. Operating income before the restructuring charge rose to $63.1 million, a 37 percent improvement over the previous year, and return on sales for the Group The Enclosures Group achieved a dramatic performance turnaround in 1999 in part because of a Group-wide initiative targeting high-growth markets and customers. Hoffman strengthened its leading position in industrial enclosure markets, aided by the segmentation of its 1,400 stocking distributors. This process not only helped focus distribution on high-potential segments of industrial markets, but added more than 200 new distributors to the base. Meanwhile, Hoffman targeted key high-volume original equipment manufacturers and further expanded its position in fast-growing The enclosures group provides precision Networking markets. metal stampings and assemblies for tele- In Europe and Asia, Pentair Enclosures Europe worked to solidify com, aerospace, and computer customers. its position in its traditional markets while aggressively pursuing business opportunities in Information and Communication Technology markets. Pentair Enclosures supported this thrust by reinforcing its capabilities as a full service integrator of electronic packaging. 22 page was 10 percent in 1999. Growth initiatives in industrial, data communications, and telecommunications markets, and the restructuring of the European enclosure operations contributed to the Group’s much-improved performance. Hoffman proﬁted from segmented distribution, diligent cost management, and enhanced relations with original equipment manufacturers and customers in the networking market. Pentair Enclosures Europe rebounded strongly in 1999, recording its best performance in three years. A new leadership structure, a total revamping of the sales and marketing approach, higher levels of productivity, and improved economic conditions in Europe were factors in the improved performance of the European enclosure businesses. The formation of Pentair Electronic Packaging gave new impetus to the Group’s efforts to capture greater market share in technology markets, and resulted in increased growth momentum. The Group gained even greater penetration of technology markets in April 1999 when it acquired WEB Tool and Manufacturing of Chicago, Illinois. WEB increased the Group’s product offerings and reinforced its design, manufacturing, assembly, and integration capabilities. WEB is now part of Pentair Electronic Packaging. Pentair was the ﬁrst consolidator in the global enclosure business and the ﬁrst provider of a full range of enclosure products in the Americas, Europe, and Japan. The Electrical and brand names Hoffman, Schroff, Transrack, Pentair Electronic Packaging, Pentair Enclosures. locations Anoka, Brooklyn Center, and Plymouth, Minnesota; Mt. Sterling, Kentucky; Warwick, Rhode Island; El Segundo, California; Pennsauken, New Jersey; Chicago, Illinois; Houston, Texas; Reynosa, Mexico; Scarborough, Ontario, Canada; Straubenhardt, Germany; Betschdorf and Bonneuil-sur-Marne, France; Skarpnäck, Sweden; Gallarate (Varese), Italy; Edinburgh, Scotland; Hemel Hempstead, England; Yokohama and Meiwa-Cho, Japan; Singapore. Electronic Enclosures Group continues to capture the business — and the imagination — of major customers around the world. The Group is building its position in industrial, electronic, datacom, and telecom markets and establishing itself as the global leader in enclosure technology and service. To better capture electronic packaging design, production, and integration opportunities, Pentair combined ﬁve North American enclosure operations in July 1999 to form Pentair Electronic Packaging. Working with Pentair Enclosures Europe and Asia, this new entity provides a wide array of custom and off-the-shelf enclosure packaging solutions for customers in the fast-growing data communi- cations and telecommunications markets. Pentair Electronic Packaging products and services include Schroff-brand subracks, cases and cabinets; high volume, stamped components and assemblies; custom cabinets and consoles; outdoor aluminum enclosures; and a complete range of design and integration services. Integrating electronic components The goal of the Group is to be the world’s largest enclosures organization into protective enclosures is a core offering the broadest selection of enclosure solutions from multiple facilities competency of Pentair’s enclosures throughout the world. Customers are already beneﬁting from the Group’s broad businesses. strengths in design, manufacturing, and integration; its uniﬁed, customer- focused sales team; and its extensive range of packaging capabilities. page 23 ﬁnancial review Operating Activities. We generated record levels of cash due to improved proﬁtability and working capital management. Investing Activities. We refocused capital expenditures to fuel growth and support company-wide investments in technology, and successfully completed $1 billion of acquisitions that strategically advanced each of our three chosen segments. Financing Activities. We orchestrated the expansion of Pentair’s ﬁnancial structure, including $250 million of new bonds and an equity offering of 5.5 million shares. 25 consecutive quarters of year-to-year earnings growth diluted earnings per share from continuing operations *excludes restructuring charge of $0.56 per share * 1 6 . 4 5 . 5 4 . 8 3 . 2 3 . 3 2 . 6 1 . 6 6 . 6 5 . 7 4 . 0 4 . 1 3 . 8 2 . 6 1 . 9 6 . 0 6 . 0 5 . 3 4 . 6 3 . 2 3 . 9 1 . 0 9 . 6 7 . 8 6 . 2 5 . 2 4 . 4 3 . 5 2 . 2 2 . 3 9 4 9 5 9 6 9 7 9 8 9 9 9 first quarter 3 9 4 9 5 9 6 9 7 9 8 9 9 9 second quarter 3 9 4 9 5 9 6 9 7 9 8 9 9 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 9 third quarter fourth quarter 24 page This summary annual report contains abbreviated ﬁnancial data for the ﬁscal year 1999. The complete text of Management’s Discussion and Analysis, and the consolidated ﬁnancial statements and footnotes, are presented in Pentair’s Annual Report on Form 10-K, which also incorporates the 2000 Proxy Statement. Copies of Form 10-K and the 2000 Proxy Statement are available from Pentair’s Investor Relations Department. ﬁnancial review Pentair’s objective is to maintain and enhance its position as an independent, top-performing, consistently growing, diversiﬁed industrial company. Pentair has adopted a strategic plan to focus on three business areas and to build, both internally and through acquisition, those businesses into recognized market leaders. Pentair’s goals include the following ﬁnancial performance objectives: 15%+ revenue growth, 20% return on equity, and 30%- 40% total debt to capital. Pentair achieved excellent ﬁnancial results in 1999. Sales of $2.4 billion were 22.2% over the previous year. Operating income in 1999 after the restructuring charge ($38.0 million) was $214.3 million, up 10.9% over 1998; operating income as a percent of sales decreased from 10.0% to 9.1%. Operating income before the restructuring charge was $252.3 million in 1999, up 30.6% over 1998, and as a percent of sales, improved from 10.0% in 1998 to 10.7% in 1999. Diluted earnings per share for 1999 after the restructuring charge declined from $2.46 to $2.33, a decrease of 5.3% from 1998; diluted earnings per share before the restructuring charge was $2.89, an increase of 17.5% over 1998. The Company’s ROE was 12.5% in 1999; ROE before the restructuring charge was 15.2%. Free cash ﬂow (cash from operations less capital expenditures) was $85.4 million in 1999 compared to $81.5 million in 1998. Total Return to Shareholders The Company continued its strong track record, attaining a 14.0% annual compounded return to shareholders for the ﬁve-year period ended December 31, 1999. Pentair stock had a negative 1.7% total return to shareholders for 1999. page 25 operations review Pentair has adopted a standard “4-4-5 week” accounting quarter for reporting in 1999. Pentair’s ﬁscal year will continue to end on December 31. Also, operating proﬁts of the segments are now reported net of all their administrative and related costs. The prior year segment data was restated for such reporting change. Pentair has three segments: Professional Tools and Equipment (PTE), Water and Fluid Technologies (WFT), and Electrical and Electronic Enclosures (EEE). (In millions) Net Sales 1999 1998 1997 Operating Income 1999 1998 1997 Operating Margin % 1999 1998 1997 Professional Tools and Equipment Water and Fluid Technologies Electrical and Electronic Enclosures Other* Total $1,073.8 849.3 747.1 $669.6 537.9 404.0 $633.7 564.0 579.4 $ (9.3) $2,367.8 (13.6) 108.6 1,937.6 1,839.1 $ 105.4 $ 81.3 $ 46.3 $(18.7) $ 214.3 99.6 76.8 9.8 11.7 10.3 66.0 41.9 12.1 12.3 10.4 46.0 47.3 7.3 8.2 8.2 (18.4) 3.8 193.2 169.8 9.1 10.0 9.2 *Other includes corporate leadership expenses, captive insurance company, intermediate ﬁnancial companies, charges that do not relate to current operations, divested operations (Federal) and intercompany eliminations. Sales in the Professional Tools and Equipment segment totaled $1,073.8 million in 1999, a 26.4 percent gain over the previous year. Operating income for the segment was $105.4 million, up 5.8 percent from 1998. Operating income before the restructuring charge was $122.2 million, up 22.6 percent from 1998, with 1999 return on sales of 11.4 percent. The Water and Fluid Technologies segment reported 1999 sales of $669.6 million, a 24.5 percent gain over 1998. Operating income for the segment totaled $81.3 million, up 23.2 percent from 1998. Operating income before the restructuring charge was $85.7 million, up 29.9 percent from 1998, with 1999 return on sales of 12.8 percent. The Electrical and Electronic Enclosures segment’s sales totaled $633.7 million in 1999, a 12.3 percent gain over 1998, while operating income totaled $46.3 million, up 0.7 percent from 1998. Operating income before the restructuring charge was $63.1 million, up 37.1 percent from 1998, with 1999 return on sales of 10.0 percent. 26 page ﬁnancial reports Management’s Responsibility for Financial Reporting The consolidated ﬁnancial statements of Pentair, Inc. have been prepared by Company management who are responsible for their integrity and objectivity. These statements have been prepared in accordance with generally accepted accounting principles and, where appropriate, reﬂect estimates based on judgments of management. The ﬁnancial statements have been audited in accordance with generally accepted auditing standards and reported upon by our independent auditors, Deloitte & Touche LLP, who were given free access to all ﬁnancial records and related data. We believe the representations made to the independent auditors were valid and appropriate. Pentair maintains a system of internal controls. Our systems provide reasonable assurance that assets are protected, transactions are appropriately reported, and established procedures are followed. The Audit Committee of the Board of Directors, comprised of outside directors, meets periodically with the independent auditors, the Company’s internal auditors, and management to monitor activities and to ensure that each is properly discharging its responsibilities. The independent auditors have free access to the Audit Committee, without management present, to discuss the results of their audit, the adequacy of internal accounting controls, and the quality of ﬁnancial reports. Winslow H. Buxton Chairman of the Board and Chief Executive Ofﬁcer David D. Harrison Executive Vice President and Chief Financial Ofﬁcer Independent Auditors’ Report on Condensed Financial Information To the Board of Directors and Shareholders of Pentair, Inc.: We have audited the consolidated balance sheets of Pentair, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders’ equity, cash ﬂows and comprehensive income for the years ended December 31, 1999, 1998 and 1997. Such consolidated ﬁnancial statements and our report thereon dated February 2, 2000, expressing an unqualiﬁed opinion (which are not included herein), are included in the Annual Report on Form 10-K of Pentair, Inc. for the year ended December 31, 1999. The accompanying condensed consolidated ﬁnancial statements are the responsibility of Pentair’s management. Our responsibility is to express an opinion on such condensed consolidated ﬁnancial statements in relation to the complete consolidated ﬁnancial statements. In our opinion, the information set forth in the accompanying condensed consolidated ﬁnancial statements of Pentair, Inc. is fairly stated in all material respects in relation to the basic consolidated ﬁnancial statements from which it has been derived. Deloitte & Touche LLP Minneapolis, Minnesota February 2, 2000 page 27 condensed consolidated statements of income (In millions, except share and per share amounts) Net sales Operating costs Cost of goods sold Selling, general and administrative Restructuring charge Research and development Total operating costs Operating income Gain on sale of business Interest expense Interest income Income before income taxes Provision for income taxes Net income Preferred dividend requirements Years Ended December 31 1998 1997 $1,937.6 $1,839.1 1,330.3 391.1 — 23.0 1,744.4 193.2 — 24.0 1.7 170.9 64.1 106.8 4.2 1,290.8 357.1 — 21.4 1,669.3 169.8 10.3 22.2 .5 158.4 66.8 91.6 4.9 1999 $2,367.8 1,632.7 455.7 38.0 27.1 2,153.5 214.3 — 49.5 1.7 166.5 63.2 103.3 — Income available to common shareholders $ 103.3 $ 102.6 $ 86.7 Basic earnings per common share Diluted earnings per common share $ $ 2.36 2.33 $ $ 2.67 2.46 $ $ 2.28 2.11 Average common shares (in thousands) Outstanding Outstanding assuming dilution 43,803 44,287 38,444 43,149 37,989 43,067 28 page condensed consolidated balance sheets (In millions) Assets Current assets Cash and cash equivalents Accounts and notes receivable Inventories Deferred income taxes Other current assets Total current assets Property, plant and equipment Less accumulated depreciation Property, plant and equipment, net Goodwill, net Other assets Total assets Liabilities and Shareholders’ Equity Current liabilities Accounts and notes payable Compensation and other beneﬁts accruals Income taxes Accrued product claims and warranties Accrued rebates Accrued expenses and other liabilities Current maturities of long-term debt Total current liabilities Long-term debt Pensions and other retirement compensation Postretirement medical and other beneﬁts Reserves – insurance subsidiary Deferred income taxes Other liabilities Preferred stock – at liquidation value Outstanding: 0 shares in 1999 and 1,534,919 shares in 1998 Unearned ESOP compensation Common stock – par value, $.16 2⁄3 Outstanding: 48,317,068 in 1999 and 38,503,587 in 1998 Additional paid-in capital Accumulated other comprehensive income Retained earnings Total shareholders’ equity December 31 1999 1998 $ 66.2 587.2 425.9 56.0 15.2 1,150.5 740.5 336.7 403.8 1,187.5 61.2 $ 32.0 396.1 278.6 30.4 11.5 748.6 593.0 284.7 308.3 474.5 23.3 $2,803.0 $1,554.7 $ 262.8 103.3 21.4 49.8 19.9 125.9 177.8 760.9 857.3 67.2 44.0 22.9 6.9 50.6 — — 8.1 456.5 (15.6) 544.2 993.2 $ 156.0 69.9 7.1 29.5 19.7 59.7 52.9 394.8 288.0 60.6 41.9 29.4 .4 30.2 53.6 — 6.4 184.2 (4.0) 469.2 709.4 Total liabilities and shareholders’ equity $2,803.0 $1,554.7 page 29 condensed consolidated statements of cash ﬂows Years Ended December 31 1999 $ 146.0 1998 $ 135.3 1997 $ 117.9 (In millions) Cash from operating activities Investing activities Capital expenditures Proceeds from sale of businesses Payments for acquisition of businesses Construction funds held in escrow Purchase of marketable securities Proceeds from sale of marketable securities (60.6) — (953.2) 1.8 — — (53.8) 13.0 (68.4) .7 — — Cash provided by (used for) investing activities (1,012.0) (108.5) Financing activities Long-term borrowings Payments of long-term debt Proceeds from issuance of long-term bonds Debt issuance costs Bridge loan borrowings Repayment of bridge loan borrowings Unearned ESOP compensation decrease Employee stock plans and other Proceeds from issuance of common stock, net of expenses Repurchase of stock Dividends Cash provided by (used for) ﬁnancing activities Effects of currency exchange rate changes Increase (decrease) in cash and cash equivalents Cash and cash equivalents – beginning of period 501.9 (60.0) 250.0 (2.4) 450.0 (450.0) — 9.9 214.5 (4.0) (28.2) 881.7 18.5 34.2 32.0 Cash and cash equivalents – end of period $ 66.2 73.0 (65.4) — — — — 6.3 4.3 — (12.4) (27.3) (21.5) (7.6) (2.3) 34.3 $ 32.0 30 page (77.5) 112.0 (210.6) 7.1 (2.0) 48.7 (122.3) 107.3 (70.3) — — — — 8.1 5.5 — — (25.4) 25.2 (9.5) 11.3 23.0 $ 34.3 Income From: Continuing Operations Net Income (a) Common Share Data EPS – Diluted (a) (b) Cash Dividends Stock Dividends % Book Value Stock Price selected ﬁnancial data (In millions, except per share data) 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Income Statement Data Net Sales Professional Tools and Equipment 1,073.8 849.3 747.1 582.7 492.4 453.5 408.1 Water and Fluid Technologies 669.6 537.9 404.0 322.3 237.5 210.6 184.4 Electrical and Electronic Enclosures 633.7 564.0 579.4 548.8 542.5 460.5 236.7 Other Total Operating Income Professional Tools and Equipment Water and Fluid Technologies Electrical and Electronic Enclosures Other Total (9.3) (13.6) 108.6 113.3 130.5 137.1 117.4 2,367.8 1,937.6 1,839.1 1,567.1 1,402.9 1,261.7 946.6 864.0 802.9 805.2 105.4 81.3 46.3 99.6 66.0 46.0 (18.7) (18.4) 76.8 41.9 47.3 3.8 54.7 41.2 53.9 44.2 22.7 50.5 (6.9) (1.2) 39.5 15.4 39.6 11.1 33.7 8.4 18.3 7.7 214.3 193.2 169.8 142.9 116.2 105.6 68.1 61.9 53.1 47.9 Earnings Before Income Taxes 166.5 170.9 158.4 124.6 101.7 83.5 55.1 47.7 38.4 31.6 103.3 106.8 103.3 106.8 91.6 91.6 74.5 74.5 60.5 77.2 50.1 53.6 32.7 46.6 27.2 42.8 18.8 41.1 16.9 33.0 2.33 2.46 2.11 .64 — .60 — .54 — 1.73 .50 100 1.41 1.17 .40 — .36 — 20.56 17.03 15.12 13.69 12.37 10.71 38 1⁄2 39 13⁄16 35 15⁄16 32 1⁄4 24 7⁄8 .76 .34 50 9.29 16 1⁄2 692 .64 .32 — 8.21 13 3⁄16 549 .47 .30 — 8.79 13 7⁄16 558 .42 .29 — 7.97 8 1⁄4 342 213⁄8 899 Market Capitalization 1,860 1,718 1,548 1,378 1,045 Balance Sheet Data Preferred Equity (net) Common Equity ROE %(a) Capital Expenditures Total Assets Long-Term Debt Total Debt — 53.6 53.4 47.6 44.6 40.9 33.9 77.4 74.1 68.4 993.2 655.8 577.2 516.2 458.3 391.1 336.9 260.0 275.7 247.8 12.5 60.6 16.6 53.8 15.9 77.5 14.3 71.6 16.9 63.8 13.2 57.8 13.6 28.1 12.8 28.0 13.3 26.5 11.1 28.0 2,803.0 1,554.7 1,472.9 1,289.0 1,252.5 1,161.1 863.1 769.5 698.4 696.5 857.3 288.0 294.5 279.9 219.9 408.5 236.7 209.3 191.2 217.5 1,035.1 340.9 329.3 312.8 238.8 412.1 237.5 214.3 198.2 228.7 Long-Term Debt to Capital % Total Debt to Capital % 46 51 29 33 32 34 33 36 31 32 49 49 39 39 38 39 35 36 41 42 All Share and Per Share Data adjusted for stock dividends. (a) 1992 – before the cumulative effects of accounting changes. (b) From continuing operations. page 31 board of directors and Pentair ofﬁcers and executives board of directors board of directors corporate ofﬁcers Winslow H. Buxton (3, 5), 60 Chairman and Chief Executive Ofﬁcer of Pentair, Inc. Winslow H. Buxton Chairman and Chief Executive Ofﬁcer William J. Cadogan (2, 3, 5, 6), 51 Chairman, President, and Chief Executive Ofﬁcer of ADC Telecommunications. Joseph R. Collins Vice Chairman Joseph R. Collins (3, 8, 7), 58 Vice Chairman of Pentair, Inc. Randall J. Hogan President; Chief Operating Ofﬁcer; President, Electrical and Electronic Enclosures Group Barbara B. Grogan (2, 7, 8), 52 Chairman and President of Western Industrial Contractors, Inc. Richard J. Cathcart Executive Vice President; President, Water and Fluid Technologies Group Charles A. Haggerty (1, 3, 6, 8), 58 Chairman, President, and Chief Executive Ofﬁcer of Western Digital. Harold V. Haverty (2, 3, 7), 69 Retired President and Chief Executive Ofﬁcer of Deluxe Corporation. Quentin J. Hietpas (2, 5, 7), 69 Senior Vice President of External Affairs at the University of St. Thomas. Randall J. Hogan, 44 President and Chief Operating Ofﬁcer of Pentair, Inc. Stuart Maitland (1, 2), 54 Director of Manufacturing Operations for Vehicle Operations, Ford Motor Company. Augusto Meozzi (6, 8), 60 Chief Operating Ofﬁcer of the German Isola Group. Richard M. Schulze (1, 5, 8), 59 Founder, Chairman, and Chief Executive Ofﬁcer of Best Buy Company, Inc. Karen E. Welke (1, 6, 7), 55 Group Vice President of 3M’s Medical Products Group. (1) Audit Committee, (2) Compensation/HR Committee, (3) Executive Committee, (4) Shareholder Affairs Committee, (5) Nominating and Governance Committee, (6) Share Rights Committee, (7) Public Policy Committee, (8) Finance/Investment Policy Committee. David D. Harrison Executive Vice President and Chief Financial Ofﬁcer James A. White Executive Vice President; President, Professional Tools and Equipment Group Louis L. Ainsworth Senior Vice President and General Counsel George M. Danko Senior Vice President, Corporate Development and Central Operating Services Karen A. Durant Vice President and Controller Deb S. Knutson Vice President, Human Resources Roy T. Rueb Vice President, Treasurer, and Secretary business executives John S. Abbott Pentair Electronic Packaging Steven R. Bentson Pentair Equipment Businesses Jorge Fernandez Pentair Water Treatment John H. Garlock Pentair Tools Businesses Ken Lewandowski Pentair Enclosures Europe Delton D. Nickel Hoffman Enclosures Michael V. Schrock Pentair Pump and Pool Mark T. Schroepfer Lincoln Industrial seated, left to right: Karen E. Welke and William J. Cadogan standing, left to right: Quentin J. Hietpas, Stuart Maitland, Augusto Meozzi, Barbara B. Grogan, Harold V. Haverty, Richard M. Schulze, Randall J. Hogan, Charles A. Haggerty, Winslow H. Buxton, and Joseph R. Collins. David D. Harrison Executive Vice President; Chief Financial Ofﬁcer James A. White Executive Vice President; President, Professional Tools and Equipment Group Richard J. Cathcart Executive Vice President; President, Water and Fluid Technologies Group 32 page page 33 investor information common stock data Pentair common stock is listed on the New York Stock Exchange under the symbol PNR. The price information below represents closing sale prices reported in the Dow Jones Historical Stock Quote Reporter Service for the calendar year 1999. There were 4,395 shareholder accounts on December 31, 1999. price range and dividends of common stock 1999 First Quarter High 41 13/16 Second Quarter 48 7/8 Third Quarter 47 13/16 Fourth Quarter 41 1/8 Low Dividend Last 1998 31 5/16 30 15/16 40 1/8 32 7/16 0.16 0.16 0.16 0.16 31 5/16 45 5/16 41 7/16 38 1/2 First Quarter Second Quarter 45 3/4 Third Quarter Fourth Quarter 43 41 High 45 9/16 Low Dividend 34 3/16 37 1/4 27 7/8 30 7/16 0.15 0.15 0.15 0.15 Last 44 3/4 42 32 1/4 39 13/16 common dividends 1999 Dividends are $.16 per share quarterly for an indicated annual rate of $.64 per share. Pentair has now paid 96 consecutive quarterly dividends. See Note 6 of Notes to Consolidated Financial Statements for certain dividend restrictions. dividend reinvestment Pentair has established a Dividend Reinvestment Plan. This plan enables shareholders to automatically reinvest Pentair dividends and to invest up to an additional $3,000 per quarter in Pentair common stock, with any costs of purchasing the shares paid by the Company. The plan brochure and enrollment cards are available from the Company or Norwest Bank Minnesota, N.A. direct book entry registration Pentair offers its shareholders the opportunity to participate in the Company’s Direct Book Entry Registration service. Direct Book Entry is an uncertiﬁcated form of stock ownership that provides protection against loss, theft, and inadvertent destruction of stock certiﬁcate(s), while reducing administrative costs. Plan brochures and enrollment forms are available from the Company or Norwest Bank Minnesota, N.A. annual meeting The annual meeting of shareholders will be held in the Auditorium at the Lutheran Brotherhood Building, 625 Fourth Ave., Minneapolis, Minnesota, at 10:00 a.m. on April 26, 2000. Management and directors encourage all shareholders to attend the annual meeting. form 10-K available A copy of the Company’s annual report on Form 10-K, as ﬁled with the Securities and Exchange Commission, will be provided on request. Written requests should be directed to Pentair Investor Relations. takeover defense Pentair is committed to protecting its stakeholders from harm by corporate raiders and unfriendly takeover actions. Information on our position may be obtained by writing to the Pentair, Inc. corporate secretary at the corporate ofﬁce. forward-looking statements This summary annual report contains forward-looking statements which are based on current expectations, estimates, and projections. These statements are not guarantees of future performance and involve risks and uncertainties which are difﬁcult to predict. For a discussion of these risks and uncertainties, please refer to Forms 10-Q and 10-K, which Pentair ﬁles with the Securities and Exchange Commission. trademarks, copyrights, and trade names Certain trademarks, copyrights, and trade names are owned or licensed by Pentair, Inc. or its wholly owned subsidiaries. Other trademarks, copyrights, and trade names may also appear in this report. It is not Pentair’s intent to imply that these are its own. registrar and transfer agent Norwest Bank Minnesota, N.A., South St. Paul, MN 55075 certiﬁed public accountants Deloitte & Touche LLP, Minneapolis, MN 55402 34 page code of business conduct Pentair, Inc. chooses to be an independent, publicly owned company, and this statement is to guide the development of its organiza- tion and the conduct of its business affairs. Our busi- nesses are to be managed in keeping with the highest business, ethical, moral and patriotic standards applicable to a publicly owned corporation. Our businesses are to be operated so that we are respected for our actions by shareholders, employees, plant communities, customers, suppliers, investors and all other stakeholders. Our approach to business is intended to make Pentair, Inc. a top-performing company managed and operated to provide long-term beneﬁts to all constituents. operating guidelines Balanced consideration will be given to the interests of shareholders and employees in managing the corporation. The corporation staff will be kept to minimum size, and subsidiary operations will be as autonomous as practicable. A strong work ethic is expected of all constituents. Good performance will be freely recognized. Poor performance will not be condoned. We will strive to: operate with the highest regard for the environment; eliminate environmental risks from the workplace; and minimize emissions and waste. The dignity and self-worth of all persons involved with the Company will be respected. Safety in the workplace and in work practices shall be maximized. We will encourage, aid and promote the physical and mental health and wellness of employees and their families. Qualiﬁed employees will be given priority for internal employment opportunities. Standards of ethics, integrity and work practices shall apply equally to all employees. We will honor agreements, meet obligations timely, maintain the spirit and intent of our commitments, and value good relationships. Hiring emphasis will recognize ability, compatibility and integrity, and will not discriminate on the basis of sex, religion, race or age. We will promote open and candid communications with emphasis on informality and on conversational exchanges. page 35 electrical and electronic enclosures group Hoffman Enclosures 900 Ehlen Drive Anoka, MN 55303 Tel (763) 421-2240 www.hoffmanonline.com Pentair Electronic Packaging 170 Commerce Drive Warwick, RI 02886 Tel (401) 732-3770 www.pentair-ep.com Schroff Langenalber Str. 96-100 D-75334 Straubenhardt Germany Tel 7082-794-0 www.schroff.de www.schroff.fr www.schroff.co.uk www.schroff.se Pentair Enclosures Europe 48 Melville Street Edinburgh EH3 7UF Scotland Tel 131-623-8000 ofﬁce locations Pentair Waters Edge Plaza 1500 County Road B2 West St. Paul, Minnesota 55113 Telephone (651) 636-7920 www.pentair.com professional tools and equipment group Porter-Cable Corporation 4825 Highway 45 North Jackson, Tennessee 38305 Tel (901) 668-8600 www.porter-cable.com www.ﬂex-tools.com Delta International Machinery Corp. 4825 Highway 45 North Jackson, Tennessee 38305 Tel (901) 668-8600 www.deltawoodworking.com www.biesemeyer.com Century Manufacturing Company 9231 Penn Avenue South Bloomington, Minnesota 55431 Tel (952) 884-3211 www.centurymfgco.com www.lincolnautomotive.com www.solaronline.com www.t-techonline.com www.viperonline.com DeVilbiss Air Power Company 213 Industrial Drive Jackson, Tennessee 38301 Tel (901) 423-7000 www.devilbissairpower.com www.devap.com water and ﬂuid technologies group Pentair Pump and Pool 1101 Myers Parkway Ashland, OH 44805 Tel (419) 289-1144 www.pentairpump.com Pentair Water Treatment 20580 Enterprise Avenue Brookﬁeld, Wisconsin 53008 Tel (414) 784-4490 www.ﬂeckcontrols.com www.pentairwater.com www.pentairwatertreatment.com Lincoln Industrial One Lincoln Way St. Louis, Missouri 63120 Tel (314) 679-4200 www.lincolnindustrial.com

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