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, 1996
___ 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 11, 1996 -- Common Stock, $.50 Par Value -- 12,351,208
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PART I - FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL POSITION
(Thousands)
September 30, March 31,
1996 1996
Assets
Current assets
Cash and equivalents $ 11,938 $ 16,195
Marketable securities 30,340 13,836
Accounts receivable 60,046 93,713
Inventories
Finished products 43,649 45,386
Work in process 1,647 3,708
Raw materials and supplies 2,615 5,430
Contracts in process 10,182 15,229
58,093 69,753
Income taxes 29,801 32,340
Discontinued operations' net assets 45,925 57,253
Other current assets 2,835 3,904
Total current assets 238,978 286,994
Property, plant, and equipment 86,947 102,295
Less allowances for depreciation
and amortization 49,336 60,241
37,611 42,054
Investments 37,480 37,611
Other assets 27,126 27,988
$341,195 $394,647
Liabilities and Shareholders' Equity
Current liabilities
Trade accounts payable $ 22,416 $ 48,441
Other current liabilities 36,365 64,717
Total current liabilities 58,781 113,158
Long-term obligations 6,403 6,711
Retirement obligations 43,869 43,823
Shareholders' equity
Common stock 6,285 6,285
Other shareholders' equity 225,857 224,670
232,142 230,955
$341,195 $394,647
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
1996 1995 1996 1995
Net sales $81,516 $70,187 $164,073 $130,343
Cost of sales 58,889 50,455 118,487 91,775
Marketing and administration 14,906 13,731 28,959 25,708
Interest income (748) (803) (1,541) (1,682)
Interest expense 334 991 651 1,999
Other income (599) (867) (1,628) (1,590)
Continuing operations income
before income taxes 8,734 6,680 19,145 14,133
Income taxes 3,200 2,540 7,090 5,490
Continuing operations income 5,534 4,140 12,055 8,643
Discontinued operations
(Loss) income from operations (4,855) (65) (9,164) 81
Loss provision reversal 600 600
Net income $ 1,279 $ 4,075 $ 3,491 $ 8,724
Earnings per share
Continuing operations $.44 $.33 $.97 $.70
Net Income $.10 $.33 $.28 $.71
Average shares outstanding 12,369 12,384 12,361 12,365
Cash dividends declared
per common share $.10 $.10 $.20 $.20
See notes to consolidated financial statements.
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CONSOLIDATED CASH FLOWS
(Thousands)
Six Months Ended
September 30
1996 1995
Operations
Net income $ 3,491 $ 8,724
Operating assets and liabilities (2,727) (12,178)
Depreciation and amortization 2,822 2,483
Discontinued operations (4,539) 6,627
Miscellaneous 11 (265)
(942) 5,391
Investing
Marketable securities (16,496) 4,346
Capital expenditures (2,786) (5,569)
Long-term investments (574) 1,068
Sales of operations 846 259
Discontinued operations 19,944 (1,569)
Miscellaneous 602 39
1,536 (1,426)
Financing
Dividends paid (2,470) (3,950)
Debt payments (407) (499)
Discontinued operations (1,974) (528)
(4,851) (4,977)
Cash and equivalents
Decrease (4,257) (1,012)
Beginning of year 16,195 6,360
End of period $ 11,938 $ 5,348
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As the result of the decision made in the fourth quarter of fiscal 1996 to
sell the Lynx Golf and Mechanical Power Transmission segments and the decision
in the second quarter of fiscal 1997 to sell the Power Systems segment
businesses, the statements of consolidated operations and cash flows have been
restated.
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, 1996 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.
At September 30, 1996, $22.0 million of letters of credit were outstanding
under the $100 million commitment from a group of banks for letters of credit
and revolving credit loans and letters of credit issued under other
arrangements amounted to $2.2 million.
If the March 1996 repeal of the State of Illinois Retail Rate Law of 1987 is
not reversed and the assets of two power plants being constructed by the
Company, including debt funding by the owner, are insufficient, a pretax loss
of up to $14 million could be sustained by the discontinued Power Systems
businesses for which no provision has been made as management believes the
Company's costs will be recovered.
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
Business Restructuring
The decision to sell the Power Systems businesses was made in the second
quarter of fiscal 1997 and, accordingly, they and the Lynx Golf and Mechanical
Power Transmission segments are reported in the consolidated financial
statements as discontinued operations. The assets and liabilities of the
discontinued operations have been removed from the consolidated accounts and
are presented in the statement of financial position as a single net asset
(Lynx Golf and Mechanical Power Transmission at March 31, 1996 and all three
segments at September 30, 1996) resulting in significant decreases in accounts
receivable, inventories, property, plant, and equipment, and current
liabilities at September 30, 1996 compared to the amounts reported for
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previous periods. The statements of consolidated operations and cash flows
have been restated to present separately for all periods the continuing
operations of the Water Control segment, now the Company's dominant segment,
and the discontinued operations.
Financial Condition
Liquid assets amounted to $42,278 and $30,031 at June 30 and March 31, 1996,
respectively. At the end of March, they were invested to a greater extent in
shorter-term debt instruments classified as cash equivalents rather than as
marketable securities. An income tax refund during the six month period
reduced the current asset. During the period, the Power Systems' assets
increased and a partial payment from the sale of Lynx Golf decreased the
discontinued operations' net assets.
The status of two power plant construction projects and the litigation
disclosed in the notes to consolidated financial statements are not expected
to have a future material effect on the Company's financial position.
Results of Operations
The Water Control segment is now the Company's dominant industry segment. Its
sales increase was derived primarily from plumbing products and water resource
construction. Almost half of the 24% increase in sales of plumbing products
was attributable to the acquisition last fall of Sanitary-Dash with the
remainder generated by higher volumes in each of the other product lines,
including sales of new products. Revenues from water resource construction
projects were up sharply in the current year's first quarter as work
progressed this year on a large contract which had been awarded but delayed in
starting in the first quarter of last year.
Marketing and administration expenses were up primarily as the result of
commissions on the increased plumbing products sales and several items which
lowered 1995's costs compared to those incurred this year.
The Water Control segment backlog of unfilled orders was: September 1996 - $66
million; June 1996 - $86 million; September 1995 - $139 million.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The January 1994 complaint filed by the State of California in the Municipal
Court of the Los Angeles Judicial District against the Company's subsidiary,
Zurn Constructors, Inc., and two of its employees alleging felony and
misdemeanor violations of the State's Health and Safety, Water, and Penal
codes was dismissed by the District Attorney on July 31, 1996, and
simultaneously the Court entered a consent judgment in a civil proceeding
requiring the subsidiary to pay a total of $12,500.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the August 2, 1996 annual meeting of shareholders, votes were cast as
follows:
Votes For Votes Withheld
Election of directors for a
term of three years each:
Zoe Baird 10,816,809 364,592
William E. Butler 10,829,018 352,383
Adopt the 1996 Employee Stock Plan
Votes For 10,264,260 Abstentions 386,214
Votes Against 530,927 Broker Nonvotes -0-
Adopt amendments to the 1995 Directors Stock Option Plan
Votes For 10,164,807 Abstentions 420,945
Votes Against 595,649 Broker Nonvotes -0-
Ratify appointment of auditors
Votes For 11,071,260 Abstentions 47,907
Votes Against 62,234 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. Management contracts and compensatory plan
arrangements are preceded by an asterisk (*) in the Exhibit Index.
Reports on Form 8-K
No reports were filed during the quarter for which this report is filed.
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 13, 1996 /s/ Dennis Haines
Dennis Haines
General Counsel and Secretary
November 13, 1996 /s/ John E. Rutzler III
John E. Rutzler III
Vice President-Controller
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EXHIBIT INDEX
3 Articles Of Incorporation And By-laws
Restated Articles of Incorporation with Amendments through Incorporated
April 22, 1996 filed as Exhibit 3.1 to Form 10-K for the by reference
year ended March 31, 1996
By-laws as of August 1995 filed as Exhibit 3.1 to Form Incorporated
10-Q for the quarter ended September 30, 1995 by reference
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
April 22, 1996 filed as Exhibit 3.1 to Form 10-K for the
year ended March 31, 1996
Description of Preferred Share Purchase Rights contained Incorporated
in the Form 8-A Registration Statement dated May 17, 1996 by reference
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
* 1995 Directors Stock Option Plan filed as Exhibit 99 to Incorporated
Form S-8 Registration Statement No. 33-65219 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 10.1 to Form 10-Q for by reference
the quarter ended December 31, 1994
* 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
J.A. Zurn filed as Exhibit 10H to Form 10-Q for the by reference
quarter ended June 30, 1989; dated October 17, 1994 with
R.R. Womack filed as Exhibit 10.2 to Form 10-Q for the
quarter ended December 31, 1994; dated May 1, 1995 with
D.L. Butynski and July 1, 1995 with J.R. Mellett filed as
Exhibit 10.8 to Form 10-Q for the quarter ended June 30,
1995; dated August 14, 1995 with F.E. Sheeder filed as
Exhibit 10.11 to Form 10-Q for the quarter ended September
30, 1995
* Employment Agreement dated January 22, 1996 with R.R. Incorporated
Womack filed as Exhibit 10.13 to Form 10-Q for the by reference
quarter ended December 31, 1995
* 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 10.3 to Form 10-Q for by reference
the quarter ended December 31, 1994
* Zurn Industries, Inc. Optional Deferment Plan for Incorporated
Incentive Compensation Plan Participants filed as Exhibit by reference
10.4 to Form 10-Q for the quarter ended December 31, 1994
* Zurn Supplemental Pension Plan filed as Exhibit 10.5 to Incorporated
Form 10-Q for the quarter ended December 31, 1994 by reference
* Indemnity Agreements dated August 14, 1986 with E.J. Incorporated
Campbell, D.W. Wallace, and J.A. Zurn filed as Exhibit by reference
19J to Form 10-Q for the quarter ended September 30, 1986;
dated October 20, 1986 with J.E. Rutzler III filed as
Exhibit 10B to Form 10-Q for the quarter ended December
31, 1988; dated January 25, 1993 with W.E. Butler,
April 1, 1993 with D. Haines, and August 6, 1993 with
Z. Baird filed as Exhibit 10A to Form 10-Q for the
quarter ended June 30, 1993; dated October 17, 1994 with
R.R. Womack filed as Exhibit 10.6 to Form 10-Q for the
quarter ended December 31, 1994; dated May 1, 1995 with
D.L. Butynski, June 8, 1995 with R.D. Neary, and July 1,
1995 with J.R. Mellett filed as Exhibit 10.9 to Form 10-Q
for the quarter ended June 30, 1995; dated August 14, 1995
with F.E. Sheeder filed as Exhibit 10.12 to Form 10-Q for
the quarter ended September 30, 1995; dated October 30,
1995 with M.K. Brown filed as Exhibit 10.14 to Form 10-Q
for the quarter ended December 31, 1995
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* 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
* 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 10.15 to Incorporated
Form 10-K for the year ended March 31, 1996 by reference
11 Statement Re Computation Of Per Share Earnings
Computation of Earnings Per Share
27 Financial Data Schedule SEC Edgar
Filing Only
* - Management contracts and compensatory plan arrangements.
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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
1996 1995 1996 1995
Primary Earnings Per Share
Net income $ 1,279 $ 4,075 $ 3,491 $ 8,724
Preferred stock dividends 1 1
$ 1,279 $ 4,075 $ 3,490 $ 8,723
Shares outstanding
Weighted average common shares 12,344 12,341 12,343 12,341
Net common shares issuable on
exercise of stock options 25 43 18 24
Average common shares outstanding
as adjusted 12,369 12,384 12,361 12,365
Primary earnings per share $.10 $.33 $.28 $.71
Fully Diluted Earnings Per Share
Net income $ 1,279 $ 4,075 $ 3,491 $ 8,724
Shares outstanding
Average common shares as adjusted
for primary computation 12,369 12,384 12,361 12,365
Common shares issuable if the
preferred stock was converted
at the beginning of the year 4 5 4 5
Additional common shares issuable
on exercise of stock options 44 47 25 24
Average common shares outstanding
as adjusted 12,417 12,436 12,390 12,394
Fully diluted earnings per share $.10 $.33 $.28 $.71
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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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<RECEIVABLES> 60,046
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