it takes two... B r e n e t t e Wi l d e r Product Engineer, Fairbanks Morse, Kansas City, Kansas Jas o n Ja m e s Fabrication Supervisor, DeVilbiss, Decatur, Arkansas PENTAIR S U M M A R Y A N N U A L R E P O R T 2 0 0 2 ...and three...and four...and five... B e v e r ly Jac o b s Receptionist, Fairbanks Morse, Kansas City, Kansas Ja n e D o n g Production Planning, Wisetech, Suzhou, China K a m a l a P u r a m Vice President Information Technology, Water Technologies Group, Pentair, St. Paul, Minnesota G e n e Cas to n Manufacturing Manager, Hoffman, Mt. Sterling, Kentucky A l b i n E r h a rt Sales Program Development Manager, Pentair Water Treatment, Brookfield, Wisconsin Pentair is a diversified operating company that builds value for stakeholders by acquiring, renewing, and developing manufacturing companies. With 2002 sales of $2.6 billion, Pentair comprises three core business groups: tools, water technologies, and enclosures. Headquartered in St. Paul, Minnesota, the company employs 12,000 people in more than 50 locations around the world. Pentair common stock is traded on the New York Stock Exchange under the symbol: PNR we deliver The people that made Pentair perform in 2002 delivered earnings per share of $2.61, built net sales to $2.6 billion, generated record free cash flow of $214 million, introduced hundreds of new products, saved $50 million via lean enterprise and supply chain management practices, and integrated two acquisitions with combined annual sales of almost $150 million. ...and more to build our business. Vu e L o r Press Operator, Plymouth Products, Sheboygan, Wisconsin K e i G r at to n Shareholder, Minneapolis, Minnesota K i s e ko Ta k ag i President, Schroff Japan, Yokohama, Japan M a ry A n n We av e r Executive Assistant, Porter-Cable/Delta, Jackson, Tennessee Dwa i n e S m i t h Welder, Hoffman, Mt. Sterling, Kentucky P E N T A I R 1 results f i n a n c i a l h i g h l i g h t s 2 0 0 2 Pentair, Inc. and Subsidiaries Years ended December 31 (Dollars in thousands, except per-share data) 2002 2001 2000 1999 1998 Operations: Net sales Operating income $ 2,580,783 $2,574,080 $ 2,705,630 $ 2,087,063 $ 1,669,865 235,992 157,761 202,030 201,726 Adjusted operating income (1) 235,992 234,928 263,275 249,183 Net income — continuing operations Adjusted net income (1) Diluted EPS — continuing operations Adjusted diluted EPS (1) 129,902 129,902 2.61 2.61 57,516 81,868 98,088 119,328 130,240 133,557 1.17 2.42 1.68 2.68 2.21 3.02 Net cash provided by operating activities 270,794 232,334 184,947 144,296 120,872 Capital expenditures (2) Free cash flow (3) 56,696 53,668 214,098 178,666 Number of employees at year end 11,900 11,700 68,041 116,906 13,100 53,671 90,625 12,400 43,335 77,537 8,800 Other financial data: Total debt 735,085 723,706 913,974 1,035,084 340,721 Shareholders’ equity 1,105,724 1,015,002 1,010,591 990,771 707,628 164,242 178,154 90,720 102,112 2.09 2.35 Total debt as a percent of total capital Return on average shareholders’ equity Cash dividends declared per common share Closing stock price Reconciliation of adjustments: Restructuring charge Tax effect of restructuring charge Diluted EPS effect of restructuring charge Goodwill amortization (4) Tax effect of goodwill amortization (4) Diluted EPS effect of goodwill amortization (4) 39.9% 12.3% 0.74 34.55 41.6% 3.2% 0.70 36.52 47.5% 5.6% 0.66 24.19 51.1% 12.2% 0.64 38.50 32.5% 15.4% 0.60 39.81 — — — — — — 41,060 (11,291) 0.60 36,107 (4,064) 0.65 24,789 (8,887) 0.33 36,456 (3,986) 0.67 23,048 (8,413) 0.34 24,409 (3,575) 0.47 — — — 13,912 (2,520) 0.26 43,149 Weighted-average shares — diluted 49,744 49,297 48,645 44,287 (1) Excludes restructuring charge and goodwill amortization. (2) Includes $23.0 million for the acquisition of a previously leased facility. (3) Free cash flow defined as net cash provided by operating activities less capital expenditures. (4) Effective January 1, 2002, we adopted SFAS No. 142 which requires goodwill and intangible assets deemed to have an indefinite life no longer be amortized. This standard did not require restatement of prior period amounts to be consistent with the current year presentation. Certain financial information has been presented to show the effect of excluding goodwill amortization for the prior year periods to be comparable with the current year presentation. 6 0 7 , 2 4 7 5 , 2 1 8 5 , 2 7 8 0 , 2 0 7 6 , 1 3 2.5 2 1.5 1 .5 0 300 250 200 150 100 50 0 3 6 2 9 4 2 5 3 2 6 3 2 8 7 1 3.00 2.50 2.00 1.50 1.00 0.50 0 2 0 . 83 6 . 2 5 3 . 2 1 6 . 2 2 4 . 2 4 1 2 9 7 1 7 1 1 1 9 8 7 250 200 150 100 50 0 98 99 00 01 02 net sales (in millions) 98 99 00 01 02 adjusted operating income(1) (in millions) 98 99 00 01 02 adjusted diluted eps(1) (in dollars) 98 99 00 01 02 free cash flow(3) (in millions) P E N T A I R 2 l e t t e r t o s h a r e h o l d e r s A year ago at this time, I expressed my expectation that Pentair’s performance would substantially improve through the year 2002 as a result of efforts in three key areas: completing the performance turnarounds of our Tools and Enclosures businesses, driving operating excellence, and committing to growth. I’m pleased to report that those expectations were largely fulfilled in 2002, and that our hard work has begun to deliver results: (cid:1) For the third year in a row, we achieved record free cash flow reaching $214 million in 2002. Our debt is now below 40 percent of total capital; (cid:1) Earnings per share of $2.61 in 2002 reflected an eight percent gain over the prior year (excluding goodwill amortization and restructuring charge in 2001); (cid:1) Our return on invested capital increased to 14 percent in 2002, R a n da l l J. H o g a n Chairman and Chief Executive Officer, Pentair, St. Paul, Minnesota versus 10 percent in 2001; (cid:1) We have demonstrated our drive for operating excellence with our dedication to Lean Enterprise, which we call the Pentair Integrated Management System (PIMS), and Supply Chain Management practices, which generated savings of more than $50 million in 2002; (cid:1) Our Enclosures Group fought through huge challenges in a depressed market environment and improved its return on sales in every quarter of 2002 on flat sales; (cid:1) Both the Tools and Water Technologies Groups achieved organic growth despite a tough economy; (cid:1) We made two acquisitions — Plymouth Products and Oldham Saw — that are strategic to the Water Technologies and Tools Groups, and these new businesses are already contributing to our earnings; and (cid:1) We continue to execute our strategies ethically and with integrity, upholding the tenets of the Pentair Code of Conduct. P E N T A I R 3 Accelerating Organic Growth in 2003 To leverage Pentair’s improved operating capabilities, product development, and cost productivity efforts, we committed to grow by defining concrete initiatives and driving execution for top-line results. Our goal is to realize organic sales growth of between five percent and eight percent. Exploring new business platforms within our existing operations, expanding product lines, entering new channels, and establishing our businesses in new geographic markets are all avenues we are pursuing in an effort to accelerate Pentair’s performance in the years ahead. The following are representative of efforts currently underway in our businesses: In Tools: New products New products are one of several initiatives adopted by the Tools Group as a means of achieving organic sales growth. The Group ended 2002 with a number of positive product development highlights, including: (cid:1) Improved time-to-market through shorter product development cycles — as much as 50 percent shorter than in 2001. J i m Fo s t e r Safety Engineer, DeVilbiss Air Power, Decatur, Arkansas J e f f We s s e l Senior Project Engineer, Porter-Cable/Delta, Jackson, Tennessee (cid:1) New products — defined as products launched in the last 12 months — accounted for some 30 percent of 2002 sales. (cid:1) Patent applications, which we track as an indicator of results in R&D, were up more than 70 percent from 2001. We have some very exciting new products in the pipeline for 2003, which we think will enhance our reputation as one of the most innovative power tool manufacturers. P E N T A I R 4 Service branch expansion Our network of service branches is an important link to the professional tool user, providing us direct contact with the most demanding consumers we serve. The service branches were a significant driver of sales growth in 2002, and we will establish more Porter-Cable/Delta branches in under-represented areas, which we expect will increase our opportunity to interact directly with professionals, enhance our brand awareness, and grow our sales. Industrial channel growth We believe the Porter-Cable and Delta brands are well positioned in the premium/professional market. We refocused efforts to serve this channel starting in mid-2001 and are already delivering results — during 2002, our sales in the industrial channel were up almost 10 percent versus 2001. We aim to improve upon that number in 2003. Accessories Our newly acquired Oldham Saw business has performed well and will serve as the platform for organic growth in the accessory area. The Home Depot recognized Oldham’s outstanding performance, naming the company Vendor of the Year for the Hardware department. This is the second time in three years Oldham has been M a ry L o u P e r e z Pump Assembler, DeVilbiss Air Power, Decatur, Arkansas A m y C ow e n VP Logistics & Customer Service, Porter-Cable/Delta, Jackson, Tennessee recognized with this award. We believe that the combination of Oldham’s strong capabilities, together with our position in the tools business, will fuel growth in accessories. In Water Technologies: Expansion of the packaged system product line One of the Water Technologies Group’s key growth initiatives addresses the expansion of the packaged system concept. To date, our efforts have been focused on packaged fire pump systems, where we doubled sales from 2001 to 2002. Now we intend to further expand our sales in the years ahead by introducing the next series P E N T A I R 5 of integrated systems. These include custom domestic water booster systems, municipal pumping stations, and irrigation systems. We anticipate other new products — targeted for commercial, OEM, industrial, and fire protection market segments — will also support the growth objectives. New pool and spa equipment products In the Pool business, we continue to introduce new products that enhance the efficiency and enjoyment of pools and spas. The acquisition of two product lines in early 2003 — HydroTemp heat pumps and Letro Products pool cleaners — further expands our pool and spa equipment offering and will provide a basis for further product line extensions. In addition, we’re aggressively grow- ing the Pool business overseas with more European product lines and deeper channel pen- etration. Improving the distribution footprint of the Water M a rc i R i c k Technical Support Specialist, Plymouth Products, Sheboygan, Wisconsin M i l d r e d R i v e r a Operator/Assembler, Plymouth Products, Sheboygan, Wisconsin C h a r l e s “ M ac ” M c K e n z i e Welder, Fairbanks Morse, Kansas City, Kansas Treatment business In Water Treatment, we’re improving the footprint for residential products by adding distributors and developing new products. In the fourth quarter of 2002 alone, we added 29 distributors — well on our way to having 75 new distributors by 2003. Expansion of Asian capabilities While we are active in Asian water markets, the rapid pace of growth in this region — as high as 20 percent in 2002 — offers compelling incentive to expand our manufacturing capabilities and product lines. P E N T A I R 6 In Enclosures: A focus on targeted market segments Our Enclosures Group has identified several large attractive market segments having unique requirements for specialized enclosure products. We are now serving these markets, which include security, defense, medical, and food and beverage, with realigned marketing, product design and sales resources. In addition to targeted sales and distribution efforts, we are providing unique products geared to address the needs of users in these key markets. This initiative has already led to several significant contract wins. Continuing the pursuit of strategic OEMs In the late ’90s, our Pentair Electronic Packaging (PEP) business was created to provide made-to-specification enclosures for direct sale to telecom and datacom OEMs. PEP’s success in this approach — sales more than tripled between 1999 and 2001 — has prompted the Enclosures team to adopt a similar strategy in Wi l l i a m M y n h i e r Quality Technician, Hoffman, Mt. Sterling, Kentucky O r l a n d o Sa lva d o r PIMS Coordinator, Hoffman, Reynosa, Mexico Pau l i n e S m i t h Customer Service Coordinator, Hoffman, Mt. Sterling, Kentucky working with non-telecom/datacom OEM businesses. Specific examples of this strategy in action include a supplier relationship with a major controls and automation manufacturer whose Mexican operations are served directly out of our Reynosa, Mexico facility, and one of the world’s largest medical equipment manufacturers whose global production we also support. Leveraging our engineering and channel management capabilities We are broadening our traditional product offering to take full advantage of our engineering and channel management capabilities. For example, we have greatly expanded our range of composite enclosures for applications that require corrosion P E N T A I R 7 resistance and/or lightweight materials. Coupled with other recent successes, we now provide a greater range of solutions for our established channels such as new fiberglass enclosures and thermal management products. Concurrently, we are expanding our channel by attacking adjacent markets, such as commercial and networking, with a full array of new products. Globalize We believe the Enclosures Group already has both the broadest product range in the industry and the largest global footprint, and it is working to capitalize on that position, following our end-customers to expanding markets. Along the way we are strengthening relationships and driving higher sales. Continuing Tradition of Strong, Ethical Corporate Governance Underlying our aggressive plans for 2003 is an ongoing commitment to remaining forthright and ethical in all aspects of our business, and especially so in matters related to finance and accounting practices. Troy Jo h n s o n Production Coordinator, Fairbanks Morse, Kansas City, Kansas The New York Stock Exchange (NYSE) proposed several initiatives aimed at preventing the type of financial mismanagement that marred the reputation of Corporate America in 2002. We at Pentair stand in full support of the NYSE’s initiatives. In fact, many of the Exchange’s proposals have been routine practices at Pentair for some time. Likewise, we welcomed the Security Exchange Commission’s (SEC) requirement that executives attest to the integrity of their financial statements by signing a sworn statement. This attestation is now part of our standard procedures. In addition, Pentair’s board of directors is in full compliance with all effective corporate governance rules and laws that apply to publicly held companies in the United States as a result of Congressional action, rule-making by the SEC, and proposed rule-making by the NYSE. P E N T A I R 8 For 37 years, Pentair has enjoyed a reputation as a conservative, no-nonsense company that operates in accordance with a long-standing Code of Business Conduct (see pages 12 and 13). We all place great value in that reputation and, going forward, we will continue to paint by the numbers and color inside the lines. Pentair’s value proposition We have moved beyond recovery in our Tools business and we are now working to push the performance of that business beyond the high levels it achieved in the past. We believe our Water Technologies business has built a strong basis for margin expansion that should generate excellent results as our core pump and water treatment markets continue to improve. Cost productivity actions and repositioning to serve growth markets in our Enclosures business continue to improve the bottom line and we are encouraged that industrial markets appear to be stabilizing. Pentair’s cash flow discipline has been firmly established, and we continued a 27-year tradition of returning more cash to shareholders via an 11 percent dividend increase effective in the second quarter of 2003. We have committed to growing Pentair through several concrete initiatives, and we are working to achieve top-line results. G e r a r d o Vas q u e z Assembler, DeVilbiss Air Power, Decatur, Arkansas M av i s L a m b e rt Human Resource Manager, Hydromatic, Ashland, Ohio Sa l ly K e o ta Material Handler, Pentair Water Treatment, Brookfield, Wisconsin P E N T A I R 9 In light of our progress in these areas, Pentair’s value proposition merits consideration not only for the quality and stability it represents, but for the opportunity it offers. Consider the following: (cid:1) We have instilled in our organization new respect for, and discipline in, the fundamentals of business. We have redefined the role of our operating leadership at both the corporate level and in our businesses; established better processes for operating review and oversight; improved our acquisition and integration capabilities; strengthened our business and financial analysis and communication; and, accelerated organization development, while changing the reward system to be more closely aligned with improved shareholder value. (cid:1) We have made excellent progress on our five key initiatives: our emphasis on cash flow has become part of our culture; our Supply Management initiative is driving performance gains in all of our businesses; our PIMS program is advancing new concepts across the organization and we are further accelerating its implementation; our commitment to our Talent Management efforts has been redoubled; and we are pursuing clear well-defined plans to build organic sales growth while remaining alert to acquisition opportunities that have the potential to expand or extend our existing business interests and offer high value for our shareholders. C h u c k N e av e a r Assembly Supervisor, DeVilbiss Air Power, Decatur, Arkansas Jas o n S r e e t Assembler, Hydromatic, Ashland, Ohio (cid:1) Each of Pentair’s business groups offer unique opportunities for added value in the short term, as well as attractive returns in the long term. Our enclosure businesses play a critical role in advancing industry and technology by housing and protecting sensitive electronic equipment. Our P E N T A I R 1 0 water businesses serve the fundamental need for safe, clean water. Our tools businesses help meet the requirements of shelter. We target higher-than-industry growth rates in each of these segments, provide value-added product and service innovations, and continue our drive toward world-class operating status. (cid:1) We continue to execute our strategies ethically and with integrity, upholding the tenets of the Pentair Code of Conduct. We fully expect that ongoing progress on the initiatives outlined above, coupled with a return to more normal business conditions, will allow us to achieve our goals of long-term earnings growth of 20 percent annually and solid free cash flow generation. With the continued support of our share- holders, customers, and employees, Pentair is becoming a stronger company, bolstering its concrete record of accomplish- ment, and building a bright and prosperous future. A n n e N i n g Operations Manager, Pentair Water Technologies, Suzhou, China Jo h n S u l l i va n Quality Engineer, Porter-Cable/Delta, Jackson, Tennessee Pau l M a z u r a Vice President Product Development Europe, Schroff, Straubenhardt, Germany R a n da l l J. H o g a n Chairman and Chief Executive Officer P E N T A I R 1 1 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. code of business conduct M i c h a e l B row n Machine Operator, Fairbanks Morse, Kansas City, Kansas L i u H o n g - B i n g Assembly Line Worker, Wisetech, Suzhou, China Ja m e s J e f f e rs o n Machinist, Fairbanks Morse, Kansas City, Kansas A n g e l a L ag e s o n Assistant General Counsel, Pentair, St. Paul, Minnesota M i c h e l l e Ro b e rs o n Assembly, Hoffman, Mt. Sterling, Kentucky P E N T A I R 1 2 > 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 emis- sions 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. operating guidelines P E N T A I R 1 3 offerings brands applications markets Delta A full line of benchtop and stationary woodworking machines, and a complete line of accessories. Delta, Delta Shopmaster, Delta Industrial, and Biesemeyer. Woodworking, cabinet and furniture making, commercial and residential construction. Porter-Cable DeVilbiss Air Power Company Tools Accessories Platform Portable electric tools and related accessories; pneumatic nailers; and cordless tools including air powered nailing products, saws, routers, sanders, grinders, drills, etc. Pressure washers, air compressors, generators, pneumatic tools. Router bits, circular saw blades, and related accessories. Pentair Pump Group Products range from light duty household utility pumps to massive, high-flow turbine pumps designed for municipal water applications. Pentair Water Treatment Control valves; fiberglass pressure vessels; storage tanks; residential, commercial, and industrial filtration housings; replaceable cartridge elements; and drinking water filtration system components. DIY/homeshop craftsmen; residential, commercial, and industrial construction; remodelers; cabinet manu- facturers, case goods, and furniture makers. Contractor, remodeler, DIYer, woodworker; furniture manufacturer, industrial fabrication and maintenance. Homeowners, professional building contractors, automotive, woodworkers, and industrial markets. Porter-Cable and FLEX. Commercial and residential construction, professional woodworking and DIY. Commercial, contractor, and DIY activities. Air America, Ex-Cell, Power Back, Charge Air Pro, 2 by 4, and a variety of private label brands. Oldham, Viper, Hickory, United States Saw, Delta, and Porter-Cable. Commercial and residential construction and DIY activities. Contractor, remodeler, DIYer, woodworker, furniture manufacturer, industry. Myers, Shur-Dri, Fairbanks Morse, Aurora, Verti-line, Layne & Bowler, Hydromatic, Water Ace. Pumps for residential and municipal wells; water treatment and wastewater solids handling; and fire protection. Fleck, SIATA, CodeLine, Structural, WellMate, American Plumber, Armor. Products used in the manufacture of water softeners and filtration, deionization, desalination systems, and residential water filtration. Residential, commercial, municipal applications for sump, well and irrigation, fire, commercial HVAC, waste and water treatment, general industrial. Residential, Commercial, Industrial, Municipal. Pentair Pool Products A complete line of pool/spa equipment and accessories including pumps, filters, valves, heaters, automatic controls, lights, automatic cleaners, commercial deck equipment, pool tile/finishing materials, cleaning/maintenance equipment, spa/jetted tub hydrotherapy fittings and pool/spa accessories. Pentair, National Pool Tile, Rainbow Lifegard, Paragon Aquatics, and Kreepy Krauly. Pool and spa construction, maintenance, repair, and operations. Residential, Commercial, and Municipal markets for in-ground and above-ground pools, Spas, and jetted tubs. Hoffman Enclosures Metallic and non-metallic enclosures and cabinets that house electrical and electronic controls, instruments, and components, as well as thermal management products. Hoffman Housing and storage of electrical and electronic controls, instruments, and components. Pentair Enclosures Europe Metallic enclosures consisting of 19-inch racks, subracks and cabinets as structural parts for electrical and electronic devices/installations, as well as integrated solutions with power supplies, backplanes and thermal management products. Schroff Structural parts/housings for electrical and electronic devices/installations. Pentair Electronic Packaging Standard, modified, and custom enclo- sures and cabinets; cases, subracks, backplanes, turn-key, and custom micro- computer systems; and high-volume stamped chassis and assemblies. Schroff, Taunus, Pentair Electronic Packaging. Housing and storage of electrical and electronic controls, instruments, and components. Automotive; petroleum and petrochemical; food; machine tool, and other industrial manufacturing customers; defense and security; and commercial construction. Telecom, computer networks, data communication, industrial controls, transport, test and measurement, medical, defense, and aerospace. Electronics; datacom and telecom; medical; security; general industrial. P E N T A I R 1 4 customers competitors strengths locations web Home Depot, Lowe’s, Sears, industrial tool distributors, mail order/e-commerce, hardware stores. DeWalt, Makita, Ryobi, Grizzly, Skil, Powermatic, Emerson, and Jet. Strong brand name -- one of the most respected names in the business; Asian manufacturing capability. Tupelo, Mississippi; Mesa, Arizona; Jackson, Tennessee; Ontario, Canada; Taichung, Taiwan; Qingdao and Suzhou, China. deltawoodworking.com Home Depot, Lowe’s, Sears, industrial tool distributors, Mail order/e-commerce, hardware stores, lumber and building supply. Skil/Bosch, Hitachi, Black & Decker/DeWalt, Stanley Works, Makita, and Milwaukee. Home Depot, Lowe’s, Sears, Sam’s Club, regional home centers, farm & agriculture stores, hardware, and STAFDA/Industrial. Campbell-Hausfeld, Coleman, Karcher, Generac, DeWalt, Ingersoll Rand, and Florida Pneumatic. Home Depot, Lowe’s, Sears; lumber yards; industrial tool distributors; mail order/e- commerce; hardware stores. DeWalt/Black & Decker, American Tool, Vermont American, Freud, various tool manufacturers. Professional brand name recognition, innovation, and best-in-class quality and value. Jackson, Tennessee; Steinheim, Germany; Ontario, Canada. porter-cable.com DeVilbiss’ new products, high quality, performance, and value has made DeVilbiss a leader in air compressor and pressure washer markets, and a strong player in generators and air tool markets. Oldham Saw holds the leading share in the router bit category, and holds the second place position in the circular saw blade category in North America. Jackson, Tennessee; Decatur, Arkansas. devap.com West Jefferson, North Carolina. oldham-usa.com Home centers, wholesale and retail distributors, plumbing wholesalers, supply houses, contractors, direct. ITT, Grundfos, Flygt, Red Jacket, Wayne, Sta-Rite/WICOR (a div. of Wisconsin Energy). One of the top 10 pump businesses in the world, and the second largest water and wastewater pump business in North America. Ashland, Ohio; North Aurora, Illinois; Kansas City, Kansas; Shanghai, China. Independent dealers, verti- cally integrated dealers, plumbing supply houses. WICOR (a div. of Wisconsin Energy), KX Industries, Omnipure, Keystone, Osmonics/GE. Holds the number one position in the worldwide water treatment control valve and fiberglass pressure vessel market, leading supplier of filtration products to residential, commercial, industrial markets. Distributors, OEMs, builders, commercial contractors, pool service and specialty pool retailers. Hayward, Sta-Rite. The world’s largest pool and spa equipment manufacturer. Brookfield & Sheboygan, Wisconsin; Chardon, Ohio; Herentals, Belgium; Buc & Colombes, France; New Delhi & Goa, India; Billingham, England; Florence & Milan, Italy; Shanghai, China. Sanford, North Carolina; Moorpark, El Monte, and Anaheim, California; Lagrangeville, New York; Johannesburg, South Africa; Pregnana Milanese, Italy. Industrial/Electrical MRO, OEM, electrical and data (on-premise) contractors. Rittal, Saginaw, Hammond, Wiegmann, Cooper B-Line, local machine shops. The leading North American producer of electrical enclosures; depth and breadth of product offering; low cost manufacturing; strong brand; and premier electrical distribution. Anoka, Minnesota; Mt. Sterling, Kentucky; Reynosa and Mexico City, Mexico; Scarborough, Ontario, Canada; Boituva, Brazil; Singapore. aurorapump.com fairbanksmorsepump.com hydromatic.com laynevertiline.com femyers.com waterace.com shur-dri.com pentairwater.com fleckcontrols.com structural.com wellmate.com nptgonline.com paragonaquatics.com pentairpool.com rainbow-lifeguard.com hoffmanonline.com OEMs, Motorola, Ericsson, Siemens, Intel and electronic components distributors. Rittal, Knuerr, APW, Elma. Worldwide brand recognition; Schroff pioneered the market for standardized 19-inch electronics packaging; product expertise; unit-cost efficiencies, integration capabilities. Germany, United Kingdom, France, Sweden, Italy, and Poland. schroff.de schroff.fr schroff.uk schroff.se OEMs, Telecoms, Datacoms, Motorola, Lucent, Dell, HP, Distributors. APW, Sanmina, Flextronics, Rittal, regional competitors. Platform-based full-line solutions, speed and flexibility, global reach, supply chain management. Warwick, Rhode Island; Des Plaines, Illinois; Reynosa, Mexico; Boituva Brazil. pentair-ep.com overview P E N T A I R 1 5 we believe Pentair has been — and continues to be — forthright and ethical in all aspects of business, and especially so in matters related to finance and accounting practices. For 37 years, Pentair has enjoyed a reputation as a conservative, no-nonsense business that operates in accordance with a long-standing Code of Business Conduct. The employees of Pentair place great value in that reputation, and will continue to paint by the numbers and color inside the lines. ...and more...and more... J e a n e t t e S u n d h o l m Cost Clerk, Pentair Water Treatment, Brookfield, Wisconsin Dav i d D. H a r r i s o n Executive Vice President and Chief Financial Officer, Pentair, St. Paul, Minnesota Sa r i n a F e r n a n d e s Purchasing Executive, Pentair Water India, Goa, India Ju dy Ca r l e Finance Director, Pentair Electronic Packaging, St. Paul, Minnesota Sa n d i Fo u s t General Accountant, Fairbanks Morse, Kansas City, Kansas P E N T A I R 1 6 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 condensed consolidated financial statements presented herein are derived from the consolidated financial statements included in our Annual Report on Form 10-K. The consolidated 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 da l l J. H o g a n Chairman and Chief Executive Officer St. Paul, Minnesota January 30, 2003 Dav 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, 2002 and 2001, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2002. Such consolidated financial statements and our report thereon dated January 30, 2003, 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, 2002. 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 balance sheets [page 22] as of December 31, 2002 and 2001, and the related condensed consolidated statements of income [page 21] and cash flows [page 23] for each of the three years in the period ended December 31, 2002, is fairly stated in all material respects in relation to the basic consolidated financial statements from which it has been derived. As discussed in Note 1 to the consolidated financial statements included in the Annual Report on Form 10-K, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” Minneapolis, Minnesota January 30, 2003 P E N T A I R 1 7 o v e r v i e w We are a diversified industrial manufacturer operating in three segments: Tools, Water, and Enclosures. Our Tools segment manufactures and markets a wide range of power tools under several brand names generating approximately 40 percent of total revenues. Our Water segment manufactures and markets essential products for the transport and treatment of water and wastewater and generates approximately 35 percent of revenues. Our Enclosures segment accounts for approximately 25 percent of revenues, and designs, manufactures, and markets standard, modified and custom enclosures that protect sensitive controls and components for markets that include data communications, net- working, telecommunications, test and measurement, automotive, medical, security, defense, and general electronics. enclosures 22% tools 42% europe 9% north america 89% enclosures 12% other 2% water 36% tools 38% water 50% 2002 net sales by business segment 2002 = $2.6 Billion 2002 operating income by business segment 2002 geographic sales from point of origin We refer to a non-GAAP financial measure, adjusted operating income (GAAP operating income excluding goodwill amortization and restructuring charges), because we believe it allows investors and management to meaningfully compare our operating performance between different periods. t o o l s In thousands Net sales 2002 2001 2000 1999 1998 1997 1996 $ 1,092,331 $ 1,001,645 $ 1,029,658 $ 850,327 $ 644,226 $ 559,907 $ 467,464 Sales growth % 9.1% (2.7%) 21.1% 32.0% 15.1% 19.8% Operating income as reported $ 97,598 $ 63,232 $ 23,751 $ 100,680 $ 80,383 $ 62,669 $ 45,800 Add back goodwill amortization Add back restructuring charge — — 9,274 — 9,285 5,396 3,282 6,305 287 — 214 — 306 — Adjusted operating income $ 97,598 $ 72,506 $ 38,432 $ 110,267 $ 80,670 $ 62,883 $ 46,106 % of net sales Percentage point change 8.9% 1.7 7.2% 3.5 3.7% 13.0% 12.5% 11.2% 9.9% (9.3) 0.5 1.3 1.3 net sales — tools The 9.1 percent increase in Tools segment sales in 2002 was primarily due to: • higher sales volume in our DeVilbiss Air Power Company (DAPC) business, particularly for pressure washers; • higher sales volume in our Delta business as a result of our new sub-branding strategy through the creation of Delta ShopmasterTM and Delta Industrial.TM The Delta ShopmasterTM brand is targeted toward the entry-level do-it-yourselfer and the Delta IndustrialTM brand is targeted toward the professional craftsman; and • the fourth quarter 2002 acquisition of Oldham Saw Co., Inc. (Oldham Saw). These increases were partially offset by: • declines in average selling prices due to the introduction of lower price point products for the Delta ShopmasterTM brand and heavy second-half 2002 promotional discounting in a more competitive marketplace. P E N T A I R 1 8 The 2.7 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 stemming from the mid-2000 price discounting activities. operating income — tools The 1.7 percentage point increase in Tools segment 2002 adjusted operating income as a percent of net sales was primarily due to: • higher sales volume in our DAPC and Delta businesses, partially offset by price declines due to promotional discounting; • cost savings as a result of our supply management and lean enterprise initiatives; and • the fourth quarter 2002 acquisition of Oldham Saw. 1,200 1,000 800 600 400 200 0 96 97 98 99 00 01 02 net sales (in millions) adjusted operating income % The 3.5 percentage point increase in Tools segment 2001 adjusted operating income as a percent of net sales was primarily due to: • additional inventory valuation and bad debt reserves established in 2000 of $30 million (2.9 percentage points), and cost savings from our supply chain management and lean enterprise initiatives. These increases were partially offset by: • lower sales volume due to the weak economy and selling prices stemming from mid-2000 price discounting activities, higher warranty costs, and unfavorable pension costs due to lower returns on pension assets. w a t e r In thousands Net sales 2002 2001 2000 1999 1998 1997 1996 $ 932,420 $ 882,615 $ 898,247 $ 579,236 $ 438,810 $ 304,647 $ 216,769 Sales growth % 5.6% (1.7%) 55.1% 32.0% 44.0% 40.5% Operating income as reported $ 126,559 $ 109,792 $ 120,732 $ 73,362 $ 56,264 $ 32,366 $ 30,562 Add back goodwill amortization — 18,560 18,074 12,714 7,793 7,363 4,920 Adjusted operating income $ 126,559 $ 128,352 $ 138,806 $ 86,076 $ 64,057 $ 39,729 $ 35,482 % of net sales 13.6% 14.5% 15.5% 14.9% 14.6% 13.0% 16.4% Percentage point change (0.9) (1.0) 0.6 0.3 1.6 (3.4) net sales — water The 5.6 percent increase in Water segment sales in 2002 was primarily due to: • higher pump sales, with most of the growth coming from the residential retail and municipal markets; • the October 2002 acquisition of Plymouth Products, Inc. (Plymouth Products); and • higher sales volume in our pool and spa equipment business. The 1.7 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 impacts of foreign currency translation. These decreases were partially offset by higher sales volume in our pool and spa equipment business as we increased our market share. 1,000 800 600 400 200 0 96 97 98 99 00 01 02 net sales (in millions) adjusted operating income % 14% 12% 10% 8% 6% 4% 2% 0 20% 15% 10% 5% 0 P E N T A I R 1 9 operating income — water The 0.9 percentage point decline in Water segment adjusted operating income as a percent of net sales in 2002 was primarily due to: • unfavorable product mix as a result of higher sales of lower margin residential retail pumps; • higher costs at certain pump and water treatment businesses; and • price declines, primarily related to large international water treatment projects for reverse osmosis housings. The 1.0 percentage point decline in Water segment adjusted operating income as a percent of net sales in 2001 was primarily due to: • unfavorable product mix resulting from lower sales volume of certain high margin pump and water treatment products, which were more directly affected by the economic slowdown. These decreases were partially offset by higher sales volume in our pool and spa equipment business. e n c l o s u r e s In thousands Net sales 2002 2001 2000 1999 1998 1997 1996 $ 556,032 $ 689,820 $777,725 $ 657,500 $ 586,829 $ 600,491 $ 566,919 Sales growth % (19.4%) (11.3%) 18.3% 12.0% (2.3%) 5.9% Operating income as reported $ 29,942 $ 1,857 $ 96,268 $ 46,346 $ 46,026 $ 47,282 $ 53,856 Add back goodwill amortization Add back restructuring charge — — 8,273 39,382 9,097 (1,625) 8,413 16,743 5,832 — 5,576 5,667 — — Adjusted operating income $ 29,942 $ 49,512 $103,740 $ 71,502 $ 51,858 $ 52,858 $ 59,523 % of net sales Percentage point change 5.4% (1.8) 7.2% (6.1) 13.3% 10.9% 2.4 2.1 8.8% 0.0 8.8% 10.5% (1.7) net sales — enclosures The 19.4 percent decline in Enclosures segment sales in 2002 was primarily due to: • lower sales volume reflecting severely reduced capital spending in the industrial market and over-capacity and weak demand in the datacom and telecom markets, partially offset by favorable foreign currency effects. 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, and unfavorable impacts of foreign currency translation, somewhat offset by increased sales due to the expansion in the number of Hoffman distributors. operating income — enclosures The 1.8 percentage point decline in Enclosures segment 2002 adjusted operating income as a percent of net sales was 1,000 800 600 400 200 0 primarily due to: • lower sales volume due to continuing significant industry-wide sales declines, resulting in unabsorbed overhead despite reductions in overall cost structure, partially offset by savings realized as a part of our restructuring program, net of one-time nonrecurring costs. The 6.1 percentage point decline in Enclosures segment 2001 adjusted operating income as a percent of net sales was primarily due to: • lower sales volume, attributable to sharp declines in all enclosures markets, unfavorable product mix, and unfavorable pension costs 14% 12% 10% 8% 6% 4% 2% 0 96 97 98 99 00 01 02 net sales (in millions) adjusted operating income % due to lower returns on pension assets. These decreases in 2001 were partially offset by lower costs, primarily due to headcount reductions. P E N T A I R 2 0 condensed consolidated statements of income Pentair, Inc. and Subsidiaries 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 Years ended December 31 2002 $ 2,580,783 1,965,076 2001 $ 2,574,080 1,967,945 2000 $ 2,705,630 2,051,515 615,707 342,806 36,909 — 235,992 793 44,338 — 606,135 377,098 31,171 40,105 157,761 960 62,448 2,985 93,288 35,772 57,516 — (24,647) — 654,115 396,105 31,191 24,789 202,030 1,488 76,387 — 127,131 45,263 81,868 (24,759) — (1,222) Income from continuing operations before income taxes 192,447 Provision for income taxes Income from continuing operations Loss from discontinued operations, net of tax Loss on disposal of discontinued operations, net of tax Cumulative effect of accounting change, net of tax 62,545 129,902 — — — Net income $ 129,902 $ 32,869 $ 55,887 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 Weighted average common shares outstanding Basic Diluted $ $ $ $ 2.64 — — 2.64 2.61 — — 2.61 $ $ $ $ 1.17 (0.50) — 0.67 1.17 (0.50) — 0.67 $ $ $ $ 1.68 (0.51) (0.02) 1.15 1.68 (0.51) (0.02) 1.15 49,235 49,744 49,047 49,297 48,544 48,645 These condensed consolidated fiinancial statements should be read in conjunction with the audited consolidated fiinancial statements in Pentair’s Annual Report on Form 10-K. P E N T A I R 2 1 condensed consolidated balance sheets Pentair, Inc. and Subsidiaries In thousands, except share and per-share data Assets Current assets Cash and cash equivalents December 31 2002 2001 $ 39,648 $ 39,844 Accounts and notes receivable, net of allowance of $16,676 and $14,142, respectively 403,793 Inventories Deferred tax assets Prepaid expenses and other current assets Net assets of discontinued operations Total current assets 293,202 55,234 17,132 1,799 810,808 398,579 300,923 69,953 20,979 5,325 835,603 Property, plant and equipment, net 351,316 329,500 Other assets Goodwill Other Total other assets Total assets Liabilities and Shareholders’ Equity Current liabilities Short-term borrowings Current maturities of long-term debt Accounts payable Employee compensation and benefits Accrued product claims and warranties Income taxes Other current liabilities Total current liabilities Long-term debt Pension and other retirement compensation Postretirement medical and other benefits Deferred tax liabilities Other noncurrent liabilities Total liabilities Commitments and contingencies Shareholders’ equity Common shares par value $0.16 2/3; 49,222,450 and 49,110,859 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 1,218,341 133,985 1,352,326 1,088,206 118,889 1,207,095 $ 2,514,450 $ 2,372,198 $ 686 $ — 60,488 171,709 84,965 36,855 12,071 109,426 476,200 673,911 124,301 42,815 31,728 59,771 8,729 179,149 74,888 37,590 6,252 121,825 428,433 714,977 74,263 43,583 34,128 61,812 1,408,726 1,357,196 8,204 482,695 660,108 (5,138) (40,145) 8,193 478,541 566,626 (9,440) (28,918) 1,105,724 $ 2,514,450 1,015,002 $ 2,372,198 These condensed consolidated fiinancial statements should be read in conjunction with the audited consolidated fiinancial statements in Pentair’s Annual Report on Form 10-K. P E N T A I R 2 2 condensed consolidated statements of cash flows Years ended December 31 2002 2001 2000 $ 129,902 $ 32,869 $ 55,887 Pentair, Inc. and Subsidiaries In thousands Operating activities Net income Depreciation Goodwill amortization Other amortization Deferred taxes Restructuring charge Other expense, write-off of investment Loss on disposal of discontinued operations Cumulative effect of accounting change 58,833 — 5,869 11,007 — — — — 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 25,535 29,717 8,147 (18,356) 6,289 (1,704) 5,863 (18,384) 15,030 9,520 267,268 Net cash provided by (used for) discontinued operations 3,526 Net cash provided by operating activities 270,794 Investing activities Capital expenditures Acquisition of previously leased facility 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 exercise of stock options Proceeds from issuance of common stock, net Repurchases of common stock Dividends paid Net cash used for financing activities Effect of exchange rate changes on cash Change in cash and cash equivalents Cash and cash equivalents, beginning of period (33,744) (22,952) 1,744 (170,270) (9,383) (7) (234,612) 665 462,599 (468,161) 2,730 — — (36,420) (38,587) 2,209 (196) 39,844 62,674 36,107 5,568 (5,315) 41,060 2,985 24,647 — 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) 6,617 4,900 34,944 59,897 36,456 2,675 9,735 24,789 — — 1,222 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) 263 (28,071) 63,015 Cash and cash equivalents, end of period $ 39,648 $ 39,844 $ 34,944 These condensed consolidated fiinancial statements should be read in conjunction with the audited consolidated fiinancial statements in Pentair’s Annual Report on Form 10-K. P E N T A I R 2 3 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 In thousands, except per-share data Statement of operations Net sales Sales growth Cost of goods sold Gross profit Margin % Selling, general and administrative Research and development Restructuring charge Operating income Margin % Margin % excluding restructuring charge 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 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 common shareholders Common share data Basic EPS – continuing operations Diluted EPS – continuing operations Cash dividends declared per common share Stock dividends declared per common share Market value per share (December 31) Balance sheet data Accounts receivable Inventories Property and equipment, net Goodwill, net Total assets Total debt Shareholders’ equity Other data Debt/total capital Depreciation Goodwill amortization Tax effect of goodwill amortization (1) Diluted EPS effect of goodwill amortization (1) Other amortization Net cash provided by operating activities Capital expenditures Employees of continuing operations DSO (13 month moving average) DOH (13 month moving average) Years ended December 31 2002 2001 2000 1999 $ 2,580,783 0.3% 1,965,076 615,707 23.9% 342,806 36,909 — 235,992 9.1% 9.1% — 43,545 — 62,545 129,902 — — — 129,902 — 129,902 $ 2,574,080 (4.9%) 1,967,945 606,135 23.5% 377,098 31,171 40,105 157,761 6.1% 7.7% — 61,488 2,985 35,772 57,516 — (24,647) — 32,869 — 32,869 $ 2,705,630 29.6% 2,051,515 654,115 24.2% 396,105 31,191 24,789 202,030 7.5% 8.4% — 74,899 — 45,263 81,868 (24,759) — (1,222) 55,887 — 55,887 $ 2,087,063 25.0% 1,529,419 557,644 26.7% 310,700 22,170 23,048 201,726 9.7% 10.8% — 43,582 — 60,056 98,088 5,221 — — 103,309 — 103,309 2.64 2.61 0.74 — 34.55 1.17 1.17 0.70 — 36.52 1.68 1.68 0.66 — 24.19 2.24 2.21 0.64 — 38.50 403,793 293,202 351,316 1,218,341 2,514,450 735,085 1,105,724 398,579 300,923 329,500 1,088,206 2,372,198 723,706 1,015,002 468,081 392,495 352,984 1,141,102 2,644,025 913,974 1,010,591 502,235 352,830 367,783 1,164,056 2,706,516 1,035,084 990,771 39.9% 58,833 — — — 5,869 270,794 56,696 11,900 59 63 41.6% 62,674 36,107 (4,064) 0.65 5,568 232,334 53,668 11,700 65 75 47.5% 59,897 36,456 (3,986) 0.67 2,675 184,947 68,041 13,100 71 80 51.1% 56,081 24,409 (3,575) 0.47 1,578 144,296 53,671 12,400 68 71 (1) Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. This new standard requires that goodwill and intangible assets deemed to have an indefiinite life no longer be amortized, was included as a part of selling, general and administrative expense. This standard did not require restatement of prior-period amounts to be consistent with the current-year presentation and therefore we have not made any adjustments to historical fiinancial information presented. However, we have provided supplemental tax and diluted EPS information as we believe it is necessary to the understanding of historical fiinancial information. P E N T A I R 2 4 Years ended December 31 1997 1996 1998 $ 1,669,865 4.8% 1,227,427 442,438 26.5% 261,302 16,894 — 164,242 9.8% 9.8% — 19,855 — 53,667 90,720 16,120 — — 106,840 (4,267) 102,573 2.25 2.09 0.60 — 39.81 331,672 216,084 271,389 448,893 1,484,207 340,721 707,628 32.5% 46,571 13,912 (2,520) 0.26 1,571 120,872 43,335 8,800 68 75 $ 1,593,181 15.1% 1,189,777 403,404 25.3% 241,062 16,236 — 146,106 9.2% 9.2% 10,313 19,729 — 58,089 78,601 12,999 — — 91,600 (4,867) 86,733 1.94 1.81 0.54 — 35.94 314,289 215,957 261,486 416,605 1,413,494 328,538 627,653 34.4% 47,577 13,571 (2,321) 0.25 1,669 107,896 69,364 8,800 65 80 $ 1,384,512 1,032,343 352,169 25.4% 216,775 11,989 — 123,405 8.9% 8.9% — 16,849 — 42,860 63,696 10,813 — — 74,509 (4,928) 69,581 1.57 1.47 0.50 100% 32.25 246,436 206,957 270,071 287,417 1,236,694 312,817 560,751 35.8% 42,620 11,395 (1,576) 0.22 1,400 104,479 67,216 8,000 64 85 1,200 1,000 800 600 400 200 0 600 500 400 300 200 100 0 450 400 350 300 250 200 150 100 50 0 96 97 98 99 00 01 02 total debt (in millions) debt/total capital 60% 50% 40% 30% 20% 10% 0 80 70 60 50 40 30 20 10 0 96 97 98 99 00 01 02 accounts receivable (in millions) days sales outstanding (13 month moving average) 90 80 70 60 50 40 30 20 10 0 96 97 98 99 00 01 02 inventories (in millions) days on hand (13 month moving average) P E N T A I R 2 5 board of directors (1) Audit and Finance Committee (2) Compensation Committee (3) Governance Committee (4) International Committee Wi l l i a m J. Ca d o g a n (3), 54 General Partner, St. Paul Venture Capital Ba r ba r a B . G ro g a n (2,3,4), 55 Chairman and President of Western Industrial Contractors, Inc. Charles A. Haggerty (2,3,4), 61 Chief Executive Officer of LeConte Associates, LLC William H. Hernandez (1), 54 Senior Vice President, Finance, of PPG Industries, Inc. P E N T A I R 2 6 corporate leadership R a n da l l J. H o g a n Chairman and Chief Executive Officer Dav i d D. H a r r i s o n Executive Vice President and Chief Financial Officer R i c h a r d J. Cat h c a rt President and Chief Operating Officer, Water Technologies H . E u g e n e S wac k e r Interim President, Tools M i c h a e l V. S c h ro c k President and Chief Operating Officer, Enclosures L o u i s L . A i n swo rt h Senior Vice President, General Counsel, and Secretary K a r e n A . D u r a n t Vice President Finance and Controller R a n da l l J. H o g a n (4), 47 Chairman and Chief Executive Officer of Pentair, Inc. St ua rt M a i t l a n d (1,2), 57 Former Director of Manufacturing Operations for Vehicle Operations, Ford Motor Company Au g u s to M e o z z i (1,4), 63 President and Chief Executive Officer of North American Operations, Isola Group Wi l l i a m T. M o n a h a n (2), 55 Chairman of the Board and Chief Executive Officer of Imation Corp. K a r e n We l k e (1,4), 58 Former Group Vice President for Medical Markets, 3M Company P E N T A I R 2 7 c o m m o n s t o c k d a t a 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 2002. There were 4,092 shareholder accounts on December 31, 2002. Price range and dividends of common stock ($) 2002 High Low 1Q 2Q 3Q 4Q 45.1406 32.3750 49.6094 42.3438 47.1094 36.8400 38.3100 29.3400 Div. 0.18 0.18 0.19 0.19 Last 44.9688 48.0781 37.7900 34.5500 2001 High Low 1Q 2Q 3Q 4Q 30.5625 22.5000 36.4063 24.5000 38.0469 28.8906 39.2813 29.7344 Div. 0.17 0.17 0.18 0.18 Last 25.4844 33.7969 30.7656 36.5156 Common dividends Dividends are $0.19 per share quarterly for an indicated annual rate of $0.76 per share. Pentair has now paid 108 consecutive quarterly dividends. Effective with the second quarter 2003, the dividend rate increased to $0.21 per share for an indicated annual rate of $0.84 per share. 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 Thrivent Financial (formerly Lutheran Brotherhood), 625 Fourth Avenue South, Minneapolis, Minnesota, at 10:00 a.m. on April 30, 2003. 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. 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. Important factors that could cause actual results to differ materially include changes in industry conditions, changes in business strategies, governmental and regulatory policies, general economic conditions, and changes in operating factors. 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 P E N T A I R 2 8 we excel We believe that, in the long term, companies that make decisions in the best interest of their shareholders, employees, and customers are the companies that will survive and excel. Pentair intends to do just that – excel. ...and more...and more... Ta r a Ko e l e Senior Project Engineer & Lab Supervisor, Plymouth Products, Sheboygan, Wisconsin Ba r ba r a Jo n e s Computer Operations, Porter-Cable/Delta, Jackson, Tennessee G o r d o n Jo h n s o n & D o n S c h ro e d e r Assemblers, Pentair Water Treatment, Brookfield, Wisconsin H a e z a l & G r e ta Future Product Engineer, and Systems Controller, respectively K e n n y H a r r i s Drill Press Operator, Fairbanks Morse, Kansas City, Kansas P E N T A I R 2 9 ...it takes us...and you. Dav i d K e i t h l e y Motor Assembler, Fairbanks Morse, Kansas City, Kansas L au r a Rya n Administrative Assistant, DeVilbiss Air Power, Decatur, Arkansas E va - A n n i n a O p p i n g e r Advertising & Public Relations Manager, Pentair Enclosures Europe, Straubenhardt, Germany Ro b e rt Sta n g l Shareholder, St. Paul, Minnesota Waters Edge Plaza 1500 County Road B2 West St. Paul, Minnesota 55113 651.636.7920 tel www.pentair.com