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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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Commission File Number 1-6098
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DANIEL INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 74-1547355
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9753 Pine Lake Drive, Houston, Texas 77055
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(Address of principal executive offices) (Zip Code)
713-467-6000
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(Registrant's telephone number, including area code)
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 November 7, 1997, there were outstanding 17,250,431 shares of
Common Stock, $1.25 par value, of the registrant.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DANIEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands except per share data)
(Unaudited)
September 30, December 31,
1997 1996
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ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 6,881 $ 5,423
Receivables, net of reserve of $1,362 and $1,252 ........................... 60,683 50,588
Costs and estimated earnings in excess of billings on
uncompleted contracts ................................................ 5,439 3,671
Inventories ................................................................ 47,543 52,006
Deferred taxes on income ................................................... 6,108 8,807
Other ...................................................................... 8,002 6,618
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Total current assets .................................................. 134,656 127,113
Property, plant and equipment, net ............................................ 72,011 75,555
Intangibles and other assets .................................................. 28,242 30,907
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$ 234,909 $ 233,575
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable .............................................................. $ 21,762 $ 18,287
Current maturities of long-term debt ....................................... 5,439 5,552
Accounts payable ........................................................... 18,985 18,311
Accrued expenses ........................................................... 27,939 30,591
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Total current liabilities ............................................. 74,125 72,741
Long-term debt ................................................................ 28,225 30,233
Deferred taxes on income ...................................................... 8,670 8,789
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Total liabilities ................................................. 111,020 111,763
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Stockholders' equity:
Preferred stock, $1.00 par value, 1,000 shares authorized, 150 shares
designated as Series A junior participating preferred stock, no shares
issued or outstanding
Common stock, $1.25 par value, 40,000 shares authorized, ................. 21,453 21,330
17,162 and 17,064 shares issued ...................................... 91,634 90,732
Capital in excess of par value ........................................... (5,440) (2,006)
Translation component .................................................... 16,242 11,756
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Retained earnings ........................................................ 123,889 121,812
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Total stockholders' equity ........................................ $ 234,909 $ 233,575
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See accompanying NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share data)
(Unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
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1997 1996 1997 1996
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Revenues .................................. $ 71,334 $ 69,134 $ 197,470 $ 179,457
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Costs, expenses and other income:
Cost of sales .......................... 44,688 44,801 125,695 115,005
Selling, engineering and administrative
expenses ......................... 17,890 17,280 54,367 45,963
Research and development expenses ...... 1,593 1,005 3,632 2,061
Unusual Items .......................... 0 (583) 0 (2,082)
Interest and other expenses (income) ... 914 823 2,060 2,471
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Total costs, expenses and other income .. 65,085 63,326 185,754 163,418
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Income before income tax expense .......... 6,249 5,808 11,716 16,039
Income tax expense ........................ 2,649 2,341 4,921 6,170
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Net income ................................ $ 3,600 $ 3,467 $ 6,795 $ 9,869
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Earnings per common share ................. $ .21 $ .20 $ .40 $ .58
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Cash dividends per common share ........... $ .045 $ .045 $ .135 $ .135
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Average number of shares outstanding ...... 17,127 17,035 17,099 17,022
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See accompanying NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed)
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
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1997 1996
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Cash flows from operating activities:
Net income ............................................ $ 6,795 $ 9,869
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ...................... 7,423 7,122
Changes in operating assets and liabilities ........ (9,562) (7,945)
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Net cash provided by operating activities ............... 4,656 9,046
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Cash flows from investing activities:
Acquisitions .......................................... (32,528)
Capital expenditures .................................. (8,049) (5,077)
Proceeds from sales of assets ......................... 6,694 7,823
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Net cash used in investing activities ................... (1,355) (29,782)
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Cash flows from financing activities:
Net borrowings under notes payable .................... 1,152 5,989
Net borrowings (payments) on long-term debt ........... (2,121) 18,186
Cash dividends paid ................................... (2,309) (1,637)
Activity under stock option plans ..................... 887 44
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Net cash provided by (used in) financing activities ..... (2,391) 22,582
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Effect of exchange rate changes on cash ................. 548 (243)
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Increase in cash and cash equivalents ................... 1,458 1,603
Cash and cash equivalents, beginning of period .......... 5,423 6,806
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Cash and cash equivalents, end of period ................ $ 6,881 $ 8,409
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See accompanying NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - General
The foregoing financial statements have been prepared from the books
and records of Daniel Industries, Inc. ("Daniel" or the "Company") without
audit. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods presented, are reflected in the financial statements.
These condensed statements should be read in conjunction with the
financial statements and the related notes included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1996 and the Transition
Report on Form 10-Q filed for the three-month transition period ended December
31, 1996. As noted in that transition report, (1) on December 12, 1996, the
Company completed a merger with Bettis Corporation ("Bettis"), accounted for as
a pooling of interests, and accordingly, the Company's financial statements
have been restated to include the operations of Bettis for all periods
presented, and (2) the Company's fiscal year has been changed to December 31
from September 30.
The Company adopted Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation" for its year ending December 31,
1997. The Company did not elect fair value expense recognition for stock
options and, therefore, implementation will not materially affect its financial
statements.
Note 2 - Earnings per Share
Earnings per share ("EPS") for the nine-month and three-month periods
ended September 30, 1997 and 1996 are calculated as primary EPS (net income
divided by weighted average shares outstanding including common stock
equivalents).
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which requires a calculation of basic
and diluted EPS. The statement is effective for periods ending after December
15, 1997, which is the Company's fourth quarter of 1997, with early adoption
prohibited and restatement of prior EPS amounts required. The Company does not
expect adoption to materially affect its EPS amounts because of the Company's
simple capital structure and the immaterial effect of common stock equivalents.
Note 3 - Divestitures
As previously reported in the Company's Annual Report on Form 10-K for
the year ended September 30, 1996, the Company sold in March 1996, a
non-manufacturing property in Germany for a pretax gain of $1,499,000 and in
August 1996, the operating assets of the positive displacement meter product
line for a pretax gain of $583,000.
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Note 4 - Inventories
September 30, December 31,
1997 1996
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(in thousands)
Raw materials ....................................... $ 22,905 $ 26,036
Work-in-process ..................................... 14,809 12,809
Finished goods ...................................... 16,904 19,803
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Inventories before LIFO reserve ................... 54,618 58,648
Less LIFO reserve ................................... 7,075 6,642
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Total inventories ................................. $ 47,543 $ 52,006
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Note 5 - Notes Payable
Notes payable at September 30, 1997 and December 31, 1996 of $21,762,000
and $18,287,000, respectively, consisted of borrowings under lines of credit and
notes to banks. Interest rates ranged from 7.0% to 8.4% at September 30, 1997.
At September 30, 1997, the Company had both committed and uncommitted
short-term lines of credit aggregating approximately $66,000,000. Some of these
lines contain restrictions regarding the amount available for short-term
borrowings or issuance of letters of credit. At September 30, 1997,
approximately $35,600,000 was available for additional short-term borrowings.
Note 6 - Long-Term Debt
September 30, December 31,
1997 1996
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(in thousands)
Revolving credit facility (secured by Bettis' U.S. assets); interest
at prime rate (8.50% at September 30, 1997 and 8.25% at December 31,
1996); interest payable quarterly; principal due October 31, 1998 ........ $ 21,200 $ 21,100
Notes payable to four insurance companies (unsecured);
11.5%; principal payable in annual installments
of $2,857; interest payable semi-annually ................................ 5,715 5,715
Note payable to bank (secured by Bettis' U.S.
assets); 5.95%; principal payable in quarterly
installments of $500; interest payable quarterly ......................... 3,500 5,000
Term loan to bank (secured by Bettis' Canadian assets); interest at the
Canadian prime rate (4.75% at September 30, 1997 and December 31, 1996);
principal and interest payable monthly; payable through August 31, 2001.. 1,448 1,733
Capital lease obligations .................................................... 1,677 2,056
Miscellaneous obligations .................................................... 124 181
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Total obligations ................................................... 33,664 35,785
Less portion due within one year ............................................. 5,439 5,552
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Long-term debt ...................................................... $ 28,225 $ 30,233
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The terms of certain financing agreements contain, among other
provisions, requirements for maintaining defined levels of working capital, net
worth, capital expenditures and various financial ratios, including debt to
equity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 vs. Nine Months Ended September
30, 1996
Revenues for the nine months ended September 30, 1997 were
$197,470,000 compared to $179,457,000 for the same period in 1996. The increase
is primarily due to incremental revenues from measurement and actuator
businesses acquired in 1996 partially offset by a decline in revenues from
sales of valve products. The Company's backlog at September 30, 1997 was
$77,849,000, an increase of 25% and 53% from the backlog balance at December
31, 1996 and September 30, 1996, respectively, reflecting improved demand for
the Company's measurement and actuator products.
The gross profit margin for the nine months ended September 30, 1997
remained constant at 36% of revenues. Improved margins from the increased sales
of measurement products were offset by decreased margins at the valve
operations due to lower production levels.
Selling, engineering and administrative ("SE&A") expenses increased
$8,404,000 to $54,367,000 in the current period largely due to SE&A expenses of
companies acquired in 1996. Included in SE&A expenses for the nine months ended
September 30, 1997 is a provision for $1,123,000 relating to anticipated costs
associated with the Company's German subsidiary prior to the completion of its
pending sale to a group including members of the subsidiary's management.
Research and development expenses increased $1,571,000 to $3,632,000 in the
current period largely due to the May 1996 acquisition of Spectra-Tek
International Limited coupled with increased spending on electronic development
projects.
For the nine months ended September 30, 1996, the Company recorded
pretax gains of $1,499,000 from the sale of a German facility and $583,000 from
the sale of the assets of the Company's positive displacement meter product
line.
Interest and other expense (income) decreased by $411,000 in the nine
months ended September 30, 1997 as compared to the same period in 1996. An
increase in interest expense of $562,000 in the current period, due principally
to borrowings used to fund 1996 acquisitions, was more than offset by an
increase of $722,000 in interest income on previously discounted notes received
upon the sale of the assets of the Company's fastener subsidiary in 1996 and
other miscellaneous income.
The effective tax rate for the nine months ended September 30, 1997
was 42.0% as compared to 38.5% for the same period in the prior year. The
increase was due principally to foreign losses for which no tax benefit was
allowed.
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Quarter Ended September 30,1997 vs. Quarter Ended September 30, 1996
Revenues for the quarter ended September 30, 1997 were $71,334,000
compared to $69,134,000 for the same period in 1996. The increase is due
primarily to higher revenues from measurement and actuator businesses which
were partially offset by a decline in revenues from sales of valve products.
The gross profit margin for the quarter ended September 30, 1997
increased to 37% of revenues from 35% in the quarter ended September 30, 1996.
Margins improved on sales of measurement products and valve actuators due
principally to higher sales noted above.
SE&A expenses increased $610,000 to $17,890,000 in the current period
due primarily to SE&A expenses of companies acquired in 1996. Research and
development expenses increased $588,000 to $1,593,000 in the current period
representing increased expenditures on electronic development projects.
In the quarter ended September 30, 1996, the Company recorded a pretax
gain of $583,000 on the sale of the assets of the positive displacement meter
product line.
The effective tax rate for the current quarter was 42.4% compared to
40.3% for the same period last year. This increase was due principally to
foreign losses for which no tax benefit was allowed.
Liquidity and Capital Resources
The primary source of the Company's liquidity for the nine months
ended September 30, 1997 was short-term borrowings, internally generated funds,
and proceeds from the sale of assets. These funds were used primarily for
capital expenditures, funding of operations, payments on short-term and
long-term debt, payment of severance costs which were accrued at December 31,
1996, and for the payment of cash dividends.
Working capital at September 30, 1997 of $60,531,000 reflects an
increase of $6,159,000 from the balance at December 31, 1996. The increase is
primarily due to the increase in accounts receivable associated with higher
revenues realized this year. Daniel considers its financial position to be
strong with a current ratio at September 30, 1997 of 1.8 to 1.0. Working
capital at September 30, 1997 included $53,651,000 in inventory and deferred
tax assets, which are not as liquid as other current assets.
At September 30, 1997, the Company had both committed and uncommitted
short-term lines of credit aggregating approximately $66,000,000. Some of these
lines contain restrictions regarding the amount available for short-term
borrowings or the issuance of letters of credit. At September 30, 1997,
approximately $35,600,000 was available under these lines for additional
short-term borrowings.
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Capital expenditures for the quarter and nine months ended September
30, 1997 were $3,982,000 and $8,049,000, respectively. The Company continues to
seek acquisitions that would build upon its expertise in the manufacture and
sale of fluid measurement, flow control, actuation and analytical products and
services.
The Company believes that its working capital, cash generated from
operations and amounts available under its short-term lines of credit will be
adequate to meet its operating needs for the foreseeable future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is subject to legal proceedings and claims which arise in
the ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 By-laws of the Company, as amended through June 1, 1997.
10.1 Daniel Industries, Inc. 1997 Stock Option Plan
10.2 Daniel Industries, Inc. 1997 Non-Employee Director Stock Option Plan
*10.3 Employment Agreement dated as of June 17, 1997, between the Company and
Thomas A. Newton, Jr.
*10.4 Stock Award Agreement dated as of June 17, 1997, between the Company
and Thomas A. Newton, Jr.
*10.5 Change in Control Agreement dated as of June 17, 1997, between the
Company and Thomas A. Newton, Jr.
*10.6 Change In Control Agreement dated as of June 17, 1997, between the
Company and Ronald C. Lassiter.
*10.7 Form of Change in Control Agreement between the Company and each of
Daniel J. Sarik, Katie-Pat Bowman, and Michael T. Atkins.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
*Management Contract or Compensatory Plan or Arrangement.
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SIGNATURE
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.
DANIEL INDUSTRIES, INC.
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(Registrant)
Date: November 12, 1997 By: /s/ James M. Tidwell
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Executive Vice President and
Chief Financial Officer
Date: November 12, 1997 By: /s/ Wilfred M. Krenek
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Vice President and Controller
(Chief Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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3.1 By-laws of the Company, as amended through June 1, 1997.
10.1 Daniel Industries, Inc. 1997 Stock Option Plan
10.2 Daniel Industries, Inc. 1997 Non-Employee Director Stock Option Plan
*10.3 Employment Agreement dated as of June 17, 1997, between the Company and
Thomas A. Newton, Jr.
*10.4 Stock Award Agreement dated as of June 17, 1997, between the Company
and Thomas A. Newton, Jr.
*10.5 Change in Control Agreement dated as of June 17, 1997, between the
Company and Thomas A. Newton, Jr.
*10.6 Change In Control Agreement dated as of June 17, 1997, between the
Company and Ronald C. Lassiter.
*10.7 Form of Change in Control Agreement between the Company and each of
Daniel J. Sarik, Katie-Pat Bowman, and Michael T. Atkins.
27 Financial Data Schedule