Pentair Annual Report 2001

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FY2001 Annual Report · Pentair

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3rd Quarter

4th Quarter

1st Quarter

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$ 109.6

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P e n t a i r F r e e C a s h F l o w a n d S t o c k P r i c e P e r f o r m a n c e f o r 2 0 0 1

f i n a n c i a l h i g h l i g h t s 2 0 0 1

F i n a n c i a l H i g h l i g h t s 2 0 0 1

Pentair, Inc. and Subsidiaries

Years ended December 31

(Dollars in thousands, except per-share data)

2001

2000

1999

Net sales

Operating income (1)

Net income — continuing operations (1) (2) (3)

Diluted EPS — continuing operations (1) (2) (3)

Cash dividends declared per common share

Total debt

Shareholders’ equity

Debt/total capital

Return on average common shareholders’ equity (1)

Net cash provided by operating activities

Capital expenditures

Free cash flow (4)

Closing stock price

Employees of continuing operations

$ 2,615,944

$ 2,748,013

$ 2,116,070

198,821

$ 226,819

87,285

1.77

0.70

97,770

2.01

0.66

224,774

112,723

2.55

0.64

723,706

$ 913,974

$ 1,035,084

$ 1,015,002

$ 1,010,591

990,771

41.6%

6.1%

47.5%

7.1%

51.1%

13.8%

232,334

$ 184,947

$ 144,296

53,668

68,041

178,666

$ 116,906

36.52

11,700

24.19

13,100

53,671

90,625

38.50

12,400

(1)

(2)

(3)

(4)

Excludes pre-tax restructuring charge of $41.1 million ($29.8 million after tax, or $0.60 per share), $24.8 million ($15.9 million after tax, or $0.33 per share)
and $23.0 million ($14.6 million after tax, or $0.34 per share) in 2001, 2000, and 1999, respectively.

Excludes loss on sale of discontinued operations of $(24.6) million, or $(0.50) per share, and income (loss) from discontinued operations of $(24.8) million, or $(0.51)
per share, and $5.2 million, or $0.12 per share in 2001, 2000, and 1999, respectively.

Excludes non-cash pre-tax cumulative effect of accounting change of $1.9 million ($1.2 million after tax, or $0.02 per share).

Net cash provided by operating activities less capital expenditures

$2.6 billion, Pentair comprises three core business groups: tools, water technologies,

acquiring, renewing, and developing manufacturing companies. With 2001 sales of

Pentair is a diversified operating company that builds value for stakeholders by

[ ]

people in more than 50 locations around the world. Pentair common stock is

and enclosures. Headquartered in St. Paul, Minnesota, the company employs 11,700

PNR

traded on the New York Stock Exchange under the symbol:

t o o u r s h a r e h o l d e r s

Pentair made solid progress

L e t t e r To O u r S h a r e h o l d e r s [ ]R a n d a l l J . H o g a n

in 2001, but there’s much more

toward improved performance

to be accomplished in 2002.

Pentair recorded concrete accomplishments in several

important areas during 2001 — among them strong cash

flow, reduced debt, innovative product development,

and the adoption of lean enterprise practices. But our

disappointing sales and earnings clearly illustrate another

important fact: We have more work to do.

Last year, we said we would:

Establish a culture that emphasizes the value of cash flow;

Refocus our corporate capabilities to drive

high performance;

[ page 1 ]

Reinvigorate the Tools business to return it to superior

performance; and,

Position the Water Technologies and Enclosures

businesses to perform in a weak economic environment.

We met — and exceeded — the first two goals, we

made progress on the third, and the fourth is underway.

t o o u r s h a r e h o l d e r s
L e t t e r To O u r S h a r e h o l d e r s ( c o n t i n u e d )

Pentair exceeded its $150 million free cash flow

12 percent of Pentair’s total employment — as we

goal by $29 million in 2001, generating a total of

worked to size our businesses appropriately for the

$179 million or free cash flow earnings per share of

economic conditions we faced in 2001.

$3.62, up 50 percent over the prior year.

Cost saving was far from the only strategy we

Working capital continued to improve dramati-

employed in 2001. We also reinforced the delivery of

cally. Overall, our 2001 average working capital

results, narrowed our focus on our core businesses by

decreased to 15.3 percent of sales versus 17.2 percent

divesting Lincoln Industrial and Service Equipment,

in the prior year, reflecting the results of our cash flow

and increased investment in new product development.

discipline. We still have productivity opportunities in

working capital, which will help in achieving our

Tools Group making good progress

$200 million free cash flow goal for 2002.

In the Tools business, we continue to gain

Our strong cash flow allowed us to pay down

ground. Our plans to return the Tools Group to its

debt $190 million in 2001, resulting in a debt-to-total-

traditional performance levels consisted of five key

capital ratio of 42 percent, versus 47 percent in the

elements that combined to deliver a dramatic

same period last year and 51 percent in 1999. Pentair

performance improvement:

has paid down debt of $480 million since April, 2000.

Cost reduction — We trimmed headcount,

Our performance in 2001 was supported by the

restricted discretionary spending, reduced inventories,

continuation of a cost reduction program we intro-

launched our lean enterprise initiative, reinforced our

duced late in 2000. Pentair’s supply chain management

supply chain management effort, and focused on cost

initiatives were able to generate approximately

productivity as a measure of performance. These

$44 million incremental savings during 2001 despite

actions saved $30 million in Tools Group material

lower purchase volumes. Headcount reductions totaled

costs during 2001.

more than 1,600 employees during 2001 — more than

[ page 2 ]

$140

$200

$160

$180

$90.6 $116.9 $178.7 $200.0

PENTAIR GENERATED FREE CASH FLOW OF $179 MILLION

g e n e r a t e d c a s h

w e g e n e r a t e d c a s h

[ ]

in 2001, $29 million more than the Company’s $150 million

goal for the year. Pentair has set a target of $200 million

in free cash flow for 2002.

U p w a r d t r e n d i n f r e e c a s h f l o w $ i n m i l l i o n s

1999 2000 2001 2002 (forecast)

$120

$100

$80

$20

$40

$60

6.0%

7.0%

8.0%

5.0%

3.3% 6.4% 7.0% 7.5%

PENTAIR’S TOOLS GROUP CONTINUED ITS RECOVERY

w e r e c o v e r e d

r e c o v e r e d[ ]

management, and leadership. Margins in the Group improved

via cost reductions, pricing, new products, channel

each quarter throughout 2001.

2 0 0 1 T o o l s G r o u p M a r g i n s b y Q u a r t e r R O S %

1Q 2Q 3Q 4Q

4.0%

1.0%

2.0%

3.0%

0.0

Pricing discipline — We overhauled our pricing

on new channels including plumbing and heating,

practices in 2001 to give us greater flexibility in serving

ventilation and air conditioning (HVAC); agriculture

multiple distribution channels and protecting margins.

dealers; and electrical distributors. We also have

As a result, our realized price was about two percent

enhanced our customer service capabilities through

higher in the fourth quarter of 2001 than in the same

technology and organizational realignment by channel.

period the prior year.

Leadership — We began 2001 with top-level

New products — Innovation is the key to

management changes and fine-tuned the team with a

the tools market, and we increased our spending to

rich mix of DeVilbiss Air Power Company, Porter-

drive sales and market share gains by offering a

Cable, and outside talent. Today, we have a top-notch

broader-than-ever range of innovative new tools

team in place, a fact that will continue to become

including the first cordless router, a cordless jigsaw, a

apparent as the results they drive read out in 2002.

cordless twin power source brad nailer, a two-speed

In summary, we have streamlined our Tools

13" planer, three direct-drive oil lube air compressors,

operations, cut overall operating and material costs,

a new range of pneumatic tools, and accessories to go

invigorated innovation, and redoubled efforts to

with them. In fact, at the National Hardware Show in

return the business to high performance levels. These

August 2001, we introduced 75 new products that

actions are delivering results and we’re confident

yielded some $48 million in sales in 2001. Those same

that 2002 will find the Group returning to strong

75 new products are expected to generate an estimated

revenue and profit performance.

$110 million in sales during 2002.

Channel management — We’re doing a much

Restructuring Enclosures

better job of attending to the needs of all tools

In Enclosures, our performance has been hit hard

channels. We corrected our under-representation in

by the recessionary economy. The decrease in volume

some channels, and launched plans to enter new

during 2001 was attributed to sharp declines in all

channels in which we didn’t previously participate. For

enclosures markets, and an industrial market that was

example, in 2001 we launched a major sales focus

at its lowest point in the last decade.

[ page 3 ]

$5.9

$14.0

$18.0

$12.0

$16.0

$17.7

$10.0

$10.4

PENTAIR’S SUPPLY CHAIN MANAGEMENT INITIATIVES

d e l i v e r e d s a v i n g s

w e d e l i v e r e d s a v i n g s

[ ]

DELIVERED $44 MILLION of incremental savings during 2001.

estimated $20 million of incremental savings in 2002.

Cost saving activities are expected to contribute an

2 0 0 1 i n c r e m e n t a l s a v i n g s $ i n m i l l i o n s

1Q 2Q 3Q 4Q

$10.0

$4.0

$8.0

$6.0

$2.0

Our response has been focused on reducing our

Although cost control and cash management

overall cost structure, redefining our business mix, and

have been at the forefront of our initiatives in the

strengthening our core capabilities. These actions

soft economy that characterized 2001, we have also

allowed Enclosures to remain profitable throughout

been aggressively developing our engine for growth

2001, and we took further action by restructuring the

through innovation.

business beginning in the Fourth Quarter 2001. The

In our Water Treatment business, we are bringing

majority of a $41 million pre-tax restructuring charge

next generation technologies to market in each of the

was applied to support our objectives of reducing

key product families, including pressure vessels, valves,

capacity by approximately 20 percent and headcount

and reverse osmosis membrane housings. For example,

by some 25 percent. We expect this restructuring to

a new proprietary materials technology for pressure

return approximately a $15 million savings in 2002,

tanks will lower the unit cost of our tank products and

and an annualized savings of $21 million thereafter.

allow us to further penetrate the global pressure vessel

The weakness that characterized enclosures

market with products that last longer, perform better,

markets in 2001 validates our strategy of maintaining

and cost no more than steel.

[ page 4 ]

broad product offerings that serve the full spectrum

Our Pump business continues to expand into

of enclosure markets and customers worldwide.

value-added systems to gain incremental sales. For

example, our new pre-packaged fire control systems

Pools buoyed Water Technologies’ results

have been very successful and have been specified for

Performance in our Pool and Water Treatment

installation at newly constructed Target® stores.

businesses was on par with last year, while the Pump

Our Pool and Spa Equipment business has built

business experienced the effects of a softer economy

upon the success of its Spectrum Amerlite (SAm)

and a decline in the industrial business. Despite lower

lights for swimming pools and is now introducing

earnings, the Water Technologies Group was a major

a similar system for spa applications. In addition,

contributor to Pentair’s strong cash flow performance.

we have recently introduced a new low-NOx pool

t o o u r s h a r e h o l d e r s
L e t t e r To O u r S h a r e h o l d e r s ( c o n t i n u e d )

heater to the California market, where it is one of

The Enclosures team can still taste the success they

only a few such products capable of meeting new

enjoyed as recently as the first quarter of 2001, and

environmental requirements.

they are committed to get back to that level.

In 2002, we are working to reduce our overall

Pentair in 2002: A practical, powerful business

cost structure by $38 million by further simplifying

We believe that companies that make decisions in

and rationalizing our infrastructure, capturing supply

the best interests of shareholders, employees, and

management opportunities, and implementing lean

customers are the companies that will survive and

enterprise practices throughout the organization. Our

excel. We intend to do just that — excel. What remains

efforts to strengthen our processes and systems

is for us to build on our momentum and focus our

capabilities, reinvigorate product development, and

efforts in 2002 on three key actions:

develop stronger talent throughout the company will

1. Drive operating excellence — We are excited

continue. Finally, we will maintain our momentum on

about the supply management and lean enterprise

cash flow and improving return on investment.

initiatives that have taken root in all our operating

These actions, which are elaborated upon in the

units. These two initiatives will assist us in achieving

operating group discussions that follow this letter,

our goal of five-percent total cost productivity every

should substantially improve Pentair’s performance

year. This measure of productivity is a simple one — it

through the remainder of 2002 — regardless of the

means that we need to make our products five percent

prevailing economic conditions.

less expensively every year in order to meet competitive

Pentair is in good shape and getting better. What

pressures and improve the performance we deliver to

remains is for us to move forward, and deliver strong

our shareholders and customers.

results in 2002. I’m confident we can do just that.

2. Commit to growth — Many of our businesses

Pentair will maintain its focus on improving cash

have exciting action plans to drive growth. These include

flow, sales, and earnings. Our shareholders and our

new products, like the Tiger ClawTM variable angle saw

employees have every reason to be optimistic about

by Porter-Cable; new channels to market, such as the

where we’re going and what the future holds for us.

security distributor channel that Hoffman Enclosures

I look forward to that future and invite you to

has added to its distribution network; and new territory

join the entire Pentair organization in our enthusiasm.

[ page 5 ]

developments, like Water Technologies’ expansion into

the Chinese market. We have many opportunities for

growth in all three groups and we are committed to

pursuing them aggressively.

R a n d a l l J . H o g a n

3. Complete the performance turnarounds —

President and Chief Executive Officer

The Tools business is on the mend, and our team is

committed to regain its former status as a world leader.

[ page 6 ]

W a t e r T e c h n o l o g i e s g r o u p

How can a simple thing like

a glass of water bring a smile to a

child’s face? While safe, clean water

may be abundant in developed

nations, it remains a luxury for the

majority of the world’s people.

Pentair is playing a key role in

making safe, clean water available

to an ever-growing portion of the

world’s population. In 2001, Pentair

Water Treatment led the market in

supplying pressure vessels for

reverse osmosis systems in (continues next page)

[ page 7 ]

Residents of Port Lisas, Trinidad, will enjoy the benefits of safe,

f o r s a f e , c l e a n w a t e r

[ ]

clean water when the largest desalination operation in the Western

features state-of-the-art CodeLine MultiPort vessels that provide

membrane housings — designed specifically for reverse osmosis,

filtration plant. A smaller operation in Menifee, California [left]

desalination, microfiltration, ultrafiltration and nanofiltration

Hemisphere is completed. CodeLine’sTM fiberglass-reinforced

processes — form the core of the 28.8 million-gallon-per-day

potable water to a rapidly growing retirement community.

w a t e r t e c h n o l o g i e s g r o u p
W a t e r T e c h n o l o g i e s g r o u p

numerous water filtration projects under construction

The Pentair Pump Group is one of the top ten

the world over. CodeLineTM-brand reverse osmosis

pump businesses in the world, and is the second largest

pressure vessels — fiberglass-reinforced membrane

water and wastewater pump business in North

housings designed to withstand the high pressures

America. Its product offerings range from light-duty

required to filter microscopic material from water —

household utility pumps to massive, high-flow turbine

are at the core of a 28.8 million-gallon-per-day reverse

pumps designed for municipal water applications.

osmosis plant being constructed at Point Lisas,

Brand names within the Pump Group include Myers®,

Trinidad. Rapid growth in the last decade has

Fairbanks Morse®, Hydromatic®, Aurora®, Water Ace®,

outstripped the supply of potable water in this region

and Shur-Dri®.

of Trinidad, and this $120 million facility — the

Pentair Water Treatment holds the number one

largest in the western hemisphere — will treat

position in the worldwide water treatment control

seawater for industry, making more potable water

valve and fiberglass pressure vessel market. It manu-

available for consumption.

factures a wide range of control valves for residential,

Pentair Water Treatment also is supplying pressure

commercial, and industrial water conditioning systems.

vessels for Florida’s Tampa Bay project — the largest

The business also offers an industry leading range of

desalination plant of its kind in the United States.

fiberglass/composite pressure vessels and storage tanks.

Brand names within Pentair Water Treatment include

Ensuring safe, abundant supplies of water

Fleck®, SIATA, CodeLine, Structural, and WellMateTM.

CodeLine is one of several leading brands aligned

The Water Technologies Group launched the

under Pentair’s Water Technologies Group, which

Pentair Pool Products name in early 2001, integrating

[ page 8 ]

collectively provide the equipment and expertise for

ten pool and spa equipment brand names under a

moving, treating, storing, and enjoying water. The

common identity. This decision, together with other

Group consists of three global businesses: The Pentair

strategies aimed at building the pool business’ top line,

Pump Group, Pentair Water Treatment, and Pentair

resulted in Pentair Pool Products displacing its chief

Pool Products. These businesses manufacture products

competitor to become the world’s largest pool and spa

and systems sold

into residential, commercial,

equipment manufacturer.

industrial, municipal, and recreational markets.

The Water Technologies Group reported 2001

sales of $887.5 million, a two percent decline from

2000. Operating income for the segment totaled

$109.8 million, down nine percent from 2000. The

The Water Technologies Group is committed to

weak economic environment, coupled with unfavorable

growing at twice the industry average. This higher

sales mix within the Pump business, dampened the

standard of performance will be achieved as a

Water Technologies Group’s five-year annualized

result of accelerated product development cycles.

growth rate of 50 percent. The Water Technologies

The Group also will continue to pursue system and

Group was a major contributor to Pentair’s profit and

service opportunities in most areas of its business.

strong cash flow performance during 2001.

With additional strategic acquisitions to expand

Strategy emphasizes cost productivity,

segment has bright prospects for further growth and

new product technology

improved performance.

its expertise in these areas, the Water Technologies

Efforts to reduce the Group’s overall cost structure

in 2002 are placing priority on implementation of lean

enterprise practices throughout the organization.

Coupled with benefits of on-going supply management

opportunities and reduction in inventories, these

activities will support margin growth in the Water

Technologies Group.

[ page 9 ]

w a t e r t e c h n o l o g i e s g r o u p

w a t e r t e c h n o l o g i e s

[ ]

P e n t a i r P u m p G r o u p , P e n t a i r W a t e r T r e a t m e n t a n d P e n t a i r P o o l P r o d u c t s

[ page 10 ]

E n c l o s u r e s g r o u p

For many people, accessing today’s

technology is a simple matter of

plugging in a computer and

establishing an account with an

Internet service provider. This

customer convenience is made

possible by a large and complex

technical infrastructure representing

multi-billion dollar investments.

The immense task of managing

and maintaining this infrastructure

is accomplished with the help of a

host of technology savvy companies,

including Pentair. (continues next page)

[ page 11 ]

A Manitoba Telecom Services technician installs components in an

f o r c o m m u n i c a t i o n

[ ]

outdoor digital subscriber line (DSL) enclosure that houses and protects

hubs [left]. Designed and built by Pentair’s Hoffman Enclosures unit,

high-speed Internet access to business and residential customers via

the critical connection between local customer lines and MTS’ DSL

these enclosures are a critical element in MTS’ ability to provide

its growing DSL network.

e n c l o s u r e s g r o u p
E n c l o s u r e s g r o u p

In 2001, for example, Pentair’s Hoffman

and Pentair Electronic Packaging®. Products manu-

Enclosures played an important role in the expansion

factured by the Group include metal and composite

of telecommunications services provided by Manitoba’s

enclosures that protect sensitive controls, components,

preeminent, full-service telecommunications company,

and instrumentation.

Manitoba Telecom Services, Inc. (MTS). The decision

The Group has a solid leadership position in

to expand MTS’ digital subscriber line (DSL) network

global enclosure markets. Hoffman, the leading North

required 450 outdoor DSL multiplexers — enclosures

American producer of electrical enclosures, sells through

that house and protect the critical connection between

distributors to original equipment manufacturers

the DSL hub and the customer’s household or place of

(OEMs) as well as construction, petrochemical, auto-

business. Hoffman Enclosures delivered a successful

motive, pharmaceutical, and general manufacturing

proposal for a fully integrated, custom enclosure

industries. Schroff, a leader in European and Asian

within a very condensed timeframe; a prototype was

electronic enclosure markets, sells direct to electronics,

designed, built, and components integrated in just 12

datacom, and telecom manufacturers. Pentair Electronic

business days, and the first dozen units were delivered

Packaging is a North American organization with a

within a month of earning the contract.

worldwide focus that provides custom and off-the-shelf

The MTS project reflects the technology expertise

enclosure packaging solutions to datacom and telecom

and rapid response capabilities of Pentair’s Enclosures

OEMs via sales representatives and direct sales people.

businesses. Using its core industrial and electronic

The Group offers some of the best design and

enclosures technologies as a foundation, the Group

manufacturing capabilities in the industry with a full

has leveraged existing assets to broaden its customer

spectrum of products. The Enclosure businesses also

[ page 12 ]

base and add new distributors, helping mitigate the

provide integration services for their customers, and

impact of the economic downturn.

can manage the outsourcing of third party, non-core

Safeguarding today’s new technology

enclosure facilities in the U.S. and key European

Many of the intricate components and equipment

markets, as well as Japan, China, and Brazil.

operations. Pentair has a worldwide presence, with

that make up the infrastructure of today’s industrial,

electrical, and technology markets are housed in

Profitable in a precarious market

enclosures and systems manufactured by Pentair’s

The year 2001 was a difficult period for most

Enclosures Group. The Group goes to market under

capital goods manufacturers. With the curtailment of

three primary brands: Hoffman Enclosures®, Schroff®,

capital spending in industrial and commercial markets,

and the precipitous decline in telecom markets, the

in all enclosures markets, with the industrial market

Group faced a need to reduce costs. The majority of a

at its lowest point in the last decade. Full-year margins

$41.1 million pre-tax restructuring charge taken in the

dropped from 12.2 percent in 2000 to 6.0 percent

fourth quarter of 2001 reduced the Group’s operating

in 2001 as revenues declined faster than fixed costs

capacity by approximately 20 percent and trimmed

were reduced.

headcount by some 25 percent. In the fourth quarter of

2001, plant closures were announced at locations in

Strategy focuses on cost structure

Pennsauken, New Jersey; Brooklyn Center, Minnesota;

The goal of the Group in 2002 will be to reduce

and in Europe. In addition, several support facilities

operating costs by simplifying and rationalizing its

are being closed. The restructuring, which will be

infrastructure and by capturing savings through supply

completed in the first half of 2002, will yield an

management activities, as well as continuing to

estimated $15 million in cost savings during 2002, and

implement lean enterprise programs throughout the

$21 million of savings annually thereafter. While the

worldwide organization. The Group will also work to

restructuring was comprehensive, it will not interfere

take full advantage of opportunities that arise. We will

with the Group’s ability to serve our customers.

exploit our strengths in a competitive environment.

Enclosure Group sales totaled $689.8 million in

The restructured Enclosures organization has

2001, an 11 percent decline over 2000 levels, and

excellent long-term prospects, and Pentair is taking the

pre-restructuring operating income totaled $41.2

right steps to build on its position in global markets.

million, a 56 percent decrease over the previous year.

The decrease in volume is attributed to sharp declines

[ page 13 ]

e n c l o s u r e s
e n c l o s u r e s g r o u p

[ ]

H o f f m a n E n c l o s u r e s , S c h r o f f a n d P e n t a i r E l e c t r o n i c P a c k a g i n g

[ page 14 ]

T o o l s g r o u p

Carpenters and craftsmen alike

appreciate innovative, well-designed

tools. That’s why the brands of

Pentair’s Tools Group — Porter-Cable,

Delta®, Biesemeyer®, Ex-CellTM, DAPCTM,

Air America®, Charge Air Pro®, and

Water DriverTM — are among those

preferred by savvy professionals and

discriminating do-it-yourselfers.

Innovation in new product development

is a hallmark of Pentair’s Tools Group,

a fact supported by the hundreds of

awards and honors bestowed upon its

products in 2001 alone. (continues next page)

[ page 15 ]

f o r c r a f t s m a n s h i p

Woodworker, journalist, and educator, George Vondriska puts

Porter-Cable’s cordless twin power source brad nailer to the test

[ ]

the one-of-a-kind Tiger ClawTM [left], a variable angle construction

same engineering group that developed the radical concept behind

development function within the Pentair Tools Group. This is the

in his workshop. The cordless nailer, which can be operated by

a traditional compressor or its own battery powered on-board

saw featuring a cutting head that rotates in two dimensions.

mini-compressor, is the creation of a reinvigorated product

t o o l s g r o u p
T o o l s g r o u p

As a contributing editor at one of the nation’s

Cost reduction was another facet of the recovery

leading woodworking magazines, and a woodworking

strategy. The Group trimmed headcount, restricted

educator, George Vondriska has used hundreds of

discretionary spending, reduced inventories, launched

tools from virtually every tool manufacturer in North

its lean enterprise initiative, reinforced its supply chain

America. It’s no coincidence, therefore, that Pentair

management, and focused on cost productivity as a

tools play a large role in the projects that George

measure of performance.

undertakes for his personal pleasure. The much-heralded

Implementing lean enterprise practices, which

Delta® two-speed 13" planer and Porter-Cable’s new

reduce the waste of space, time, and effort throughout

cordless twin power source brad nailer and cordless

the business, delivered tangible benefits. For example,

router have all been put to good use in George’s

the Tiger SawTM assembly line at Porter-Cable improved

shop, just as they have in thousands of workshops

its labor productivity 24 percent, reduced its use of

throughout North America.

factory space 56 percent, and cut walking distance for

While product innovation has long been a core

plant associates by 16 percent. The net result of

competency of Pentair’s Tools Group, the development

the supply management program, lean enterprise

process was accelerated in 2001 to provide a constant

activity, and integrated product cost reduction was

stream of innovative new products, to improve product

a quarter-by-quarter improvement in margins and a

launch speed by 50 percent, and to achieve lower costs

$43 million improvement in costs during the year.

while maintaining high quality levels. The innovation

In addition, the Tools Group revised its pricing

process combines the most advanced technology

in 2001 to allow more flexibility in serving its many

available with a deep understanding of end-users’

distribution channels, and to protect margins. The

[ page 16 ]

needs, especially those needs that are in the early stages

result was a two percent improvement in realized prices

of development and are not served by any products

in the fourth quarter of 2001 over those of the same

on the market.

period last year. The Group also entered new channels,

including plumbing and HVAC, agriculture dealers,

and electrical distributors.

Strong organic growth programs driving

The Group will continue to reduce its overall cost

margin improvement

structure in 2002, principally through lean enterprise

Sales in the Tools Group totaled $1.039 billion in

practices and supply management opportunities. These

2001, a three percent decline from the previous year.

efforts will deliver improved productivity, which in

Operating income for the segment was $63.2 million,

turn will increase margins in 2002 and 2003.

up 117 percent from 2000. Excluding one-time charges

Capitalizing on its manufacturing, product

taken in 2000, fourth quarter 2001 margins improved

innovation, marketing, and brand awareness strategies,

600 basis points over previous year levels, and margins

the Tools Group succeeds by offering broad product

in the Group improved in each quarter of 2001.

lines to an ever-widening range of customers through

In 2002, the Tools Group will drive growth

multiple channels of distribution.

through faster innovation and new product develop-

ment, coupled with expanded accessory product

offerings and further penetration of new and existing

channels. Growth objectives will be supported by

efforts aimed at expanding the service business and

pursuing international markets.

[ page 17 ]

t o o l s

t o o l s g r o u p[ ]

P o r t e r - C a b l e , D e l t a a n d D e V i l b i s s A i r P o w e r C o m p a n y

900

1,000

1,100

1,035 914 724
(51%) (47%) (42%)

PENTAIR PAID DOWN APPROXIMATELY $190 MILLION

w e r e d u c e d d e b t

r e d u c e d d e b t[ ]

at the end of the year was 42 percent, versus 47 percent

of debt during 2001, making use of free cash flow and

proceeds from divestitures. Debt-to-total capital

T o t a l D e b t $ i n M i l l i o n s ( D e b t / C a p i t a l )

at the end of 2000.

1999 2000 2001

700

600

800

[ page 18 ]

f i n a n c i a l r e v i e w

Net sales
Sales by segment and the year-over-year changes were as follows:

(Dollars in thousands)
Tools
Water
Enclosures
Total

2001
$ 1,038,606
887,518
689,820
$ 2,615,944

2000
$ 1,066,616
903,672
777,725
$ 2,748,013

1999
$ 875,643
582,927
657,500
$ 2,116,070

2001 vs. 2000
$ change % change
(2.6%)
(1.8%)
(11.3%)
(4.8%)

$ (28,010)
(16,154)
(87,905)
$ (132,069)

2000 vs. 1999
$ change % change
21.8%
$ 190,973
55.0%
320,745
18.3%
120,225
29.9%
$ 631,943

Net sales in 2001 decreased by 4.8%, consisting of 4.4% volume decline and 0.5% unfavorable foreign currency effect,
offset by 0.1% price increase. Net sales in 2000 increased 29.9%, consisting of 32.5% volume increase (up about 8%
adjusted for acquisitions), offset by 1.0% decline in price and 1.6% unfavorable foreign currency effect.

Tools
The 2.6 percent decline in Tools segment sales in 2001 was primarily due to:
• lower sales volume due to the weak economy; and
• lower average selling prices in the first nine months of the year, stemming from the mid-2000 price discounting activi-

ties, somewhat offset by an increase in realized selling prices in the fourth quarter of 2001.

The 21.8 percent increase in Tools segment sales in 2000 was primarily due to:
• the September 1999 acquisition of DeVilbiss Air Power Company (DAPC); and
• higher sales volume in our Porter-Cable/Delta business.
These increases in 2000 were partially offset by:
• lower sales volume in 2000 for generators due to high inventories at distributors and retailers at the end of 1999 and

lower storm sales in 2000; and

• lower average selling prices, primarily in our Porter-Cable/Delta business, due to price discounting in some markets on

some products in 2000 to recover market share.

Water
The 1.8 percent decline in Water segment sales in 2001 was primarily due to:
• lower sales volume for our industrial pumps and components for large water filtration systems as a weaker economy

slowed demand; and

• unfavorable foreign currency translation resulting from the stronger U.S. dollar.
These decreases in 2001 were partially offset by:
• higher sales volume in our pool and spa equipment business as we increased our market share.
The 55.0 percent increase in Water segment sales in 2000 was primarily due to:
• the August 1999 acquisition of the pressure vessel and pool and spa equipment businesses of Essef Corporation; and
• higher sales volume in our pump and valve businesses due to increased demand.
These increases in 2000 were somewhat offset by:
• unfavorable impacts of foreign currency translation.

Enclosures
The 11.3 percent decline in Enclosures segment sales in 2001 was primarily due to:
• lower sales volume attributable to sharp declines in all enclosures markets, somewhat offset by increased sales due to

the expansion in the number of Hoffman distributors; and

• unfavorable impacts of foreign currency translation.
The 18.3 percent increase in Enclosures segment sales in 2000 was primarily due to:
• higher sales volume due to strong demand for our products in the telecom and datacom markets and with industrial

original equipment manufacturers.

The increase in 2000 was somewhat offset by:
• unfavorable impacts of foreign currency translation. Excluding the impacts of foreign currency translation, 2000

Enclosures segment sales increased by 22 percent over 1999.

[ page 19 ]

f i n a n c i a l r e v i e w ( c o n t i n u e d )
f i n a n c i a l r e v i e w

Operating income
The following table provides a comparison of operating income by segment excluding special items noted below:

(Dollars in thousands)
Tools (1)
Water
Enclosures (2)
Corporate/other (3)
Total

2001
$ 63,232
109,792
41,239
(15,442)
$ 198,821

2000
$ 59,147
120,732
94,643
(17,703)
$ 256,819

1999
$ 106,985
73,362
63,089
(18,662)
$ 224,774

2001
6.1%
12.4%
6.0%

% of net sales
2000
5.5%
13.4%
12.2%

1999
12.2%
12.6%
9.6%

7.6%

9.3%

10.6%

(1) Tools segment operating income excludes restructuring charge expense of $5.4 million in 2000 and $6.3 million in 1999. Operating income also excludes one-time pre-tax costs
to establish an additional $30.0 million in accounts receivable ($5.0 million in the second quarter of 2000 and $17.0 million in the fourth quarter of 2000) and inventory
($8.0 million in the fourth quarter of 2000) reserves.
(2) Enclosures segment operating income excludes restructuring charge expense (income) of $39.4 million in 2001, $(1.6) million in 2000 (due to a change in estimate of the 1999
restructuring liability), and $16.7 million in 1999.
(3) Excludes restructuring charge expense of $1.7 million in 2001 and $21.0 million in 2000.

Tools
The 0.6 percentage point increase in Tools segment 2001 operating income margin excluding special items was primarily due to:
• cost savings from our supply chain management and lean enterprise initiatives.
This increase in 2001 was partially offset by:
• lower sales volume due to the weak economy;
• lower average selling prices in the first nine months of the year, stemming from the mid-2000 price discounting

activities, somewhat offset by an increase in realized selling prices in the fourth quarter of 2001;

• higher warranty costs.
The 6.7 percentage point decline in Tools segment 2000 operating income margin excluding special items was primarily due
to:
• lower sales volume for generators and a change in product mix in our Porter-Cable/Delta business; and
• lower average selling prices due to price discounting to recover market share.

Water
The 1.0 percentage point decline in Water segment operating income margin in 2001 was primarily due to:
• lower sales volume in our higher margin pump and water treatment businesses which have been more directly affected

by the economic slowdown.

The decline in 2001 was partially offset by:
• higher sales volume in our pool and spa equipment business as we increased our market share.
The 0.8 percentage point increase in Water segment operating income margin in 2000 was primarily due to:
• improved margins in the pool and spa equipment businesses acquired in August 1999;
• increased volume for pumps and valves; and
• material cost savings as a result of supply management initiatives coupled with increased labor productivity.
These increases in 2000 were partially offset by:
• unfavorable impacts of foreign currency translation.

[ page 20 ]

Enclosures
The 6.2 percentage point decline in Enclosures 2001 operating income margin excluding special items was primarily due to:
• lower sales volume, attributable to sharp declines in all enclosures markets;
• unfavorable product mix; and
• higher benefit costs.
These decreases in 2001 were partially offset by:
• lower costs, primarily due to headcount reductions.
The 2.6 percentage point increase in Enclosures 2000 operating income margin excluding special items was primarily due to:
• higher sales volume due to strong demand for our products in the telecom and datacom markets and with industrial

original equipment manufacturers.

This increase in 2000 was somewhat offset by:
• unfavorable product mix; and
• unfavorable impacts of foreign currency translation in 2000.

f i n a n c i a l r e p o r t s
f i n a n c i a l r e p o r t s

Report of management

We are responsible for the integrity and objectivity of the financial information presented in this report. The
financial statements have been prepared in conformity with accounting principles generally accepted in the United States
of America and include certain amounts based on our best estimates and judgment.

We are also responsible for establishing and maintaining our accounting systems and related internal controls,
which are designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded.
These systems and controls are reviewed by the internal auditors. In addition, our code of conduct states that our affairs
are to be conducted under the highest ethical standards.

The independent auditors provide an independent review of the financial statements and the fairness of the
information presented therein. The Audit and Finance Committee of the Board of Directors, composed solely of outside
directors, meets regularly with us, our internal auditors and our independent auditors to review audit activities, internal
controls, and other accounting, reporting, and financial matters. Both the independent auditors and internal auditors
have unrestricted access to the Audit and Finance Committee.

R a n d a l l J . H o g a n

President and Chief Executive Officer
St. Paul, Minnesota

February 8, 2002

Da v i d D . H a r r i s o n

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 (the Company) as of
December 31, 2001 and 2000, and the related consolidated statements of income, shareholders’ equity and cash flow for
each of the three years in the period ended December 31, 2001. Such consolidated financial statements and our report
thereon dated February 8, 2002, expressing an unqualified opinion (which are not included herein), are included in the
Annual Report on Form 10-K of the Company for the year ended December 31, 2001. The accompanying condensed
consolidated financial statements are the responsibility of the Company’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 the
Company is fairly stated in all material respects in relation to the basic consolidated financial statements from which it
has been derived.

[ page 21 ]

Minneapolis, Minnesota

February 8, 2002

i n c o m e

c o n d e n s e d c o n s o l i d a t e d s t a t e m e n t s o f i n c o m e

Pentair, Inc. and Subsidiaries

(Dollars in thousands, except per-share data)
Net sales
Cost of goods sold

Gross profit

Selling, general and administrative
Research and development
Restructuring charge
Operating income
Interest income
Interest expense
Other expense, write-off of investment

Income from continuing operations before income taxes

Provision for income taxes
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Loss on disposal of discontinued operations, net of tax
Cumulative effect of accounting change, net of tax

Net income

Earnings per common share

Basic

Continuing operations
Discontinued operations
Cumulative effect of accounting change
Basic earnings per common share

Diluted

Continuing operations
Discontinued operations
Cumulative effect of accounting change
Diluted earnings per common share

Years ended December 31

2001200`

$ 2,615,944
1,967,945
647,999
418,962
31,171
40,105
157,761
960
62,448
2,985
93,288
35,772
57,516
—
(24,647)
—
32,869

1.17
(0.50)
—
0.67

2000
$ 2,748,013
2,051,515
696,498
438,488
31,191
24,789
202,030
1,488
76,387
—
127,131
45,263
81,868
(24,759)
—
(1,222)
55,887

1.68
(0.51)
(0.02)
1.15

1999
$ 2,116,070
1,529,419
586,651
339,707
22,170
23,048
201,726
1,472
45,054
—
158,144
60,056
98,088
5,221
—
—
$ 103,309

2.24
0.12

—

2.36

2.21
0.12

—

2.33

Pro forma amounts assuming the accounting change is applied retroactively
$

[ page 22 ]

Continuing operations
Discontinued operations
Net income

Pro forma earnings per common share

Basic

Continuing operations
Discontinued operations
Basic earnings per common share

Diluted

Continuing operations
Discontinued operations
Diluted earnings per common share

Weighted average common shares outstanding

Basic
Diluted

57,516
(24,647)
32,869

1.17
(0.50)
0.67

81,868
(24,759)
57,109

97,514
5,221
$ 102,735

1.68
(0.51)
1.17

2.23
0.12
2.35

2.20
0.12
$2.32

49,047
49,297

48,544
48,645

43,803
44,287

b a l a n c e s h e e t s

c o n d e n s e d c o n s o l i d a t e d b a l a n c e s h e e t s

Pentair, Inc. and Subsidiaries

(Dollars in thousands, except per-share data)
Assets
Current assets
Cash and cash equivalents
Accounts and notes receivable, net of allowance
of $14,142 and $18,636, respectively

Inventories
Deferred income taxes
Prepaid expenses and other current assets
Net assets of discontinued operations

Total current assets

Years ended December 31

2001

200`

2000

39,844

34,944

398,579
300,923
69,953
20,979
5,325
835,603

468,081
392,495
72,577
22,442
101,263
1,091,802

Property, plant and equipment, net

329,500

352,984

Other assets
Goodwill, net
Other
Total other assets
Total assets

Liabilities and shareholders’ equity
Current liabilities
Short-term borrowings
Current maturities of long-term debt
Accounts and notes 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
Postretirement medical and other benefits
Deferred income taxes
Other noncurrent liabilities
Total liabilities

Commitments and contingencies

Shareholders’ equity
Common shares par value $0.162⁄3;

49,110,859 and 48,711,955 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

1,088,206
118,889
1,207,095
$ 2,372,198

1,141,102
58,137
1,199,239
$ 2,644,025

—
8,729
179,149
74,888
37,590
6,252
121,825
428,433

714,977
74,263
43,583
34,128
61,812
1,357,196

108,141
23,999
250,088
84,197
42,189
5,487
134,691
648,792

781,834
59,313
34,213
37,133
72,149
1,633,434

8,193
478,541
566,626
(9,440)
(28,918)
1,015,002
$ 2,372,198

8,119
468,425
568,084
(7,285)
(26,752)
1,010,591
$ 2,644,025

[ page 23 ]

c a s h f l o w

c o n d e n s e d c o n s o l i d a t e d s t a t e m e n t s

o f c a s h f l o w

Pentair, Inc. and Subsidiaries

(Dollars in thousands)
Operating activities
Net income
Depreciation
Amortization of intangibles and unearned compensation
Deferred income taxes
Restructuring charge
Other expense, write-off of investment
Loss on disposal of discontinued operations
Cumulative effect of accounting change
Changes in assets and liabilities, net of effects

of business acquisitions and dispositions
Accounts and notes receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Employee compensation and benefits
Accrued product claims and warranties
Income taxes
Other current liabilities
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

[ page 24 ]

Investing activities
Capital expenditures
Proceeds from sale of businesses
Acquisitions, net of cash acquired
Equity investments
Other

Net cash used for investing activities

Financing activities
Net short-term borrowings (repayments)
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from long-term bonds
Debt issuance costs
Proceeds from bridge loans
Repayment of bridge loans
Proceeds from exercise of stock options
Proceeds from issuance of common stock, net
Repurchases of common stock
Dividends paid

Net cash provided by (used for) financing activities

Years ended December 31

2001200`

2000

1999

$ 32,869
62,674
41,675
(5,315)
41,060
2,985
24,647
—

$ 55,887
59,897
39,131
9,735
24,789
—
—
1,222

70,890
87,840
653
(69,321)
(13,185)
(4,468)
9,942
(50,758)
17,199
(7,205)
242,182
(9,848)
232,334

(53,668)
70,100
(1,937)
(25,438)
(186)
(11,129)

(108,336)
2,811
(84,525)
—
—
—
—
2,913
—
(1,458)
(34,327)
(222,922)

17,908
(45,893)
(9,588)
32,973
(10,810)
(6,318)
(8,467)
(17,715)
5,353
(7,296)
140,808
44,139
184,947

(68,041)
—
—
—
(32)
(68,073)

(42,471)
8,108
(82,271)
—
—
—
—
3,100
774
(410)
(32,038)
(145,208)

$ 103,309
56,081
25,987
(1,954)
23,048
—
—
—

(28,282)
(26,449)
7,779
26,423
32,660
8,344
(4,462)
(48,076)
953
(18,791)
156,570
(12,274)
144,296

(53,671)
—
(953,124)
—
1,664
(1,005,131)

150,612
351,297
(59,814)
250,000
(2,430)
450,000
(450,000)
4,454
214,480
(4,030)
(28,201)
876,368

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

6,617
4,900
34,944
$ 39,844

263
(28,071)
63,015
$ 34,944

18,344
33,877
29,138
$ 63,015

s e l e c t e d f i n a n c i a l d a t a
s e l e c t e d f i n a n c i a l d a t a

Pentair, Inc. and Subsidiaries

Years ended December 31

(Dollars in thousands, except per-share data)
Statement of operations
Net sales:

Tools
Water
Enclosures
Other
Total

2001

200`

2000

1999

1998

1997

1996

$ 1,038,606
887,518
689,820
—
2,615,944

$ 1,066,616
903,672
777,725
—
2,748,013

$ 875,643
582,927
657,500
—
2,116,070

$ 661,782 $ 573,787 $ 478,107
218,344
306,047
566,919
600,491
133,360
128,136
1,396,730
1,689,641 1,608,461

441,030
586,829
—

Cost of goods sold
Other costs and expenses
Restructuring charge

1,967,945
450,133
40,105

2,051,515
469,679
24,789

1,529,419
361,877
23,048

1,227,427 1,189,777
272,578
—

297,972
—

1,032,343
240,982
—

Operating income: Tools
Water
Enclosures
Other
Total

63,232
109,792
1,857
(17,120)
157,761

Gain on sale of business
Net interest expense
Other expense, write-off of investment
Provision for income taxes
Income from continuing operations
Income (loss) from discontinued

—
61,488
2,985
35,772
57,516

23,751
120,732
96,268
(38,721)
202,030

—
74,899
—
45,263
81,868

100,680
73,362
46,346
(18,662)
201,726

—
43,582
—
60,056
98,088

80,383
56,264
46,026
(18,431)
164,242

—
19,855
—
53,667
90,720

62,669
32,366
47,282
3,789
146,106

10,313
19,729
—
58,089
78,601

45,800
30,562
53,856
(6,813)
123,405

—
16,849
—
42,860
63,696

operations, net of tax

Loss on disposal of discontinued

operations, net of tax

Cumulative effect of accounting

change, net of tax

Net income
Preferred dividends
Income available to

—

(24,759)

5,221

16,120

12,999

10,813

(24,647)

—

—
32,869
—

(1,222)
55,887
—

—
103,309
—

—
106,840
(4,267)

—
91,600
(4,867)

—
74,509
(4,928)

common shareholders

32,869

55,887

103,309

102,573

86,733

69,581

Common share data
Diluted EPS — continuing operations
Diluted EPS — discontinued operations
Diluted EPS — cumulative effect of

accounting change
Diluted EPS — net income

Cash dividends declared
per common share

Balance sheet data
Property and equipment, net
Total assets
Total debt
Shareholders’ equity
Debt/total capital
Return on average common
shareholders’ equity

Other data
Depreciation
Amortization of intangibles and

unearned compensation

$ 1.17
(0.50)

—
0.67

$ 1.68
(0.51)

(0.02)
1.15

$ 2.21
0.12

—
2.33

$ 2.09
0.37

—
2.46

$ 1.81
0.30

—
2.11

$ 1.47
0.26

—
1.73

0.70

0.66

0.64

0.60

0.54

0.50

[ page 25 ]

329,500
2,372,198
723,706
1,015,002

352,984
2,644,025
913,974
1,010,591

$ 367,783
2,706,516
1,035,084
990,771

$ 271,389 $ 261,486 $ 270,071
1,236,694
1,484,207 1,413,494
312,817
328,538
560,751
627,653

340,721
707,628

41.6%

47.5%

51.1%

32.5%

34.4%

35.8%

3.2%

5.6%

12.6%

16.7%

16.0%

14.4%

62,674

59,897

$ 56,081

$ 46,571 $ 47,577 $ 42,620

Capital expenditures
Employees of continuing operations

41,675
53,668
11,700

39,131
68,041
13,100

25,987
53,671
12,400

15,483
43,335
8,800

15,240
69,364
8,800

12,795
67,216
8,000

All financial information reflects our Equipment segment (Century Mfg Co./Lincoln Automotive and Lincoln Industrial businesses) as discontinued operations.
The 2001 results reflect a pre-tax loss on the sale of these businesses of $36.3 million ($24.6 million after tax, or $0.50 per share). The 2000 results reflect a non-cash pre-tax
cumulative effect of accounting change related to revenue recognition that reduced income by $1.9 million ($1.2 million after tax, or $0.02 per share).
The 1997 results include a pre-tax gain on the sale of Federal Cartridge of $10.3 million ($1.2 million after tax, or $0.03 per share).

d i r e c t o r s & o f f i c e r s

B o a r d o f d i r e c t o r s a n d P e n t a i r o f f i c e r s

Board of directors

Corporate officers

Winslow H. Buxton (3, 4, 5), 62
Chairman of the Board of Pentair, Inc.

William J. Cadogan (3, 4), 53
Former Chairman and Chief Executive Officer
of ADC Telecommunications.

Barbara B. Grogan (2, 4, 5), 54
Chairman and President of
Western Industrial Contractors, Inc.

Charles A. Haggerty (2, 3, 4, 5), 60
Chief Executive Officer of
LeConte Associates, LLC.

William H. Hernandez (1), 53
Senior Vice President, Finance,
of PPG Industries.

Randall J. Hogan (3, 4, 5), 46
President and Chief Executive Officer
of Pentair, Inc.

Stuart Maitland (1, 2), 56
Former Director of Manufacturing Operations
for Vehicle Operations, Ford Motor Company.

Winslow H. Buxton Chairman of the Board

Randall J. Hogan President and
Chief Executive Officer

David D. Harrison Executive Vice President
and Chief Financial Officer

Richard J. Cathcart President and
Chief Operating Officer, Water Technologies

Frank J. Feraco President and
Chief Operating Officer, Tools

Michael V. Schrock President and
Chief Operating Officer, Enclosures

Louis L. Ainsworth Senior Vice President
and General Counsel

Karen A. Durant Vice President and Controller

Deb S. Knutson Vice President, Human Resources

Augusto Meozzi (1, 5), 62
Chief Operating Officer
of the Isola Group.

William T. Monahan (2), 54
Chairman of the Board and
Chief Executive Officer of Imation.

Karen E. Welke (1, 5), 57
Former Group Vice President
for Medical Markets, 3M Company.

[ page 26 ]

(1) Audit and Finance Committee, (2) Compensation/HR
Committee, (3) Executive Committee, (4) Nominating/
Governance, Public Policy and Share Rights Committee,
(5) European Policy Subcommittee.

b o a r d o f d i r e c t o r s
b o a r d o f d i r e c t o r s

[ ]

s e a t e d : KAREN E. WELKE and AUGUSTO MEOZZI

f r o m l e f t t o r i g h t

[ page 27 ]

s t a n d i n g : WILLIAM T. MONAHAN, CHARLES A. HAGGERTY, STUART MAITLAND,

BARBARA B. GROGAN, RANDALL J. HOGAN, WILLIAM J. CADOGAN, WINSLOW H. BUXTON,

and WILLIAM H. HERNANDEZ

i n v e s t o r i n f o r m a t i o n

I n v e s t o r I n f o r m a t i o n

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 2001. There were 4,229 shareholder accounts on December 31, 2001.

Price range and dividends of common stock ($)

2001 High

1Q 30 9⁄16

2Q 36 13⁄32

3Q 38 3⁄64

4Q 39 9⁄32

Low

22 1⁄2

24 1⁄2

28 57⁄64

29 47⁄64

Div.

0.17

0.18

Last

2000 High

25 31⁄64

33 51⁄64

30 49⁄64

36 33⁄64

1Q 39 7⁄16

2Q 44

3Q 36 3⁄8

4Q 30 1⁄2

Low

31 13⁄16

35 5⁄16

23 15⁄16

Div.

0.16

0.17

Last

37 1⁄16

35 1⁄2

26 3⁄4

24 3⁄16

Common dividends Dividends are $0.18 per share quarterly for an indicated annual rate of $0.72 per share.
Pentair has now paid 104 consecutive quarterly dividends.

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 calendar 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 Wells Fargo 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 Wells Fargo
Bank Minnesota, N.A.

Annual meeting The annual meeting of shareholders will be held in the Auditorium at the Lutheran
Brotherhood Building, 625 Fourth Avenue, Minneapolis, Minnesota, at 10:00 a.m. on May 1, 2002. 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.

[ page 28 ]

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 that 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 Wells Fargo Bank Minnesota, N.A., St. Paul, MN 55164

Certified public accountants Deloitte & Touche LLP, Minneapolis, MN 55402

c o d e o f b u s i n e s s c o n d u c t
C o d e o f B u s i n e s s C o n d u c t

Pentair, Inc. chooses to be an independent, publicly owned company, and

this statement is to guide the development of its organization and the conduct

of its business affairs. Our businesses 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.

o p e r a t i n g g u i d e l i n e s
O p e r a t i n g G u i d e l i n e s

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.

P e n t a i r m a d e s o l i d p r o g r e s s

d e l i v e r

w e d e l i v e r

[ ]

t o w a r d i m p r o v e d p e r f o r m a n c e i n 2 0 0 1 ,

t o b e a c c o m p l i s h e d i n 2 0 0 2 .

b u t t h e r e ’ s m u c h m o r e

Waters Edge Plaza
1500 County Road B2 West
St. Paul, Minnesota 55113
651.636.7920 tel
www.pentair.com