FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1994
___ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From ___________ To __________
Commission File Number 1-5502
ZURN INDUSTRIES, INC.
IRS Employer
State of Address and Identification
Incorporation Telephone Number Number
Pennsylvania One Zurn Place 25-1040754
Erie, Pennsylvania 16505
814-452-2111
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
August 5, 1994 -- Common Stock, $.50 Par Value -- 12,330,158
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PART I - FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL POSITION
(Thousands)
June 30, March 31,
1994 1994
Assets
Current assets
Cash and equivalents $ 4,011 $ 4,137
Marketable securities 50,246 61,296
Accounts receivable 137,333 132,328
Inventories
Finished products 43,502 44,208
Work in process 17,288 16,390
Raw materials and supplies 12,375 13,386
Contracts in process 6,993 12,395
80,158 86,379
Deferred income taxes 41,880 41,880
Other current assets 6,135 5,642
Total current assets 319,763 331,662
Property, plant, and equipment 140,066 138,781
Less allowances for depreciation
and amortization 83,494 81,778
56,572 57,003
Investments 35,700 35,958
Other assets 23,838 23,270
$435,873 $447,893
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 40,805 $ 47,948
Other current liabilities 119,000 123,198
Total current liabilities 159,805 171,146
Long-term obligations 10,413 10,972
Retirement obligations 45,045 44,192
Stockholders' equity
Common stock 6,285 6,285
Other stockholders' equity 214,325 215,298
220,610 221,583
$435,873 $447,893
See notes to consolidated financial statements.
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CONSOLIDATED OPERATIONS
(Thousands Except Per Share Amounts)
Three Months Ended
June 30
1994 1993
Net sales $114,385 $288,776
Cost of sales 90,992 253,462
Marketing and administration 21,168 23,113
Unusual item 38,902
Interest income (1,172) (1,104)
Interest expense 978 520
Other income (525) (379)
Income (loss) before income taxes 2,944 (25,738)
Income tax expense (benefit) 1,000 (9,110)
Net income (loss) $ 1,944 $(16,628)
Earnings (loss) per share $.16 $(1.34)
Average shares outstanding 12,409 12,452
Cash dividends declared
per common share $.22 $.22
See notes to consolidated financial statements.
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CONSOLIDATED CASH FLOWS
(Thousands)
Three Months Ended
June 30
1994 1993
Operations
Net income (loss) $ 1,944 $(16,628)
Operating assets and liabilities (10,142) (9,004)
Depreciation and amortization 2,424 2,702
Litigation 35,370
Deferred income taxes (12,360)
Miscellaneous (132) 43
(5,906) 123
Investing
Marketable securities 10,389 (9,910)
Capital expenditures (2,322) (3,349)
Long-term investments 758 (297)
Sales of operations 71 2,087
Miscellaneous 204 52
9,100 (11,417)
Financing
Dividends paid (2,732) (2,737)
Debt payments (621) (719)
Stock options exercised 33 696
(3,320) (2,760)
Cash and equivalents
Decrease (126) (14,054)
Beginning of year 4,137 25,491
End of period $ 4,011 $ 11,437
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the results for the interim
periods presented. The results of operations for the three months ended
June 30, 1994 are not necessarily indicative of the results to be expected for
the full year.
Earnings per share are based on net income or loss and the average shares of
common stock and dilutive stock options outstanding during the period.
The unusual item is $2.00 per share as a result of a jury verdict in
connection with a power plant construction contract and related legal costs.
If all issues are lost on the appeal which is being aggressively pursued,
additional charges could reach $22,100,000, including interest which is not
being accrued.
In the normal course of business, financial and performance guarantees are
made in connection with major engineering and construction contracts and a
liability is recognized when a probable loss occurs. Also, there are various
claims, legal, and environmental proceedings which management believes will
have no material effect on the Company's financial position or results of
operations when they are resolved.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The liquid assets decline during the quarter was primarily attributable to the
use of cash by operations, capital expenditures, and the payment of dividends
to stockholders. Other than the collection of receivables from the higher
level of Lynx Golf sales in the prior quarter, most of the other changes in
operating assets and liabilities were associated with construction contract
activities, particularly in the Power Systems segment. Despite these changes,
the Company's working capital was not affected and the current ratio returned
to its 2.0 to 1 historical level.
The litigation disclosed in the notes to consolidated financial statements is
not expected to have a future material effect on the Company's financial
position. However, if all issues which led to the unusual litigation
provision are lost on appeal, the resulting cash expenditure could be more
than $33,000,000 net of the ensuing income tax payment reductions.
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Results of Operations
Sales by the Company's industry segments were as set forth below.
Three Months Ended June 30
1994 1993
(Thousands)
Power Systems $ 36,510 $208,400
Water Control 61,108 61,474
Lynx Golf 7,322 9,729
Others 9,445 9,173
$114,385 $288,776
The Power Systems segment revenue decline reflects the decline in the United
States market and the related lower level of new order activity experienced
for more than a year. Working from a substantially higher beginning backlog,
last year's revenues reflected major equipment installations and a higher
level of construction activity for power generation projects. The Water
Control segment's 16% increase in sales of plumbing products was offset by
lower revenues from the installation of fire protection sprinkler systems and
water resource construction projects. Lynx Golf sales were below last year
which benefited from the introduction of new metal woods.
The higher gross profit margin is primarily attributable to the lower
percentage of total sales contributed by the Power Systems segment. Other
factors included cost reductions in the Lynx Golf and fire protection
sprinkler systems businesses and margin gains on plumbing products.
The unusual item is described in the notes to financial statements. The low
effective income tax rate results from tax exempt investment income being a
more significant component of pretax income this year.
The Company's backlog of unfilled orders by industry segment was as follows:
June March June
1994 1994 1993
(Millions)
Power Systems $144 $159 $232
Water Control 58 69 126
Lynx Golf 2 5 7
Others 10 11 13
$214 $244 $378
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The exhibits listed in the Exhibit Index to this report on Form 10-Q are
incorporated herein by reference.
Reports on Form 8-K
April 19, 1994 incorporating a news release announcing the Company will
discontinue manufacturing operations at the Zurn Energy Division and record a
fourth quarter charge.
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.
ZURN INDUSTRIES, INC.
(Registrant)
August 9, 1994 /s/ Dennis Haines
Dennis Haines
General Counsel and Secretary
August 9, 1994 /s/ John E. Rutzler III
John E. Rutzler III
Vice President-Controller
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EXHIBIT INDEX
4 Instruments Defining the Rights of Security Holders,
Including Indentures
Description of Common Stock contained in the prospectus Incorporated
dated July 26, 1972 beginning on page 18 ("Description of by reference
Capital Stock") forming a part of Amendment No. 3 to the
Form S-1 Registration Statement No. 2-44631
Description of Common Stock as set forth in the Restated Incorporated
Articles of Incorporation with Amendments through by reference
August 7, 1987 filed as Exhibit 19A to Form 10-Q for the
quarter ended September 30, 1987
Description of Preferred Share Purchase Rights contained Incorporated
in the Form 8-A Registration Statement dated May 22, 1986 by reference
Description of 5-3/4% Convertible Subordinated Debentures Incorporated
due 1994 contained in the prospectus dated November 12, by reference
1969 beginning on page 15 ("Description of Debentures")
forming a part of the Form S-1 Registration Statement
filed November 12, 1969
10 Material Contracts
1986 Stock Option Plan filed as Exhibit 28A to Form S-8 Incorporated
Post-Effective Amendment No. 1 Registration Statement No. by reference
33-19103
1989 Directors Stock Option Plan filed as Exhibit 28 to Incorporated
Form S-8 Registration Statement No. 33-30383 by reference
1991 Stock Option Plan filed as Exhibit 28 to Form S-8 Incorporated
Registration Statement No. 33-49224 by reference
Supplemental Executive Retirement Plan of Zurn Incorporated
Industries, Inc. filed as Exhibit 19A to Form 10-Q for by reference
the quarter ended December 31, 1992
1982 Retirement Plan for Outside Directors of Zurn Incorporated
Industries, Inc. filed as Exhibit 19A to Form 10-Q for by reference
the quarter ended June 30, 1989
1986 Retirement Plan for Outside Directors of Zurn Incorporated
Industries, Inc. filed as Exhibit 19B to Form 10-Q for by reference
the quarter ended June 30, 1989
-8-
Agreements Relating to Employment dated June 5, 1989 with Incorporated
D.F. Fessler, W.A. Freeman, C.L. Hedrick, G.H. Schofield by reference
and J.A. Zurn filed as Exhibit 10H to Form 10-Q for the
quarter ended June 30, 1989
Zurn Industries, Inc. Deferred Compensation Plan for Non- Incorporated
Employee Directors filed as Exhibit 19E to Form 10-Q for by reference
the quarter ended June 30, 1989
Zurn Industries, Inc. Deferred Compensation Plan for Incorporated
Salaried Employees filed as Exhibit 19F to Form 10-Q by reference
for the quarter ended June 30, 1989
Zurn Industries, Inc. Optional Deferment Plan for Incorporated
Incentive Compensation Plan Participants filed as Exhibit by reference
19G to Form 10-Q for the quarter ended June 30, 1989
Zurn Industries, Inc. Supplemental Pension Plan for Incorporated
Participants in the Deferred Compensation Plan for by reference
Salaried Employees filed as Exhibit 19B to Form 10-Q for
the quarter ended December 31, 1992
Indemnity Agreements dated August 14, 1986 with K.S. Incorporated
Axelson, E.J. Campbell, A.S. Cartwright, G.H. Schofield, by reference
D.W. Wallace, and J.A. Zurn filed as Exhibit 19J to Form
10-Q for the quarter ended September 30, 1986
Indemnity Agreements dated October 20, 1986 with D.F. Incorporated
Fessler, W.A. Freeman, and C.L. Hedrick filed as Exhibit by reference
19A to Form 10-Q for the quarter ended December 31, 1986
and with J.E. Rutzler III filed as Exhibit 10B to Form
10-Q for the quarter ended December 31, 1988
Indemnity Agreements dated January 25, 1993 with W.E. Incorporated
Butler, April 1, 1993 with D. Haines, and August 6, 1993 by reference
with Z. Baird filed as Exhibit 10A to Form 10-Q for the
quarter ended June 30, 1993
Irrevocable Trust Agreements for the Grantor's: 1982 Incorporated
Retirement Plan for Outside Directors of Zurn Industries, by reference
Inc.; 1986 Retirement Plan for Outside Directors of Zurn
Industries, Inc.; Deferred Compensation Plan for Non-
Employee Directors; Supplemental Executive Retirement
Plan for Zurn Industries, Inc.; Zurn Industries, Inc.
Supplemental Pension Plan for Participants in the
Deferred Compensation Plan for Salaried Employees;
Deferred Compensation Plan for Salaried Employees;
Optional Deferment Plan for Incentive Compensation Plan
Participants filed as Exhibit 19I to Form 10-Q for the
quarter ended September 30, 1986
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Second Irrevocable Trust Agreement for the Grantor's Incorporated
Indemnity Agreements filed as Exhibit 10A to Form 10-Q by reference
for the quarter ended December 31, 1988
Incentive Compensation Plan filed as Exhibit 10A to Form Incorporated
10-K for the year ended March 31, 1994 by reference
11 Statement Re Computation of Per Share Earnings
Computation of Earnings Per Share
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EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Amounts)
Three Months Ended
June 30
1994 1993
Primary Earnings Per Share
Net income (loss) $ 1,944 $(16,628)
Preferred stock dividends 1 1
$ 1,943 $(16,629)
Shares outstanding
Weighted average common shares 12,407 12,452
Net common shares issuable on Anti-
exercise of stock options 2 dilutive
Average common shares outstanding
as adjusted 12,409 12,452
Primary earnings (loss) per share $.16 $(1.34)
Fully Diluted Earnings Per Share
Net income $ 1,944 A
Interest on convertible debentures, 7 n
net of applicable income taxes $ 1,951 t
i
d
i
Shares outstanding l
Average common shares as adjusted u
for primary computation 12,409 t
Common shares issuable if the i
preferred stock and convertible v
debentures were converted at e
the beginning of the year 42
Additional common shares issuable
on exercise of stock options 3
Average common shares outstanding
as adjusted 12,454
Fully diluted earnings per share $.16
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