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 December 31, 1993
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 registrant's classes
of common stock as of the latest practicable date.
February 4, 1994 -- Common Stock, $.50 Par Value -- 12,403,200
Exhibit Index 10
Total Pages 13
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PART I - FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL POSITION
(Thousands)
December 31, March 31,
1993 1993
Assets
Current assets
Cash and equivalents $ 4,957 $ 25,491
Marketable securities 77,809 65,152
Accounts receivable 127,729 151,433
Inventories
Finished products 43,879 45,897
Work in process 15,839 22,612
Raw materials and supplies 17,693 16,763
77,411 85,272
Contracts in progress 11,907 7,066
Other current assets 45,272 31,699
Total current assets 345,085 366,113
Property, plant, and equipment 162,688 162,391
Less allowances for depreciation
and amortization 94,594 91,968
68,094 70,423
Investments 35,649 35,896
Other assets 18,654 17,746
$467,482 $490,178
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 46,208 $ 66,347
Other current liabilities 133,865 115,988
Total current liabilities 180,073 182,335
Long-term obligations 11,449 18,694
Retirement obligations 41,447 40,051
Stockholders' equity
Common stock 6,285 6,285
Other stockholders' equity 228,228 242,813
234,513 249,098
$467,482 $490,178
See notes to consolidated financial statements.
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CONSOLIDATED OPERATIONS
(Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
December 31 December 31
1993 1992 1993 1992
Net sales $142,724 $191,043 $646,993 $511,807
Costs and expenses
Cost of products sold 113,859 159,099 551,381 415,323
Marketing, administrative,
and general expenses 21,242 29,190 62,205 76,285
Restructuring 9,000
135,101 188,289 622,586 491,608
Operating income 7,623 2,754 24,407 20,199
Interest income 1,041 889 3,339 2,711
Other income 538 5,016 1,434 5,912
Interest expense (1,060) (594) (2,064) (1,918)
Litigation (36,247)
Income (loss) before income taxes 8,142 8,065 (9,131) 26,904
Income tax expense (benefit) 3,220 1,220 (4,250) 8,190
Net income (loss) $ 4,922 $ 6,845 $ (4,881) $ 18,714
Earnings (loss) per share $.40 $.55 $(.39) $1.50
Average shares outstanding 12,441 12,476 12,451 12,522
Cash dividends declared
per common share $.22 $.22 $.66 $.66
See notes to consolidated financial statements.
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CONSOLIDATED CASH FLOWS
(Thousands)
Nine Months Ended
December 31
1993 1992
Operations
Net (loss) income $ (4,881) $18,714
Litigation 34,573
Deferred income taxes (14,470)
Restructuring 8,088
Operating assets and liabilities (21,258) (4,100)
Depreciation and amortization 7,903 7,965
Miscellaneous (457) 8
9,498 22,587
Investing
Marketable securities (12,657) (14,088)
Capital expenditures (8,121) (11,245)
Sales of operations 2,508 (183)
Long-term investments (756) (1,313)
Miscellaneous 167 2,253
(18,859) (24,576)
Financing
Dividends paid (8,220) (8,260)
Treasury stock purchased (2,412) (5,563)
Debt payments (1,666) (1,606)
Stock options exercised 1,125 813
(11,173) (14,616)
Cash and equivalents
(Decrease) (20,534) (16,605)
Beginning of year 25,491 27,459
End of period $ 4,957 $ 10,854
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 nine months ended
December 31, 1993 are not necessarily indicative of the results to be expected
for the full year.
Earnings per share are based on income and the average shares of common stock
and dilutive stock options outstanding during the period.
The $50,000,000 commitment the Company had from a group of banks for revolving
credit loans has been extended to March 1994.
The nine months of the current year include an $8,363,000 ($.41 per share)
recovery of a receivable written off in fiscal 1992, a $1,850,000 ($.15 per
share) benefit from revaluing net deferred tax assets as a result of federal
tax legislation, and restructuring costs of $9,000,000 ($.44 per share).
A $36,247,000 pre-tax charge, including a $9,747,000 write-off of accounts
receivable, ($23,197,000 after-tax, or $1.87 per share) was recognized in the
first quarter of the current year as the result of a jury verdict against the
Company in connection with a contract to construct an agricultural waste-
burning power plant. If all issues are lost on the appeal which is being
aggressively pursued, the ultimate amount could reach $55,000,000.
The third quarter of last year includes $4,667,000 after-tax ($.37 per share)
from the favorable settlement of prior year state income tax assessments and
$5,377,000 ($.27 per share) for the costs of the agricultural waste-burning
power plant legal proceedings.
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
At December 31, 1993, liquid assets were invested to a greater extent in
longer-term debt instruments causing 62% of the decline in cash and
equivalents and the increase in marketable securities. The balance of the
decline was caused primarily by the Power Systems segment paying significant
amounts of trade accounts payable and accrued expenses as several power plant
projects were completed. About 40% of the accounts receivable reduction is
attributable to collections of fiscal 1993 fourth quarter Lynx Golf sales,
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while the accounts receivable write off associated with the litigation charge
described in the notes to consolidated financial statements caused a
significant portion of the remaining reduction and the increase in other
current liabilities. The deferred income taxes included in other current
assets increased because of the litigation charge and their revaluation due to
tax legislation.
Most of the inventory change is associated with fewer steam generating
equipment orders for the Power Systems segment. Power plant performance
efficiency payments earned by the Power Systems segment, but payable in future
years, more than offset the $5.0 million reduction in long-term investments
that resulted from relinquishing the limited partnership investment related to
the collection of the $8.4 million receivable described in the notes to
financial statements. The collection of the receivable also resulted in the
cancellation of a $5.0 million nonrecourse note payable causing a substantial
part of the decline in long-term obligations. Most of the change in
stockholders' equity was the result of the net loss for the nine-month period
and the payment of dividends.
While the financial condition changes reduced working capital and the current
ratio, neither they nor an unfavorable resolution of the contingencies
described in the financial statement notes are expected to have an adverse
effect on the Company's business plans.
Results of Operations
Sales by the Company's industry segments were as set forth below.
Three Months Ended Nine Months Ended
December 31 December 31
1993 1992 1993 1992
(Thousands)
Power Systems $ 66,706 $114,224 $403,502 $269,826
Water Control 59,413 57,784 189,174 180,195
Lynx Golf 7,117 5,181 26,332 26,345
Others 9,488 13,854 27,985 35,441
$142,724 $191,043 $646,993 $511,807
The Power Systems segment nine-month revenue increase reflects the higher
level of power plant construction activity on projects having more major
purchased equipment. Substantial portions of the projects were completed in
the first half and, with only one new order and fewer projects under
construction, third quarter revenues declined compared to last year.
Increases in Water Control segment sales of plumbing products and revenues
from water resource construction projects more than offset the expected
decline in fire sprinkler systems revenues this year, while last year's nine-
month sales included $15,989,000 from businesses which have been sold
($5,075,000 in the third quarter). The Lynx Golf sales increase for the
quarter was derived from the reduction of specialty inventory items and, for
the nine months, its sales have been adversely affected by a substantially
slowed worldwide market for premium-priced golf clubs and a first quarter
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delay in the production of the new line of metal woods. Other businesses'
sales last year included an operation that was sold at the beginning of this
year.
The year-to-date gross profit margin decline is attributable to the Power
Systems segment's steam generating equipment market decline and power plant
projects having more major purchased equipment, higher Lynx Golf production
costs, and greater competition for water resource construction projects. In
the third quarter, the profit margin decline which otherwise would have
occurred was offset by Power Systems earnings which were particularly strong
as several power plant projects were completed with final profitability which
was enhanced by achieving performance efficiencies beyond contract
requirements. General expenses were greater in the third quarter last year
because of the cost of legal proceedings and businesses which were
subsequently sold. For the nine months this year, general expenses were
reduced by the collection in the second quarter of a fully-reserved receivable
while Lynx Golf promotional efforts and first quarter legal costs offset the
absence of expenses from sold businesses. The restructuring charge was
provided to cover the costs of realigning operations and writing off certain
assets.
The litigation charge and the effects of legislation on income taxes are
described in the notes to financial statements. However, this year's
effective tax rate is higher primarily because of reduced earnings
expectations in states with relatively lower tax rates. The ongoing accrual
of interest associated with the litigation provision affected interest expense
in the third quarter. Last year's third quarter net income included the
favorable settlement of prior year state income tax assessments, with
previously accrued interest being included in other income and the reversal of
tax reserves reducing the effective income tax rate.
The Company's backlog of unfilled orders by industry segment was as follows:
December September December
1993 1993 1992
(Millions)
Power Systems $150 $149 $484
Water Control 85 101 149
Lynx Golf 9 4 12
Others 11 12 13
$255 $266 $658
The Company's sales and earnings for the fourth quarter will be below last
year's levels before the gain from the sales of businesses. Power Systems
segment sales are expected to be at a level similar to this year's third
quarter with lower earnings. Lynx Golf, which has operated each quarter at a
loss greater than last year, is expected to have substantially improved and
profitable results compared to last year's fourth quarter.
Pending further additions to the backlog, Power Systems sales for fiscal 1995
are anticipated to be less than half of this year's level.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 24, 1993, the Superior Court of Imperial County California
entered a judgment in the amount of $25,746,000 against the Company and its
subsidiary, National Energy Production Corporation (NEPCO), in connection with
a cross complaint filed in February 1991 by Imperial Resource Recovery
Associates, L.P., a California Limited Partnership, which alleged that NEPCO
had failed to construct an electric generating facility in accordance with
contract terms. The Court also assessed prejudgment interest of $6,133,050.
An appeal from the entire judgment was taken on September 24, 1993 by the
Company and NEPCO and is pending in the California Court of Appeals Fourth
District.
On October 19, 1993, the Commonwealth of Pennsylvania Department of
Environmental Resources (Department) filed a complaint in the United States
District Court for the Western District of Pennsylvania against the Company
and twenty-six others seeking to recover past and future specified and
unspecified costs exceeding $2,200,000 arising out of the Department's
involvement at the Millcreek Dumpsite in Erie County, Pennsylvania.
In January 1994, the State of California filed a complaint in the Municipal
Court of the Los Angeles Judicial District against the Company's subsidiary,
Zurn Constructors, Inc., two of its employees, and another company and
individual alleging felony and misdemeanor violations of the State's Health
and Safety, Water, and Penal codes in connection with the discharge of a
pollutant from the other company's property into a Coyote Creek tributary.
The maximum fines for the alleged charges sought in the complaint against Zurn
Constructors total $570,000.
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
No reports were filed during the quarter for which this report is filed.
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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.
ZURN INDUSTRIES, INC.
(Registrant)
February 11, 1994 /s/ Dennis Haines
Dennis Haines
General Counsel and Secretary
February 11, 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
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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 for by reference
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, 1993 by reference
11 Statement Re Computation of Per Share Earnings
Computation of Earnings Per Share Page 13
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EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
December 31 December 31
1993 1992 1993 1992
Primary Earnings Per Share
Net income (loss) $ 4,922 $ 6,845 $(4,881) $18,714
Preferred stock dividends 1 2 3
$ 4,922 $ 6,844 $(4,883) $18,711
Shares outstanding
Weighted average common shares 12,441 12,402 12,451 12,467
Net common shares issuable on Anti- Anti-
exercise of stock options dilutive 74 dilutive 55
Average common shares outstanding
as adjusted 12,441 12,476 12,451 12,522
Primary earnings (loss) per share $.40 $.55 $(.39) $1.50
Fully Diluted Earnings Per Share
Net income A $ 6,845 A $18,714
Interest on convertible debentures, n n
net of applicable income taxes t 9 t 28
i i
d $ 6,854 d $18,742
i i
Shares outstanding l l
Average common shares as adjusted u u
for primary computation t 12,476 t 12,522
Common shares issuable if the i i
preferred stock and convertible v v
debentures were converted at e e
the beginning of the year 76 79
Additional common shares issuable
on exercise of stock options 44 16
Average common shares outstanding
as adjusted 12,596 12,617
Fully diluted earnings per share $.55 $1.49
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