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 September 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.
November 9, 1994 -- Common Stock, $.50 Par Value -- 12,340,648
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PART I - FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL POSITION
(Thousands)
September 30, March 31,
1994 1994
Assets
Current assets
Cash and equivalents $ 12,402 $ 4,137
Marketable securities 57,841 61,296
Accounts receivable 115,101 132,328
Inventories
Finished products 43,322 44,208
Work in process 18,088 16,390
Raw materials and supplies 13,551 13,386
Contracts in process 5,874 12,395
80,835 86,379
Deferred income taxes 41,880 41,880
Other current assets 6,629 5,642
Total current assets 314,688 331,662
Property, plant, and equipment 140,587 138,781
Less allowances for depreciation
and amortization 84,649 81,778
55,938 57,003
Investments 34,727 35,958
Other assets 24,429 23,270
$429,782 $447,893
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable $ 39,940 $ 47,948
Other current liabilities 115,421 123,198
Total current liabilities 155,361 171,146
Long-term obligations 10,245 10,972
Retirement obligations 45,610 44,192
Stockholders' equity
Common stock 6,285 6,285
Other stockholders' equity 212,281 215,298
218,566 221,583
$429,782 $447,893
See notes to consolidated financial statements.
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CONSOLIDATED OPERATIONS
(Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended
September 30 September 30
1994 1993 1994 1993
Net sales $112,169 $215,493 $226,554 $504,269
Cost of sales 86,694 186,031 177,686 439,493
Marketing and Administration 22,502 23,587 43,670 46,700
Unusual items (1,363) 37,539
Interest income (1,160) (1,194) (2,332) (2,298)
Interest expense 1,083 484 2,061 1,004
Other income (702) (517) (1,227) (896)
Income (loss) before income taxes 3,752 8,465 6,696 (17,273)
Income tax expense (benefit) 1,280 1,640 2,280 (7,470)
Net income (loss) $ 2,472 $ 6,825 $ 4,416 $ (9,803)
Earnings (loss) per share $.20 $.55 $.36 $(.79)
Average shares outstanding 12,340 12,461 12,374 12,456
Cash dividends declared
per common share $.22 $.22 $.44 $.44
See notes to consolidated financial statements.
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CONSOLIDATED CASH FLOWS
(Thousands)
Six Months Ended
September 30
1994 1993
Operations
Net income (loss) $ 4,416 $ (9,803)
Operating assets and liabilities 6,846 8,532
Depreciation and amortization 4,859 5,278
Litigation 31,845
Deferred income taxes (14,470)
Plant closing and asset write-offs 6,402
Miscellaneous (346) (193)
15,775 27,591
Investing
Capital expenditures (4,075) (6,097)
Marketable securities 2,597 (30,303)
Long-term investments 1,756 (581)
Sales of operations 218 2,162
Miscellaneous 230 117
726 (34,702)
Financing
Dividends paid (5,462) (5,480)
Treasury stock (1,926)
Debt payments (881) (1,004)
Stock options exercised 33 916
(8,236) (5,568)
Cash and equivalents
Increase (decrease) 8,265 (12,679)
Beginning of year 4,137 25,491
End of period $12,402 $ 12,812
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 six months ended
September 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.
Fiscal 1994 unusual items are $38,902,000 ($2.00 per share) in the first
quarter as a result of a jury verdict in connection with a power plant
construction contract and related legal costs and, in the second quarter,
$7,000,000 ($.34 per share) for a plant closing and asset write-offs and
benefits of $8,363,000 ($.41 per share) from the recovery of an account
receivable previously written off and a net $.12 per share from revaluing net
deferred tax assets and increasing the effective tax rate. If all issues are
lost on appeal of the jury verdict 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
Liquid assets, net of valuation allowances, increased $4,810,000 during the
six-month period and, at September 30, 1994, they were invested to a greater
extent in shorter-term debt instruments classified as cash equivalents rather
than as marketable securities. Other than the collection of receivables from
the higher level of Lynx Golf sales in last year's fourth 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 significantly
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 lead 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 Six Months Ended
September 30 September 30
1994 1993 1994 1993
(Thousands)
Power Systems $ 35,182 $128,396 $ 71,692 $336,796
Water Control 61,673 68,287 122,781 129,761
Lynx Golf 5,584 9,486 12,906 19,215
Others 9,730 9,324 19,175 18,497
$112,169 $215,493 $226,554 $504,269
The Power Systems segment revenue decline reflects the decline in the United
States independent power generation and steam generating equipment markets and
the resulting lower level of orders received over the last 18 months. Working
from a substantially greater beginning backlog, last year's revenues reflect
the higher level of power plant construction activity on projects having
larger amounts of major equipment. The Water Control segment's sales of
plumbing products for the quarter and six months increased 20% and 18%,
respectively, as a result of obtaining a greater market share and price
increases. These results were more than offset by lower revenues from water
resource construction projects and the installation of fire sprinkler systems
as the backlogs of these California-based businesses remain at low levels.
Lynx Golf sales have been negatively impacted by intense marketplace
competition while they were bolstered in last year's second quarter by the
introduction of new metal woods. Lynx Golf continues to suffer from surplus
capacity and, based on the competitive situation in the golf club market, it
is not expected to show significant improvement in year-to-year results until
the fourth quarter when sales are expected to be stronger based on the planned
introduction of a unique new golf club.
The higher gross profit margin is primarily attributable to the lower
percentage of total sales contributed by the Power Systems segment. Other
factors included margin gains on plumbing products and cost reductions in the
Lynx Golf and fire protection sprinkler systems businesses. In last year's
second quarter, Lynx Golf included a loss for the disposition of discontinued
products. Marketing and administration expense reductions attributable to
plant closings and other cost reduction measures generally have been offset by
commissions and promotion costs associated with the plumbing products sales
increase and the on-going international marketing efforts of the Power Systems
segment.
The unusual items and last year's revaluation of net deferred tax assets and
effective tax rate change are described in the notes to financial statements.
The low effective income tax rate this year results from tax exempt investment
income being a more significant component of pretax income.
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The Company's backlog of unfilled orders by industry segment was as follows:
September June September
1994 1994 1993
(Millions)
Power Systems $116 $144 $149
Water Control 61 58 101
Lynx Golf 2 2 4
Others 11 10 12
$190 $214 $266
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the August 5, 1994 annual meeting of stockholders, votes were cast as
follows:
Election of directors for a term of three years each:
Votes For Votes Withheld
William A. Freeman 10,387,712 131,435
George H. Schofield 10,386,007 133,140
Ratify appointment of auditors
Votes For 10,427,338 Abstentions 49,111
Votes Against 42,698 Broker nonvotes -0-
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)
November 10, 1994 /s/ Dennis Haines
Dennis Haines
General Counsel and Secretary
November 10, 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
-9-<PAGE>
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 Incorporated
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
27 Financial Data Schedule SEC Edgar
Filing Only
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EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended
September 30 September 30
1994 1993 1994 1993
Primary Earnings Per Share
Net income (loss) $ 2,472 $ 6,825 $ 4,416 $(9,803)
Preferred stock dividends 1 1 2 2
$ 2,471 $ 6,824 $ 4,414 $(9,805)
Shares outstanding
Weighted average common shares 12,340 12,461 12,373 12,456
Net common shares issuable on Anti- Anti-
exercise of stock options dilutive 1 dilutive
Average common shares outstanding
as adjusted 12,340 12,461 12,374 12,456
Primary earnings (loss) per share $.20 $.55 $.36 $(.79)
Fully Diluted Earnings Per Share
Net income 2,472 A 4,416 A
Interest on convertible debentures, n n
net of applicable income taxes 8 t 15 t
i 4,431 i
2,480 d d
i i
Shares outstanding l l
Average common shares as adjusted u u
for primary computation 12,340 t 12,374 t
Common shares issuable if the i i
preferred stock and convertible v v
debentures were converted at e e
the beginning of the year 60 51
Additional common shares issuable
on exercise of stock options 2
Average common shares outstanding
as adjusted 12,400 12,427
Fully diluted earnings per share $.20 $.36
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<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE STATEMENTS OF CONSOLIDATED FINANCIAL
POSITION AND CONSOLIDATED OPERATIONS INCLUDED IN PART I OF
THIS REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
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<CASH> 12,402
<SECURITIES> 57,841
<RECEIVABLES> 115,101
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<INVENTORY> 80,835
<CURRENT-ASSETS> 314,688
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<BONDS> 10,245
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<COMMON> 6,285
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<TOTAL-LIABILITY-AND-EQUITY> 429,782
<SALES> 226,554
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<CGS> 177,686
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