<PAGE> 1
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 JUNE 30, 1996
-------------------------------------------------
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)
<TABLE>
<S> <C>
DELAWARE 74-1547355
- ------------------------------------------------ ------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
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 August 5, 1996, there were outstanding 12,136,813 shares of Common
Stock, $1.25 par value, of the registrant.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DANIEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except per share data and number of shares)
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------------ -------------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 7,460 $ 3,895
Receivables, net of reserve of $473 and $98 39,547 34,807
Costs in excess 3,659 941
Inventories 44,879 35,889
Deferred taxes on income 7,102 7,982
Net assets held for sale 22,838
Other 3,647 2,427
--------- ---------
Total current assets 106,294 108,779
Property, plant and equipment at cost, net 54,873 52,677
Intangibles and other assets 19,409 3,012
-------- ---------
$180,576 $164,468
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $ 22,037 $ 10,000
Current maturities of long-term debt 2,857 2,857
Accounts payable 14,229 11,702
Accrued expenses 16,599 18,834
--------- ---------
Total current liabilities 55,722 43,393
Long-term debt 5,715 8,572
Deferred taxes on income 5,424 3,183
--------- ---------
Total liabilities 66,861 55,148
--------- ---------
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, 12,136,813 and 12,083,485 shares issued 15,171 15,104
Capital in excess of par value 90,955 90,247
Translation component (2,537) (295)
Retained earnings 10,126 4,264
-------- --------
Total stockholders' equity 113,715 109,320
-------- --------
$180,576 $164,468
======== ========
</TABLE>
See accompanying NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
2
<PAGE> 3
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of dollars, except per share data and number of shares)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 39,841 $ 42,028 $122,979 $123,063
-------- -------- -------- --------
Costs and expenses:
Cost of sales 23,582 24,468 72,033 78,147
Depreciation and
amortization 1,671 1,673 5,031 5,857
Selling and administrative
expenses 10,220 11,359 31,611 33,426
Research and development expenses 423 621 1,154 2,165
Unusual items 12,330
Loss on disposal
of asset 1,371 1,371
Interest expense 471 493 1,378 1,520
------- ------- ------- --------
Total expenses 36,367 39,985 111,207 134,816
------- ------- ------- --------
Income (loss) before
income tax expense
(benefit) 3,474 2,043 11,772 (11,753)
Income tax expense (benefit) 939 762 4,276 (3,930)
-------- ------- ------- --------
Net income (loss) $ 2,535 $ 1,281 $ 7,496 $ (7,823)
======== ======== ======== ========
Earnings (loss) per
common share $ .21 $ .11 $ .62 $ (.65)
======== ======== ======== ========
Cash dividends per
common share $ .045 $ .045 $ .135 $ .135
======== ======== ======== ========
Average number of shares
outstanding 12,116,350 12,041,919 12,096,812 12,035,918
========== ========== ========== ==========
</TABLE>
See accompanying NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
<PAGE> 4
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
-----------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,496 $ (7,823)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Non-cash portion of restructuring and other items 12,495
Depreciation and amortization 5,031 5,857
Changes in operating assets and liabilities (13,415) (1,102)
-------- --------
Net cash provided by (used in) operating activities (888) 9,427
-------- --------
Cash flows from investing activities:
Acquisitions (13,633) (4,177)
Capital expenditures (4,159) (3,612)
Proceeds from sales of investment securities 2,039
Proceeds from sales of assets 14,059(a) 91
-------- --------
Net cash used in investing activities (3,733) (5,659)
-------- --------
Cash flows from financing activities:
Net borrowings (payments) on lines of credit (1,000) 7,500
Proceeds from term loan 13,037
Payments on long-term debt (2,857) (2,858)
Cash dividends paid (1,634) (1,625)
Activity under stock option and stock award plans 775 576
-------- --------
Net cash provided by financing activities 8,321 3,593
-------- --------
Effect of exchange rate changes on cash (135) 46
-------- --------
Increase in cash and cash equivalents 3,565 7,407
Cash and cash equivalents, beginning of period 3,895 2,520
-------- --------
Cash and cash equivalents, end of period $ 7,460 $ 9,927
======== ========
</TABLE>
(a) Includes proceeds from the divestiture of certain product lines. See Note
3 of NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
See accompanying NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
<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, 1995.
As a result of the divestiture of certain product lines, the Company
evaluated its remaining product lines and determined that it has one business
segment, fluid measurement, flow control products and systems.
The Company has not elected early adoption of Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation",
effective for fiscal years beginning after December 15, 1995, which is the
Company's year ending September 30, 1997. The Company believes adoption of
this statement will not materially affect the Company's financial statements.
Note 2 - Acquisitions
On May 28, 1996, the Company, through a wholly-owned subsidiary, Daniel
International Holdings Ltd., acquired all of the outstanding stock of
Spectra-Tek International Limited ("Spectra-Tek"). Spectra-Tek is a supplier
of data acquisition, monitoring and control systems for world-wide industrial
markets. Spectra-Tek also participates in the design, manufacture and project
management phases of these systems. The aggregate cash consideration paid for
the shares approximated $10,900,000, including certain transaction costs. The
purchase price was financed by bank borrowings. This acquisition has been
accounted for by the purchase method and accordingly, the purchase price was
allocated to the net assets acquired based upon their estimated fair market
values. The excess of the purchase price over the estimated fair value of net
assets acquired amounted to approximately $6,900,000, which has been accounted
for as goodwill and is being amortized over 20 years using the straight-line
method. This allocation was based on preliminary estimates and may be revised
at a later date. The operations related to this acquisition are not material
to the Company's results of operations.
In February 1996, the Company acquired all of the outstanding stock of a
valve manufacturer and refurbisher. Acquisition costs of $2,733,000 were paid
in cash. The operations related to this acquisition, which was accounted for
under the purchase method, are not material to the Company's results of
operations.
As previously reported in the Company's Annual Report on Form 10-K for the
year ended September 30, 1995, the Company acquired the orifice metering
product line assets of another company. Acquisition and related costs of
$4,177,000 were paid in cash. The operations related to this acquisition,
which was accounted for under the purchase method, are not material to the
Company's results of operations.
Note 3 - Divestitures
As previously reported in the Company's Annual Report on Form 10-K for
the year ended September 30, 1995, the Company sold, effective November 1995,
the net assets of its fastener subsidiary, Daniel Industrial, Inc., to an
investor group for $8,000,000 cash and $9,500,000 in notes, discounted to
$8,600,000. The
5
<PAGE> 6
purchase price was subsequently adjusted in May 1996 to $8,200,000 cash and
$9,948,000 in notes to reflect an increase in net assets sold. The charge to
operations from this transaction was recorded in fiscal 1995.
Notes receivable at June 30, 1996 include:
<TABLE>
<CAPTION>
(in thousands)
------------
<S> <C>
Note receivable; interest of 8.5% for the first five years
and 12.5% thereafter; interest payable quarterly;
principal due November 29, 2002 $6,448
Note receivable; collaterized by certain inventory; discounted
at an effective rate of 11%; annual principal payments with
the last payment due December 31, 1999 1,992
-------
8,440
Less current portion (included in other current assets)
------
Long-term portion (included in intangibles and other assets) $8,440
======
</TABLE>
In December 1995, the Company sold its manufacturing facility in
Matamoros, Mexico for approximately book value. The sales proceeds of
$1,824,000 were received in cash.
During the nine months ended June 30, 1996, the Company sold certain
non-manufacturing properties in Germany for approximately $4,000,000 and
recorded pretax gains of $2,684,000, which are included in revenues.
Note 4 - Inventories
Major components of inventories include:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------------ -------------------
(in thousands)
<S> <C> <C>
Raw materials $16,811 $14,527
Work-in-process 10,093 10,752
Finished goods 23,434 15,751
------- -------
50,338 41,030
Less LIFO reserve 5,459 5,141
------- -------
$44,879 $35,889
======= =======
</TABLE>
Note 5 - Accrued Expenses
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------------ -------------------
(in thousands)
<S> <C> <C>
Other accrued expenses $13,483 $14,382
Salaries and wages 1,969 2,127
Accrued taxes other than on income 1,147 2,325
------- -------
$16,599 $18,834
======= =======
</TABLE>
Substantially all of the planned terminations associated with the
Company's restructuring program announced in fiscal 1995 had occurred as of
December 31, 1995.
6
<PAGE> 7
Note 6 - Notes Payable
At June 30, 1996, the Company had uncommitted short-term lines of credit
aggregating approximately $45,000,000. One of these lines contains
restrictions regarding the amount of the line available for short-term
borrowings and the amount available for issuance of letters of credit. The
other lines are available for either short-term borrowings or the issuance of
letters of credit. Loans under these lines may be made in such amounts and at
such maturities and interest rates as may be offered by the banks and accepted
by the Company at the time of each borrowing. At June 30, 1996, borrowings
under these lines were $9,000,000, and $31,050,000 was available for additional
short-term borrowings. These borrowings were at a weighted average interest
rate of 5.92% and were due at varying dates through July 10, 1996.
In May 1996, the Company through a wholly-owned subsidiary borrowed
L.8,400,000 ($13,037,000) from a bank for a period of six-months. The Company
may select an interest rate based upon the British pound sterling London
Interbank Offered Rate or on an as offered basis from the bank and may select
an interest payment period from one day to six months. The interest rate on
this loan for the first three months is 6.875%. The proceeds were primarily
used to acquire Spectra-Tek. The Company has both the intent and ability to
refinance this loan on a long-term basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain of the comments which follow represent management's current
expectations regarding the future results of operations or financial condition
of the Company. Such information is based on current expectations regarding
the markets affecting the Company and other matters which can affect the
Company's results of operations, liquidity or financial condition. Because
such information is based solely on data currently available, it is subject to
change as a result of changes in conditions and should not therefore be viewed
as assurance regarding the Company's future performance. Additionally, the
reader of this information should be aware that the Company is not obliged to
inform the reader of such changes as they occur or make public indication of
changes unless obliged under applicable disclosure rules and regulations.
As a result of the divestiture of certain product lines, the Company
evaluated its remaining product lines and determined that it has one business
segment, fluid measurement, flow control products and systems.
Nine Months Ended June 30, 1996 vs. Nine Months Ended June 30, 1995
Consolidated revenues for the nine months ended June 30, 1996 were
$122,979,000 compared to $123,063,000 for the same period last year, inclusive
of revenues from divested product lines of $4,815,000 and $24,975,000,
respectively. Revenues, exclusive of divested operations, increased from the
prior year reflecting improved demand for the Company's products, particularly
valves. This trend is expected to continue through the remainder of fiscal
1996. Revenues in the current period include pretax gains of $2,684,000 from
the sales of certain non-manufacturing properties in Germany.
The consolidated gross profit margin for the nine months ended June 30,
1996, inclusive of the pretax gains on the sales of the properties mentioned
above, was 41% of revenues compared to 36% last year. Adjusting the gross
profit margin for divested non-core operations and the charge for inventory
writedowns recorded in fiscal 1995, the margin remained unchanged at 42% for
both the current and prior periods.
Consolidated selling and administrative expenses ("S & A expenses"),
exclusive of expenses from divested operations, were 26% of revenues in the
current period, a significant improvement from the 30% of revenues in the prior
period. This improvement can be attributed to revenues increasing at a higher
rate than expenses.
Consolidated depreciation and amortization expense decreased 14% to
$5,031,000 for the nine months ended June 30, 1996, primarily due to
divestitures of non-core assets in both the current and prior periods.
7
<PAGE> 8
Consolidated interest expense decreased 9% to $1,378,000 in the current
period due to lower average short-term and long-term debt levels.
The Company has not elected early adoption of Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation",
effective for fiscal years beginning after December 15, 1995, which is the
Company's year ending September 30, 1997. The Company believes adoption of
this statement will not materially affect the Company's financial statements.
Quarter Ended June 30, 1996 vs. Quarter Ended June 30, 1995
Consolidated revenues for the quarter ended June 30, 1996 were $39,841,000
compared to $42,028,000 last year, inclusive of revenues from divested product
lines of $9,088,000 last year. Revenues, exclusive of divested operations,
increased from the prior year reflecting improved demand for the Company's
products, particularly valves. This trend is expected to continue through the
remainder of fiscal 1996.
The consolidated gross profit margin for the quarter ended June 30, 1996,
exclusive of the gross profit margin from divested operations was 41% of
revenues compared to 44% last year. This change can be attributed to a more
competitive market for the Company's measurement products, and a shift in
product mix towards sales of the Company's valve products which historically
earn less gross profit than sales of measurement products.
Consolidated selling and administrative expenses ("S & A expenses"),
exclusive of expenses from divested operations, were 26% of revenues in the
current period, a significant improvement from the 30% of revenues in the prior
period. This improvement can be attributed to revenues increasing at a higher
rate than expenses.
Consolidated depreciation and amortization expense was $1,671,000 for the
quarter ended June 30, 1996 which is consistent with last year.
Consolidated interest expense decreased 4% to $471,000 in the current
period due to lower long-term debt levels, partially offset by higher average
short-term debt levels.
The effective tax rate for the current period was 27%, as compared to 37%
last year. The decrease can be attributed to the recognition of additional tax
benefits resulting from management's ongoing evaluation of its tax
contingencies.
Liquidity and Capital Resources
The primary sources of the Company's liquidity for the nine months ended
June 30, 1996, were proceeds from the divesture of certain product lines (see
Note 3 of NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS), proceeds from
term loans, and cash and cash equivalents available at the beginning of the
year. These funds were used primarily for capital expenditures, acquisitions,
funding of operations, payments on short-term and long-term debt, and payments
of dividends (see Note 2 of NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS).
Working capital decreased $14,814,000 from the balance at September 30,
1995 to $50,572,000 at June 30, 1996, primarily due to the receipt of long-term
notes in partial consideration for the net assets of the fastener business,
which was held for sale and included in current assets at September 30, 1995,
and the increase in debt associated with the financing of the Spectra-Tek
acquisition. The Company considers its financial position to be strong, with
debt to total capitalization of 21%. Management believes the Company's working
capital ratio at June 30, 1996, of 1.9 to 1.0 is adequate to meet the Company's
needs for the foreseeable future.
In the first nine months of fiscal years 1996 and 1995, the Company
relied upon short-term borrowings under its bank lines of credit to supplement
its working capital and other cash requirements. At June 30, 1996,
8
<PAGE> 9
the Company had uncommitted short-term lines of credit aggregating approximately
$45,000,000. At June 30, 1996 and August 6, 1996, borrowings under these lines
were $9,000,000 and $8,600,000, respectively, at a weighted average interest
rate of 5.92%. While the Company expects its borrowing requirements to
generally decrease from current levels during the remainder of fiscal 1996, the
timing of one or several major expenditures or receipts may affect the level of
borrowings at a particular time.
In May 1996, the Company through a wholly-owned subsidiary borrowed
L.8,400,000 ($13,037,000) for a period of six- months at an interest rate for
the first three months of 6.875%. The proceeds were primarily used to acquire
Spectra- Tek. The Company has both the intent and ability to refinance this
loan on a long-term basis.
Capital expenditures for the nine months ended June 30, 1996 were
$4,159,000. The Company does not expect significant capital expenditures in
the fourth quarter of fiscal 1996. The Company continues to seek acquisitions
that would build upon its market position in the manufacturing and marketing of
fluid measurement, flow control products and systems.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
9
<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by Mary R. Beshears, thereunto duly authorized to sign on behalf of the
registrant and as the principal financial officer thereof.
DANIEL INDUSTRIES, INC.
-------------------------------
(Registrant)
Date August 13, 1996 By /s/ Mary R. Beshears
-----------------------------
Mary R. Beshears
Corporate Controller and Chief
Accounting Officer
10
<PAGE> 11
INDEX TO EXHIBITS
Ex 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 7,460
<SECURITIES> 0
<RECEIVABLES> 40,020
<ALLOWANCES> 473
<INVENTORY> 44,879
<CURRENT-ASSETS> 106,294
<PP&E> 54,873
<DEPRECIATION> 0
<TOTAL-ASSETS> 180,576
<CURRENT-LIABILITIES> 55,722
<BONDS> 0
<COMMON> 15,171
0
0
<OTHER-SE> 98,544
<TOTAL-LIABILITY-AND-EQUITY> 180,576
<SALES> 122,979
<TOTAL-REVENUES> 122,979
<CGS> 72,033
<TOTAL-COSTS> 72,033
<OTHER-EXPENSES> 37,796
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,378
<INCOME-PRETAX> 11,772
<INCOME-TAX> 4,276
<INCOME-CONTINUING> 7,496
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,496
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
