<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
[ ] 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 1-6098
DANIEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1547355
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9753 Pine Lake Drive, Houston, Texas 77055
(Address of principal executive offices) (Zip Code)
713-467-6000
(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 April 29, 1994, there were outstanding 12,030,265 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. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1994 1993
------------ -------------
(in thousands)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,185 $ 23,220
Receivables, net of reserve of $106 and $96 29,817 33,105
Costs in excess 9,364 6,054
Inventories 49,733 39,446
Deferred taxes on income 4,022
Other 3,516 3,350
-------- --------
Total current assets 103,637 105,175
Property, plant and equipment at cost, net 67,082 64,477
Intangibles, net 4,761 4,786
Investments and other assets 1,780 3,630
-------- --------
$177,260 $178,068
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 2,857 $ 2,857
Accounts payable 19,602 17,395
Accrued expenses 15,807 17,714
-------- --------
Total current liabilities 38,266 37,966
Long-term debt 11,429 14,286
Deferred taxes on income 8,961 4,766
-------- --------
Total liabilities 58,656 57,018
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value,
1,000,000 shares authorized, 150,000
shares designated as Series A junior
participating preferred stock, no
shares issued or outstanding
Common stock, $1.25 par value,
20,000,000 shares authorized,
12,030,265 and 12,026,450 shares issued 15,038 15,033
Capital in excess of par value 89,586 89,564
Translation component (4,284) (3,614)
Retained earnings 18,264 20,067
-------- --------
Total stockholders' equity 118,604 121,050
-------- --------
$177,260 $178,068
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 3
DANIEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of dollars, except per share data and number of shares)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31, Six Months Ended March 31,
----------------------------- ------------------------------
1994 1993 1994 1993
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 48,632 $ 43,112 $ 89,207 $ 78,978
----------- ----------- ----------- ------------
Costs and expenses:
Cost of goods sold 32,802 25,578 58,730 46,986
Selling, general and
administrative expenses 15,204 15,077 30,591 29,203
Interest expense 410 576 876 1,152
----------- ----------- ----------- ------------
Total expenses 48,416 41,231 90,197 77,341
----------- ----------- ----------- ------------
Income (loss) before income
tax expense (benefit) 216 1,881 (990) 1,637
Income tax expense (benefit) 96 687 (269) 781
----------- ----------- ----------- ------------
Net income (loss) $ 120 $ 1,194 $ (721) $ 856
----------- ----------- ----------- ------------
Earnings (loss) per
common share(a) $ .01 $ .10 $ (.06) $ .07
----------- ----------- ----------- ------------
Cash dividends per common
share $ .045 $ .045 $ .09 $ .09
----------- ----------- ----------- ------------
Average number of shares
outstanding(a) 12,030,265 11,981,318 12,029,238 11,975,830
----------- ----------- ----------- -----------
</TABLE>
(a) Earnings (loss) per common share are computed on the basis of the
average number of shares outstanding. The effect of outstanding stock
options on earnings (loss) per share was insignificant.
See accompanying notes to consolidated condensed financial statements.
<PAGE> 4
DANIEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31,
-----------------------------
1994 1993
---------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (721) $ 856
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,696 3,186
Changes in operating assets and
liabilities (9,539) (1,657)
------- -------
Net cash provided by (used in) operating
activities (6,564) 2,385
------- -------
Cash flows from investing activities:
Capital expenditures (6,631) (3,777)
Purchase of investment securities (1,579)
Proceeds from sale of investment securities 1,000
Proceeds from sales of assets 127 825
------- -------
Net cash used in investing activities (5,504) (4,531)
------- -------
Cash flows from financing activities:
Reductions of debt (2,857) (2,857)
Cash dividends paid (1,083) (1,078)
Activity under stock option plan 27 96
------- -------
Net cash used in financing activities (3,913) (3,839)
------- -------
Effect of exchange rate changes on cash (54) (556)
------- -------
Decrease in cash and cash equivalents (16,035) (6,541)
Cash and cash equivalents, beginning of period 23,220 29,249
------- -------
Cash and cash equivalents, end of period $ 7,185 $22,708
======= =======
Cash payments for income taxes $ 1,026 $ 56
Cash payments for interest 986 1,150
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - General
The foregoing financial statements have been prepared from the books
and records of 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 such financial statements.
These condensed statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1993.
Note 2 - Acquisitions and Discontinuances
As previously reported in the Company's Annual Report on Form 10-K for
the year ended September 30, 1993, the Company acquired, effective January 1,
1992, from an agency of the German government, a facility in Potsdam-Babelsberg
in the former German Democratic Republic ("GDR"). The facility manufactures
oval gear meters and will produce other Company products. Acquisition and
related costs, aggregating approximately $4,900,000, are recorded primarily in
property, plant and equipment. Because of the volume of business in the land
registration office, registration of legal title to the facility and associated
assets has been delayed. This administrative delay does not affect the
Company's ownership rights. Upon registration of legal title in the Company's
name, the purchase price, which is being held in a restricted account, will be
released to the seller.
Note 3 - Inventories
Major components of inventories include:
<TABLE>
<CAPTION>
March 31, September 30,
1994 1993
--------- -------------
(in thousands)
<S> <C> <C>
Raw materials $19,264 $14,193
Work-in-process 11,119 9,663
Finished goods 26,371 22,377
------- -------
56,754 46,233
Less LIFO reserve (7,021) (6,787)
------- -------
$49,733 $39,446
======= =======
</TABLE>
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Inventory reductions in fiscal 1993 resulted in liquidations of LIFO
inventory layers carried at lower costs prevailing in prior periods as compared
with current costs, the effect of which increased earnings by approximately
$.01 per share, for the quarter and six months ended March 31, 1993.
Note 4 - Accrued Expenses
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
March 31, September 30,
1994 1993
--------- -------------
(in thousands)
<S> <C> <C>
Other accrued expenses $12,322 $12,711
Salaries and wages 2,065 2,415
Accrued taxes other than income 1,420 2,588
------- -------
$15,807 $17,714
======= =======
</TABLE>
Note 5 - Income Taxes
Effective October 1, 1993, the Company adopted the Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes"
("FAS 109"). Information on the adoption of FAS 109 is set forth in Note 5 of
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS of the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1993.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Six Months Ended March 31, 1994 vs. Six Months Ended March 31, 1993
Consolidated revenues increased 13% to $89,207,000 for the six months
ended March 31, 1994, from $78,978,000 for the same period last year. The Flow
Measurement segment posted a 34% increase in revenues to $65,913,000 for the
current period, compared to $49,202,000 for the same period last year. A
significant portion of the increase in sales of flow measurement systems, which
comprised 34% and 19% of this segment's revenues in the respective periods,
were related to construction of liquid and gas metering systems destined
primarily for the North Sea and Europe. Sales of flow measurement products
increased 10% reflecting increased demand for the Company's metering products,
primarily in foreign markets. The Energy Products segment experienced a 21%
decline in revenues to $23,033,000 for the current period, compared to
$29,248,000 for the
<PAGE> 7
same period last year. Sales of pipeline valves, which comprised 41%
and 47% of this segment's revenues in the respective periods, decreased due to
a more competitive worldwide market as a result of lower crude oil prices.
Sales of fasteners, which comprised 45% and 40% of this segment's revenues in
the respective periods, declined due to severe pricing pressures from both
domestic and foreign-sourced competitors.
The Company's revenues from foreign markets represented 60% of total
revenues for the six months ended March 31, 1994, compared to 50% of revenues
for the same period last year. The Company expects this trend to continue
throughout the fiscal year.
The consolidated gross profit margin declined to 34% of revenues for
the six months ended March 31, 1994, compared to 41% of revenues for the same
period last year. The gross profit margin in the Flow Measurement segment
declined five percentage points to 38% of revenues primarily due to a shift in
product mix towards sales of flow measurement systems, which earn lower margins
than sales of flow measurement products. The gross profit margin in the Energy
Products segment declined to 22% of revenues this year, from 35% of revenues
last year as a result of current year pricing pressures for both pipeline valve
and fastener products and a change in inventory reserves.
Consolidated selling, general and administrative expenses increased 5%
to $30,591,000 for the six months ended March 31, 1994, compared to the same
period last year. However, these expenses, as a percentage of revenues,
declined three percentage points to 34% of revenues for the current period.
The Flow Measurement segment's expenses declined significantly to 29% of
revenues because a comparatively larger portion of those revenues was
attributable to sales of flow measurement systems which have lower sales
commissions than do sales of flow measurement products. The Energy Products
segment's expenses increased four percentage points to 31% of revenues since
certain of these expenses are fixed and do not decrease proportionately with
revenues. Corporate expenses increased 48% to $4,112,000 primarily because of
reversals in the prior year of reserves associated with settled litigation.
Consolidated depreciation and amortization expense of $3,696,000 for
the six months ended March 31, 1994 increased 16% compared to the same period
last
<PAGE> 8
year due to additional capital expenditures in fiscal 1993 in both the
Flow Measurement and Energy Products segments.
Consolidated interest expense decreased 24% to $876,000 for the six
months ended March 31, 1994, as a result of the retirement of debt.
The effective tax rate of approximately 27% for the six months ended
March 31, 1994, is less than the U.S. statutory rate primarily due to the tax
benefits associated with the Company's foreign sales corporation.
Quarter Ended March 31, 1994 vs. Quarter Ended March 31, 1993
Consolidated revenues increased 13% to $48,632,000 for the quarter
ended March 31, 1994, from $43,112,000 for the same period last year. The Flow
Measurement segment posted a 37% increase in revenues to $36,097,000 for the
current period, compared to $26,310,000 for the same period last year. This
change is primarily attributable to significant increases in revenues of flow
measurement systems, which comprised 39% and 21% of this segment's revenues in
the respective periods. The Energy Products segment posted a 25% decline in
revenues to $12,438,000 for the current quarter, compared to $16,570,000 for
the same period last year. Sales of pipeline valves, which comprised 43% and
52% of this segment's revenues in the respective periods, decreased due to a
continuing competitive worldwide market as a result of lower crude oil prices.
Sales of fasteners, which comprised 44% and 35% of this segment's revenues in
the respective periods, declined due to continued pricing pressures from both
domestic and foreign-sourced competitors.
The consolidated gross profit margin declined to 33% of revenues for
the quarter ended March 31, 1994, compared to 41% of revenues for the same
period last year. The gross profit margin in the Flow Measurement segment
declined eight percentage points to 36% of revenues primarily due to a shift in
product mix towards sales of flow measurement systems, which earn lower margins
than sales of flow measurement products. The gross profit margin in the Energy
Products segment declined to 22% of revenues in the current quarter, compared
to 35% of revenues last year as a result of current year pricing pressures for
both pipeline valve and fastener products and operational inefficiencies at the
fastener operation.
<PAGE> 9
Consolidated selling, general and administrative expense of $15,204,000
for the quarter ended March 31, 1994, remained relatively unchanged from
$15,077,000 reported for the same period last year. These expenses, as a
percentage of revenues, declined four percentage points to 31% of revenues for
the current quarter.
Consolidated depreciation and amortization expense of $1,873,000 for
the quarter ended March 31, 1994 increased 18% compared to the same period last
year due to additional capital expenditures in fiscal 1993 in both the Flow
Measurement and Energy Products segments.
Consolidated interest expense decreased 29% to $410,000 for the quarter
ended March 31, 1994, as a result of the retirement of debt.
The effective tax rate of approximately 44% for the quarter ended March
31, 1994, is greater than the U.S. statutory rate primarily due to losses at
the Company's German operation for which no tax benefits are currently
recognized.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1994, the Company's working capital balance was
$65,371,000 compared to $67,209,000 at September 30, 1993. Although the
Company's working capital position decreased slightly between the two periods,
its cash balance declined significantly from $23,220,000 at September 30, 1993
to $7,185,000 at March 30, 1994. This decrease in cash was due to routine uses
(i.e. capital expenditures, reductions in debt and payment of dividends) as
well as the funding of operating activities. Inventories and costs in excess
of billings on contracts in progress increased an aggregate of $13,597,000,
reflecting the improved demand for the Company's products and systems.
Current deferred taxes on income of $4,022,000 at March 31, 1994 are
attributable to a reclassification from non-current deferred taxes on income as
a result of fiscal 1994 implementation of the Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes" (see Note 5 of NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS).
Working capital at March 31, 1994 included $49,733,000 in inventory,
which is not as liquid as other current assets.
<PAGE> 10
At March 31, 1994, the Company had uncommitted short-term lines of
credit aggregating approximately $40,000,000. Subsequent to that date,
primarily due to outlays of cash prior to shipment and payment for the sale of
a large measurement system, $5,000,000 was borrowed under these lines to
finance working capital needs. These borrowings, the latest of which matures
in early June 1994, are at an average weighted interest rate of 4.4%. While
the Company expects its borrowing requirements to increase somewhat over the
near term, the timing of one or a few major expenditures or receipts may affect
the level of borrowings at a particular point in time. The Company considers
its financial position to be strong and believes that its current financial
position and available lines of credit will provide ample sources of funds to
meet foreseeable requirements.
The Company anticipates capital expenditures in fiscal 1994 of
approximately $14,000,000. Capital expenditures for the six months ended March
31, 1994 were $6,631,000. The Company continues to seek acquisitions that
would expand its existing business.
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 of the Company. Additionally, in the ordinary course of
business, the Company issues standby letters of credit and bank guarantees as
security for advances, progress payments and performance on long-term
contracts. The Company is contingently liable for such obligations which
amounted to approximately $18,400,000 at March 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(b) The Company did not file any report on Form 8-K during the
quarter for which this report is filed.
<PAGE> 11
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.
DANIEL INDUSTRIES, INC.
---------------------------------
(Registrant)
Date May 10, 1994 By /s/ W. A. Griffin, III
---------------------- ----------------------------
W. A. Griffin, III
President
(Chief Operating Officer)
Date May 10, 1994 By /s/ Henry G. Schopfer, III
---------------------- ----------------------------
Henry G. Schopfer, III
Vice President, Finance
