<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File No. 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 Number)
9753 PINE LAKE DRIVE
HOUSTON, TEXAS 77055
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (713) 467-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
COMMON STOCK, $1.25 PAR VALUE NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE PREFERRED SHARES NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
At November 15, 1996, the aggregate market value of Common Stock,
$1.25 par value, of the registrant held by non-affiliates of the registrant was
$147,025,536. As of that date, there were outstanding 12,139,813 shares of
Common Stock, $1.25 par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in Part III of this Annual Report
on Form 10-K the information contained under the headings "Election of
Directors", "Company Executive and Subsidiary Officers", "Executive
Compensation", "Certain Relationships and Related Transactions" and "Principal
Stockholders" in the Registrant's Proxy Statement for the Company's Annual
Meeting of Stockholders proposed to be held March 20, 1997, which Proxy
Statement shall be filed within 120 days of the end of the registrant's fiscal
year.
<PAGE> 2
P A R T I
ITEM 1. BUSINESS.
Daniel was incorporated under the laws of Delaware in 1988 as the
successor to a business started in 1930. Unless the context indicates
otherwise, references to "Daniel" refer to Daniel Industries, Inc., its
subsidiaries and their predecessors.
Daniel is engaged in providing products and systems used primarily by
producers, refiners and transporters of oil and natural gas. Daniel
manufactures a variety of measurement devices including orifice, turbine,
ultrasonic and oval gear meters and a wide range of electronic instruments used
in conjunction with flow measurement products. Daniel also designs, fabricates
and assembles, automated flow measurement systems to meet specific needs and
applications. In addition, Daniel manufactures and sells pipeline valves.
In connection with Daniel's restructuring plan announced in February
1995, Daniel sold its non-core operations: in November 1995, the net assets of
its fastener business which manufactured alloy stud bolts, ring joint gaskets
and industrial flanges, and in July 1995, its energy fabrication business
which manufactured large steam generators and water treatment equipment for
enhanced oil recovery operations and produced equipment for pipeline and
production facilities. (See NOTE 3 of NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.)
On May 28, 1996, Daniel 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 worldwide industrial
markets and 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. In February
1996, Daniel acquired all of the outstanding stock of a valve manufacturer and
refurbisher. Acquisition costs of $2,733,000 were paid in cash. (See NOTE 4 of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
On September 17, 1996, Daniel entered into an agreement whereby a
wholly-owned subsidiary of Daniel would be merged with and into Bettis
Corporation ("Bettis"), with Bettis becoming a wholly-owned subsidiary of
Daniel. Bettis manufactures and sells valve actuators and controls which are
used to remotely and automatically open and close quarter-turn or linear
valves. Its market is any industry that uses pipes to transport liquids or
gases in supply, manufacture or distribution operations. As a result of the
merger, Bettis stockholders will receive .58 of a share of Daniel common stock
for each share of Bettis common stock that they own, for an aggregate of
approximately 4,920,000 shares of Daniel common stock. The merger is subject to
approval by the stockholders of both Daniel and Bettis and is expected to be
consummated in the first quarter of fiscal 1997. The transaction will be
accounted for under the pooling of interests method of accounting. (See NOTE 17
of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
Financial Information About Industry Segment
Daniel operates in one business segment, the manufacture and sale of
fluid measurement and flow control products and systems. Financial information
on the industry segment is presented in NOTE 16 of NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS. Such information is hereby incorporated by reference.
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Since its inception in 1930, Daniel has manufactured products that
employ a method known as differential orifice measurement to measure fluids,
primarily natural gas. These orifice measurement products cause a decline in
pressure as fluid flows through the device. This decline in pressure is
measured and used to determine rates of flow and accumulated volumes of fluid.
In addition to its orifice measurement products, Daniel manufactures flow
measurement products using turbines whose frequency of rotation indicates rates
of flow and accumulated volumes of fluid, and oval gear meters for the
measurement of various liquid flows. Sales of all metering equipment worldwide
contributed 39%, 44% and 36% of Daniel's revenues from core operations in
fiscal 1996, 1995 and 1994, respectively.
Daniel also manufactures a wide range of electronic instruments used
in conjunction with flow measurement products. Daniel's electronic flow
computers instantaneously compute and display the rate of flow and accumulated
volumes of fluid. Other electronic products manufactured include chromatographs
for hydrocarbon analysis including measurement of natural gas to determine its
BTU content and applications within the hydrocarbon processing industry, and
nonintrusive ultrasonic gas flowmeters for custody transfer and bi-directional
check metering. In addition, Daniel designs and manufactures electronic
products for the automation of liquid petroleum loading facilities. Daniel has
developed several software programs and has an in-house programming capability
to meet specific customer applications. Sales of all electronic equipment
worldwide contributed 19%, 22% and 17% of Daniel's revenues from core
operations in fiscal 1996, 1995 and 1994, respectively.
Daniel designs, fabricates and assembles flow measurement systems,
including specialized electronic and control systems for the automation of
liquid petroleum product loading systems. A typical system is mounted on one or
more skids for ease of installation and contains various mechanical equipment,
electronic instruments, piping, supports and walkways. A system can be operated
manually or it can be completely automated through the use of computers and
other instrumentation supplied and programmed by Daniel. In the process of
supplying a flow measurement system, Daniel first defines the total measurement
requirements, and subsequently designs the system. Daniel then fabricates or
supplies the various mechanical and electronic components of the system. The
system is assembled and tested at Daniel's Houston, Texas; Falkirk, Scotland or
Malton, England plants. Daniel also has the capability to supervise on-site
installation and start-up operations of the system and to provide servicing for
the system after installation. Sales of all systems worldwide contributed 16%,
19% and 32% of Daniel's revenues from core operations in fiscal 1996, 1995 and
1994, respectively.
In competing for the sale of systems, Daniel may enter into contracts
which provide for the completion of the systems at specified prices and in
accordance with time schedules. These contracts may involve greater risks as a
result of unforeseen increases in the prices of raw materials and other costs.
Daniel accounts for major contracts using the percentage-of-completion method,
which requires recognition of revenues and costs over the life of the contract,
rather than solely at the time the contract is completed.
Daniel is engaged in the manufacture of gate valves that range in size
from 2" to 84" in diameter and pipeline valve repair. The 2" through 6" valves
are manufactured from castings, the 8" through 20" valves are either
manufactured from castings or fabricated from plate steel which is cut and
welded and the 22" through 84" valves are fabricated from plate steel. Daniel
offers both slab and expanding gate valves with primary applications as
pipeline block valves and for on/off service in liquid and gas systems. The
cast steel and fabricated gate valves are also used for geothermal wellhead and
block valve service. Daniel manufactures surge relief and flow control valves
for liquid and gas pipeline applications. Daniel also manufactures a line of
forged-body trunnion ball valves in 2" through 48" bore sizes. Their primary
applications are as pipeline block valves and for on/off service in liquid and
gas systems. Sales of all valve products worldwide contributed 26%, 15% and 15%
of Daniel's revenues from core operations in fiscal 1996, 1995 and 1994,
respectively.
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Daniel has offices in nine United States cities; Calgary, Canada;
Dammam, Saudi Arabia; Datchet, England; Falkirk, Scotland; Leiden, Holland;
Malton, England; Moscow, Russia; Potsdam-Babelsberg, Germany and Singapore,
through which it sells its products and systems. In addition sales are made
domestically and in certain foreign countries through a system of sales
representatives and distributors working on a commission basis. Although
Daniel's flow measurement products and systems have been used in water handling
and the chemical and power generation industries, sales are principally to
integrated oil companies, gas pipeline companies and other concerns engaged in
the production, transmission and marketing of oil and natural gas. The
geographic market for Daniel's products and systems is worldwide.
Daniel has not completed detailed market studies regarding its
competitive position. However, Daniel believes that, in terms of revenues, it
is the largest United States producer of orifice measurement products used to
measure natural gas flows in custody transfer and of large diameter pipeline
gate valves. In addition, management considers Daniel to be a major
international supplier of terminal automation equipment for terminal petroleum
product truck loading and of flow measurement systems, which are used to
measure crude oil flows. In general, Daniel has numerous competitors, none of
which it considers to be dominant. The principal competitive factors include,
singularly or in various combinations, price, the ability to meet strict
delivery requirements, design, service, and efficiency.
At September 30, 1996 and 1995, Daniel's backlog of orders was
approximately $29,900,000 and $46,700,000, respectively. Daniel expects that
substantially all of the backlog at September 30, 1996, will be shipped prior
to September 30, 1997.
Foreign Operations
Approximately 18% of Daniel's revenues for the fiscal year ended
September 30, 1996, was attributable to sales of flow measurement products and
systems manufactured or assembled at Daniel's plants in Falkirk, Scotland;
Malton, England and Potsdam-Babelsberg, Germany. Sales of its products and
systems for foreign installation or use outside the United States, inclusive of
the operations in Scotland, England and Germany, contributed approximately 57%,
49% and 60% of Daniel's consolidated revenues in fiscal 1996, 1995 and 1994,
respectively. Daniel's operations outside the United States are subject to the
usual risks of such operations, including changes in governmental policies,
currency transfer restrictions and devaluation. Daniel endeavors to minimize
these risks through the use of letters of credit, United States
dollar-denominated contracts and hedging of specific foreign currency
commitments.
Financial information about Daniel's foreign and domestic operations
and export sales by geographic area is presented in NOTE 16 of NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS. Such information is hereby incorporated by
reference herein.
Raw Materials
Raw materials and other supplies used by Daniel in the manufacture and
fabrication of its products are purchased from suppliers and other
manufacturers. No significant purchases are made under long-term contracts, and
Daniel does not consider that it is materially dependent upon any single source
of supply. From time to time, however, Daniel encounters difficulty in
obtaining steel and steel castings.
3
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Customers
Occasionally, Daniel enters into contracts to design and assemble one
or more flow measurement systems for a single installation. Such systems can be
of material importance to the results of operations for a particular fiscal
period. However, Daniel is not dependent on a few customers on a continuing
basis.
Patents and Research
Daniel seeks patent protection for products which it considers to have
significant commercial importance. Daniel does not consider that the patents
currently held by it are material to its operations.
Daniel engages in research activities with a view to the development
of new products as well as the improvement of existing products. The amounts
spent during fiscal 1996, 1995 and 1994, on research and product development
activities were $2,030,000, $2,659,000, and $4,094,000, respectively.
Employees
At September 30, 1996, Daniel employed 1,221 persons, none of whom are
subject to a collective bargaining agreement. Daniel considers its employee
relations to be satisfactory.
Environmental Compliance
Compliance with existing governmental regulations regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, does not have, nor is expected to have, a
material effect on Daniel.
Other Business Conditions and Regulations
Daniel's business is largely dependent upon the level and nature of
activity in the worldwide oil and natural gas industries. The level of such
activity is influenced by numerous factors, including general economic
conditions, the demand for oil and/or natural gas, development of alternative
energy sources, taxation, price controls and other political and economic
conditions.
The business of Daniel is moderately seasonal to the extent that many
of its products and systems are installed and its services provided
out-of-doors. Consequently, sales attributable to these products and services
tend to increase somewhat during the summer months when the weather is more
favorable, and there are more daylight hours.
For a discussion of working capital, see "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." -
"Liquidity and Capital Resources."
4
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ITEM 2. PROPERTIES.
The principal offices and manufacturing facilities of Daniel are as
follows:
<TABLE>
<CAPTION>
Approx. Area
Location (Sq. Ft.) Tenure Utilization
-------- --------- ------ -----------
<S> <C> <C> <C>
Houston, Texas 695,000 Owned Offices and manufacturing.
(Includes Corporate headquarters)
Falkirk, Scotland 258,000 Owned Offices and manufacturing.
Potsdam-Babelsberg, Germany 145,000 Owned Offices and manufacturing.
Santa Fe, Texas 28,000 Owned Offices and manufacturing.
Calgary, Canada 26,000 Leased Offices and manufacturing.
Malton, England 25,550 Owned Offices and manufacturing
</TABLE>
Daniel believes that its manufacturing facilities will be suitable and
adequate to meet production demands for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
Daniel is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amounts of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position of Daniel.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There was no matter during the fourth quarter of the fiscal year
covered by this Annual Report on Form 10-K submitted to a vote of security
holders, through the solicitation of proxies or otherwise.
P A R T II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS.
The shares of common stock, $1.25 par value, of Daniel are traded on
the New York Stock Exchange under the symbol DAN. At November 15, 1996, the
approximate number of holders of record of shares of common stock was 1,205.
The following table sets forth for each quarterly period during fiscal 1996 and
1995 (i) the high and low sale prices of shares for Daniel's common stock and
(ii) the amount of cash dividends per share paid on the common stock. Such
dividends were declared and paid on a quarterly basis.
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<TABLE>
<CAPTION>
Price of Common Dividends
Stock Paid
--------------- ---------
High Low
---- ---
<S> <C> <C> <C>
Fiscal 1996 Quarter Ended:
December 31, 1995 ....... $15 1/8 $13 $ .045
March 31, 1996 .......... 15 3/8 12 1/2 .045
June 30, 1996 ........... 16 5/8 13 3/8 .045
September 30, 1996 ...... 14 7/8 12 3/4 .045
Fiscal 1995 Quarter Ended:
December 31, 1994 ....... $13 3/4 $11 5/8 $ .045
March 31, 1995 .......... 15 1/2 12 5/8 .045
June 30, 1995 ........... 16 1/2 13 3/4 .045
September 30, 1995 ...... 16 1/4 13 7/8 .045
</TABLE>
Daniel is authorized by its Certificate of Incorporation to issue up
to 1,000,000 shares of serial preferred stock, $1 par value, but no shares of
serial preferred stock have been issued. Subject to the rights of holders of
serial preferred stock, the holders of shares of common stock are entitled to
receive dividends when and as declared by the Board of Directors out of funds
legally available therefor.
Daniel has paid cash dividends on its common stock during each year
since 1948. Daniel's future dividend policy with respect to its common stock,
including the frequency, type and amount of dividends, if any, will be
determined by its Board of Directors in light of its results of operations, its
cash flow and anticipated capital requirements, possible future issuances of
serial preferred stock and the restrictions as to payment of dividends
contained in instruments pursuant to which Daniel has issued long-term debt.
(See NOTE 12 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.)
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenues ........................... $ 167,475 $ 168,560 $ 203,766 $ 180,249 $ 210,362
Net income (loss) .................. 9,798(a) (12,792)(b) 1,324 5,025 8,373
Total assets ....................... 170,572 164,468 187,337 178,068 177,079
Long-term debt ..................... 5,715 8,572 11,429 14,286 17,143
Earnings (loss) per share .......... .81 (1.06) .11 .42 .70
Cash dividends per share ........... .18 .18 .18 .18 .18
Average shares outstanding ......... 12,107 12,048 12,030 11,991 11,960
</TABLE>
- -----------------
(a) Net income for the year was affected by gains on sales of non-core assets.
See NOTE 3 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(b) Net loss for the year was affected by restructuring and other charges and
losses on divestitures of non-core assets. See NOTES 2 and 3 of NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Overview
Daniel's operations improved in fiscal 1996, resulting in earnings of
$.81 per share on revenues of $167,475,000, compared to a net loss of $1.06 per
share and revenues of $168,560,000 in fiscal 1995. The fiscal 1995 loss was
affected by after-tax charges for restructuring and other charges, losses on
divestitures of assets and inventory writedowns aggregating $19,539,000. In
fiscal 1996, Daniel benefited from a stronger market for its products,
particularly valves, and gains from sales of non-manufacturing properties in
Germany.
Fiscal 1996 vs. Fiscal 1995
Revenues in fiscal 1996 of $167,475,000 remained substantially
unchanged from the fiscal 1995 level of $168,560,000. Excluding the revenues
from divested operations of $4,815,000 and $32,359,000 in fiscal 1996 and 1995,
respectively, the sales volume in fiscal 1996 increased $26,459,000, or 19%,
from the prior year, in large part reflecting improved worldwide demand for
Daniel's products, particularly large diameter gate valves. Revenues of
$7,619,000 from businesses acquired in fiscal 1996 also contributed to the
increase.
The gross profit margin for fiscal 1996 was 37% compared to 35% in the
prior year. The gross profit margin, adjusted for divested operations in both
periods and the charge for inventory writedowns recorded in fiscal
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1995, was 38% and 39%, respectively. The slight deterioration in margins can be
attributed to a change in product mix towards sales of valve products, which
historically have earned lower margins than sales of mechanical and electronic
products.
Selling and administrative ("S&A") expenses declined 5% to $45,972,000
in fiscal 1996. S&A expenses adjusted for divested operations in fiscal 1996
and 1995 were $45,071,000 and $42,864,000, respectively, representing 28% and
31% of revenues, respectively. The improvement in S&A expenses as a percentage
of revenues is a result of revenues increasing at a higher rate than expenses.
Research and development expenses decreased 24% to $2,030,000 in
fiscal 1996 due primarily to completion of certain electronics projects.
The effective tax rate in fiscal 1996 of approximately 38% is higher
than the U.S. statutory rate due primarily to losses at the German operation,
for which no tax benefits are currently recognized.
Daniel sold in fiscal 1996 certain non-manufacturing properties in
Germany and a non-core product line resulting in pretax gains of $3,267,000 and,
in fiscal 1995, recorded losses aggregating $11,958,000 related to the
divestitures of non-core assets. While the original goals of Daniel's
restructuring plan have been substantially achieved, management is continuing to
evaluate certain operations. Management believes that there may exist additional
opportunities to eliminate or combine certain operations, which measures, if
undertaken, would, like the restructuring plan, be directed toward achieving
more efficient and profitable operations. Although no decisions have been made,
such measures, if taken, could in the future result in excess assets or require
other charges that could have a non-recurring effect material to Daniel's
results of operations in a particular future period or interim period.
Management does not foresee the likelihood of any such actions that would have
any material adverse effect on Daniel's financial position, liquidity or cash
flows. In accounting for the Bettis merger as a pooling of interests, Daniel
will record as expense the transaction costs associated with the merger,
currently estimated at approximately $3,000,000, during the first quarter of
fiscal 1997.
Fiscal 1995 vs. Fiscal 1994
Revenues decreased 17% to $168,560,000 in fiscal 1995 compared to
$203,766,000 in fiscal 1994. This decline was due to the inclusion in the prior
year of revenues related to the construction of two large gas metering stations
destined for the North Sea. In addition, during fiscal 1995, a competitive
foreign market for valves and the divestiture of the energy fabrication
business caused a decline in sales of valves and fabricated energy products,
respectively, compared to fiscal 1994 levels. This decrease in revenues was
partially offset by higher revenues from sales of fastener products due to
price increases allowed by improved demand.
The gross profit margin for fiscal 1995 improved to 35% of revenues
compared to 32% of revenues in fiscal 1994. This improvement was due in large
part to a change in product mix towards sales of flow measurement products
which earn higher margins than sales of flow measurement systems, and improved
margins on fastener products due primarily to price increases. The improved
gross profit margin was partially offset by a $3,785,000 charge for inventory
writedowns recorded in the second quarter of fiscal 1995 in connection with
Daniel's decision, as part of its strategic restructuring plan, to focus on
core product lines.
S&A expenses declined 15% to $48,512,000 in fiscal 1995 due primarily
to the decrease in sales volume and the realization of benefits from the
strategic restructuring program.
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Results of operations for fiscal 1995 include restructuring and other
charges of $12,330,000 representing primarily accruals relating to employee
severance payments and the impairment of assets. Losses aggregating $11,958,000
related to the divestitures of non-core assets, primarily resulting from the
divestiture of the fastener business, were recorded in fiscal 1995.
Research and development expenses declined 35% to $2,659,000 during
fiscal 1995 due primarily to reduced expenditures related to several electronic
development projects.
Interest expense increased 5% to $2,028,000 in fiscal 1995 due to
increased short-term borrowing levels partially offset by lower long-term debt
levels.
Impact of Inflation
An effect of inflation is to increase the prices of labor and raw
materials used to manufacture Daniel's products, which may require periodic
increases in the prices for those products to maintain gross profit margins.
Although this principle impacts most manufacturers, management does not
consider Daniel to have any unique difficulty in managing the effects of
inflation on its business. Daniel utilizes the LIFO method to account for a
majority of its inventories, which, in times of inflation, may have a
significant impact on reported income.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of Daniel's liquidity for the year ended September
30, 1996 were proceeds from the divestitures of assets (see NOTE 3 of NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS), proceeds from a term loan, internally
generated funds and cash available at the beginning of the year. These funds
were used primarily for acquisitions (see NOTE 4 of NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS), payments on long-term and short-term debt, funding of
operations, capital expenditures and payments of dividends.
Working capital decreased $10,433,000 from September 30, 1995 to
$54,953,000 at September 30, 1996 due primarily to (1) the receipt of long-term
notes received in partial consideration for the net assets of the fastener
business, which were classified as "net assets held for sale" and included as
current assets at September 30, 1995, and (2) a net increase in short-term
borrowings due to the acquisition of Spectra-Tek. This decrease in working
capital was partially offset by an increase in receivables as a result of
higher sales volume in the fourth quarter of fiscal 1996 compared to the same
quarter last year. Daniel considers its financial position to be strong with a
debt-to-total capitalization ratio and current ratio as of September 30, 1996,
of 16% and 2.3 to 1.0, respectively. Working capital at September 30, 1996
included $46,103,000 in inventory and deferred tax assets, which are not as
liquid as other current assets.
At September 30, 1996, Daniel 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 Daniel at the time of each borrowing. At September 30, 1996, $32,400,000 was
available for short-term borrowings.
In May 1996, Daniel, borrowed (pound)8,400,000 (approximately
$13,100,000) for a period of six months at a variable interest rate which did
not exceed 6.875% for the five months ended September 30, 1996. The proceeds
were primarily used to acquire Spectra-Tek. In November 1996, Daniel received
an extension on the maturity of the loan to May 1997. Daniel has both the
intent and the ability to refinance this loan.
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Daniel's operations outside the United States are subject to the usual
risks of such operations, including changes in governmental policies, currency
transfer restrictions and devaluation. Daniel endeavors to minimize these risks
through the use of letters of credit, United States dollar-denominated
contracts and hedging of specific foreign currency commitments.
Capital expenditures for fiscal 1996 were $5,027,000. Daniel continues
to seek acquisitions that would build upon its expertise in the manufacture and
sale of flow measurement and flow control products and systems.
Subject to the approval of the stockholders of Daniel and Bettis, the
Bettis merger is expected to occur in December 1996 whereby Bettis will become a
wholly-owned subsidiary of Daniel. The acquisition of Bettis will be made with
Daniel common stock and will not affect Daniel's liquidity or otherwise use its
capital resources. At September 30 1996, Bettis had outstanding indebtedness of
approximately $35,940,000 of which $28,987,000 was long term.
Daniel believes that its working capital, cash generated from
operations and amounts available under its uncommitted short-term lines of
credit will be adequate to meet its operating needs for the foreseeable future.
ITEM 8. FINANCIAL STATEMENTS.
The financial statements required to be filed under this item are
presented on pages 17 through 35 of this report. Such financial statements are
hereby incorporated by reference under this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
P A R T III
ITEMS 10 TO 13 INCLUSIVE.
The information contained under the headings "Election of Directors",
"Company Executive and Subsidiary Officers", "Executive Compensation", "Certain
Relationships and Related Transactions" and "Principal Stockholders" in the
Company's Proxy Statement for the Company's Annual Meeting of Stockholders
proposed to be held March 20, 1997, which Proxy Statement shall be filed within
120 days of the end of Daniel's fiscal year, is hereby incorporated by
reference herein.
P A R T IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents Filed as a Part of this Report
1. Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent accountants ............................... 15
Report of management ............................................ 16
Consolidated balance sheet at September 30, 1996 and 1995 ....... 17
</TABLE>
10
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<TABLE>
<S> <C>
Consolidated statement of operations for the years ended
September 30, 1996, 1995 and 1994 ........................... 18
Consolidated statement of stockholders' equity for the
years ended September 30, 1996, 1995 and 1994 ............... 19
Consolidated statement of cash flows for the years ended
September 30, 1996, 1995 and 1994 ........................... 20
Notes to consolidated financial statements ...................... 21-35
</TABLE>
2. All financial statement schedules are omitted because
they are not applicable or the required information is
shown in the financial statements or notes thereto
listed above in Item 14 (a) 1.
3. Exhibits
Exhibit
Number Description
------- -----------
2.1 Plan and Agreement of Merger dated as of January 22, 1988, by
and between Daniel Industries, Inc., a Texas corporation
("Daniel Texas"), and Daniel Industries, Inc., a Delaware
corporation, filed as Exhibit 2.1 to Daniel's Registration of
Securities of Certain Successor Issuers on Form 8-B, and
hereby incorporated by reference herein.
2.2 Agreement and Plan of Merger dated September 17, 1996, by and
among Daniel, Blue Acquisition Inc. and Bettis Corporation
filed as Exhibit 2.1 to Daniel's Registration Statement on
Form S-4 (Reg. No. 333-14635) and hereby incorporated by
reference herein.
3.1 Certificate of Incorporation of Daniel, filed as Exhibit 3.1
to Daniel's Registration of Securities of Certain Successor
Issuers on Form 8-B dated May 5, 1988, and hereby
incorporated by reference herein.
3.2 By-laws of Daniel, as amended through February 1, 1996, filed
as Exhibit 3.2 to Daniel's Registration Statement on Form S-4
filed (Reg. No. 333-14635), and hereby incorporated by
reference herein.
3.3 Certificate of Designation, Powers, Preferences and Rights of
Series A Junior Participating Preferred Stock filed as
Exhibit 3.3 on Daniel's Form 8 amending its Annual Report on
Form 10-K for the year ended September 30, 1990, and hereby
incorporated by reference herein.
4.1 Note Purchase Agreement dated as of December 5, 1988, between
Daniel and The Variable Annuity Life Insurance Company, The
Mutual Benefit Life Insurance Company, MONY Life Insurance
Company of America and MONY Legacy Life Insurance Company
(including the form of Daniel's Senior Notes in the aggregate
in the principal amount of $20,000,000) filed as Exhibit 4.3
to Daniel's Annual Report on Form 10-K for the year ended
September 30, 1988, and hereby incorporated by reference
herein.
4.2 Rights Agreement dated as of May 31, 1990, between Daniel and
Wachovia Bank and Trust Company, N.A., as Rights Agent, filed
as Exhibit 1 to Daniel's Registration of Certain Classes of
Securities on Form 8-A filed June 5, 1990, and hereby
incorporated by reference herein.
11
<PAGE> 13
Exhibit
Number Description
------- -----------
4.5 Certificate of Designation, Powers, Preferences and Rights of
Series A Junior Participating Preferred Stock (included as
Exhibit 3.3 hereto).
*10.1 1977 Stock Option Plan, as amended and restated on December
8, 1995, filed as Exhibit 10.1 to Daniel's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996, and hereby
incorporated by reference herein.
*10.2 1981 Stock Option Plan, as amended and restated on December
31, 1986, filed as Exhibit 19.2 to Daniel Texas's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1986,
and hereby incorporated by reference herein.
*10.3 Form of Director's Stock Option Agreements dated October 9,
1986, between Daniel Texas and several non-employee
directors, filed as Exhibit 19.1 to Daniel Texas's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1987, and
hereby incorporated by reference herein.
*10.4 Form of Change in Control Agreement dated as of March 15,
1995, between Daniel and each of W. A. Griffin, III, W. C.
Clingman, T. L. Sivak and M. R. Yellin; dated August 23, 1996
between Daniel and J. M. Tidwell and dated August 30, 1996
between Daniel and M. R. Beshears, filed as Exhibit 10.4 to
Daniel's Annual Report on Form 10-K for the year ended
September 30, 1995, and hereby incorporated by reference
herein.
10.5 Asset Purchase Agreement dated November 27, 1995, by and
among DAN-LOC Bolt & Gasket, Inc., Daniel Industrial, Inc.,
Daniel Industries Canada and Daniel, filed as Exhibit 10.5 to
Daniel's Annual Report on Form 10-K for the year ended
September 30, 1995, and hereby incorporated by reference
herein.
*10.6 Supplemental Executive Retirement Plan effective July 1,
1995, filed as Exhibit 10.6 to Daniel's Annual Report on Form
10-K for the year ended September 30, 1995, and hereby
incorporated by reference herein.
*10.7 Consulting Agreement between Daniel and Ralph H. Clemons, Jr.
dated August 13, 1996.
*10.8 Consulting Agreement between Daniel and W. A. Griffin
effective as of February 3, 1995.
*10.9 Written description of Daniel's key employees' incentive
compensation plan, filed as Exhibit 10.9 to Daniel's Annual
Report on Form 10-K for the year ended September 30, 1995,
and hereby incorporated by reference herein.
*10.10 Deferred Compensation Agreement dated March 6, 1996 between
Daniel and Ronald C. Lassiter.
*10.11 Employment Agreement dated July 30, 1996 between Daniel and
James M. Tidwell.
12
<PAGE> 14
Exhibit
Number Description
------- -----------
*10.12 Employment Agreement dated August 30, 1996 between Daniel and
Mary R. Beshears.
*10.13 Non-Employee Directors' Stock Option Plan dated as of
December 8, 1995, filed as Exhibit 10.10 to Daniel's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, and hereby incorporated by reference herein.
*10.14 Stock Award Plan dated as of December 8, 1995, filed as
Exhibit 10.11 to Daniel's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, and hereby incorporated by
reference herein.
21 Significant Subsidiaries of Daniel Industries, Inc.
23 Consent of Independent Accountants.
27 Financial data schedule.
- ---------------
*Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
Daniel did not file any report on Form 8-K during the fourth quarter
of its fiscal year ended September 30, 1996.
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: November 20, 1996 By /s/ W. A. Griffin, III
------------------------
W. A. Griffin, III
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ W. A. GRIFFIN, III President, Chief Executive Officer and a November 20, 1996
- --------------------------------------- Director (Principal Executive Officer)
(W. A. Griffin, III)
/s/ JAMES M. TIDWELL Vice President, Finance and Chief Financial November 20, 1996
- --------------------------------------- Officer (Principal Financial Officer)
(James M. Tidwell)
/s/ MARY R. BESHEARS Controller (Principal Accounting Officer) November 20, 1996
- ---------------------------------------
(Mary R. Beshears)
/s/ RALPH F. COX Director November 20, 1996
- ---------------------------------------
(Ralph F. Cox)
/s/ RALPH H. CLEMONS, JR. Director November 20, 1996
- ---------------------------------------
(Ralph H. Clemons, Jr.)
/s/ GIBSON GAYLE, JR. Director November 20, 1996
- ---------------------------------------
(Gibson Gayle, Jr.)
/s/ W. A. GRIFFIN Chairman Emeritus and a Director November 20, 1996
- ---------------------------------------
(W. A. Griffin)
/s/ RONALD C. LASSITER Chairman of the Board November 20, 1996
- ---------------------------------------
(Ronald C. Lassiter)
/s/ LEO E. LINBECK, JR. Director November 20, 1996
- ---------------------------------------
(Leo E. Linbeck, Jr.)
/s/ BRIAN E. O'NEILL Director November 20, 1996
- ---------------------------------------
(Brian E. O'Neill)
/s/ RICHARD L. O'SHIELDS Director November 20, 1996
- ---------------------------------------
(Richard L. O'Shields)
</TABLE>
14
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
DANIEL INDUSTRIES, INC.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Daniel Industries, Inc. and its subsidiaries at September 30, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
November 15, 1996
15
<PAGE> 17
REPORT OF MANAGEMENT
The accompanying consolidated financial statements of Daniel
Industries, Inc. and its subsidiaries ("Daniel") were prepared by management,
which is responsible for their integrity and objectivity. The statements were
prepared in accordance with generally accepted accounting principles and
include amounts that are based on management's judgment and estimates.
Daniel maintains a system of internal controls, including accounting
controls, and a program of internal auditing. The system of controls provides
for appropriate procedures that are consistent with high standards of
accounting and administration. Daniel believes that its system of internal
controls provides reasonable assurance that assets are safeguarded against
losses from unauthorized use or deposition, and that financial records are
reliable for use in preparing financial statements.
Management also recognizes its responsibility for conducting Daniel's
affairs according to the highest standards of personal and corporate conduct.
This responsibility is characterized and reflected in policy statements
regarding, among other things, conduct of Daniel's business activities within
the laws of the countries in which Daniel operates and avoidance of potentially
conflicting outside business interests by Daniel's employees. Daniel maintains
a program to assess compliance with these policies.
/s/ W. A. Griffin, III
- ---------------------------------------------------
W. A. Griffin, III
President and Chief Executive Officer
November 20, 1996
/s/ James M. Tidwell
- ---------------------------------------------------
James M. Tidwell
Vice President, Finance and Chief Financial Officer
November 20, 1996
16
<PAGE> 18
DANIEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
September 30,
----------------------
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................. $ 7,087 $ 3,895
Receivables, net of reserve of $617 and $98 ............................... 37,031 34,807
Costs and estimated earnings in excess of billings on uncompleted contracts 3,132 941
Inventories ............................................................... 38,663 35,889
Deferred taxes on income .................................................. 7,440 7,982
Net assets held for sale .................................................. 22,838
Other ..................................................................... 4,667 2,427
--------- ---------
Total current assets ............................................... 98,020 108,779
Property, plant and equipment, net .............................................. 53,162 52,677
Intangibles and other assets .................................................... 19,390 3,012
--------- ---------
$ 170,572 $ 164,468
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ............................................................. $ 13,133 $ 10,000
Current maturities of long-term debt ...................................... 2,857 2,857
Accounts payable .......................................................... 12,110 11,702
Accrued expenses .......................................................... 14,967 18,834
--------- ---------
Total current liabilities ........................................... 43,067 43,393
Long-term debt .................................................................. 5,715 8,572
Deferred taxes on income ........................................................ 5,994 3,183
--------- ---------
Total liabilities ................................................... 54,776 55,148
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000 shares authorized, 150 shares
designated as Series A junior participating preferred stock, no
shares issued or outstanding
Common stock, $1.25 par value, 20,000 shares authorized,
12,137 and 12,083 shares issued ..................................... 15,171 15,104
Capital in excess of par value ............................................ 90,966 90,247
Translation component ..................................................... (2,222) (295)
Retained earnings ......................................................... 11,881 4,264
--------- ---------
Total stockholders' equity .......................................... 115,796 109,320
--------- ---------
$ 170,572 $ 164,468
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
17
<PAGE> 19
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues ......................................... $ 167,475 $ 168,560 $ 203,766
--------- --------- ---------
Costs, expenses and other income:
Cost of goods sold ......................... 105,037 109,588 138,599
Selling and administrative expenses ........ 45,972 48,512 57,026
Research and development expenses .......... 2,030 2,659 4,094
Restructuring and other charges ............ 12,330
(Gains) losses on divestitures of assets ... (3,267) 11,958
Interest expense ........................... 2,015 2,028 1,927
--------- --------- ---------
Total costs, expenses and other income. 151,787 187,075 201,646
--------- --------- ---------
Income (loss) before income tax expense (benefit). 15,688 (18,515) 2,120
Income tax expense (benefit) ..................... 5,890 (5,723) 796
--------- --------- ---------
Net income (loss) ................................ $ 9,798 $ (12,792) $ 1,324
========= ========= =========
Earnings (loss) per common share ................. $ .81 $ (1.06) $ .11
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
18
<PAGE> 20
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Capital in
-------------------- Excess of Translation Retained
Shares Amount Par Value Component Earnings Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993 ......................... 12,026 $ 15,033 $ 89,564 $ (3,614) $ 20,067 $121,050
Net income ........................................ 1,324 1,324
Cash dividends .................................... (2,166) (2,166)
Exercise of stock options, including tax benefits.. 6 8 111 119
Aggregate translation adjustment for the year ..... 1,553 1,553
-------- -------- -------- -------- -------- --------
Balance at September 30, 1994 ......................... 12,032 15,041 89,675 (2,061) 19,225 121,880
Net loss .......................................... (12,792) (12,792)
Cash dividends .................................... (2,169) (2,169)
Exercise of stock options, including tax benefits.. 51 63 572 635
Aggregate translation adjustment for the year ..... 1,766 1,766
-------- -------- -------- -------- -------- --------
Balance at September 30, 1995 ......................... 12,083 15,104 90,247 (295) 4,264 109,320
Net income ........................................ 9,798 9,798
Cash dividends .................................... (2,181) (2,181)
Exercise of stock options, including tax benefits.. 4 4 30 34
Activity under stock award plan ................... 20 25 250 275
Continuation of service agreements ................ 30 38 439 477
Aggregate translation adjustment for the year ..... (1,927) (1,927)
-------- -------- -------- -------- -------- --------
Balance at September 30, 1996 ......................... 12,137 $ 15,171 $ 90,966 $ (2,222) $ 11,881 $115,796
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
19
<PAGE> 21
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended September 30,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ......................................................... $ 9,798 $(12,792) $ 1,324
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Non-cash portion of restructuring and other items ............... 11,124
Loss on divestitures of non-core product lines .................. 9,858
Depreciation and amortization ................................... 6,577 7,545 7,483
Deferred income taxes ........................................... 3,353 (8,040) (1,810)
Changes in operating assets and liabilities:
Receivables ..................................................... 2,215 (1,164) (5,041)
Inventories ..................................................... (1,642) (9,896) (5,868)
Costs and estimated earnings in excess of billings on uncompleted
contracts ................................................... (2,191) 13,947 (8,834)
Accounts payable and accrued expenses ........................... (7,663) (5,853) 2,079
Other assets/liabilities, net ................................... (1,398) 976 1,223
-------- -------- --------
Net cash provided by (used in) operating activities .......................... 9,049 5,705 (9,444)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures ...................................................... (5,027) (4,794) (13,631)
Acquisitions and related costs ............................................ (13,630) (4,177)
Proceeds from sales of investment securities .............................. 2,039 1,000
Proceeds from sales of assets, including disposals of non-core assets ..... 15,702 2,819 304
-------- -------- --------
Net cash used in investing activities ........................................ (2,955) (4,113) (12,327)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) on lines of credit .............................. (10,000) 4,100 5,900
Proceeds from term loan ................................................... 13,133
Payments on long-term debt ................................................ (3,817) (2,857) (2,857)
Cash dividends paid, $.18 per share ....................................... (2,181) (2,169) (2,166)
Activity under stock option plan .......................................... 34 635 119
-------- -------- --------
Net cash provided by (used in) financing activities .......................... (2,831) (291) 996
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents ................. (71) 74 75
-------- -------- --------
Increase (decrease) in cash and cash equivalents ............................. 3,192 1,375 (20,700)
Cash and cash equivalents, beginning of year ................................. 3,895 2,520 23,220
-------- -------- --------
Cash and cash equivalents, end of year ....................................... $ 7,087 $ 3,895 $ 2,520
======== ======== ========
Cash payments for income taxes ............................................... $ 1,322 $ 5,036 $ 1,835
Cash payments for interest ................................................... $ 1,943 $ 2,152 $ 2,022
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Daniel is engaged in providing products and systems used primarily by
producers, refiners and transporters of natural gas.
Principles of consolidation
The consolidated financial statements include the accounts of Daniel
Industries, Inc. and its subsidiaries ("Daniel"). All significant intercompany
accounts and transactions have been eliminated in consolidation. The
preparation of these financial statements required management to make estimates
and assumptions that affect the reported consolidated financial statements and
the related reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates. Daniel's management
believes that the estimates made in connection with these consolidated
financial statements are reasonable.
Translation of foreign currencies
Gains and losses resulting from balance sheet translation of foreign
operations where a foreign currency is the functional currency are included as
a separate component of stockholders' equity. Gains and losses resulting from
balance sheet translation of foreign operations where the U. S. dollar is the
functional currency are included in the consolidated results of operations.
Fair value of financial instruments
Management has determined that the fair value of Daniel's financial
instruments is equivalent to the carrying amount of such instruments included
in the financial statements.
Cash and cash equivalents
Daniel considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Accounts receivable
A substantial portion of Daniel's trade receivables is from customers
in the petroleum industry.
Revenue recognition
Sales and cost of goods sold of major contracts are recorded using the
percentage-of-completion method, based on the ratio of costs incurred to date
to total estimated costs on each contract. Losses, if any, to be incurred on
contracts in progress are charged to income in full as soon as they become
apparent and estimated warranty costs are accrued as revenues are recorded.
Sales and cost of goods sold of products are recorded when the customer takes
title to the products.
21
<PAGE> 23
Inventories
Inventories are valued at the lower of cost or market. Cost, which
includes material, labor and overhead, is determined principally by the
last-in, first-out (LIFO) method and by the average cost method.
Property, plant and equipment
Depreciation of plant and equipment is provided over the estimated
useful lives of the various classes of assets using the straight-line method.
Maintenance and repairs are charged to expense. Renewals and betterments are
capitalized. On retirement or sale of assets, the cost of such assets and
accumulated depreciation are removed from the accounts and the gain or loss, if
any, is credited or charged to income.
In connection with the determination of certain restructuring and
other charges recognized in the second quarter of fiscal 1995, Daniel elected
early adoption of Financial Accounting Standards Board ("FASB") Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ".
Intangible assets
Goodwill, representing the excess cost of purchased subsidiaries over
the fair value of net assets acquired, is amortized using the straight-line
method over a period of 20 to 40 years. Other intangible assets are amortized
using the straight-line method over their estimated useful lives, none of which
exceeds 12 years. At September 30, 1996 and 1995, accumulated amortization on
intangibles was approximately $4,200,000 and $3,000,000, respectively.
Income taxes
Income tax expense (benefit) is computed based on pretax income (loss)
included in the Consolidated Statement of Operations. The asset and liability
approach is used to recognize deferred tax liabilities and assets for expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of the assets and liabilities.
Daniel does not provide for U.S. income taxes on foreign subsidiaries'
undistributed earnings intended to be permanently reinvested in foreign
operations.
Earnings (loss) per share
Earnings (loss) per share are computed based on the average number of
shares outstanding during each year. Stock options outstanding have not been
included in the computation of earnings per share since the effect is not
significant. Daniel has not elected early adoption of FASB No. 123 "Accounting
for Stock-Based Compensation", which requires implementation for fiscal years
beginning after December 15, 1995. Daniel will adopt FASB No. 123 for its year
ending September 30, 1997. Daniel does not intend to elect expense recognition
for stock options and, therefore, implementation will not materially affect its
financial statements.
NOTE 2 - RESTRUCTURING AND OTHER CHARGES
In February 1995, Daniel announced that its Board of Directors had
approved and adopted a restructuring plan to improve Daniel's overall
profitability through a greater focus on high margin and market leading product
lines, and through reductions in overhead and direct expenses.
22
<PAGE> 24
During fiscal 1995, Daniel recorded pretax charges of $16,115,000
relating to restructuring and other charges as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Recorded as restructuring: employee terminations .............................. $ 3,997
Recorded as other charges:
Impairments of property, plant and equipment and other assets .......... 7,339
Expenses incurred in connection with an unsolicited merger proposal .... 600
Miscellaneous .......................................................... 394
-------
Total recorded as other charges ............................... 12,330
Recorded as cost of sales adjustments: inventory writedowns .................... 3,785
-------
Total charges ................................................. $16,115
=======
</TABLE>
Charges for asset impairments and writedowns are non-cash in nature.
Substantially all of the 245 planned terminations associated with the
restructuring program in fiscal 1995 had occurred as of December 31, 1995.
NOTE 3 - DIVESTITURES
As previously reported in Daniel's Annual Report on Form 10-K for the
year ended September 30, 1995, Daniel announced its intention to divest
identified non-core assets. As a result of this decision, the following
properties were sold:
(i) In fiscal 1995: the operating assets of the energy fabrication
subsidiary were sold for $1,500,000 to a group consisting of the
former president of the subsidiary and a director of Daniel. In
conjunction with the sale, Daniel entered into a three-year lease
agreement with the purchaser for certain real property. Rental
income recorded in fiscal 1996 and 1995 was $36,000 and $9,000,
respectively.
(ii) In fiscal 1996: the net assets of the fastener subsidiary, Daniel
Industrial, Inc., were sold to an investor group for $8,200,000 in
cash and $9,948,000 in collaterized notes, discounted to
$9,048,000. A manufacturing facility in Matamoros, Mexico was sold
for approximately book value of $1,824,000. The operating assets
of the positive displacement meter product line were sold for
$1,837,000 resulting in a pretax gain of $583,000.
In fiscal 1995, Daniel recorded pretax charges aggregating $11,958,000
representing the losses on divestitures of its non-core assets, primarily the
fastener operation.
At September 30, 1995, Daniel recorded a current asset of $22,838,000
representing management's estimate of net realizable value of assets held for
sale.
See NOTE 16 for the results of operations for non-core businesses
included in the Consolidated Statement of Operations.
23
<PAGE> 25
Also in fiscal 1996, Daniel sold certain non-manufacturing properties
in Germany for $3,988,000, resulting in pretax gains of $2,684,000.
NOTE 4 - ACQUISITIONS
On May 28, 1996, Daniel 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 worldwide industrial
markets and 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 a bank borrowing. 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 market value of net assets
acquired amounted to approximately $7,422,000, which has been accounted for as
goodwill and is being amortized over 20 years using the straight-line method.
The operations related to this acquisition are not material to Daniel's results
of operations.
In February 1996, Daniel acquired all of the outstanding stock of a
valve manufacturer and refurbisher. Acquisition costs of $2,733,000 were paid
in cash. As previously reported in Daniel's Annual Report on Form 10-K for the
year ended September 30, 1995, Daniel 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 these acquisitions, which were
accounted for under the purchase method, are not material to Daniel's results
of operations.
NOTE 5 - CONTRACTS IN PROGRESS
Information with respect to contracts in progress accounted for under
the percentage-of-completion method is as follows:
<TABLE>
<CAPTION>
September 30,
-----------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Costs and estimated earnings on uncompleted contracts ....... $ 9,770 $13,145
Less progress billings ...................................... 6,638 12,329
------- -------
$ 3,132 $ 816
======= =======
Presented in accompanying financial statements as:
Costs and estimated earnings in excess of billings on
uncompleted contracts .............................. $ 3,132 $ 941
Billings in excess of costs and estimated earnings on
uncompleted contracts (included in accrued expenses) 125
------- -------
$ 3,132 $ 816
======= =======
</TABLE>
24
<PAGE> 26
NOTE 6 - INVENTORIES
<TABLE>
<CAPTION>
September 30,
-----------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Inventories by valuation method are as follows:
Last-in, first-out (LIFO) ................ $22,233 $21,462
Average cost ............................. 16,430 14,427
------- -------
Total inventory ...................... $38,663 $35,889
======= =======
Major components of inventories include:
Raw materials ............................ $16,540 $14,527
Work in process .......................... 8,777 10,752
Finished goods ........................... 19,106 15,751
------- -------
Inventory before LIFO reserve ........ 44,423 41,030
Less LIFO reserve ........................ 5,760 5,141
------- -------
Total inventory ...................... $38,663 $35,889
======= =======
</TABLE>
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and related accumulated depreciation are
summarized as follows:
<TABLE>
<CAPTION>
September 30, Estimated
----------------- Useful Life
1996 1995 In Years
------- ------- -----------
(in thousands)
<S> <C> <C> <C>
Land ........................................ $ 6,152 $ 6,927
Buildings ................................... 31,580 30,835 10-45
Machinery and equipment ..................... 38,621 36,655 3-12
Computer and peripheral equipment ........... 7,746 6,725 3-5
Office furniture and equipment .............. 4,926 5,233 3-10
Automotive equipment ........................ 1,103 1,109 3-4
Other ....................................... 7,607 9,171 5-20
------- -------
Total property, plant and equipment .... 97,735 96,655
Less accumulated depreciation ............... 44,573 43,978
------- -------
Property, plant and equipment, net ..... $53,162 $52,677
======= =======
</TABLE>
25
<PAGE> 27
NOTE 8 - INTANGIBLES AND OTHER ASSETS
<TABLE>
<CAPTION>
September 30,
-----------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Goodwill, net ......................... $ 9,196
Notes receivable ...................... 8,606
Miscellaneous ......................... 1,588 $ 3,012
------- -------
Total intangibles and other assets $19,390 $ 3,012
======= =======
</TABLE>
At September 30, 1996, notes receivable included a $2,158,000 note,
discounted at an effective rate of 11% to $1,424,000, received as partial
consideration on the sale of the fastener assets.
NOTE 9 - NOTES PAYABLE
At September 30, 1996, Daniel 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 Daniel at the time of each borrowing. At September 30, 1996 and 1995,
borrowings under these lines were $0 and $10,000,000, respectively, and
$32,400,000 and $22,500,000, respectively, were available for additional
short-term borrowings.
In May 1996, Daniel borrowed (pound)8,400,000 (approximately
$13,100,000) from a bank for a period of six months. Daniel 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 and the next two months was 6.875% and 6.6%, respectively. The
proceeds were primarily used to acquire Spectra-Tek. In November 1996, Daniel
received an extension on the maturity of the loan to May 1997. Daniel has both
the intent and ability to refinance this loan.
NOTE 10 - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-----------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Other accrued expenses ................. $11,188 $14,382
Salaries and wages ..................... 2,157 2,127
Accrued taxes other than on income ..... 1,622 2,325
------- -------
Total accrued expenses ........... $14,967 $18,834
======= =======
</TABLE>
26
<PAGE> 28
NOTE 11 - INCOME TAXES
Income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------
1996 1995 1994
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Federal:
Current ............................. $ 1,583 $ 1,830 $ 1,327
Deferred ............................ 1,948 (5,180) (1,486)
Foreign:
Current ............................. 839 231 1,259
Deferred ............................ 1,365 (2,742) (359)
State and local: ............................ 155 138 55
------- ------- -------
Income tax expense (benefit) ........ $ 5,890 $(5,723) $ 796
======= ======= =======
</TABLE>
The components of income (loss) before income tax expense (benefit)
are:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1996 1995 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
United States ...... $ 13,656 $(11,943) $ 421
Foreign ............ 2,032 (6,572) 1,699
-------- -------- --------
$ 15,688 $(18,515) $ 2,120
======== ======== ========
</TABLE>
The cumulative undistributed earnings of foreign subsidiaries, on
which United States taxes have not been provided, were approximately
$13,600,000, $11,600,000, and $12,700,000 at September 30, 1996, 1995 and 1994,
respectively. The United States income tax effect associated with the
repatriation of these earnings may be offset by foreign tax credits.
27
<PAGE> 29
Components of the difference between the income tax expense (benefit)
computed at the U.S. statutory income tax rate and the income tax expense
(benefit) are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1996 1995 1994
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Tax expense (benefit) of income (loss) at 34% ................... $ 5,334 $(6,295) $ 721
Increase in valuation allowance ................................. 765
Foreign Sales Corporation provisions ............................ (492) (350) (373)
Adjustment of prior years' taxes ................................ (400)
State income taxes .............................................. 140 111 (5)
Non-deductible expenses ......................................... 99 103 197
Loss of foreign subsidiary with no tax benefit .................. 806 171 375
Foreign tax rates and other effects of foreign operations ....... 497 (796) (53)
Goodwill amortization/charge off ................................ 667 40
Tax exempt interest ............................................. (14) (61)
Other, net ...................................................... (94) (85) (45)
------- ------- -------
Income tax expense (benefit) ............................. $ 5,890 $(5,723) $ 796
======= ======= =======
Effective tax expense (benefit) rate ..................... 38% (31%) 38%
======= ======= =======
</TABLE>
Deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
September 30,
--------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Gross deferred tax assets:
Restructuring and other charges and loss on divestitures ..... $ 4,567 $ 6,568
Operating loss carry forward from subsidiary ................. 5,525 5,773
Excess tax over book basis of inventories .................... 2,981 2,758
Inventory reserves ........................................... 1,326 396
Other ........................................................ 2,930 3,545
-------- --------
Total gross deferred tax assets ....................... 17,329 19,040
-------- --------
Gross deferred tax liabilities:
Excess book over tax basis of property and equipment ......... (9,407) (8,589)
Other ........................................................ (1,825) (2,204)
-------- --------
Total gross deferred tax liabilities .................. (11,232) (10,793)
-------- --------
Deferred tax asset valuation allowance ............................... (4,651) (3,448)
-------- --------
Net deferred tax assets .............................................. $ 1,446 $ 4,799
======== ========
</TABLE>
28
<PAGE> 30
Through September 30, 1996, Daniel's German subsidiary generated a
cumulative tax loss carryforward of $10,600,000 which may be carried forward
indefinitely. The valuation allowance relates primarily to the amount of the
German loss carryforward which may not be realized.
NOTE 12 - LONG-TERM DEBT
Long-term debt includes the following:
<TABLE>
<CAPTION>
September 30,
-----------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Payable to four insurance companies (unsecured); 11.5%; principal payable in
annual installments of $2,857,140; interest payable
semi-annually ...................................................... $ 8,572 $11,429
Less portion due within one year ............................................ 2,857 2,857
------- -------
$ 5,715 $ 8,572
======= =======
</TABLE>
In December 1988, four insurance companies purchased an aggregate of
$20,000,000 of Daniel's unsecured 11.5% senior notes due 1998. Prepayment of
amounts in excess of scheduled maturities are subject to certain restrictions
and would be at a premium. The note purchase agreement related to the sale of
these notes requires the maintenance of a specified current ratio and a
specified amount of net worth and also includes restrictive covenants relating
to additional indebtedness and leases, creation of liens, payment of dividends,
mergers and disposition of assets. Retained earnings was unrestricted as to the
payment of dividends at September 30, 1996.
Long-term debt at September 30, 1996, matures as follows:
Year Ending September 30, Amount
------------------------- --------------
(in thousands)
1997 $2,857
1998 2,857
1999 2,858
NOTE 13 - PREFERRED STOCK, STOCK OPTIONS, STOCK AWARDS AND PROFIT SHARING
AND SAVINGS PLAN
Preferred Stock
On May 31, 1990, the Board of Directors declared a dividend of one
Preferred Share Purchase Right (the "Right") for each outstanding share of
common stock. Under certain conditions, each Right may be exercised to purchase
one one-hundredth share of a new series of junior participating preferred stock
at an exercise price of $60, subject to adjustment. The Rights may only be
exercised 10 days following a public announcement that a third party has
acquired 20% or more of the outstanding common shares or 10 days following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer, the consummation of which would result in the beneficial
ownership by a third party of 20% or more of the outstanding common shares. The
Rights,
29
<PAGE> 31
which do not have voting rights, expire May 31, 2000, and at Daniel's option,
may be redeemed by Daniel prior to expiration for $.01 per Right. In the event
that Daniel is acquired in a merger or other business combination, or 50% or
more of its consolidated assets or earning power are sold, provision shall be
made so that each holder of a Right shall have the right to receive, upon
exercise thereof at the then current exercise price, that number of shares of
common stock of the surviving company which at the time of such transaction
would have a market value of two times the exercise price of the Right.
Employee Stock Option Plans
Daniel maintains two stock option plans for employees, the 1981 plan
and the 1977 plan. Under the 1981 plan, the exercise price of an option may not
be less than the fair market value of Daniel's common stock on the date of
grant. Under both plans, options that have been granted are for a ten-year term
and are exercisable either from the date of grant or in total or in one-third
annual increments beginning at the end of the first year of the term. There
were 295,876 shares available for grants under the plans at September 30, 1996.
A summary of stock option activity related to the plans is as follows:
<TABLE>
<CAPTION>
Shares Price Range
------ -----------
<S> <C> <C>
Options outstanding September 30, 1993 ........... 508,649 $7.00 -$18.43
Cancelled ............................... (22,500) 14.13
Exercised ............................... (6,020) 7.00
--------
Options outstanding September 30, 1994 ........... 480,129 7.00 - 18.43
Cancelled ............................... (94,000) 14.13 - 18.43
Exercised ............................... (51,015) 7.00 - 14.13
Granted ................................. 470,000 14.13
--------
Options outstanding September 30, 1995 ........... 805,114 7.00 - 16.75
Cancelled ............................... (9,500) 14.13 - 16.75
Exercised ............................... (3,307) 7.00
Granted ................................. 61,500 12.88 - 13.75
--------
Options outstanding, September 30, 1996 .......... 853,807 7.00 - 16.75
========
Exercisable, September 30, 1996 .................. 480,640 7.00 - 16.75
========
</TABLE>
Non-Employee Directors' Stock Option Plan and Agreement
Daniel maintains a stock option plan for its non-employee directors and
a stock option agreement with one non-employee director. Under the agreement,
the option is exercisable for six years from the date of grant. Under the plan,
which was adopted in fiscal 1996, options are granted for a ten-year term and
each non-employee director received an option for 15,000 shares of Daniel's
common stock which option is exercisable in one-third annual increments
beginning at the end of the first year of the term. There were 45,000 shares
available for grants under the plan at September 30, 1996.
30
<PAGE> 32
A summary of stock option activity related to the plan and agreement
is as follows:
<TABLE>
<CAPTION>
Shares Price Range
------ -----------
<S> <C> <C>
Options outstanding September 30, 1993 10,000 $12.75
Granted ...................... 10,000 11.00
--------
Options outstanding September 30, 1994 20,000 $11.00 - 12.75
Cancelled .................... (10,000) 12.75
--------
Options outstanding September 30, 1995 10,000 11.00
Granted ...................... 135,000 13.88
--------
Options outstanding, September 30, 1996 145,000 11.00 - 13.88
========
Exercisable, September 30, 1996 ....... 10,000 11.00
========
</TABLE>
Stock Award Plan
In fiscal 1996, Daniel's stockholders approved the adoption of a stock
award plan that makes shares of Daniel's common stock available for issuance as
a part of the incentive compensation paid to executive and operating officers.
During fiscal 1996, 20,021 shares were issued leaving 79,979 shares available
for issuance at September 30, 1996. The stock awarded vests in one-third annual
increments beginning at the end of the first year of the term.
Profit Sharing and Savings Plan
Daniel and its domestic subsidiaries have adopted a profit sharing and
savings plan in which substantially all employees are eligible to participate.
Annual contributions to the profit sharing portion of the plan are
discretionary, and are determined by Daniel's Board of Directors. Contributions
to the savings portion of the plan are made on a monthly basis in an amount as
required by the plan. Expenses related to this plan were approximately
$870,000, $1,200,000 and $1,800,000 in fiscal 1996, 1995 and 1994,
respectively.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Daniel 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 Daniel. Additionally, in the ordinary course of business,
Daniel has issued standby letters of credit and bank guarantees as security for
advances, progress payments and performance on long-term contracts and, as a
result, is contingently liable in the amount of approximately $16,300,000 at
September 30, 1996.
31
<PAGE> 33
NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly financial data for
fiscal 1996 and 1995:
<TABLE>
<CAPTION>
Net Earnings
Gross Income (Loss)
Revenues Profit (Loss) Per Share
-------- ------ ------ ---------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Quarter Ended:
December 31, 1995 ............ $39,453(a) $14,563 $ 2,175 $ .18
March 31, 1996 ............... 41,001(a) 15,291 2,786 .23
June 30, 1996 ................ 39,841 15,206 2,535 .21
September 30, 1996 ........... 47,180 17,378 2,302 .19
Quarter Ended:
December 31, 1994 ............ $42,298 $15,120 $ 601 $ .05
March 31, 1995 ............... 38,737 10,234 (9,705)(b) (.81)
June 30, 1995 ................ 42,028 16,535 1,281 (c) .11
September 30, 1995 ........... 45,497 17,083 (4,969)(c) (.41)
</TABLE>
- -------------------------
(a) Revenues for the quarters ended December 31, 1995 and March 31, 1996
exclude gains from sales of certain non-manufacturing properties in
Germany of $1,185,000 and $1,499,000, respectively.
(b) Net loss for the quarter was affected by restructuring and other charges.
See NOTE 2.
(c) Net income (loss) for the quarter was affected by losses on divestitures
of non-core assets, the effect of which is described in NOTE 3.
32
<PAGE> 34
NOTE 16 - INDUSTRY SEGMENT
Daniel operates in one business segment, the manufacture and sale of
fluid measurement and flow control products and systems. Segment operating
income (loss) represents revenues less operating expenses and is not reduced
for interest expense, general corporate expenses and income taxes. Identifiable
assets are those tangible and intangible assets that are identified with the
operation of the industry segment or geographic area.
INFORMATION ON INDUSTRY SEGMENT
(in thousands)
<TABLE>
<CAPTION>
Operating Capital Depreciation
Income Identifiable Expendi- and
Revenues (Loss) Assets tures Amortization
-------- ---------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Fiscal 1996
Fluid measurement and flow
control products and
systems ................ $ 161,947 $ 19,340 $ 149,252 $ 4,835 $ 6,371
Non-core businesses .......... 4,815 127 75 0 4
--------- --------- --------- --------- ---------
Subtotal ............... 166,762 19,467 149,327 4,835 6,375
Corporate .................... 713 (5,031) 21,245 192 202
Other gains .................. 3,267 (a)
Interest expense ............. (2,015)
--------- --------- --------- --------- ---------
Total .................. $ 167,475 $ 15,688 $ 170,572 $ 5,027 $ 6,577
========= ========= ========= ========= =========
Fiscal 1995
Fluid measurement and flow
control products and
systems ................ $ 135,927 $ 10,038 (b) $ 134,354 $ 4,205 $ 6,587
Non-core businesses .......... 32,359 3,467 18,474 207 541
--------- --------- --------- --------- ---------
Subtotal ............... 168,286 13,505 152,828 4,412 7,128
Corporate .................... 274 (5,704) 11,640 382 417
Other charges ................ (24,288)(b)
Interest expense ............. (2,028)
--------- --------- --------- --------- ---------
Total .................. $ 168,560 $ (18,515) $ 164,468 $ 4,794 $ 7,545
========= ========= ========= ========= =========
Fiscal 1994
Fluid measurement and flow
control products and
systems ................ $ 172,157 $ 14,773 $ 140,469 $ 12,792 $ 4,865
Non-core businesses .......... 31,239 (2,820) 31,112 626 1,709
--------- --------- --------- --------- ---------
Subtotal ............... 203,396 11,953 171,581 13,418 6,574
Corporate .................... 370 (7,906) 15,756 213 909
Interest expense ............. (1,927)
--------- --------- --------- --------- ---------
Total .................. $ 203,766 $ 2,120 $ 187,337 $ 13,631 $ 7,483
========= ========= ========= ========= =========
</TABLE>
- ---------------
(a) Includes gains from divestitures of non-core assets. See NOTE 3.
(b) Includes restructuring and other charges and losses on divestitures of
non-core assets. See NOTES 2 and 3.
33
<PAGE> 35
INFORMATION ON GEOGRAPHIC OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
United
States Europe Canada Consolidated
------ ------ ------ ------------
<S> <C> <C> <C> <C>
Fiscal 1996
Revenues .......................... $126,159 $ 30,949 $ 9,654 $166,762
======== ======== ======== ========
Operating income (a) .............. $ 13,259 $ 2,884 $ 3,324 $ 19,467
======== ======== ======== ========
Identifiable assets at
September 30, 1996 .......... $ 92,052 $ 53,144 $ 4,131 $149,327
======== ======== ======== ========
Fiscal 1995
Revenues .......................... $125,944 $ 29,795 $ 12,547 $168,286
======== ======== ======== ========
Operating income (loss) (b) ....... $ 9,670 $ (485) $ 4,320 $ 13,505
======== ======== ======== ========
Identifiable assets at
September 30, 1995 .......... $107,926 $ 39,699 $ 5,203 $152,828
======== ======== ======== ========
Fiscal 1994
Revenues .......................... $134,904 $ 52,962 $ 15,530 $203,396
======== ======== ======== ========
Operating income .................. $ 4,553 $ 2,476 $ 4,924 $ 11,953
======== ======== ======== ========
Identifiable assets at
September 30, 1994 .......... $116,514 $ 48,851 $ 6,216 $171,581
======== ======== ======== ========
</TABLE>
(a) Includes gains from divestitures of non-core assets. See NOTE 3.
(b) Includes restructuring and other charges and losses on divestitures of
non-core assets. See NOTES 2 and 3.
Included in United States revenues are export sales of $54,200,000,
$40,500,000 and $52,800,000 in fiscal 1996, 1995 and 1994, respectively. These
sales were primarily to Africa, the Far East, the Middle East, and South
America. At September 30, 1996, 1995 and 1994, Daniel's investment in
consolidated foreign subsidiaries, primarily its U.K. subsidiary, approximated
$35,000,000, $35,100,000 and $40,200,000, respectively.
Foreign currency transaction gains and losses included in the
Consolidated Statement of Operations were immaterial in fiscal 1996, 1995 and
1994.
NOTE 17 - PROPOSED MERGER
On September 17, 1996, Daniel entered into an agreement whereby a
wholly-owned subsidiary of Daniel would be merged with and into Bettis
Corporation ("Bettis"), with Bettis becoming a wholly-owned subsidiary of
Daniel. Bettis manufactures and sells valve actuators and controls which are
used to remotely and automatically open and close quarter-turn or linear
valves. Its market is any industry that uses pipes to transport liquids or
gases in supply, manufacture or distribution operations. As a result of the
merger, Bettis stockholders will receive .58 of a share of Daniel common stock
for each share of Bettis common stock that they own, for an aggregate of
approximately 4,920,000 shares of Daniel's common stock. The merger is subject
to approval by the stockholders
34
<PAGE> 36
of both Daniel and Bettis and is expected to be consummated in the first
quarter of fiscal 1997. The transaction will be accounted for under the pooling
of interests method of accounting.
The following unaudited pro forma financial data has been prepared as
if Daniel and Bettis were combined at the beginning of the earliest period
presented. There are no adjustments necessary to conform the accounting
policies of Daniel and Bettis. As a result of the differing year ends of Daniel
and Bettis, results of operations for different year ends have been combined.
Daniel's results of operations for the years ended September 30, 1995 and 1994
have been combined with Bettis' results of operations for the years ended
December 31, 1995 and 1994. Daniel's results of operations for the year ended
September 30, 1996 have been combined with Bettis' results of operations for
the twelve month period ended September 30, 1996, and accordingly, Bettis'
operating results for the period October 1, 1995 through December 31, 1995 are
included in the Unaudited Pro Forma Data for the years ended September 30, 1996
and 1995. Revenues, net income and net income per share of Bettis were
$14,735,000, $635,000, and $.07, respectively, for the period October 1, 1995
through December 31, 1995.
The unaudited pro forma data is presented for illustrative purposes
only and is not necessarily indicative of actual results of operations or
financial position that would have been achieved had the merger been
consummated at the beginning of the earliest period presented.
<TABLE>
<CAPTION>
Unaudited Pro Forma Data
-------------------------------
1996 1995 1994
-------- -------- --------
(in thousands except
per share data)
<S> <C> <C> <C>
Revenues ............................... $234,324 $223,702 $255,740
======== ======== ========
Net income (loss) ...................... $ 12,677 $(10,512) $ 3,391
======== ======== ========
Earnings (loss) per share .............. $ .74 $ (.62) $ .20
======== ======== ========
</TABLE>
35
<PAGE> 37
INDEX TO EXHIBITS
Exhibit
Number
- -------
2.1 Plan and Agreement of Merger dated as of January 22, 1988, by and
between Daniel Industries, Inc., a Texas corporation ("Daniel Texas"),
and Daniel Industries, Inc., a Delaware corporation, filed as Exhibit
2.1 to Daniel's Registration of Securities of Certain Successor Issuers
on Form 8-B, and hereby incorporated by reference herein.
2.2 Agreement and Plan of Merger dated September 17, 1996, by and among
Daniel, Blue Acquisition Inc. and Bettis Corporation filed as Exhibit
2.1 to Daniel's Registration Statement on Form S-4 (Reg. No. 333-14635)
and hereby incorporated by reference herein.
3.1 Certificate of Incorporation of Daniel, filed as Exhibit 3.1 to
Daniel's Registration of Securities of Certain Successor Issuers on
Form 8-B dated May 5, 1988, and hereby incorporated by reference
herein.
3.2 By-laws of Daniel, as amended through February 1, 1996, filed as
Exhibit 3.2 to Daniel's Registration Statement on Form S-4 filed (Reg.
No. 333-14635), and hereby incorporated by reference herein.
3.3 Certificate of Designation, Powers, Preferences and Rights of Series A
Junior Participating Preferred Stock filed as Exhibit 3.3 on Daniel's
Form 8 amending its Annual Report on Form 10-K for the year ended
September 30, 1990, and hereby incorporated by reference herein.
4.1 Note Purchase Agreement dated as of December 5, 1988, between Daniel
and The Variable Annuity Life Insurance Company, The Mutual Benefit
Life Insurance Company, MONY Life Insurance Company of America and MONY
Legacy Life Insurance Company (including the form of Daniel's Senior
Notes in the aggregate in the principal amount of $20,000,000) filed as
Exhibit 4.3 to Daniel's Annual Report on Form 10-K for the year ended
September 30, 1988, and hereby incorporated by reference herein.
4.2 Rights Agreement dated as of May 31, 1990, between Daniel and Wachovia
Bank and Trust Company, N.A., as Rights Agent, filed as Exhibit 1 to
Daniel's Registration of Certain Classes of Securities on Form 8-A
filed June 5, 1990, and hereby incorporated by reference herein.
4.5 Certificate of Designation, Powers, Preferences and Rights of Series A
Junior Participating Preferred Stock (included as Exhibit 3.3 hereto).
*10.1 1977 Stock Option Plan, as amended and restated on December 8, 1995,
filed as Exhibit 10.1 to Daniel's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, and hereby incorporated by reference
herein.
*10.2 1981 Stock Option Plan, as amended and restated on December 31, 1986,
filed as Exhibit 19.2 to Daniel Texas's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1986, and hereby incorporated by
reference herein.
<PAGE> 38
INDEX TO EXHIBITS
Exhibit
Number
- -------
*10.3 Form of Director's Stock Option Agreements dated October 9, 1986,
between Daniel Texas and several non-employee directors, filed as
Exhibit 19.1 to Daniel Texas's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1987, and hereby incorporated by reference
herein.
*10.4 Form of Change in Control Agreement dated as of March 15, 1995, between
Daniel and each of W. A. Griffin, III, W. C. Clingman, T. L. Sivak and
M. R. Yellin; dated August 23, 1996 between Daniel and J. M. Tidwell
and dated August 30, 1996 between Daniel and M. R. Beshears, filed as
Exhibit 10.4 to Daniel's Annual Report on Form 10-K for the year ended
September 30, 1995, and hereby incorporated by reference herein.
10.5 Asset Purchase Agreement dated November 27, 1995, by and among DAN-LOC
Bolt & Gasket, Inc., Daniel Industrial, Inc., Daniel Industries Canada
and Daniel, filed as Exhibit 10.5 to Daniel's Annual Report on Form
10-K for the year ended September 30, 1995, and hereby incorporated by
reference herein.
*10.6 Supplemental Executive Retirement Plan effective July 1, 1995, filed as
Exhibit 10.6 to Daniel's Annual Report on Form 10-K for the year ended
September 30, 1995, and hereby incorporated by reference herein.
*10.7 Consulting Agreement between Daniel and Ralph H. Clemons, Jr. dated
August 13, 1996.
*10.8 Consulting Agreement between Daniel and W. A. Griffin effective as of
February 3, 1995.
*10.9 Written description of Daniel's key employees' incentive compensation
plan, filed as Exhibit 10.9 to Daniel's Annual Report on Form 10-K for
the year ended September 30, 1995, and hereby incorporated by reference
herein.
*10.10 Deferred Compensation Agreement dated March 6, 1996 between Daniel and
Ronald C. Lassiter.
*10.11 Employment Agreement dated July 30, 1996 between Daniel and James M.
Tidwell.
*10.12 Employment Agreement dated August 30, 1996 between Daniel and Mary R.
Beshears.
*10.13 Non-Employee Directors' Stock Option Plan dated as of December 8, 1995,
filed as Exhibit 10.10 to Daniel's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, and hereby incorporated by reference
herein.
*10.14 Stock Award Plan dated as of December 8, 1995, filed as Exhibit 10.11
to Daniel's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, and hereby incorporated by reference herein.
<PAGE> 39
INDEX TO EXHIBITS
Exhibit
Number
- -------
21 Significant Subsidiaries of Daniel Industries, Inc.
23 Consent of Independent Accountants.
27 Financial data schedule.
- ---------------
*Management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 10.7
PERSONAL & CONFIDENTIAL
Mr. Ralph H. Clemons, Jr.
13027 Pebblebrook
Houston, Texas 77079
Dear Ralph,
Daniel Flow Products Inc., Process Products Division, wishes to engage
you as a Marketing Consultant, on a month-to-month basis, beginning July 1,
1996.
It is agreed you will work on a full-time basis for the Company. You
will be paid on a monthly basis at a rate equal to $60,000.00 per year. In
addition, the Company will reimburse you for all reasonable and necessary
travel and sales expenses, automobile operating costs and Lakeside Country Club
dues.
The Company agrees to continue your membership in the Company
deductible insurance program through the term of this agreement.
It is agreed when your consultancy is deemed by the Company to no
longer be required, you shall receive 60 days notice before concluding this
agreement.
DANIEL FLOW PRODUCTS, INC.
- --------------------------------- --------------------------------
Accepted by Ralph H. Clemons, Jr. L. G. Irving,Jr./General
Manager
- -------------------------- --------------------------------
Date Date
cc: W. A. Griffin III
Tom Sivak
Larry Irving, Sr.
Michael Yellin
<PAGE> 1
EXHIBIT 10.8
September 30, 1996
TO: DANIEL INDUSTRIES, INC.
This will confirm that the February 3, 1995 Consulting Agreement
between the company and the undersigned provides as follows.
Salary: $135,000 per year
Expenses: Reimbursement for business related expenses
Term: Two Years
------------------------------
W. A. Griffin
<PAGE> 1
EXHIBIT 10.10
SERVICE AGREEMENT
THIS AGREEMENT effective the 6th day of March 1996 (the "Effective
Date") by and between RONALD C. LASSITER, ("RCL") and DANIEL INDUSTRIES, INC.,
("Daniel").
WHEREAS RCL is willing to serve as Chairman of the Board of Directors
(the "Board") of Daniel and Chairman of the Executive Committee (the
"Committee") of the Board, and to provide Daniel with business services as
requested by Daniel; and,
WHEREAS Daniel is desirous of having RCL serve as Chairman of the
Board and of the Committee and of obtaining business services from RCL.
NOW THEREFORE it is agreed as follows:
1. From the effective date of this agreement until December 31,
1996, RCL shall serve as Chairman of the Board and of the
Committee, until his successor is elected and qualified and
will provide such additional business services as requested
by Daniel.
2. In consideration of RCL serving as Chairman of the Board and
the Committee, Daniel hereby agrees to pay RCL deferred
compensation under the terms and conditions set forth herein.
Daniel shall establish a deferred compensation ledger on its
books (the "Account") which shall reflect the amount of the
Daniel's obligation to RCL hereunder at any given time.
3. As of March 6, 1996, Daniel will credit RCL's Account with
6,558 shares of Daniel's common stock. The 6,558 shares of
common stock being the equivalent of One Hundred Thousand Nine
dollars and 50/100 ($100,009.50) using the closing price of
Daniel common stock on the New York Stock Exchange on March 6,
1996 which was $15.25 per share. Thereafter, RCL shall be
paid an amount equal to any cash dividend that would have been
paid on the number of shares credited to his Account
<PAGE> 2
as if the shares listed in the deferred compensation ledger
had been issued and were outstanding at the time the dividend
is payable to the stockholders. The number of shares of stock
credited to RCL's Account will be adjusted for all stock
dividends, stock splits and all other transactions as if the
shares listed in the ledger had been issued and were
outstanding on the date of the transaction, rounding up to the
next whole share.
4. In the event the stockholders do not approve the payment of
the deferred compensation in shares of Daniel common stock,
Paragraph 3 hereof shall become void and RCL shall have One
Hundred Thousand Nine dollars and 50/100 ($100,009.50)
credited to the deferred compensation ledger on Daniel's
books. The cash compensation shall accrue interest,
compounded annually, using the yearly average of the prime
rate set by Texas Commerce Bank.
5. The deferred compensation credited to the Account pursuant to
either Paragraphs 3 or 4 hereof, shall be delivered on March
5, 2001 pursuant to RCL's letter to W. A. Griffin, III dated
as of March 6, 1996, copy attached.
6. In the event RCL does not continue as Chairman or declines to
furnish business services prior to January 1, 1997, Daniel
shall have no obligation to pay RCL deferred compensation
pursuant to this Agreement.
7. Notwithstanding Paragraph 6, in the event of RCL's death
before December 31, 1996, the pro rata share of the
compensation to which RCL would have been entitled if he
served until December 31, 1996 shall be delivered to his
executor(s)/ administrator(s) as soon as they are duly elected
and qualified.
8. It is specifically recognized by Daniel and RCL that this
Agreement is only a general corporate obligation of Daniel and
RCL and his spouse or estate must rely upon the general credit
of the company for fulfillment of its obligations under this
Agreement.
<PAGE> 3
No specific assets of the company have been set aside or
pledged nor shall any assets be pledged or set aside in any
manner in the future in any form in which they cannot be
reached by the general creditors of the company to assure the
performance by the company of its obligations under this
Agreement. It is intended that this Agreement shall be
unfunded for tax purposes.
9. Daniel will calculate the deductions from the amount of the
compensation paid under this Agreement for any taxes required
to be withheld by federal, state or local government and will
cause them to be withheld, when due and payable.
10. If any term, provision, covenant or condition of this
Agreement is held to be invalid, void or otherwise
unenforceable, the remaining portions of this Agreement will
remain in full force and effect and will in no way be
affected, impaired or invalidated.
11. This Agreement shall be construed, administered and governed
in all respect by the laws of the State of Texas.
IN WITNESS WHEREOF, this Agreement has been executed effective as of
the date first written above.
DANIEL INDUSTRIES, INC.
By:
------------------------------------
W. A. GRIFFIN, III
------------------------------------
RONALD C. LASSITER
<PAGE> 1
EXHIBIT 10.11
July 30, 1996
James M. Tidwell
Via Facsimile: (713) 468-0417
Dear Jim:
This will confirm our offer of July 29, 1996 for the position of Vice
President, Finance and Chief Financial Officer of Daniel Industries, Inc.
The terms of the offer are:
Salary: $165,000 per year
Performance Bonus: 40% of annual salary, paid one half in cash and
one half in restricted stock. Bonus is
predicated on the company achieving targeted
earnings per share as set by the Board of
Directors.
Stock Option: 30,000 shares. The option price will be the
price of the company stock on the New York Stock
Exchange at the close of business on July 30,
1996.
Compensatory Bonus: 3,000 shares to vest 1000 shares per year for 3
years starting July 30, 1997
Supplemental Executive
Retirement Plan: Participate
Change of
Control Agreement: Participate
<PAGE> 2
July 30, 1996
Page 2
Termination
Agreement: If terminated for any reason, other than
criminal misconduct, 1 year salary.
Employee Benefit: Participation in all benefit and medical plans at
your option.
I trust the foregoing accurately reflects our agreement. If you concur, please
sign in the space below and fax a copy to me at (713) 827-4805. I will have a
signed original couriered to your home. If you have any questions or if I
omitted anything, please telephone me.
Daniel Industries, Inc.
William A. Griffin, III
WAG:sj
AGREED AND ACCEPTED
- -------------------------------------
James M. Tidwell
<PAGE> 1
EXHIBIT 10.12
This memorandum dated as of this 30th day of August 1996, sets forth certain
terms of employment offered to and accepted by Mary R. Beshears ("MRB") in
consideration of MRB continuing employment with Daniel Industries, Inc.
("Company").
1. If MRB is terminated for any reason other than cause, the Company will
pay her annual salary less applicable withholding taxes and medical
insurance deductions in four (4) quarterly installments.
2. If MRB should be employed by a third party during the year following
termination, any quarterly payments following employment would be
reduced by the amount of her net salary from the third party employer.
3. Cause as used herein means that MRB shall willfully and continuously
fail to substantially perform her duties to the Company (other than
failure that results from her mental or physical disability) within 30
days after written notice form the Company to MRB demanding
substantial performance, which notice shall specifically identify
which duties MRB has failed to perform.
----------------------------------
W. A. Griffin, III
----------------------------------
Mary R. Beshears
<PAGE> 1
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF DANIEL INDUSTRIES, INC.
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION
------------------ ---------------
<S> <C>
Daniel Flow Products, Inc ....................................... Delaware
Daniel Industries Limited ....................................... United Kingdom
Daniel Valve Company ............................................ Delaware
Daniel Industries Canada, a partnership consisting of Daniel Flow
Products, Ltd. and Daniel Bolt and Gasket, Ltd ................ Canada
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (SEC File No. 2-65288, 2-79399, 2-79660, 33-000162 and
33-63063) and on Form S-4 (SEC File No. 333-14635) of Daniel Industries, Inc.
of our report dated November 15, 1996, appearing on page 15 of this Annual
Report on Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
November 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<PERIOD-START> OCT-01-1995
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,087
<SECURITIES> 0
<RECEIVABLES> 37,648
<ALLOWANCES> 617
<INVENTORY> 38,663
<CURRENT-ASSETS> 98,020
<PP&E> 53,162
<DEPRECIATION> 0
<TOTAL-ASSETS> 170,572
<CURRENT-LIABILITIES> 43,067
<BONDS> 0
0
0
<COMMON> 15,171
<OTHER-SE> 100,625
<TOTAL-LIABILITY-AND-EQUITY> 170,572
<SALES> 167,475
<TOTAL-REVENUES> 167,475
<CGS> 105,037
<TOTAL-COSTS> 105,037
<OTHER-EXPENSES> 44,735
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,015
<INCOME-PRETAX> 15,688
<INCOME-TAX> 5,890
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,798
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
