濱特爾 (PNR) 2004 Q4 法說會逐字稿

Good morning.

My name is Marianne, and I will be your conference facilitator, today.

At this time, I would like to welcome everyone to the Pentair, Inc.

Fourth Quarter Conference Call.

All lines have been placed on mute to prevent any background noise.

After the speaker’s remarks, there will be a question-and-answer period.

If you would like to ask a question during this time, simply press * then the number 1 on your telephone keypad.

If you would like to withdraw your question, press the # key.

Thank you.

I would now like to turn the conference over to Mr. Dave Harrison, EVP and CFO.

Mr. Harrison, you may begin your conference.

Good morning, everyone.

Good morning, everyone.

Thanks for being with us as we discuss the 2004 results for Pentair.

As she stated, I’m Dave Harrison, CFO.

With me this morning is Randy Hogan, our Chairman and CEO.

Before we begin this call, I would like to remind each of you that any statements made about the Company’s anticipated financial results are forward-looking statements subject to future risks and uncertainties -- such as, but not limited to the ability to integrate the WICOR acquisition successfully, and the risk that expected synergies may not be fully realized, or my take longer to realize than expected -- as well as other economic and market risks.

In addition, I would like to refer you to the risks outlined in our 10K as of December 31st 2003, and our news releases throughout the year.

Forward-looking statements included herein are made as of today, and the Company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.

Actual results could differ materially from anticipated results.

At this time, I’ll turn the program over to Randy.

Thanks, Dave.

And welcome to all of you on our conference call, today.

Fourth quarter of 2004 marks the first full quarter of performance of the New Pentair.

I’m pleased to say that we have met or beat every key expectation that we set -- as we will detail in this conference call.

One year ago, we announced our intent to purchase WICOR industries -- a leading water-equipment group -- and explore the sale of our largest business, the tools group.

These actions were consistent with our strategy to drive shareholder value, by focusing on attractive growth markets, where we can control our own destiny.

And building and executing a set of key operating disciplines, to make Pentair a high-performance company.

Our execution against this strategy in the full year of 2004 and the fourth quarter has indeed yielded results.

We traded the earnings of the tools group and its prospects for the earnings of WICOR and water market prospects, for the net cost of approximately $100 million.

We completed the deals earlier than expected, and finished the year with a considerably stronger balance sheet, to boot.

Our organic growth for the year and the quarter exceeded 10 percent -- excluding the favorable benefits of foreign exchange.

So even while we focused on the transformation, we didn’t take our eyes off the customer.

Our operating initiatives of PIMS and supply management continue to drive our operating margins.

This is evident in both our core water business, and underscored in black ink in our enclosures performance.

Where we had negative news -- particularly in commodity inflation, we offset them with additional action.

In fact, our price realization in the quarter was over 3 percent -- the best we’ve seen in years.

Our integration of both the Everpure and the former WICOR water businesses is proceeding well.

Everpure’s met our aggressive expectations in the first full year of ownership, and Sta-Rite, SHURflo, Hypro and there other former WICOR businesses are being integrated.

As expected, the integration costs of about $5 million in the fourth quarter were greater than the benefits.

We have now closed or consolidated 9 facilities, and are in the process of consolidating 6 additional facilities.

The construction of a new water facility in Reynosa, Mexico -- near our existing enclosures operations -- will be complete this quarter.

We’ve completed the consolidation of 3 water-related facilities in China, into a single operation in Suzhou, China.

As you can see, we set ambitious goals a year ago, and we’re hitting them.

Before I turn the microphone over to Dave to review the financials in detail, I’d like to highlight a few specifics from our two operating groups.

In Water, fourth quarter 2004 sales were 86 percent higher than the same period last year -- reflecting the impact of the WICOR and Everpure acquisitions.

Organic sales increased about 11 percent, reflecting strong domestic pool sales, and good growth in US, Asian and European pump and filtration sales.

The group’s fourth quarter operating income gained 52 percent over the same period last year.

As expected, margins were 10.5 percent in the fourth quarter -- down by 230 basis points -- reflecting the impact of lower initial margins in the new water businesses, and one-time costs related to the integration.

This is actually 20 basis points better than we presaged in our last conference call.

Excluding the one-time consolidation costs, same-store operating income increased by 17 percent in the quarter.

I can’t comment on the water business without touching in December’s tsunami disaster.

As we realized the full impact of the tsunami, we formed a task force of Pentair people to identify ways to deliver safe, clean water to tsunami survivors through equipment and technical support.

This team has been supporting and building upon the efforts already underway across Pentair.

For example, Pentair Water India has supplied manual water purification systems to the Andaman Islands for use by the Indian navy.

And we’re supplying water filtration systems that are being installed in Nagapatnam and [Padnacheri] -- some of the most affected areas in the Tamilnadu state of India.

Volunteers, including employees, are working onsite to install and operate the systems.

Other Pentair businesses are making an impact, as well.

Pentair filtration products can be found on most of the US Navy ships, providing humanitarian aid in the impacted regions.

For example, on the USS Bonhomme Richard, an amphibious ship operating off the coast of Sumatra, Everpure products help purify water, which is then transported ashore.

The filtration division of our Asian operations are actively supporting general efforts to provide equipment and support, to deliver clean water efficiently to those in need.

We stand ready to provide components and systems as repair and rebuilding progresses.

However, it’s difficult to accurately quantify, at this time.

Tsunami clearly illustrates the global need for clean and safe water -- albeit at a devastating cost to the 11 Indian Ocean nations affected by the tragedy, and the world.

As these regions recover, we believe that ensuring adequate potable water-delivery systems and supplies in times of emergency will be a priority.

2004 was a very good year for our water group.

But the real excitement lies ahead of us in 2005 and beyond.

That’s when we’ll see the benefits of our integration process begin to hit the bottom line.

We built real momentum in the water group during 2004, and we’ll see that energy drive the business to new levels of performance in the remainder of this year.

The enclosure group’s sales in the fourth quarter of 2004 totaled $182 million -- a 20 percent increase.

Fourth quarter was the group’s 8th consecutive quarter of sequential sales growth.

Growth was strong across all enclosures market segments.

But what was more interesting was how we grew.

As we see it, the enclosures business is growing at more than double the market rate, with the majority of our growth being driven by our actions, and the rest reflecting overall market improvement.

Examples of the actions we took include the following.

We won a prototype cabinet build from AvantGuard Technology Group -- a Security and Defense customer.

The cabinets will be used in the Global Hawk Unmanned Aerial Vehicle Program.

These remote-operated aircraft are used by the military for reconnaissance.

In data networking, we’ve developed an entire new line of cable management products that we launched at a recent tradeshow, to great interest.

In telecom, we won orders from Marconi for Integrated Proline Cabinets for British Telecom -- which is in the midst of upgrading their fixed-line networks.

Another major telecom customer has chosen Pentair as their global OEM partner for enclosure and metal production, which should add significantly to our telecom program projects in 2005.

New products also contributed to growth.

The advanced telecommunications computing architecture -- or ATCA -- is the industry’s first open architecture platform specification for carrier-grade central office equipment.

Our enclosures business was directly involved in the establishment of the standard, and was the first in the industry to provide a complete range of fully-functional units, less than 12 months after approval of the standard.

[inaudible] a new rail product line, based on a telescoping slide rail that allows servers to be extracted from cabinets more easily, replaced a sourced product with a homegrown product offering superior strength and performance at superior margins.

The ACTA and rail products reflect the innovative thinking that characterizes our enclosures businesses.

These and other internal developments are among the many actions that will continue to drive organic growth and expansion within this business.

Fourth quarter operating income in the enclosure group increased 48 percent from the same period last year, to $24 million in 2004.

Margins reached 13 percent, expanding by 250 basis points over the fourth quarter of 2003, and by 20 basis points over the third quarter of 2004.

This marks the 12th consecutive quarter of sequential margin improvements for the enclosures group.

Our supply-management activities helped mitigate the impact of higher commodity prices in 2004, and will do so again in 2005.

Pentair enclosures will continue to work with the water group to leverage our steel buy across the Company.

With this integrated approach to buying, we expect to better weather any major market swings that might surface in the coming year.

In summary, our enclosures business is hitting on all 8 cylinders, and generating more horsepower than ever before.

It’s weathered weak market conditions to emerge as a clear leader in the enclosures market, capturing significant share from its competitors.

The future of this business is bright, with the [inaudible] market continuing to recover benefits accruing from our PIMS and supply-management activities and a host of opportunities to drive growth.

We expect an exciting 2005 in the enclosures group.

Now I’ll turn it back over to Dave, who’ll address the financial topics.

Thanks, Randy.

Our fourth quarter results cap a year of achievement that began just one year ago with the announcement of plans to strategically reposition the Company and build greater value for shareholders.

I’m proud to say that we more than met our goal -- delivering a total return to shareholders in excess of 90 percent in 2004 -- and positioning Pentair to continue our high level of performance.

These outstanding results reflect successful execution on many levels, including the following.

The transformation of Pentair, which was accomplished in just 8 months, has positioned the Company in higher-growth markets, offering greater profitability and brighter prospects for the long-term.

Today, we have two strong, growing platforms in our water and enclosures businesses, and we are more in control of our destiny.

EPS from continuing operations increased in the fourth quarter by 38 percent, to $0.33 from $0.24 last year.

That resulted in full-year EPS of $1.35 -- up 36 percent over the prior year -- meeting the consensus estimate of our 11 analysts.

All the numbers we report today include WICOR for 5 months of 2004, and the tools group has been discontinued.

We improved the profit potential of our Company, moving margins from 10.4 percent in 2003 to 10.9 percent in 2004.

This improvement was driven by several initiatives that collectively define our idea of operating excellence. [inaudible] enterprise, supply management and talent management among them.

Considering the major transformation of our business that we have completed during the year, our improved profitability ranks high on our list of accomplishments.

We recorded sales growth of 39 percent for the year, or 14 percent on an organic basis -- achieving total revenues of $2.3 billion, or $3.1 billion if you include the discontinued businesses.

This demonstrates the value of the organic growth initiatives that we instituted 2 years ago, and supports our belief that we have positioned the Company for growth in the global water and enclosures markets.

We recorded $215 million of free cash flow.

Higher margins coupled with ongoing improvement in working capital productivity continues to significantly affect our ability to consistently generate positive cash flows.

We reduced our outstanding debt by $70 million during 2004, while completing the largest acquisition in our history.

Today, Pentair debt-to-total capital ratio is 34 percent -- 5 points lower than where it as in late 2003.

Clearly, we have more than adequate financial resources to further expand our water and enclosures businesses.

We announced a dividend rate increase of 18 percent, effective this month, and implemented a 2-for-1 stock split in June of last year.

The dividend increase was the 29th consecutive annual increase that Pentair has delivered to its shareholders.

On top of all that, we concluded the year with a solid fourth quarter, with sales up 61 percent over the same period last year.

Organic sales in the fourth quarter grew 10 percent, excluding acquisitions and favorable foreign currency exchange.

Further adjusting for the 3 fewer days in the fourth quarter, organic sales was up 15 percent.

Operating income from continuing operations for the fourth quarter was up 47 percent, excluding acquisitions and the $5 million of one-time water group consolidation and integration costs.

Operating income increased approximately 20 percent in the fourth quarter.

EPS in the fourth quarter increased 38 percent over those of the same period last year.

Returning to the subject of cash flow for the moment.

It should be noted that the $215 million includes the sale of $22 million of receivables, in order to reduce the risk of accounts receivable concentration on the balance sheet.

With the acquisition of WICOR, we have increased our credit exposure with several customers.

The costs of credit insurance and the discount on the sale of the receivables together were about the same rate as our average borrowing costs.

This additional cash flow was primarily offset by normal build in working capital of the tools business, which was paid for by Black & Decker as part of the purchase price.

Cash flow as also adversely affected by integration costs related to the WICOR acquisition, and selective inventory build to support our customers during the move of product lines to other facilities.

Our 12-month average EBIT ROIC was 14.7 percent at the end of the fourth quarter -- a 60 basis point improvement since the beginning of the year.

We are continuing to see the impact of margin improvement in our return on invested capital, and also cash flow.

The acquisition growth in water is raising our working capital base.

But we expect to take some $40 million out of this working capital over the next 2 years, as we institute our lean practices -- bringing our new water group to its traditional high levels of performance.

Our gross profit margin in the fourth quarter increased 10 basis points from the fourth quarter of last year, and is up 150 basis points for the full year -- reflecting good cost leverage from our sales growth.

As Randy mentioned, with the inclusion of WICOR as of August 2004, we expected our water operating income margins for the rest of the year to be lower, by roughly 200 basis points, compared to the prior year.

In fact, the recorded margins were down in water by 230 basis points.

But if you exclude the impact of the inventory accounting adjustments and the integration expenses, the WICOR margins in the last half were only down 120 basis points.

The gap will narrow as benefits begin to read out.

SG&A costs were up 100 basis points in the fourth quarter, and 110 basis points for the full year versus last year, due to integration costs, selling expenses, and investments made to support growth.

And the additional expenses required for corporate governance.

Interest expense for the fourth quarter of 2004 was higher by $3.1 million, compared to last year.

This was primarily due to the [Bridgeland] fees and higher debt levels of the continuing operations, and higher interest rates versus the prior year four quarter.

Great cash flow generation in 2004 reduced debt, so that even with the acquisition of WICOR, our debt at the end of 2004 was $70 million lower than at the end of 2003.

As a result, our debt-to-total capital ratio, which ended the year at 34 percent, was down from the 39 percent last year.

Our continued generation of cash flow has allowed us to grow through acquisition, while maintaining our desired capital structure.

The 34 percent ratio was well below the target level of 40 percent, plus supporting dividends, seasonal fluctuations and working capital, a 14 percent organic increase in sales, and 7 acquisitions over the last 3 years.

The full-year 2004 effective income tax rate of 34.8 percent is 300 basis points higher than the 31.8 percent rate last year.

The higher rate is due to several factors, which include our increased level of profit, the anticipated higher level and mix of our 2004 US and foreign earnings, a higher rate of tax on the WICOR businesses, the discontinued status of Tool, and the fact that many of our tax-savings programs are relatively fixed.

Based on our current estimates, we expect our overall blended tax rate in 2005 to be 36 percent -- up approximately 120 basis points.

The higher rate stems primarily from the WICOR acquisition.

As a part of our acquisition, and our international strategy, we are pursuing rate-reduction opportunities which could improve our effective tax rate.

We continue to make excellent progress on working capital productivity, which is now 33 days -- down 2 days from this time last year.

The inventory days is measured on a 13-month rolling average -- increased to 62 -- up from 59.

The increase in inventory days is due to the acquisition of WICOR, and gives us opportunity for improvement in 2005.

Receivable days again saw another improvement in the annual average.

Moving in 2004 to 52 -- down from 54 days.

This difference reflects the continued productivity that we’ve seen in receivables management.

We completed the sale of our tools group to Black & Decker in October of 2004 -- netting approximately $775 million.

Our expectation was that the transaction would be relatively neutral in the income statement.

In fact, we reported a small gain on a pretax basis.

But due to the tax structure associated with the sale, we ended with an after-tax loss of $0.07 per share in discontinued operations.

A small amount, compared to the magnitude of the transformation.

Both water and enclosures saw continued year-over-year increases in orders, and ended the year with strong double-digit increases in backlog.

On a final note, we anticipate another $200 million of free cash flow in 2005.

Even while supporting growth in water and enclosures, and raising dividends for the 29th straight year.

Now I’ll turn the conference back to Randy.

Thanks, Dave.

Everyone at Pentair worked hard to deliver on our commitments during 2004.

We’re very excited about the Company we’ve built, and the prospects before us.

Both of our business groups have gained critical mass, and are now ready to accelerate their performance.

As we enter 2005, Pentair will continue to drive value for its shareholders by executing the elements of our value proposition.

That is to be a superior operating company, driving organic and acquired growth, supported by a proven and growing talent base, and boldly managing the Pentair portfolio of businesses.

I consider driving Pentair’s future growth to be a top priority, and we plan to drive it hard.

Consistent with this growth emphasis, I’m pleased to announce that Richard Cathcart has been named Vice Chairman of Pentair.

Rich and I will partner to drive overall growth for our Company.

In addition to his continuing role in water, Rick now has primary responsibility for strategic growth initiatives.

Particularly for international growth and for business development.

That means Rick will drive the overall strategic direction for organic growth and will lead Pentair’s acquisition efforts and drive our growing international sales.

In 2004, our international sale were only 23 percent of total sales.

By 2009, our objective is to increase that proportion to 40 percent of our total sales from international.

This objective is achievable.

Especially now that we have 2 strong businesses -- water and enclosures -- with significant global potential.

We must and we will dramatically accelerate our sales around the world.

Rick is equal to the task.

Rick not only identified water as a growth platform for Pentair -- in just 10 years, he led Pentair’s water business from a startup to a $2 billion global leader.

Last year he led the acquisition and delivered integration of WICOR -- effectively doubling the size of the business.

Throughout these significant transitions, he led an unwavering focus on results.

I’m confident Risk will create even greater success on Pentair’s growth initiatives, through his proven leadership, intellect, integrity and commitment.

Looking ahead to our first quarter results.

We expect first quarter EPS of between $0.35 and $0.38 -- which is at least 25 percent higher than the same period last year.

And for the second quarter 2005, we anticipate EPS of $0.61 to $0.65 -- which is a minimum of 45 percent higher than 2004.

This first-half guidance reflects the new seasonality of the transformed Pentair -- exiting tools and adding WICOR.

In addition, we’re reaffirming our previous guidance for the full year 2005 of $1.95 to $2.10 -- an increase of more than 45 percent over 2004.

Thank you for your attention.

I now would like to ask the operator to come back on the line and provide instructions for the q-and-a session.

Jim Lucas, Janney Montgomery Scott.

A couple of questions.

First on the housekeeping side.

Dave, could you give us the outlook for CapEx and D&A in ’05?

Yes.

We finished this year with roughly $70 million of Amortization and Depreciation, and $43 million of CapEx.

We expect that that D&A with the WICOR businesses coming in should now be roughly $90-92 million.

We expect CapEx next year to be between $60 and 65 million.

From a bigger-picture standpoint, Randy -- could you expand a little bit more on Rick’s role?

You talked in the press release and your prepared remarks about the international focus.

Could you give us a little bit more color of what you’re seeing there?

And when the cash is going to be deployed?

Yes.

As I mentioned, our international sales are only about 23 percent of our total sales.

When you look at any company in our type of business, and you look at the opportunities we have -- that clearly is skewed too much toward North America.

The board and I have been talking for some time about providing clear, stronger leadership for our overall international growth.

That’s one of the key things Rick is going to be involved in.

I think the integration of water’s going very well.

Rick’s demonstrated an incredibly great ability to build businesses, and international is a high priority for us.

I think that we will skew a lot of our acquisition activity outside North America.

That doesn’t mean we’re not going to be looking inside North America.

But we will be making investments overseas.

In fact, one we’ve made already during the negotiation with Black and Decker, we ended up keeping one of our facilities in China that they didn’t need.

So we could consolidate more rapidly our activities into one place.

In fact, Rick’s there today.

I can give you more later on the next conference call about future investments, but I would say you’ll see more of it growing internationally than you’ve seen in the past.

I think 40 percent is a very realistic goal for [inaudible]

Finally, on the enclosures side.

Could you just speak a little bit to the momentum you’re seeing there, and how you feel about the outlook -- both from top line and from a margins standpoint in ’05?

Sure.

The objective that Mike and the team have in enclosures is to drive the business to mid-teens operating income.

As you can see, sequentially we still made improvements in the fourth quarter.

Naturally, as the comparisons get tougher year-over-year, the increases won’t be as high.

But I know the businesses continue to be committed to get to 15 percent.

And I think we’ll get there.

I think that to get there, we’re going to have to see higher margins in our European operations.

Right now, our North American operations are higher in margins, and we’re not yet back to our European margin level we were back in 2000 for Europe.

In terms of the growth rate, I think we can continue to outgrow the market.

Our long-term goal is to be able to grow this business at between 5 and 10 percent or 5 to 8 percent organically.

I think that that’s a reasonable expectation for the business over the next couple years.

I expect we’ll be able to beat that here in 2005, from a growth standpoint.

So, continued margin expansion -- albeit at a slower rate than we’ve seen -- the breathtaking increases of 200 basis points a quarter year-over-year would be tough to keep up.

Solid, 10-ish kind of growth.

Ten percent kind of growth.

I would be surprised if we don’t or if we aren’t able to continue to meet that.

Deane Dray, Goldman Sachs.

Question on the synergies at WICOR.

If we could revisit the expectations, there.

So, so far, all of the focus has been on the cost synergies.

Just step us through the timing of the benefits -- around $30 million.

Then if you could, talk a bit about any expectations around revenue synergies.

Sure.

We didn’t put that much revenue synergies in our outlook.

Although I’ll give you some qualitative sense of those in a second.

Let me start with the cost side.

We’re still committed to the $30 million in the year.

It’s going to come differently.

Commodity costs have increased, so we’re having to push more to recover the increases from price.

We’re still making good progress with our disciplines in supply management, and we are getting some nice savings from certain categories, which are important to us.

I think we’ve mitigated some of the increases, because of the disciplines that we’ve added in some of the commodities -- like metals and motors and the like.

But we’re still committed to that $30 million.

And I’m convinced we’re going to get it.

On the growth side, we didn’t put a lot into our outlook.

But we certainly put a lot in our plan.

For example, we have been able to integrate across our water treatment business -- the former Pentair filtration businesses, and SHURflo and Everpure together -- to go to market with a broader package to serve some new customers.

Nothing to announce yet, but I think it’s a very promising activity in our filtration division.

In the pool business, we think we’re getting some nice synergistic cross-selling from the Sta-Rite and Pentair brand, where we’ve used Pentair product to fill out the Sta-Rite product apps, which were not as broad as Pentair’s.

Then in the pump business, while we have been working on reduction of redundant SKUs, we’re keeping all of our salespeople engaged on selling a broader product line.

And I think we’ve made some headway.

Some losses, but some gains in pump from our reorganization of our pumps sales force.

We saw 11 percent organic growth adjusted for days in the water business, which was a nice step up from the third quarter.

WICOR organic growth wasn’t so great in the quarter, but in the core Pentair business, 11 percent we feel pretty good about.

I think we’re going to keep driving for that.

Our goal there is driving organic growth in water about 8 to 10 percent.

And the biggest risk, and the reason we didn’t count on synergistic growth in our outlook -- was that with a big acquisition, you actually lose sales.

I’m quite pleased from the results in the fourth quarter.

I think there are only a couple places -- maybe about 1 point or 1.15 points of growth, which I think we lost as a result of either actions we took or spillage during integration.

With regard to the organic growth rate numbers -- you said 11 percent.

That was adjusted for the additional days.

Right.

I mean we had 3 fewer days in the fourth quarter, but we had 4 more days in the first quarter.

If you recall, that conference call, we pointed out that our water business only grew… The reported number was 20 percent.

But after adjustment for FX and days, we reported in our script that it was only 15 percent.

We picked up those days and we gave 3 of them back.

The important thing is that if you look across the whole year -- if you look across the whole year, our growth in water was about 11 percent -- which is about the same as we see adjusted-for-days in the fourth quarter.

And that’s not taking credit for FX, which is the way we want to look at it.

So I really felt like it was a solid quarter for growth in water.

I’d like it to be better, so we’re going to keep driving it to be better.

But I think it was a nice step up.

Particularly after the weaker organic growth that we talked about in the third quarter -- which was in the mid-single digits.

Then with regard to visibility -- you’ve given guidance for both the first quarter and the second quarter.

We got a little bit of a flavor of how the seasonality has changed.

But how about on the visibility?

How much of your backlog -- I don’t extends anything into the second quarter.

So can you just talk a bit about the confidence level and the visibility you have to be able to frame a second-quarter earnings guidance?

Yes.

The reason we’ve never… We usually don’t give two quarters out.

The reason we did that was, it is a new Pentair.

I think as a group, the people that follow us have done a pretty good job of re-characterizing the business.

But WICOR is a peak-year business, and was our water business.

It really peaked strong in the second and third quarter.

So we felt like we couldn’t give proper guidance in the first quarter without telling you the proper guidance in the second quarter.

Now we are largely a short-cycle business.

We don’t have huge backlogs.

We look at it more on a momentum basis and an action basis.

We really feel good -- particularly since a big part of the peak is in the pool business in the second quarter.

That drives that peakiness.

And the momentum in our pool business -- both Sta-Rite and Pentair is so strong.

We fell pretty good about that number.

We set that $1.95 to $2.10 number for 2005 back in July, after we announced Black & Decker.

We were really committed to have our first full year not only not be diluted with this change, but actually be accretive.

And we’re still committed to that.

We think we’ve got a good handle on what we’re doing, both on a growth side and on a cost side.

All of the costs of integration are going to be largely behind us, and we should be in all-benefits mode, second, third and fourth quarter.

So I think no, we don’t have a book of business yet for the second half, but we do have some momentum we’re carrying in.

Good.

Then last question.

You’ve had a number of moving parts.

Divested business, discontinued business, integration -- has that brought any issues up with Sarbanes-Oxley?

Any obstacles?

Anything that we should be aware of?

No.

And you know what?

Dave would really like to answer that question.

You know, Dean, we worked hard -- just like a lot of other companies have worked hard -- in terms of making sure that we comply with the Section 404 of the Sarbanes-Oxley Act.

We’re really pleased with all the moving parts that we’ve got.

Obviously WICOR is not expected to comply to that this year, and we’ll be doing that next year, but we’re very, very pleased and very happy to report that at this point in our 2004 closing, both the management of Pentair and our external auditors, Deloitte & Touche, are not aware of any significant deficiencies or material weaknesses in internal controls over our financial reportings.

So I think things have gone very, very well, and it looks like we’re in a pretty good position at this point and time.

Dan Whang, Lehman Brothers.

My first question was regarding the water.

You talked about the $5 million one-time integration cost.

What can we expect, looking out to the next couple quarters and for the full year?

In terms of the integration cost?

Yes.

The integration cost that we had in the fourth quarter was round track, in terms of what we expected.

We’re going to see some additional costs associated with integration as we go through the first half of next year.

I’m not sure exactly the question you’re looking for, now.

I was just trying to get a feel for it for modeling.

Well the $30 million is a net number for the year.

We still have some plants to close, but a lot of those hit the opening balance sheet as opposed to the P&L.

The big hit in the fourth quarter from the $5 million was the fact that we were shutting down a large Pentair facility in Ashland.

And in fact, we had two in Ashland, Ohio.

We folded one into the other and then moved some product lines from the combined facility up to Delevan, Wisconsin.

And we also outsourced some.

That’s why it hit the P&L.

But I think our guidance pretty well captures the numbers.

I expect more readout of integration benefits than any readout of costs in this first quarter.

When we look at it -- Dave talked about the overall 200 basis point difference, which I told you would probably be closer to 250… It turned out to be a 230 basis point decline in the fourth quarter.

We expect that to start reducing, and reducing considerably, in the year-over-year comparisons in water ROS in the first quarter and second quarter.

That’s the way I’d model it.

Just jumping over to enclosures.

Could you perhaps provide a look at the different end-markets, and how they’ve been trending?

Yes.

In terms of the end-market, it’s really pleasing, in fact.

I’d say that the industrial commercial… Commercial’s still coming back.

But the industrial market has been pretty strong.

It was strong right through the fourth quarter, and continues strong in North America.

We’re not that big in industrial in Europe, but I would say that…

We have these growth trees.

I think you’ve seen them, and you’ll see them tomorrow at your show at the Lehman Conference.

But the growth tree is what I’ve been showing.

I’d say that telecom is up a lot.

It’s up a good marketwise over 10 percent.

Our saleswise in telecom markets is up well over 20 percent.

Europe, on the other hand -- Europe general commercial electronics business is really slow.

Asia’s up nicely, albeit at a small base.

We’ve got to get a bigger base over there.

So I would say telecom and datacom are strong.

Security and medical have remained steady for us.

But that for us is a penetration game -- I’m not so much concerned about how the market’s moving as I am penetrating those markets.

But we continue to make good headway there.

My big concern marketwise is in the Europe based business, which is the commercial electronics business.

Is that helpful?

It sure is.

Finally, you talked about the net realization of pricing of 3 percent.

Could you perhaps talk about net of the realization and what the commodity price impact was?

Perhaps by segment, and how it might’ve compared versus the third?

Yes.

The price I’m talking about is year-over-year price, and it was over 3 percent when you blend both businesses in.

In fact, both businesses were over 3 percent for the quarter and the year.

We’re beginning to see more of a readout in commodity pricing.

The way I would characterize it is in the fourth quarter productivity plus price well offset the materials cost inflation.

Materials cost inflation was 4 percent or less.

That’s how I’d characterize it.

Michael Schneider, Robert W. Baird.

I’m wondering if you could give us some color on the growth rates by the components of the water group.

You posted 11 percent organic overall for the water group, but if you could drill down just in the filtration, pumps and pool and spa, that’d be helpful.

We’ll talk about the markets.

The pool market is weak in the fourth quarter.

But as we said in the conference call and in the script, we saw domestic US tool sales stronger than last year.

We talked in the third quarter about the fact that the pool orders and sales can slosh back and forth between quarters.

That’s just something that’s going to continue.

We don’t know how much the strength in the fourth quarter means that we’ll not see as much strength in the first quarter.

But the fact that, say, we think a lot of it is because of the excitement around our new products.

Our cross-selling is helping.

So as we look at our sales and then translate that into markets, we think it was a good, albeit one of the slower quarters.

It was a good quarter.

When we look at filtration, a number of the filtration businesses were quite strong.

There were a couple, for instance, in the retail market, where we lost some SKUs.

We knew we were going to lose those SKUs.

So that dampened down some of the sales in our retail segment of filtration.

But the commercial segment is looking stronger.

Asia.

We continue to make some nice inroads.

In fact, Rick was just touring yesterday an installation of 1,000 homes with Pentair RO and water softeners in them.

It’s amazing how much the opportunities there are very much like the ones we have in other more developed countries.

So we’re trying to take advantage of those.

In the pump business, again, that was kind of a mixed business.

Municipal great order backlog.

Not so great shipping it.

So the municipal business is, I would say a mixed bag, at this point.

Then Europe weakened a lot in the second half of the year.

Europe overall weakened.

I’m obviously concerned.

We know it’s because of the overall economy.

We think economy in terms of the base economy actually shrunk a little bit in the fourth quarter in the markets we serve over there.

However, our sale didn’t.

So we think we picked up a little share in the European market.

What else didn’t I cover, Dave?

Pools, filtration, pumps.

Pump.

We think the pump market’s pretty solid.

Pump is one of the areas where we actually -- those markets where we lost some of the sales I mentioned earlier -- we probably had 1 or 1.5 points of breakage in sales from 2 things. 1 is Franklin taking some product direct that we knew about.

Then some products that during the integration, we just couldn’t ship on time.

So it’s not a big deal, but we have it in focus and we’re managing it pretty well.

In terms of WICOR, it’s like looking at it from the former WICOR businesses, I mentioned earlier I think that the former WICOR businesses’ organic growth wasn’t quite as good.

In fact, it was kind of flat, year-over-year.

That’s sort of a mix of weakness in Southeast Asia, Australia and New Zealand, weakness in Europe and then strength in the pump business -- the pump markets in North America and in our specialty businesses of SHURflo and Hypro.

So that, I think is everything.

Pretty much.

Given that WICOR was organically flat, it implies that basically all of the base businesses were up much more than 11 percent?

No.

The 11 percent is core.

That’s core market growth.

That’s same-store sales.

They were trying to be disciplined about this and stick with, “What we had last year -- how much did it grow?” So the 11 percent -- I wouldn’t say that that means… No.

That’s looking at what was Pentair a year ago and what has that generated this year?

I…

Okay.

So you’ve switched…

I don’t want that to be misconstrued.

So you’ve switched the definition.

Because last quarter we had talked about organic growth of all the businesses.

Well we didn’t switch it.

We kind of did it both ways, and it was confusing.

So our controller who is the keeper of truth helps us come up with going back to the specific disciplines of describing it that way.

You’re right, though.

In the third quarter, WICOR organic growth was stronger than Pentair’s.

Pentair’s was mid-single digits, and WICOR was actually high-single digits.

Do you read anything into WICOR’s deceleration, other than it’s some of these markets that you’ve mentioned?

No, we don’t.

We think that a lot of the cross-selling opportunities that we’re seeing are actually going to fall more into their categories.

And we’re going to lose visibility on this.

Because we’re actually merging these.

We’ve merged some.

The pump business is a good example.

We now have 2 facilities making 4 brands, serving 3 end-markets.

So we’re going to lose some visibility in terms of “What was WICOR and what was not,” but we feel pretty good.

The only market activity that affected them of consequence was the same one that affected us, which is the Franklin Electric announcing that they were going to get into the pump business.

And they’re a supplier to us.

But we think we have that handled.

Do you sense that in the pump business, there was any pre-buy in the fourth quarter ahead of January 1 price increases?

There may have been.

But it’s also been a very wet fourth quarter on the West Coast.

There’s a lot of snow up in the Northeast.

When that melts… I think… I can’t really tell how much is prebuy and how much is getting ready for the inevitable market opportunity.

And in the integration, can you just discuss maybe what the biggest positive surprise has been?

And maybe aside from materials, what the biggest challenge ahs been?

Yes.

The most positive surprise is how fast we’re getting the Reynosa plant built in Mexico.

It’s a real testament to not only the water folks, but the enclosures folks.

Because we’re locating this very near the Hoffman and the Pentair Electronics Packaging facility in Reynosa Mexico, we’ve used their folks.

We’ve used their union negotiations.

We’re using the same union.

We’ve been able to accelerate that.

We’re going to get that plant built in 85 days.

That’s very quick, and a real testament to the combined force of our operating folks, there.

Also, the ability to keep that facility in Suzhou in China, and negotiate with Black & Decker, and being able to move...

We had one business -- one operation of water -- which was already in that factory.

So we were going to have to move that out if they kept it, and it’s carbon block.

It’s not easy to move.

We had another Suzhou facility where we were doing some other activity with tools out of there, and they’ve moved into another facility in China.

In keeping that facility, we were able to consolidate the two Suzhou facilities into one.

Then actually, we’ve sold the Hang Zhou facility that was owned by WICOR.

So we have everybody under one roof, and that’s really good news.

Some other good news, I think, is how well the folks are working together.

And the cross-selling.

It hasn’t really read out yet, but results happen as a result of actions.

And the actions are there and the teamwork is there.

I’m really excited and pleased about it.

So I think those are some of the positive news in the integration.

And the way the people are working together overall, is why all those things are working so well together.

On the negative side, we lost more productivity in the move at Ashland.

In the consolidation.

That was the biggest factory we’ve shut down.

We didn’t get as many people to move from the old factory to the new factory.

So we lost.

We did get late on some shipments.

That is one of the areas where we lost a couple million bucks, maybe, of sales in the quarter.

We’ll get those back.

But I think that was a disappointment, and we’re learning from it.

We were surprised we didn’t get more people to move.

The motor situation and the inflation situation, I think we all talked about.

That’s the bad news.

The good news is the way people are tackling it and treating it with product.

And the last thing is more of an accounting one, which was the fair market value right after the inventories that we had to do in the third quarter.

When we originally set our plans, we didn’t take that into account as fully as we probably should have.

So that’s sort of the bad news.

But I think it’s largely outweighed by all that good news.

Just 2 quantitative things.

Could you tell us -- you had planned on net reducing square footage in water by about 1.5 million -- maybe 2 million square feet.

How much of that has actually been closed?

And then Dave, how much of an inventory write-up is left to run through the P&L?

I’ll take the first one.

On the first one, it’s a little over a 1.5 million square feet we’re closing.

We’re probably 2/3 of the way there.

In terms of those 15 facilities that we’ve either closed or are underway -- so they’re not fully there, yet.

But of the ones we’ve announced.

So we have some more work to do.

But I would say that in general, that’s on-plan or maybe a little ahead of plan.

That’s right.

And we’ve already taken all the inventory write-up, so there’s no more left for that.

Brian Langenberg, Langenberg & Company.

Just one minor question left.

Just walk us through what we can expect for corporate expense on quarterly basis, as best you can eyeball it.

What the big changes will be.

As we go forward?

Yes.

Just for 2005.

Obviously there were a lot of unusual things going on in 2004.

Just kind of walk us through what would be a good expectation, there.

Some of them are usual.

Some of them are actually going to continue.

I think the higher cost of compliance and governance is actually going to continue.

Sorry, David.

That’s fine.

We’re looking at about $10 million per quarter.

$10 million a quarter is normal run rate.

That’s correct.

David Smith, Smith-Barney Research.

Just following that up on the corporate expense.

Even if I back out -- I’m assuming most of the costs may have been in SG&A in the quarter, related to WICOR.

But if I back that out, it still looked a little higher.

Is that kind of indicative of the higher governance cost?

I think you’ve got a couple things.

One is the governance cost that’s in there.

But the other thing is, we are staffing this organization for growth and for additional acquisitions and the whole realm of growth.

So it’s going to be around $7 million.

Could you guys give a bit more sense to segments on orders in backlog?

I know you talked about it briefly, but just a little more color there?

Yes.

We finished the year with pretty strong orders overall, for the fourth quarter.

On a same-store sale basis, we were running an increase over the prior year in the high-single digits.

Pretty close to 10 percent.

That’s overall?

Overall.

Right.

Is one higher than the other, or are they pretty much even?

Enclosure’s a little higher.

It’s a little higher.

Then as far as backlogs go, we generally don’t give out a huge amount of information on the total amount.

But our backlogs are in the double-digits over the prior year.

And we’re looking at something for total backlog in the range of $250 million as we leave the year.

Just again to touch on pricing, briefly.

How many price increases did you have in ’04, and then has there been one or has it been indicated in January?

Dave, there isn’t.

We serve many markets with different product lines.

So I don’t think…

You can’t make that up?

I could sit and count them all up, but I don’t think it’s particularly relevant.

There have been some increases that have been announced that are going to happen in some product lines in the first quarter.

I would say in almost every business, they took one if not more than one price increase last year.

It’s very, very much inaudible].

Our supply management people and our marketing people are getting to know each other in a way they never have before.

Because it really is a team effort.

What we measure our folks on is, “If you can’t get supply and productivity, then pass it on.”

That’s one of the things, when we’ve talked about having two businesses, we have a better control of our destiny.

Having some pricing flexibility is one of the factors, there.

But of course, we’re respectful of the need to be judicious on those price increases.

Randy, then if you kind of look at what’s increasing in costs -- is it kind of 50/50 in terms of oil-related and metals-related?

How does that…?

Again, it’s tough to generalize, and enclosures is metals, as you can imagine.

But in water, it’s motors and resins.

Plastics are actually the bigger issue than metals.

Although they’ve seen some metal inflation, too.

It’s just a mix of the cost of goods sold and the differences between the businesses.

One last thing.

You mentioned how you’re not really going to break up WICOR.

Could you just give us a sense now with WICOR integrated, what the whole water business looks like?

If you could just give us the splits, roughly?

I’m not asking for exact.

In terms of end-markets, I don’t have that right with me.

Do you?

I don’t.

By and large, the pump market is between 35 and 40.

And I think pump is closer to 40.

Filtration and pool markets are about 30 percent of our sales.

Split that way.

30 each?

40 percent pump, filtration 30, pool 30.

Roughly.

Then just to recap -- I don’t know, because things might’ve shifted recently, but enclosures is about 50/55 as I remember on construction?

Yes.

I don’t know if I gave you the… The commercial and industrial together is below 55 percent, now.

Because of the growth in telecom.

Telecom’s actually up to about plus-or-minus 15 percent of our sales.

Datacom and telecom together are about 25 percent.

General electronics remain about 20.

Networking is the difference.

So year-over-year, if you look at it a year ago, commercial industrial was 55 or a little higher percent of our sales.

So that shows a greater growth in the telecom and datacom business over last year.

The last question I’ll ask is -- anything on the acquisitions?

What are you guys looking at?

You did talk about a debt-to-capital at a comfortable 40 percent.

Does that imply we should keep our eyes open for more?

Well, we really do believe that we have two businesses that are well-positioned, strategically.

We are one of the big players in water.

We have a position that’s unique, in terms of our end-market position -- serving components and filtration in the commercial and residential arenas.

As I mentioned earlier, I’m keenly interested in growing internationally.

That doesn’t mean I won’t look at things in North America.

But we’re really keenly interested, and we’re going to stick to the disciplines.

We stick to the disciplines in financials, but also we’ve got to have -- 1 -- clear strategic rationale. 2 -- we’ve got to have a [inaudible] with the way prices are today.

There has to be a really meaningful way for us to create shareholder value.

We have to have a clear integration plan, and we have to have a team that can do it.

Dave mentioned earlier, we’re investing for growth.

We are investing in business development.

We’re investing in our integration capability.

We are institutionalizing that, which we organized.

We already had it, but we organized it to go after WICOR.

So we intend to use that capability.

But we’re going to stay disciplined.

One thing nice about having enough critical mass is neither business has to make acquisition, but both businesses are in a great position to make acquisition.

That’s the way we think about it.

Again, more in the space that we’re already in -- in the filtration -- pump systems -- pool -- and also in enclosures, for the first time, we’re looking.

We have, I think, the best team in enclosures in the world.

There’s a number of related areas that make a lot of sense for us to help build the capability and unleash that team on.

I don’t think I want to be any more specific about things we’re looking at.

You have to look at 50, there, at once.

That’s very helpful.

Thank you.

Debra Coy, Sanford Washington Research Group.

Thank you.

I know it’s been a long call, but just to kind of follow up on the organic growth outlook.

It’s kind of confusing, I guess, trying to sort out all the different pieces, and WICOR’s up and then down and the varying segments.

Can you give some sense of how it looks to you at this point across your 3 main end-markets for ’05?

Because certainly, the combined organic growth rate with WICOR this quarter is significantly below your 8-10 percent target.

Right.

We remain committed to the 8-10 percent.

I think 8-10 percent is a reasonable expectation for the year.

And where does that come from?

I think pools is the higher end of that and pumps is at the lower end.

Our filtration, we’ve got to overcome the SKUs we lost in the retail segment.

Not SKUs that were upset -- we lost, by the way.

But based on the profitability of it.

We have to overcome that.

But I think filtration is one of the areas where we’ve got some really meaningful cross-selling opportunities that bode well.

So that’s about as far as I want to go, in terms of giving the outlook.

When I look at the 11 percent base that we reported of organic growth, that’s pretty favorable versus any of the peers I follow.

It is.

But if you blend in the WICOR, then what you’d see is a worse number for Europe organic growth.

You’d see a reasonable number for North America, and then a reasonable number in North Asia.

But down in Australia and New Zealand, not a good number.

So it’s clearly varying from quarter-to-quarter.

Yes.

Because WICOR was up a lot in 3Q.

It was.

And the big fall off there was in the businesses that I mentioned.

I mean Europe was better in the fourth quarter.

And then we had some real, real strength in a couple of specialty businesses in the third quarter.

Which remained strong, but not as strong.

So, some quarterly volatility, but comparable with the 8-10 percent for the year.

Fair enough?

Yes.

That’s our goal.

Then just two quick follow-ups on that. 1 -- Do you feel that at this point, you have your -- since pool and spa will hopefully be the driver for the year, do you feel like you have the distribution channel and the product line sorted out?

I mean you must just be getting ready to start into the height of the ’05 season.

Do you feel like everything’s kind of ready to go?

We do.

I’d say on a scale of 1-10 in terms of whether -- like 1 being a problem with distribution, and distribution turmoil from the combination of STA-Rite and Pentair and 10 being absolutely wonderful, I think it’s about an 8.

I think that the pool team has done a great job of communicating the combined offerings.

We had a lot of excitement at the last pool show from a lot of distributors.

Our largest distributor are with us on the strategy.

I think we’re really in good shape.

We’ve got a lot of momentum in that business.

My final question has to do with what you’re seeing in the filtration business, as well.

You said you’ve lost some SKUs.

Clearly there’s some competition, there.

I guess since you had set up this strategy of being the largest player in the commercial-residential market by far, can you tell us what your percent of overall revenues is in commercial-residential versus industrial and municipal and so on?

Well I mean we’re still…

And where you’re seeing competition on the filtration side?

We’re still about 80 percent overall in water commercial and industrial.

When I get a more precise number after we really drill in, we’ll update that.

And commercial residential is the largest portion of the 80 percent?

Well, commercial and residential is the 80 percent.

We’re…

Not including industrial?

No.

Not including industrial.

Industrial’s about 10 and municipal’s about 10.

And that’s globally, actually.

Yes.

Even our business in China and Europe is the same.

And I would say that we’ve suffered more to the competition in the retail residential side.

Not the residential side, but the retail channels in residential.

That’s where we [inaudible] and others…

And others are doing that now, as well.

Yes.

Exactly.

You’re clearly the leader in pool and spa, in terms of the size of your market share.

And I would think that you’re seeing more competition in the filtration and pumps market.

Is that fair?

Yes.

Absolutely.

On the filtration side.

The commercial side, it’s more of an application game.

I feel good about our momentum there, and I think that will continue.

Again, that’s where we’re putting a lot of our efforts, in terms of bundling our products differently, and the unique value propositions.

Again, it hasn’t hit our sales yet, but I have great expectations for that.

Pump was actually where we had most of the bad news.

Sales was the place where we were looking for most of the synergies in WICOR.

That’s where we had the most overlap, but it’s where we had the Franklin announcement.

That’s where we had the most inflation.

And the water team is doing a heckuva job.

A really good job.

The pump team is doing a really good job of handling that bad news and coming out swinging with more action.

I would say that the Franklin situation is manageable, but it was not expected.

And the consolidation in the motor business is giving the motor guys more power than they’ve had in the past.

So that was not expected, either.

John Quealy, Adams, Harkness & Hill.

A couple quick questions on the cross-selling side.

Randy, can you talk a little bit about your sales force, and are they completely cross-trained?

Are they calling on new customers or SKUs?

Could you give us a little bit more detail on what they’ve gone through on the training side and what we can look forward to?

I really can’t go through, because again, there’s not a general comment.

We’ve done a lot on the pool -- the pool sales forces have gotten together.

I mentioned they filled out the Sta-Rite line with products they don’t have.

Like controls and lighting.

They [had, but] weren’t as strong as the Pentair line.

They’ve been trained on how to sell it, and they’re [going].

On the filtration side, it’s not so much training as it is cross for what used to be separate businesses forming cross teams who bring the expertise of an Everpure or a SHURflo or a [inaudible].

You bring all that to one team and integrate that for the customer.

That’s more of an applications package to sell.

Then on the pump side, the rationalization of sales force there has been against the customers -- to make it more efficient for customers.

So it’s a little bit different for each one.

But all of the businesses are taking it very seriously and they’re doing what they need, to develop their competency to cross-sell.

I know it’s tough to comment in general, but in terms of the customers and the sales force interactions, is it a case where the sales person is calling the customer and saying, “I can offer you 3 or 4 different SKUs that I couldn’t offer before?” Or is it the case of actually calling brand new customers?

What’s generally done?

It’s generally category 1.

Then we’ve got to get to category 2.

I still think there’s a lot of customers that we could serve better.

But the quick opportunity is category 1.

Bigger baskets.

Giving everyone a bigger basket.

And the final two questions, real quick.

In terms of debt pay down expectations for ’05.

Could you folks comment on that, at all?

Well, we will continue to pay down debt with our cash flow.

As I said, we expect about $200 million in cash flow.

If you subtract off the dividends from that, we hope to have some good, strong working capital improvements -- especially on the WICOR side, to contribute.

Our expectation is that until we find another use for the money, that we will continue to pay down debt.

Then the last question.

I know it’s probably a modest amount, but in terms of top and bottom line impacts from the weak dollar -- can you comment on what that added to the ’04 numbers, and what your expectations are for the rate environment for your budgeting for ’05?

Well in terms of the FX impact, we’re looking at the bottom line impact for the total year -- the total year this year was a little less than last year.

Probably somewhere in the range of about a little over $2 million.

It was almost double that last year.

I think you asked what was the…

This is the [oil one].

Yes.

The [oil line].

You asked what our expectation was for this year?

Yes.

That’s correct.

It’s hard to imagine that the dollar is going to get weaker.

But I would think that as it has gotten weaker, the decline -- the falloff -- should be less each year.

But we’ll just have to wait and see.

Ned Armstrong, Friedman, Billings, Ramsey.

With respect to WICOR.

You had mentioned in past calls that they possess some marketing skills that you found desirable.

Have you been able to in a large degree apply some of those skills to some of the projects that you’re working on?

If so, could you give an example?

Yes.

And yes, we have.

If you look in pumps, for instance, the leader of the retail sales force of pump and marketing team there are the former light ware team.

In filtration, some of the new product applications we’re putting in filtration -- forget about what brand it goes under -- it’s the former SHURflo folks that are brought back to the table and doing the marketing and product development.

Those are a couple of the examples.

I think we’re pretty pleased with what we’ve seen.

So the benefits have really been more from how the product is brought to the customers?

Or has it been more on the product development side?

It’s probably more going to the customer, at this point.

But again, we haven’t had a huge readout yet of these.

We’re taking the actions.

The promise is good, but the fourth quarter didn’t really reflect a heckuva lot, yet.

We’ll see how the results go, but I’m liking what I see, so far.

Then with regard to acquisitions on the water side.

You’re pretty far along on WICOR, it appears.

Is there any limitation to the size of an opportunity that you might entertain, if one were to surface in the very near future?

I guess no.

I can’t deal with that in the abstract.

It would depend.

We’re not looking at anything right now that I wouldn’t call a vote on -- if I could leave it at that.

But that doesn’t mean that we wouldn’t look at something if it came along.

We believe we built a really fine team [inaudible], and I’ve got a lot of faith in that team.

I think we have time for maybe one.

How many questions are left, Operator?

Currently, we have six, sir.

Six.

Okay.

Well, try to go fast.

I’ve got a plane.

Curt Woodworth with JP Morgan.

Two quick questions.

First, on WICOR.

Can you tell us if you look at it sort of stand-alone, what the sales for ’04 were out of WICOR?

No.

We’re not going to give that out.

I told you.

You can go back and look at WICOR or Wisconsin Energy’s numbers, and see they had sales of a little less than $180 million, I think, in 2003.

And I told you that we didn’t get much organic growth, there.

You talked about the evolution of your sales mix toward more international.

Can you also talk within product lines, in terms of maybe specifically the water group?

Do you want to grow specifically more infiltration, pool and spa?

Or is it purely the opportunity that comes your way?

Do you have any sort of strategy?

We do have a strategic preference.

When we set the strategy for water, most recently 4 years ago, we said we wanted to grow in filtration.

We had a very modest position in filtration.

Now some 30 percent of our sales go into that market.

So I’d say that we continue to be interested in filtration.

They’re also the most expensive things out there, so we’re pragmatic about that.

The pool business is one we think has great fundamentals.

But let me back up and just say all three businesses, we think we have growth prospects in.

But if I rank order them, it’d probably be filtration, pool, pump.

But we like them all.

And international for all three of them.

In terms of EBIT contribution, you broke it out at 30/30/40.

Can you just tell us what the EBIT mix is among the three segments in water?

Well, they’re not segments.

Or groups?

They’re not segments.

They’re three different end-markets.

We have cross-selling among groups, there.

I don’t want to make it sound messy.

It’s managed very well.

Yes, we’ve talked before about filtration and what we said before is the filtration markets, we think, are higher than the average.

Our goal was 15.

We think filtration could be plus 1 or 2 above that.

Pools could be there or above that.

Pump is 1 or 2 below that.

I think we still feel that way.

It’s what the markets can yield.

Dana Walker, Kalmar Investments.

I have a list of 23 questions, but I may just ask 3 of them.

Thank you, Dana.

If it takes, by my reckoning, $50-60 million of profit benefits -- operating profit benefits -- to take WICOR’s revenue stream to the 15 percent type operating margin goal, if you get 30-plus net in Year 1, in what timeframe would you expect to see the 50-60?

What we said is we’d like to be at that exit rate.

We’d like to be at the 15 percent on an exit rate basis for 2006.

So our goal is to have it get there in a couple of years.

Yes.

That’s right.

A couple years [inaudible] if possible.

So we’re still committed to that.

Yes.

So what’s agreed, when you talk about real estate footage closings, is it dependent on identifying the other third?

Or is it more abstruse than that?

No, it’s quite clear.

We already have the whole bucket.

If you want to call it 50, that’s your number.

But we already have all of the action.

It’s how quickly it reads out.

So we don’t have to find the other third, if you want to call it that.

It’s getting a full year’s benefit and getting the productivity of the plant up to the level that we can, getting our current events system and our management practices in place.

Fully -- to get us there.

I’m happy to say we have a rich action list.

When something falls off the action list, we come up with another one.

Like for instance on the supply management side.

Where the commodity prices have led us to change that plan a little bit.

You mentioned how you were pleased with your price realization in Q4.

Do you have the opportunity to be pleased with price realization in prior WICOR product lines?

Yes.

We’ve raised prior WICOR product lines, as well.

And that total number is kind of a blended number of both.

It was not an organic number.

It’s price on such as we can measure it, from the year before.

Which we can measure pretty well.

And we’re unifying our pricing strategies across our product lines, now that we have them all.

Is commodity cost recaptured, though, slower with the WICOR product lines than it is with the Pentair?

No.

We believe that one of the reasons WICOR came in on a little lower level of profitability than we had thought was because they hadn’t taken any pricing action to speak of in the first half of the year, last year.

So the amount of inflation dampened their margins, some.

So we have as much pricing flexibility on those, really on an end-market basis as opposed to a…

Right.

We just got a little later start with those products than we did with our own.

Yes.

We’ll probably feel a little more of the impact readout next year with the WICOR.

Final question.

In what timeframe -- either Randy or Dave -- would you expect to see more sustained revenue synergy from [knitting in] WICOR?

Is it the second half of ’05?

Is it…?

I would expect to see some meaningful results in the second quarter.

Alan Mitrani, Copper Beech Capital Management.

You guys have answered a lot.

I appreciate the time you spend.

Quick question.

Waterpik seems to be on the block.

There’s been some talk about it.

Their stock I see is at a high, but a lot of the cross… It seems to have been an undermanaged business for a while, and there seems to be a lot of crossover.

Can you talk about your appetite for getting bigger in pool and spa and other areas?

Yes.

I can talk about our appetite.

As I mentioned, we do like the pool business.

Our appetite for acquisitions in water is, I would say, hearty.

But I can’t comment on any specific company.

Also, could you maybe rank-order to some degree… I know you’re very good with capital allocation.

But your stock is also at an all-time high.

I realize you have gotten some multiple expansion now that you’ve shifted more to a water-centric versus tool-centric company.

Although it seems like you think there’s a bit more upside over time.

But can you talk about an acquisition given where your debt-to-cap is?

Are you still more of a cash buyer of businesses?

Or do you think over time, depending on the size, you may use cash on stock?

I think it’s obvious that with the price of our stock where it is today, the currency becomes a lot more palatable in terms of using it for acquisitions.

However, as long as we can generate cash buying companies, the acquisitions are more favorable when it’s on a cash basis.

So we will probably tend toward that.

However, if there’s a situation that exists where the owner would specifically like to have stock, then I think we’re in a position where we can probably do that.

Also, I may have missed it, but Rick -- is someone taking over Rick’s role as the head of water business?

No.

Rick continues as the head of water.

We’ve got a great team there in water.

And so much of the opportunity in water from the growth side is outside North America.

This is just logical.

It’s good recognition for a job well done, and Rick is great at building things.

And we need to build international.

And on the enclosures side -- telco and data kind of sounds like things are heating up there.

Can you give us a sense of where you think that’ll grow for the next year?

What’s driving the growth?

Is it the RBOC deployment of fiber to the premise?

Or can you talk about that a bit?

And also, are the margins higher in telco and datacom than it is in the rest within enclosures?

No.

Margins are not higher in telecom.

The markets -- industrial and commercial are probably the most profitable.

Generally [priced] in the middle and telecom and datacom are on the bottom.

What’s driving our telecom business is a couple things.

One is there is continued investment in wireless.

What we do is we make cabinets go into pay stations.

That’s really our…

Mostly for wireless pay stations.

Well, the example I used for British Telecom is actually wire line.

I think that they’re continuing to put in pay stations to terminate fiber optics, as they raise capacity.

I think part of it is the internet.

I think definitely part of it is the internet.

So it think it’s the internet and it’s wireless that they’re thinking about.

You don’t see the fiber to the premises as an opportunity?

It seems like all the other…

Well, we do.

When I say “terminating fiber,” most of the fiber laid is not addressable, because they never terminated it properly with the pay stations.

So they can actually… And that’s what I mean when I say, “terminating the fiber.” That’s on the cabinet side.

There’s the fiber to the home.

What are they going to use on the outside of the home?

That’s something that is an opportunity that we’re looking at.

It’s unclear exactly which type of enclosure could be used there.

One of the other things that’s driving us is the fact that there’s a rationality that’s returned to the market.

And people are focusing on what they’re good at.

I mentioned that we secured a relationship with a big contract manufacturer in the telecom world, where we’ll be their provider of cabinets and other metal products that we provide.

We think we’re gaining share in that because we’re really good at it.

We’re cost-effective and we do a good job on quality and service.

So we think that’s another key driver that’s going to help us, going forward.

Peggy [Porcillo] of Iridian.

I just want to go back to the FX question.

Can you talk about what the impact was on the enclosures’ top line?

On the enclosures’ top line?

Top line.

Yes.

For the full year, it was roughly $16 million.

So a question there is that sequentially, that growth is not very big.

Especially in the fourth quarter.

And as I look through the year.

I don’t know if there’s any seasonality in the business.

I didn’t think there was.

Can you talk about that a little bit?

No. [inaudible] seasonality as we’re sort of catching up to the former comps.

That’s why I said earlier that I think having them in the more 8-10 kind of range for the year this year would be good performance for enclosures.

I think they could beat that.

But to continue to grow at 20 percent would mean that the industrial and commercial business… I think commercial could come back this year.

That would be an up.

Because commercial construction really hasn’t been that good.

And some outlooks for the construction -- commercial construction are pretty good.

So that could be a nice up tick for them.

But I just don’t think it’s prudent to plan them to continue to grow at 20-25 percent.

And then WICOR -- actually -- the increase on your depreciation and amortization -- is a lot of that amortization in WICOR?

That’s correct.

Let me go back to the former question, where you said you’d like the water margins exiting 2006 to be at 15 percent.

That was just WICOR or that was overall?

Overall at the end of 2006.

Right.

How much margin headwind did WICOR basically have from amortization?

Can WICOR really ever be as high as Pentair?

Yes.

Most amortization under the new rules -- most goodwill doesn’t get amortized.

So it’s only the intangibles.

The costs attributed to the intangibles.

So most of the goodwill on the books for WICOR won’t be a drag on that.

Do you have that number, what the intangibles and amortization will be?

We do not.

Kevin Collins, Fred Alger.

I wanted to ask you if there was any differential in selling days during the 1Q ’05 versus 1Q ’04.

We’re on a 4/4/5 calendar.

Like a lot of companies.

It’s sort of like the leap year’s when you get hit with that.

So it’s every 4 years.

So we don’t have to talk about days going forward, I don’t think.

We will have in the…comparison from ’04 to ’05.

1 day.

1 day.

1 day.

Yes.

On a year-to-day basis.

Or on a 30-day basis, it’s 1 day.

It’s a leap year.

It impacted the first and the fourth quarter.

And then they’re the same period [inaudible]

The fourth quarter $5 million figure that you mentioned -- is that a net of all the costs and saves associated with WICOR?

Or is it…?

No.

That was hitting the P&L on the pump business.

And some of that is in some of the other -- the pump factories that we’re closing out.

So primarily Ashland?

That’s the biggest piece of that.

But there was also some other integration costs, and that sort of lumps it all together.

Your EPS range that you’ve given for the 1Q -- what sort of net cost benefit for total WICOR -- what does that incorporate?

That’s very difficult to basically determine that.

You’ve also got to remember -- productivity improvements that are occurring throughout our core businesses, too.

It really reflects the change from first quarter to second quarter.

It really reflects seasonality.

And a greater readout of integration benefits, as opposed to a reduction in integration costs.

Then you mentioned a 180 figure for 4Q ’03 on WICOR sales.

I was just hoping you could help me out with 1Q ’04 sales for WICOR.

I don’t have that off the top of my head.

Michael Schneider, Robert W. Baird.

Quick, I promise.

The organic growth, then, was 11 percent for the quarter in the water group.

Right.

Adjusted for days.

Adjusted for days.

Am I right to assume that pool and spa was probably significantly above that and pumps and filtration were probably in the mid-single digits?

That’d be fair.

At this time there are no further questions.

Thank you very much.

Thanks for your attention and your interest.

Please give directions for the call, and we’re out.