<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------------------- --------------------
Commission File Number 1-6098
----------------------------
DANIEL INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 74-1547355
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9753 Pine Lake Drive, Houston, Texas 77055
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
713-467-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No _________.
On August 8, 1997, there were outstanding 17,089,998 shares of Common
Stock, $1.25 par value, of the registrant.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DANIEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . $ 4,807 $ 5,423
Receivables, net of reserve of $1,223 and $1,252 . . . . . . . . . . . . . 54,189 50,588
Costs and estimated earnings in excess of billings on uncompleted
contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,963 3,671
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,898 52,006
Deferred taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . 5,935 8,807
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,484 6,618
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 130,276 127,113
Property, plant and equipment, net. . . . . . . . . . . . . . . . . . . . . . . 71,098 75,555
Intangibles and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . 28,846 30,907
-------- --------
$230,220 $233,575
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,240 $ 18,287
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . 5,456 5,552
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,396 18,311
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,436 30,591
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 71,528 72,741
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,172 30,233
Deferred taxes on income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,393 8,789
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 109,093 111,763
-------- --------
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, 40,000 shares authorized, 17,090
and 17,064 shares issued. . . . . . . . . . . . . . . . . . . . . . 21,363 21,330
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . 90,970 90,732
Translation component. . . . . . . . . . . . . . . . . . . . . . . . . . . (4,619) (2,006)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,413 11,756
-------- --------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . 121,127 121,812
-------- --------
$230,220 $233,575
======== ========
</TABLE>
See accompanying NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
<PAGE> 3
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
-------------------- -----------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $67,229 $54,516 $126,136 $110,323
------- ------- -------- --------
Costs, expenses and other income:
Cost of sales . . . . . . . . . . . . . . . 42,896 34,631 81,007 70,204
Selling, engineering and administrative
expenses . . . . . . . . . . . . . . . . 18,417 14,395 36,424 29,209
Research and development expenses . . . . . 1,032 547 2,039 1,056
Interest & other expenses (income). . . . . 554 452 1,199 (377)
------- ------- -------- --------
Total costs, expenses and other income . . 62,899 50,025 120,669 100,092
------- ------- -------- --------
Income before income tax expense . . . . . . . 4,330 4,491 5,467 10,231
Income tax expense . . . . . . . . . . . . . . 1,819 1,467 2,272 3,829
------- ------- -------- --------
Net income . . . . . . . . . . . . . . . . . . $ 2,511 $ 3,024 $ 3,195 $ 6,402
======= ======= ======== ========
Earnings per common share. . . . . . . . . . . $ .15 $ .18 $ .19 $ .38
======= ======= ======== ========
Cash dividends per common share. . . . . . . . $ .045 $ .032 $ .090 $ .064
======= ======= ======== ========
Average number of shares outstanding . . . . . 17,090 17,035 17,085 17,022
======= ======= ======== ========
</TABLE>
See accompanying NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
<PAGE> 4
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed)
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
------ -------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,195 $ 6,402
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 5,028 4,555
Changes in operating assets and liabilities . . . . . . . . . . (6,563) (14,584)
------ -------
Net cash provided by (used in) operating activities . . . . . . . . . . . 1,660 (3,627)
------ -------
Cash flows from investing activities:
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (19,134)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (4,067) (3,746)
Proceeds from sales of assets. . . . . . . . . . . . . . . . . . . . . 2,772 6,103
------ -------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . (1,295) (16,777)
------ -------
Cash flows from financing activities:
Net borrowings under notes payable . . . . . . . . . . . . . . . . . . 1,630 16,284
Net borrowings (payments) on long-term debt. . . . . . . . . . . . . . (1,157) 6,927
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . (1,538) (1,090)
Activity under stock option plans. . . . . . . . . . . . . . . . . . . 161 785
------ -------
Net cash provided by (used in) financing activities . . . . . . . . . . . (904) 22,906
------ -------
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . (77) 4
------ -------
Increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . (616) 2,506
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . 5,423 6,806
------ -------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . $4,807 $ 9,312
====== =======
</TABLE>
See accompanying NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
<PAGE> 5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - General
The foregoing financial statements have been prepared from the books
and records of Daniel Industries, Inc. ("Daniel" or the "Company") without
audit. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the interim periods presented, are reflected in the financial statements.
These condensed statements should be read in conjunction with the
financial statements and the related notes included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1996 and the Transition
Report on Form 10-Q filed for the three-month transition period ended December
31, 1996. As noted in that transition report, (1) on December 12, 1996, the
Company completed a merger with Bettis Corporation, accounted for as a pooling
of interests, and accordingly, the Company's financial statements have been
restated to include the operations of Bettis for all periods presented, and (2)
the Company's year end has been changed to December 31 from September 30.
The Company adopted Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation" for its year ending December 31,
1997. The Company did not elect fair value expense recognition for stock
options and, therefore, the implementation will not materially affect its
financial statements.
Note 2 - Earnings per Share
Earnings per share ("EPS") for the six-month and three-month periods
ended June 30, 1997 and 1996 are calculated as primary EPS (net income divided
by weighted average shares outstanding including common stock equivalents).
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" which requires a calculation of basic
and diluted EPS. The statement is effective for periods ending after December
15, 1997, which is the Company's fourth quarter of 1997, with early adoption
prohibited and restatement of prior EPS amounts required. The Company does not
expect adoption to materially affect its EPS amounts because of the Company's
simple capital structure and the immaterial effect of common stock equivalents.
Note 3 - Divestitures
As previously reported in the Company's Annual Report on Form 10-K for
the year ended September 30, 1996, the Company sold in March 1996, a
non-manufacturing property in Germany for a pretax gain of $1,499,000. The
gain on the sale is reflected in the Consolidated Statement of Operations for
the six months ended June 30, 1996 as interest and other expenses (income).
<PAGE> 6
Note 4 - Inventories
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
(in thousands)
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,659 $26,036
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . 15,018 12,809
Finished goods. . . . . . . . . . . . . . . . . . . . . . . . . . . 17,062 19,803
------- -------
Inventories before LIFO reserve . . . . . . . . . . . . . . . . 56,739 58,648
Less LIFO reserve . . . . . . . . . . . . . . . . . . . . . . . . . 6,841 6,642
------- -------
Total inventories . . . . . . . . . . . . . . . . . . . . . . . $49,898 $52,006
======= =======
</TABLE>
Note 5 - Notes Payable
Notes payable at June 30, 1997 and December 31, 1996 of $22,240,000 and
$18,287,000, consisted of borrowings under lines of credit and notes to banks.
Interest rates ranged from 7.5% to 7.9% at June 30, 1997.
At June 30, 1997, the Company had both committed and uncommitted short-term
lines of credit aggregating approximately $76,000,000. Some of these lines
contain restrictions regarding the amount available for short-term borrowings
or issuance of letters of credit. At June 30, 1997, approximately $43,000,000
was available for additional short-term borrowings.
Note 6 - Long-Term Debt
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
(in thousands)
<S> <C> <C>
Revolving credit facility (secured by Bettis' U.S. assets);
interest at prime rate (8.50% at June 30, 1997 and 8.25% at
December 31, 1996); interest payable quarterly; principal due
July 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,500 $21,100
Payable to four insurance companies (unsecured); 11.5%; principal
payable in annual installments of $2,857; interest
payable semi-annually . . . . . . . . . . . . . . . . . . . . . . . . 5,715 5,715
Note payable to bank (secured by Bettis' U.S. assets); 5.95%;
principal payable in quarterly installments of $500; interest
payable quarterly . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 5,000
Term loan from bank (secured by Bettis' Canadian assets);
interest at the Canadian prime rate (4.75% at June 30, 1997 and
December 31, 1996); principal and interest payable monthly;
payable through August 31, 2001 . . . . . . . . . . . . . . . . . . . 1,539 1,733
Capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . 1,730 2,056
Miscellaneous obligations. . . . . . . . . . . . . . . . . . . . . . . . . 144 181
------- -------
Total obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 34,628 35,785
Less portion due within one year . . . . . . . . . . . . . . . . . . . . . 5,456 5,552
------- -------
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,172 $30,233
======= =======
</TABLE>
The terms of certain financing agreements contain, among other
provisions, requirements for maintaining defined levels of working capital, net
worth, capital expenditures and various financial ratios, including debt to
equity.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996
Operational revenues for the six months ended June 30, 1997 were
$126,136,000 compared to $110,323,000 for the same period in 1996. The
increase is primarily due to incremental revenues from measurement and actuator
businesses acquired in 1996 offset somewhat by a decline in revenues from the
sales of valve products. The Company's backlog at June 30, 1997 was
$79,466,000, an increase of 28% and 52% from the backlog balance as of December
31, 1996 and June 30, 1996, respectively, reflecting improved demand for the
Company's measurement and actuator products.
The gross profit margin for the six months ended June 30, 1997
remained steady at 36%. Margins on the sale of measurement products improved,
actuator margins were flat and margins at the valve operations declined due to
lower levels of production
Selling, engineering, and administrative ("SE&A") expenses increased
$7,215,000 to $36,424,000 in the current period largely due to SE&A expenses
associated with the companies acquired in 1996. Included in SE&A expenses for
the six months ended June 30, 1997 is a provision for $1,123,000 relating to
anticipated costs associated with the Company's German subsidiary prior to the
completion of its pending sale to a group including members of the subsidiary's
management. Research and development expenses increased $983,000 to $2,039,000
in the current period largely due to the May 1996 acquisition of Spectra-Tek
International Limited ("Spectra-Tek"), coupled with increased spending on
electronic product development.
Interest expense increased $761,000 to $2,216,000 in the current
period primarily due to increased borrowings used to fund 1996 acquisitions.
Quarter Ended June 30, 1997 vs. Quarter Ended June 30, 1996
Revenues from operations for the quarter ended June 30, 1997 were
$67,229,000 compared to $54,516,000 for the same period in 1996. The increase
is primarily due to incremental revenues from measurement and actuator
businesses acquired in 1996, partially offset by a decline in revenues from the
sale of valve products.
The gross profit margin for the quarter remained constant when
compared to the same period in 1996, at 36% of revenues. Although margins on
revenues from measurement, control and valve operations were slightly down
compared to the same period in 1996, these declines were offset by the
increased margin on revenues from the sale of actuator products.
Selling, engineering, and administrative expenses increased $4,022,000
to $18,417,000 in the current period primarily due to SE&A expenses of
companies acquired in 1996. SE&A expenses during the quarter ended June 30,
1997 included a provision for $750,000 relating to anticipated costs associated
with the Company's German subsidiary prior to the completion of its pending
sale to a group including members of the subsidiary's management. Research and
development expenses increased $485,000 to $1,032,000 in the current period due
to the May 1996 Spectra-Tek acquisition and increased expenditures on electronic
development projects.
Interest expense increased $370,000 to $1,140,000 in the current
period largely due to increased borrowings which were used to fund acquisitions
in 1996.
<PAGE> 8
The effective tax rate for the current quarter was 42.0% compared to
32.7% for the same period last year. The increase in rates is largely
attributable to the 1996 recognition of tax benefits resulting from
management's review of the Company's tax contingencies.
Liquidity and Capital Resources
The primary sources of the Company's liquidity for the six months
ended June 30, 1997 were short-term borrowings, internally generated funds, and
proceeds from the sales of assets. These funds were primarily used for capital
expenditures, funding of operations, payments on long-term debt, payment of
severance costs which were accrued at December 31, 1996, and for the payment of
cash dividends.
Working capital at June 30, 1997 of $58,748,000 reflects an increase
of $4,376,000 from the balance at December 31, 1996. This increase is
primarily due to the increase in accounts receivable associated with higher
revenues realized this year. Daniel considers its financial position to be
strong with a current ratio at June 30, 1997 of 1.8 to 1.0. Working capital at
June 30, 1997 included $55,833,000 in inventory and deferred tax assets, which
are not as liquid as other current assets.
At June 30, 1997, the Company had both committed and uncommitted
short-term lines of credit aggregating approximately $76,000,000. Some of
these lines contain restrictions regarding the amount available for short-term
borrowings or the issuance of letters of credit. At June 30, 1997,
approximately $43,000,000 was available for additional short-term borrowings.
Capital expenditures for the quarter and six months ended June 30,
1997 were $2,248,000 and $4,067,000 respectively. The Company continues to
seek acquisitions that would build upon its expertise in the manufacture and
sale of fluid measurement, flow control, actuation and analytical products and
services.
The Company believes that its working capital, cash generated from
operations and amounts available under its short-term lines of credit will be
adequate to meet its operating needs for the foreseeable future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is subject to legal proceedings and claims which arise in
the ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
<PAGE> 9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DANIEL INDUSTRIES, INC.
--------------------------------
(Registrant)
Date: August 13, 1997 By: /s/ James M. Tidwell
----------------------------
Executive Vice President and
Chief Financial Officer
Date: August 13, 1997 By: /s/ Wilfred M. Krenek
-----------------------------
Vice President and Controller
(Chief Accounting Officer)
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,807
<SECURITIES> 0
<RECEIVABLES> 55,412
<ALLOWANCES> 1,223
<INVENTORY> 49,898
<CURRENT-ASSETS> 130,276
<PP&E> 145,844
<DEPRECIATION> 74,746
<TOTAL-ASSETS> 230,220
<CURRENT-LIABILITIES> 71,528
<BONDS> 0
0
0
<COMMON> 21,363
<OTHER-SE> 99,764
<TOTAL-LIABILITY-AND-EQUITY> 230,220
<SALES> 126,136
<TOTAL-REVENUES> 126,136
<CGS> 81,007
<TOTAL-COSTS> 81,007
<OTHER-EXPENSES> 37,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,216
<INCOME-PRETAX> 5,467
<INCOME-TAX> 2,272
<INCOME-CONTINUING> 3,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,195
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
