UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2001

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-11625

Pentair, Inc.

(Exact name of Registrant as specified in its charter)

Minnesota	41-0907434
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification number)
1500 County Road B2 West, Suite 400, St. Paul, Minnesota	55113
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (651) 636-7920

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

On April 27, 2001, 49,021,499 shares of the Registrant’s common stock were outstanding.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		Condensed Consolidated Statements of Income (Unaudited)
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Cash Flows (Unaudited)
		Notes to Condensed Consolidated Financial Statements (unaudited)
	ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II OTHER INFORMATION
	ITEM 1. Legal Proceedings
	ITEM 4. Submission of Matters to a Vote of Security Holders
	ITEM 6. Exhibits and Reports on Form 8-K
	SIGNATURES

Pentair, Inc. and Subsidiaries

Part I Financial Information		Page
Item 1.	Financial Statements
	Condensed Consolidated Statements of Income for the three months ended March 31, 2001 and April 1, 2000		3
	Condensed Consolidated Balance Sheets as of March 31, 2001, December 31, 2000, and April 1, 2000		4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and April 1, 2000		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		13
Part II Other Information
Item 1.	Legal Proceedings		14
Item 4	Submission of Matters to a Vote of Security Holders		14
Item 6.	Exhibits and Reports on Form 8-K		14
Signatures			15

2

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)

	Three months ended
	March 31		April 1
In thousands, except per-share data	2001		2000
Net sales	$	671,383	$	647,691
Cost of goods sold		507,396		467,789
Gross profit		163,987		179,902
Selling, general and administrative		103,392		101,000
Research and development		7,739		8,618
Restructuring charge (income)		—		(2,468	)
Operating income		52,856		72,752
Net interest expense		17,716		18,948
Other expense		2,500		—
Income from continuing operations before income taxes		32,640		53,804
Provision for income taxes		12,077		20,163
Income from continuing operations		20,563		33,641
Loss from discontinued operations, net of tax		—		(975	)
Cumulative effect of accounting change, net of tax		—		(1,222	)
Net income	$	20,563	$	31,444
Earnings per common share
Basic
Continuing operations	$	0.42	$	0.69
Loss from discontinued operations		—		(0.02	)
Cumulative effect of accounting change		—		(0.02	)
Basic earnings per common share	$	0.42	$	0.65
Diluted
Continuing operations	$	0.42	$	0.69
Loss from discontinued operations		—		(0.02	)
Cumulative effect of accounting change		—		(0.02	)
Diluted earnings per common share	$	0.42	$	0.65
Weighted average common shares outstanding
Basic		49,006		48,454
Diluted		49,127		48,575
Cash dividends declared per common share	$	0.17	$	0.16

See accompanying notes to condensed consolidated financial statements.

3

Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

			March 31			December 31			April 1
			2001			2000			2000
In thousands, except per-share data			(Unaudited)						(Unaudited)
Assets
Current assets
Cash and cash equivalents			$	33,003		$	34,944		$	38,898
Accounts and notes receivable, net				508,344			468,081			578,678
Inventories				383,194			392,495			398,259
Deferred income taxes				73,252			72,577			50,414
Prepaid expenses and other current assets				21,295			22,442			17,816
Net assets of discontinued operations				106,633			101,263			156,046
	Total current assets			1,125,721			1,091,802			1,240,111
Property, plant and equipment, net				346,820			352,984			354,144
Other assets
Goodwill, net				1,132,070			1,141,102			1,147,762
Other				66,373			58,137			49,486
		Total other assets		1,198,443			1,199,239			1,197,248
		Total assets	$	2,670,984		$	2,644,025		$	2,791,503
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings			$	170,111		$	108,141		$	285,625
Current maturities of long-term debt				24,569			23,999			26,414
Accounts and notes payable				224,293			250,088			184,197
Employee compensation and benefits				66,330			84,197			80,473
Accrued product claims and warranties				41,483			42,189			41,641
Income taxes				11,888			5,487			25,549
Other current liabilities				124,281			134,691			112,393
		Total current liabilities		662,955			648,792			756,292
Long-term debt				782,173			781,834			858,662
Pension and other retirement compensation				61,141			59,313			56,995
Postretirement medical and other benefits				34,103			34,213			33,523
Deferred income taxes				36,702			37,133			6,240
Other noncurrent liabilities				70,475			72,149			69,496
		Total liabilities		1,647,549			1,633,434			1,781,208
Commitments and contingencies
Shareholders’ equity
Preferred shares				—			—			—
Common shares — par value $0.16 2/3; 49,020,742, 48,711,955 and 48,485,029 shares issued and outstanding, respectively				8,170			8,119			8,081
Additional paid-in capital				475,520			468,425			461,358
Retained earnings				580,318			568,084			567,927
Unearned restricted stock compensation				(13,310	)		(7,285	)		(6,109	)
Accumulated other comprehensive loss				(27,263	)		(26,752	)		(20,962	)
		Total shareholders’ equity		1,023,435			1,010,591			1,010,295
		Total liabilities and shareholders’ equity	$	2,670,984		$	2,644,025		$	2,791,503

See accompanying notes to condensed consolidated financial statements.

4

Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)

				Three months ended
				March 31			April 1
In thousands				2001			2000
Operating activities
Net income				$	20,563		$	31,444
Depreciation					16,854			16,764
Amortization					9,884			10,188
Deferred income taxes					(880	)		871
Restructuring charge (income)					—			(2,468	)
Other expense, write-off of investment					2,500			—
Cumulative effect of accounting change					—			1,222
Changes in assets and liabilities, net of effects of business acquisitions
	Accounts and notes receivable				(45,435	)		(89,164	)
	Inventories				6,616			(42,649	)
	Prepaid expenses and other current assets				(934	)		(5,190	)
	Accounts payable				(22,867	)		(34,729	)
	Employee compensation and benefits				(17,098	)		(14,859	)
	Accrued product claims and warranties				(552	)		(4,751	)
	Income taxes				6,791			10,379
	Other current liabilities				(3,163	)		(4,355	)
	Pension and post-retirement benefits				3,333			1,195
	Other assets and liabilities				(5,815	)		(13,676	)
		Net cash used for continuing operations			(30,203	)		(139,778	)
		Net cash used for discontinued operations			(9,894	)		(11,354	)
			Net cash used for operating activities		(40,097	)		(151,132	)
Investing activities
Capital expenditures					(12,859	)		(10,779	)
Acquisitions, net of cash acquired					(6,937	)		—
			Net cash used for investing activities		(19,796	)		(10,779	)
Financing activities
Net short-term borrowings					62,016			135,013
Proceeds from long-term debt					2,413			4,162
Repayment of long-term debt					(1,189	)		(2,545	)
Proceeds from exercise of stock options					251			527
Dividends paid					(8,331	)		(7,754	)
			Net cash provided by financing activities		55,160			129,403
Effect of exchange rate changes on cash					2,792			8,391
Change in cash and cash equivalents					(1,941	)		(24,117	)
Cash and cash equivalents, beginning of period					34,944			63,015
Cash and cash equivalents, end of period				$	33,003		$	38,898

See accompanying notes to condensed consolidated financial statements.

5

Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited)

1.   Basis of Presentation and Responsibility for Interim Financial Statements

We prepared the unaudited condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States can be condensed or omitted. We made certain reclassifications to the 2000 condensed consolidated financial statements to conform to the 2001 presentation.

We are responsible for the unaudited financial statements included in this document. The financial statements include all normal recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read our consolidated financial statements and notes thereto which are included in our 2000 Annual Report on Form 
10-K.

Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year.

2.   Cumulative Effect of Change in Accounting Principle

In December 1999, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), which among other guidance, clarified the Staff’s views on various revenue recognition and reporting matters.

In the fourth quarter of 2000, we changed our method of accounting for certain sales transactions to comply with SAB 101. As a result of this change, we reported a change in accounting principle in accordance with APB Opinion No. 20 (APB 20), Accounting Changes, by a cumulative effect adjustment. Because we are a calendar year entity that adopted SAB 101 in the fourth quarter of 2000, the cumulative effect of the change was included in the first quarter of 2000 pursuant to APB 20, which requires that the change be made as of the beginning of the year (January 1, 2000) and that the financial information for pre-change interim periods be restated by applying SAB 101 to those periods. Accordingly, the results for the first quarter of 2000 have been restated pursuant to the adoption of SAB 101.

3.   Comprehensive Income

Comprehensive income and its components, net of tax, are as follows:

	Three months ended
	March 31			April 1
In thousands	2001			2000
Net income	$	20,563		$	31,444
Changes in cumulative translation adjustment		(7,519	)		(5,363	)
Changes in market value of derivative financial instruments classified as cash flow hedges		717			—
Unrealized loss from marketable securities classified as available for sale		(449	)		—
Cumulative effect of accounting change		6,739			—
Comprehensive income	$	20,051		$	26,081

Effective January 1, 2001, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended. These standards require us to recognize all derivatives as either assets or liabilities at fair value in our balance sheet. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the hedged item is recognized in earnings. If the derivative is designated and is effective as a cash-flow hedge, changes in the fair value of the derivative is recorded in other comprehensive income (OCI) and is recognized in the consolidated statements of income when the hedged item affects earnings. SFAS 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that is not designated as or does not qualify as a hedge, changes in fair value are reported in earnings immediately.

The adoption of SFAS 133 on January 1, 2001, resulted in an increase to other assets and other noncurrent liabilities of $7.5 million and $0.8 million, respectively, and a cumulative transition adjustment of $6.7 million in OCI. The transition adjustment relates to our hedging activities through December 31, 2000. Prior to the adoption of SFAS 133, financial instruments designated as cash-flow hedges were not recorded in the financial statements, but cash flows from such contracts were recorded as adjustments to earnings as the hedged items effected earnings.

6

Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited) — (continued)

4.   Earnings Per Common Share

Basic and diluted earnings per share were calculated using the following:

	Three months ended
	March 31		April 1
In thousands, except per-share data	2001		2000
Earnings per common share — basic
Income from continuing operations — basic	$	20,563	$	33,641
Loss from discontinued operations — basic		—		(975	)
Cumulative effect of accounting change — basic		—		(1,222	)
Income available to common shareholders — basic	$	20,563	$	31,444
Continuing operations	$	0.42	$	0.69
Loss from discontinued operations		—		(0.02	)
Cumulative effect of accounting change		—		(0.02	)
Earnings per common share — basic	$	0.42	$	0.65
Earnings per common share — diluted
Income from continuing operations — diluted	$	20,563	$	33,641
Loss from discontinued operations — diluted		—		(975	)
Cumulative effect of accounting change — diluted		—		(1,222	)
Income available to common shareholders — diluted	$	20,563	$	31,444
Continuing operations	$	0.42	$	0.69
Loss from discontinued operations		—		(0.02	)
Cumulative effect of accounting change		—		(0.02	)
Earnings per common share — diluted	$	0.42	$	0.65
Weighted average common shares outstanding — basic		49,006		48,454
Dilutive impact of stock options and restricted stock		121		121
Weighted average common shares outstanding — diluted		49,127		48,575

The computations of diluted earnings per share do not include 1.7 million and 0.5 million stock options with exercise prices greater than the average market price of the common shares for the first quarter of 2001 and 2000, respectively, as the results would have been anti-dilutive.

5.   Inventories

Inventories were comprised of:

	March 31		December 31		April 1
	2001		2000		2000
In thousands	(Unaudited)				(Unaudited)
Raw materials and supplies	$	114,545	$	110,935	$	109,692
Work-in-process		47,485		48,392		49,507
Finished goods		221,164		233,168		239,060
Total inventories	$	383,194	$	392,495	$	398,259

7

Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited) — (continued)

6.   Restructuring Charge

In the fourth quarter of 2000, we initiated a restructuring program to decentralize certain corporate service functions and reorganize our Tools segment infrastructure. As a result, we recorded a restructuring charge of $26.8 million. Cash outlays associated with the charge were $5.9 million in the first quarter of 2001.

The components of the restructuring charge and utilization in 2000 and in the first quarter of 2001 are as follows:

			Utilization
						First			Balance
		Initial				quarter			March 31
In thousands	accrual		2000			2001			2001
Employee termination benefits	$	7,888	$	—		$	(1,807	)	$	6,081
Non-cash asset disposals		10,518		(10,518	)		—			—
Exit costs		8,394		(87	)		(4,103	)		4,204
	$	26,800	$	(10,605	)	$	(5,910	)	$	10,285

Included in other current liabilities in the March 31, 2001 condensed consolidated balance sheet is the unused portion of the restructuring charge of $10.3 million. We expect to complete restructuring activities and utilize the majority of the remaining charge by the end of 2001.

Workforce reductions related to the restructuring charge is for approximately 260 employees, of which, approximately 135 were terminated as of the end of the first quarter of 2001. Employee termination benefits consist primarily of severance and outplacement counseling fees. Non-cash asset disposals related to the restructuring charge consisted of the abandonment of leasehold improvements and the abandonment of internal use software under development. Exit costs are primarily related to contract and lease termination costs.

7.   Acquisitions

In February 2001, we acquired Taunus, a Brazilian enclosures manufacturer, for approximately $6.9 million, including debt assumed of $1.7 million. Goodwill recorded as part of the purchase was $5.4 million and is being amortized over 20 years.

8.   Business Segments

Financial information by reportable business segment is included in the following summary:

	First		First		First			First
	Quarter		Quarter		Quarter			Quarter
In thousands	2001		2000		2001			2000
	Net sales to external customers				Operating income (loss)
Tools (1)	$	240,392	$	231,610	$	7,863		$	23,176
Water		220,852		231,967		28,193			30,749
Enclosures (1)		210,139		184,114		21,237			24,446
Corporate/other		—		—		(4,437	)		(5,619	)
Consolidated	$	671,383	$	647,691	$	52,856		$	72,752

(1) First quarter 2000 Tools and Enclosures operating income includes restructuring charge income of $1,171 and $1,297, respectively.

Corporate/other operating income is primarily composed of unallocated corporate expenses, and expenses of our insurance subsidiary, intermediate finance companies, as well as intercompany eliminations.

8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our disclosure and analysis in this report may contain some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expected,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or the negative thereof or similar words. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. They can be affected by assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. Actual results may vary materially. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all-potential risks and uncertainties.

Any change in the following factors may impact the achievement of results:

• changes in industry conditions, such as:

• the strength of product demand;

• the intensity of competition;

• pricing pressures;

• market acceptance of new product introductions;

• the introduction of new products by competitors;

• our ability to source components from third parties without interruption and at reasonable prices; and

• the financial condition of our customers.

• changes in our business strategies;

• general economic conditions, such as the rate of economic growth in our principal geographic or product markets or fluctuations in exchange rates;

• changes in operating factors, such as continued improvement in manufacturing activities and the achievement of related efficiencies and inventory risks due to shifts in market demand; and

• our ability to accurately evaluate the effects of contingent liabilities such as taxes, product liability, environmental, and other liabilities.

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business.

9

RESULTS OF OPERATIONS

The following table sets forth information from our condensed consolidated statements of income.

		First quarter
In thousands		2001			2000			% change
Net sales		$	671,383		$	647,691			3.7	%
Cost of goods sold			507,396			467,789			8.5	%
Gross profit			163,987			179,902			(8.8	%)
	% of net sales		24.4	%		27.8	%
SG&A and R&D			111,131			109,618			1.4	%
	% of net sales		16.6	%		16.9	%
Restructuring charge (income)			—			(2,468	)		—
	% of net sales		0.0	%		(0.4	%)
Operating income			52,856			72,752			(27.3	%)
	% of net sales		7.9	%		11.2	%
Net interest expense			17,716			18,948			(6.5	%)
	% of net sales		2.6	%		2.9	%
Other expense			2,500			—			—
	% of net sales		0.4	%		0.0	%
Income from continuing operations before income taxes			32,640			53,804			(39.3	%)
	% of net sales		4.9	%		8.3	%
Provision for income taxes			12,077			20,163			(40.1	%)
	Effective tax rate		37.0	%		37.5	%
Income from continuing operations			20,563			33,641			(38.9	%)
	% of net sales		3.1	%		5.2	%
Loss from discontinued operations, net of tax			—			(975	)		—
Cumulative effect of accounting change, net of tax			—			(1,222	)		—
Net income		$	20,563		$	31,444			(34.6	%)
Percentages may reflect rounding adjustments.
SG&A and R&D — Selling, general and administrative; and Research and development.

Net sales

The components of the net sales increase were as follows:

	% change from 2000
	First quarter
Volume		4.8	%
Price		(0.2	%)
Currency		(0.9	%)
Total net sales increase		3.7	%

Net sales in the first quarter of 2001 totaled $671.4 million, compared with $647.7 million in the first quarter of 2000. The $23.7 million or 3.7 percent increase was primarily due to sales volume growth in our Enclosures and Tools segments, partially offset by volume declines in our Water segment due to unfavorable weather patterns resulting in a late spring. First quarter 2001 volume grew about 4.8 percent, while overall pricing decreased by about 0.2 percent. The negative currency impact on first quarter 2001 sales reflects the year-over-year decline primarily in the value of certain European currencies relative to the U.S. dollar.

10

Sales by segment and the change from the prior year period were as follows:

			First quarter
In thousands	2001			2000		% change
Tools	$	240,392		$	231,610		3.8	%
Water		220,852			231,967		(4.8	%)
Enclosures		210,139			184,114		14.1	%
Total	$	671,383		$	647,691		3.7	%

Tools

The 3.8 percent increase in Tools segment sales in the first quarter of 2001 from 2000 was primarily due to:

– higher volume in our Porter-Cable/Delta business.

This increase was partially offset by:

– lower selling prices due to last summer’s price discounting, which was done to recover market share in our Porter-Cable/Delta business, and has subsequently resulted in difficulties in reestablishing appropriate price levels;

In order to increase profitability in the Tools segment, some of the tasks we are undertaking include:

– repositioning the Delta brand by reducing discounts and raising average prices;

– ramping up new product initiatives by introducing new SKUs in our cordless and pneumatic product lines; and

– increasing our efforts to serve customers in existing sales channels and entering new and under-served sales channels.

Water

The 4.8 percent decline in Water segment sales in the first quarter of 2001 from 2000 was primarily due to:

– lower volume resulting from the soft economy and the impact of a later-than-usual spring thaw, which delayed the start of the pool construction season and drilling projects which affect pump product sales; and

– unfavorable foreign currency translation resulting from the stronger U.S. dollar.

These decreases were partially offset by:

– slight increases in average selling prices.

Enclosures

The 14.1 percent increase in Enclosures segment sales in the first quarter of 2001 from 2000 was primarily due to:

– higher sales volume to customers in the datacom and telecom markets;

– price increases; and

– the February 2001 acquisition of Taunus, a Brazilian enclosures manufacturer.

These increases were partially offset by:

– unfavorable foreign currency translation resulting from the stronger U.S. dollar.

Late in the first quarter of 2001, we saw a decline in sales activity to customers in the datacom and telecom markets, reflecting a softening economy. This has resulted in many new customer programs being pushed out until later in the year. While we remain cautious about the near-term Enclosures outlook, our strategy has been to continue serving many broad and diverse markets in enclosures.

Gross margin

Gross margin was 24.4 percent in the first quarter of 2001, compared with 27.8 percent for the same period last year.

The 3.4 percentage point decline in the first quarter of 2001 from 2000 was primarily the result of:

– lower selling prices due to last summer’s price discounting;

– unfavorable product mix, primarily in our Tools and Enclosures segments; and

– higher energy and transportation costs due to higher oil and gas prices.

SG&A and R&D

SG&A and R&D expenses were 16.6 percent of sales in the first quarter of 2001, down 1.1 percentage points from the fourth quarter of 2000, exclusive of fourth quarter one-time charges of $16.6 million for establishing additional accounts receivable reserves, and down 0.3 percentage points from the first quarter of 2000. The improvement is the result of implementing cost control actions, somewhat offset by additional spending to redefine and streamline business processes related to our fourth quarter 2000 restructuring activity.

11

Operating income

Operating income by segment and the change from the prior year period were as follows:

		First quarter
In thousands	2001			2000			% change
Tools (1)	$	7,863		$	23,176			(66.1	%)
Water		28,193			30,749			(8.3	%)
Enclosures (1)		21,237			24,446			(13.1	%)
Corporate/other		(4,437	)		(5,619	)		21.0	%
Total	$	52,856		$	72,752			(27.3	%)

(1) First quarter 2000 Tools and Enclosures operating income includes restructuring charge income of $1,171 and $1,297, respectively.

Tools

The 66.1 percent decrease in Tools segment operating income in the first quarter of 2001 from 2000 was primarily due to:

– lower selling prices due to last summer’s price discounting;

– unfavorable product mix;

– higher energy and transportation costs; and

– restructuring charge income recorded in the first quarter of 2000.

These decreases were partially offset by:

– higher volume in our Porter-Cable/Delta business.

Water

The 8.3 percent decline in Water segment operating income in the first quarter of 2001 from 2000 was primarily due to:

– lower volume resulting from the soft economy and the impact of a later-than-usual spring thaw; and

– unfavorable foreign currency translation resulting from the stronger U.S. dollar.

These decreases were partially offset by:

– slight increases in average selling prices.

Enclosures

The 13.1 percent decrease in Enclosures segment operating income in the first quarter of 2001 from 2000 was primarily due to:

– unfavorable product mix;

– higher energy and transportation costs;

– unfavorable foreign currency translation resulting from the stronger U.S. dollar; and

– restructuring charge income recorded in the first quarter of 2000.

These decreases were partially offset by:

– higher sales volume to customers in the datacom and telecom markets; and

– price increases.

Net interest expense

Net interest expense decreased 6.5 percent in the first quarter of 2001, compared with 2000. The year-over-year decline primarily reflects lower average borrowings.

Other expense

In the first quarter of 2001, we incurred a non-cash charge of $2.5 million for the write-off of our business-to-business e-commerce equity investment that we made in early 2000.

Discontinued operations

In December 2000, we adopted a plan to sell our Equipment segment businesses, Century/Lincoln and Lincoln Industrial. We are actively marketing these operations with expected sales by mid-2001. The proceeds from these sales will be used to reduce our debt.

We have accounted for the Equipment segment as discontinued operations in these financial statements. The disposition, net of estimated losses during the disposal period, are expected to result in a net gain. Accordingly, recognition of such gain will be deferred until the disposition is completed. In the first quarter of 2001, we had a net loss from discontinued operations of $0.4 million, which was deferred and is included as part of the net assets of discontinued operations in the condensed consolidated balance sheets. The loss from discontinued operations includes an allocation of Pentair’s interest expense. Net assets of discontinued operations at March 31, 2001, consisted of net current assets of $66.4, net property, plant and equipment of $27.1 million, and net noncurrent assets of $13.1 million.

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LIQUIDITY AND CAPITAL RESOURCES

To fund investing and financing activities, committed revolving credit facilities are used to complement operating cash flows. In maintaining this financial flexibility, levels of debt will vary depending on operating results. Because of the seasonality of some of our businesses, particularly the pool and spa business and a portion of the tools business, we generally experience negative cash flows from operations in the first half of any given year. This is more than offset in the remaining half of the year.

The following table presents selected measures of our liquidity and capital resources:

		March 31		April 1
		2001		2000
Cash and cash equivalents	$	33,003	$	38,898
Days of sales in accounts receivable		65		73
Days inventory on hand		79		82
Days in accounts payable		61		56
Cash conversion cycle		83		99

Operating activities

Operating activities used $40.1 million in the first quarter of 2001, compared with a use of $151.1 million in the first quarter of 2000. The $111 million increase in the first quarter of 2001 over 2000 was primarily due to better management of receivables, inventories and accounts payable. We reduced days of sales in accounts receivable and days inventory on hand by 8 days and 3 days, respectively, and increased days in accounts payable by 5 days.

Investing activities

Capital expenditures in the first quarter of 2001 were $12.9 million, compared with $10.8 million for the same period in 2000. We anticipate capital expenditures in 2001 to be between $85 and $90 million. The anticipated expenditures are expected to be in the areas of tooling for new product development, factory expansion, and additional machinery and equipment for cost reductions and capacity expansion. We are reviewing all capital projects in light of current economic conditions and are making adjustments to plans as appropriate.

In the first quarter of 2001, we acquired Taunus, a Brazilian enclosures manufacturer for $6.9 million. The acquisition was financed through borrowings under our credit facilities.

Financing activities

As of the end of the first quarter of 2001, our capital structure was comprised of $170.1 million in short-term borrowings, $806.7 million in long-term debt (including current maturities), and $1,023.4 million in shareholders’ equity. The ratio of debt-to-total capital was 48.8 percent, compared with 47.5 percent as of the end of 2000 and 53.7 percent as of the end of the first quarter of 2000. Our targeted debt-to-total capital ratio range is 30 to 40 percent. The 1.3 percentage point increase in the first quarter of 2001 from December 31, 2000, reflects higher first quarter borrowings because of the seasonality of some of our businesses.

Dividends paid in the first quarter of 2001 were $8.3 million, or $0.17 per common share, compared with $7.8 million, or $0.16 per common share for the same period in 2000.

In addition to measuring our cash flow generation or usage based upon operating, investing, and financing classifications included in the condensed consolidated statements of cash flows, we also measure our free cash flow. We define free cash flow as cash flow from operating activities less capital expenditures, including both continuing and discontinued operations. We had negative free cash flow of $53.0 million in the first quarter of 2001, compared with a negative $161.9 million for the same period in 2000. We intend to increase our free cash flow by reducing inventories, improving collection of receivables, and working with suppliers to increase payment terms. We also have changed our management incentive targets to include more emphasis on improving free cash flow.

We believe cash generated from operating activities, together with credit available under committed credit facilities and our current cash position, will provide adequate short-term and long-term liquidity.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk during the three months ended March 31, 2001. For additional information, refer to Item 7A on page 19 of our 2000 Annual Report on Form 10-K.

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PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings
	Horizon Litigation
	There have been no further material developments regarding the Horizon litigation from that contained in our 2000 Annual Report on Form 10-K.
	Other
	We are occasionally a party to litigation arising in the normal course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities based on the expected eventual disposition of these matters. We believe the effect on our consolidated results of operations and financial position, if any, for the disposition of all currently pending matters will not be material.

ITEM 4.	Submission of Matters to a Vote of Security Holders
	At Pentair’s Annual Meeting of Shareholders held on April 25, 2001, the shareholders voted on the following items:

Proposal 1. – Election of Directors

Nominees	Votes For		Votes Withheld
Karen E. Welke		42,628,699		654,808
William T. Monahan		42,638,547		644,960

Proposal 2. – Approval of the increase in the number of shares available for issuance under the Omnibus Stock Incentive Plan.

Votes For	Votes Against		Votes Abstain
35,518,076		7,547,307		218,124

Proposal 3. – Approval of the Executive Officer Performance Plan as amended and restated to comply with the requirements of Section 162(M).

Votes For	Votes Against		Votes Abstain
38,612,751		4,381,739		289,017

Proposal 4. – Proposal to ratify the retention of Deloitte & Touche LLP as independent public accountants for the current fiscal year.

Votes For	Votes Against		Votes Abstain
41,192,954		1,901,914		188,639

ITEM 6.    Exhibits and Reports on Form 8-K

          (a)    Exhibits

10.30 Form of Pentair, Inc. Omnibus Stock Incentive Plan as Amended and Restated, dated February 14, 2001 as approved by shareholders on April 25, 2001 (Incorporated by reference to Exhibit 10.30 contained in Pentair’s Annual Report on Form 10-K for the year ended December 31, 2000).

          (b)    Reports on Form 8-K

                   None.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 15, 2001.

PENTAIR, INC.
Registrant

By /s/ David D. Harrison
          David D. Harrison
          Executive Vice President and Chief Financial Officer
          (Chief Accounting Officer)

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