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"The fourth quarter played out largely as expected, with slower sell- through at our major retail and industrial accounts, and continued constrained spending in machine tool, capital goods and technology markets," said Randall J. Hogan, Pentair chairman and CEO. "These factors were mitigated by our supply management, lean enterprise, cash flow, and growth initiatives, as well as contributions from our newly acquired businesses."
Pentair's net sales for 2002 totaled $2,580.8 million, up slightly from the $2,574.1 million recorded in 2001. Operating income for the year totaled $236.0 million, versus $234.9 million, before goodwill amortization and restructuring charge, in 2001. EPS in 2002 totaled $2.61, an eight percent gain over 2001 EPS of $2.42 without goodwill amortization and restructuring charge. (On a reported basis, 2002 EPS was up 123 percent versus reported 2001 EPS of $1.17.) Pentair's $214 million of free cash flow is net of approximately $23 million that was paid to bring a synthetic lease from a 1999 capital project onto the balance sheet.
In the Tools Group, fourth quarter 2002 sales of $270.7 million were eight percent higher than in the same period last year, while operating income of $24.6 million improved 12 percent on the same comparison. Fourth quarter operating income margins in the Group were 9.1 percent, representing an increase of 40 basis points over the fourth quarter 2001.
Fourth quarter sales for the Tools Group were stronger than in 2001, benefiting from the Oldham Saw business, which was acquired in October 2002 and was accretive to earnings in the fourth quarter. Gains in operating income were due primarily to benefits generated by supply chain, lean enterprise, and cost reduction initiatives, somewhat offset by costs of promotional pricing programs and a mix shift to lower priced products.
The Tools Group continues to address margin expansion through cost productivity and working capital improvements, supplemented by accelerated new product development. Patent applications within the Group increased in 2002 from the prior year, and the time required to move new tools to market has been cut dramatically.
In the Water Technologies Group, fourth quarter sales of $231.8 million increased 20 percent versus the same period last year, benefiting from sales in the Pool business that had been delayed by the customer from the third quarter to the fourth quarter, as well as contributions from the Plymouth Products business, acquired in October of 2002. The Group's operating income of $23.1 million was five percent higher than in the same period last year. CodeLine pressure vessels for international projects are now being sourced from Pentair's facilities in India, which is expected to improve margins on large international water treatment projects. Headcount reductions within the Ashland, Ohio pump operations, coupled with accelerated lean enterprise and supply chain management activities, will build margins in the pump business during the first quarter of 2003.
In the Enclosures Group, sales of $137.7 million in the fourth quarter of 2002 were down two percent, reflecting continued weakness in capital spending and technology markets. Fourth quarter operating income of $9.5 million - up 176 percent, or 450 basis points, from the same period in 2001 - reflects the benefits of ongoing restructuring, Lean Enterprise practices, and working capital