<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 MARCH 31, 1998
--------------
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
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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 May 8, 1998, there were outstanding 17,410,996 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>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 7,543 $ 7,563
Receivables, net of reserve of $1,494 and $1,645 .......................... 58,539 60,908
Costs and estimated earnings in excess of billings
on uncompleted contracts ............................................ 5,942 6,635
Inventories ............................................................... 54,472 49,688
Deferred taxes on income .................................................. 5,811 5,957
Other ..................................................................... 4,261 4,713
------------ ------------
Total current assets ................................................ 136,568 135,464
Property, plant and equipment, net ............................................. 63,827 62,990
Intangibles and other assets ................................................... 35,577 35,500
------------ ------------
Total assets ........................................................ $ 235,972 $ 233,954
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable ............................................................. $ 7,007 $ 7,984
Current maturities of long-term debt ...................................... 7,604 7,602
Accounts payable .......................................................... 21,191 21,441
Accrued liabilities ....................................................... 19,683 21,387
------------ ------------
Total current liabilities ......................................... 55,485 58,414
Long-term debt ................................................................ 38,019 37,283
Deferred taxes on income ...................................................... 8,016 7,831
------------ ------------
Total liabilities ................................................. 101,520 103,528
------------ ------------
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, 17,366 and
17,321 shares issued .............................................. 21,708 21,651
Capital in excess of par value ............................................ 94,720 94,218
Accumulated other comprehensive income .................................... (4,178) (4,684)
Retained earnings ......................................................... 22,202 19,241
------------ ------------
Total stockholders' equity ........................................ 134,452 130,426
------------ ------------
Total liabilities and stockholders' equity ........................ $ 235,972 $ 233,954
============ ============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
2
<PAGE> 3
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues ................................................... $ 67,210 $ 58,907
---------- ----------
Costs, expenses and other income:
Cost of sales ......................................... 41,553 38,111
Selling, engineering and administrative expenses ...... 18,077 17,936
Research and development expenses ..................... 1,143 996
Interest and other expenses ........................... 449 727
---------- ----------
Total costs, expenses and other income .......... 61,222 57,770
---------- ----------
Income before income tax expense ........................... 5,988 1,137
Income tax expense ......................................... 2,246 453
---------- ----------
Net income ................................................. $ 3,742 $ 684
========== ==========
Basic earnings per common share ............................ $ .22 $ .04
========== ==========
Diluted earnings per common share .......................... $ .21 $ .04
========== ==========
Cash dividends per common share ............................ $ .045 $ .045
========== ==========
Average shares outstanding ................................. 17,331 17,081
========== ==========
Average diluted shares outstanding ......................... 18,053 17,279
========== ==========
</TABLE>
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income ................................................. $ 3,742 $ 684
Other comprehensive income, net of tax:
Foreign currency translation adjustments ............. 506 (2,316)
---------- ----------
Comprehensive income ....................................... $ 4,248 $ (1,632)
========== ==========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 4
DANIEL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed)
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 3,742 $ 684
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization ........................ 2,268 2,367
Changes in operating assets and liabilities .......... (3,009) (7,472)
---------- ----------
Net cash provided by (used in) operating activities ............. 3,001 (4,421)
---------- ----------
Cash flows from investing activities:
Capital expenditures ........................................ (3,277) (1,819)
Proceeds from sales of assets ............................... 657 452
---------- ----------
Net cash used in investing activities ........................... (2,620) (1,367)
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Cash flows from financing activities:
Net borrowings (payments) under notes payable ............... (1,168) 6,584
Net borrowings (payments) on long-term debt ................. 929 (1,876)
Cash dividends paid ......................................... (781) (768)
Activity under stock option plans ........................... 560 161
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Net cash provided by (used in) financing activities ............. (460) 4,101
---------- ----------
Effect of exchange rate changes on cash ......................... 59 (200)
---------- ----------
Decrease in cash and cash equivalents ........................... (20) (1,887)
Cash and cash equivalents, beginning of period .................. 7,563 5,423
---------- ----------
Cash and cash equivalents, end of period ........................ $ 7,543 $ 3,536
========== ==========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1 - General
The foregoing financial statements have been prepared from the books
and records of 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 December 31, 1997. Certain
reclassifications have been made to prior year amounts in order to conform to
the current year classifications.
The Company has adopted Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise" for its year
ending December 31, 1998. SFAS 131 requires disclosure of select information
regarding the operating segments of the Company. However, in accordance with
SFAS 131, these disclosures need not be applied to interim financial statements
in the initial year of application.
Note 2 - Earnings Per Share
Effective with its December 31, 1997 financial statements, the Company
implemented Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share." SFAS 128 requires the presentation of both basic and
diluted earnings per share amounts. Basic earnings per share is calculated by
dividing net income by the weighted average number of common shares outstanding.
While diluted earnings per share is computed similarly, it also provides for the
effect that securities such as common stock options, if dilutive, would have on
net income and average common shares outstanding if exercised at the beginning
of the year. For the quarters ended March 31, 1998 and 1997, average shares
outstanding were increased by 722,000 and 198,000, respectively, for stock
options assumed exercised to arrive at weighted average shares outstanding for
purposes of calculating diluted earnings per share. Net income remained the same
in the calculation of both basic and diluted earnings per share for all periods
presented.
Note 3 - Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
SFAS 130 establishes new requirements for reporting comprehensive income and its
components. Adoption of this statement had no impact on the Company's net income
or stockholders' equity for the periods presented. SFAS 130 requires unrealized
gains or losses on the Company's foreign currency translation adjustments, which
prior to adoption were reported separately in stockholders' equity, to be
included in other comprehensive income. Total comprehensive income (loss) for
the quarters ended March 31, 1998 and 1997 amounted to approximately $4.2
million and $(1.6) million, respectively.
5
<PAGE> 6
Note 4 - Inventories
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(in thousands)
<S> <C> <C>
Raw materials ................................................... $ 26,043 $ 24,330
Work in process ................................................. 14,912 13,329
Finished goods .................................................. 20,669 19,097
------------ ------------
Inventories before LIFO reserve ............................ 61,624 56,756
Less LIFO reserve ............................................... 7,152 7,068
------------ ------------
Total inventories .......................................... $ 54,472 $ 49,688
============ ============
</TABLE>
Note 5 - Debt
Long-term debt includes the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(in thousands)
<S> <C> <C>
Term loan from banks (unsecured); 6.77% interest
payable monthly; principal payable in quarterly
installments of $1,071; matures April 30, 2004 .............. $ 27,857 $ 28,929
Revolving credit facility (unsecured); interest (6.44% at
March 31, 1998 and 6.69% at December 31, 1997)
payable monthly; matures April 30, 2000 ..................... 12,000 10,000
Term loan from bank (secured); interest at Canadian
prime rate (6.50% at March 31, 1998 and 6.00% at
December 31, 1997); principal and interest payable
monthly; payable through August 31, 2001 .................... 1,233 1,311
Payable to four insurance companies (unsecured);
11.5%; final annual principal installment of $2,857
due December 1, 1998; interest payable semi-
annually .................................................... 2,857 2,857
Miscellaneous obligations ....................................... 1,676 1,788
------------ ------------
Total obligations ..................................... 45,623 44,885
Less portion due within one year ............................... 7,604 7,602
------------ ------------
Long-term debt ........................................ $ 38,019 $ 37,283
============ ============
</TABLE>
6
<PAGE> 7
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.
At March 31, 1998, the Company had both committed and uncommitted
short-term lines of credit aggregating approximately $38,740,000, which are
available for short-term borrowings or issuance of letters of credit. At March
31, 1998 and December 31, 1997, borrowings under these lines were $7,000,000 and
$8,000,000, respectively, with approximately $10,900,000 available for
short-term borrowings at March 31, 1998. The Company had letters of credit
outstanding at March 31, 1998 totaling $12,300,000 under these lines.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Quarter Ended March 31, 1998 vs. Quarter Ended March 31, 1997
Revenues for the quarter ended March 31, 1998 were $67,210,000 compared
to $58,907,000 for the same period in 1997. The increase can be attributed to
successful integration of businesses acquired in mid-1996, an increase in large
pipeline projects requiring slab gate valves, and increased revenues from the
sale of differential and ultrasonic metering products. The Company's backlog at
March 31, 1998 was $75,938,000, an increase of 5% and 7% from the backlog
balance at December 31, 1997 and March 31, 1997, respectively.
The gross profit margin for the quarter ended March 31, 1998 increased
to 38% of revenues from 35% of revenues in the quarter ended March 31, 1997. The
increased margin is primarily attributable to improved margins on the sales of
valves and valve actuators due to an increase in gate valve sales, increased
throughput, selective price increases, and cost savings initiatives.
Selling, engineering and administrative ("SE&A") expenses increased
$141,000 to $18,077,000 in the current period when compared to the same quarter
of last year. The increase was primarily attributable to increased selling
expenses of $212,000. As a percentage of revenues, however, SE&A expenses were
27% in the quarter ended March 31, 1998 compared to 30% in the same period of
last year. Research and development expenses increased $147,000 to $1,143,000 in
the current period reflecting increased spending on electronic development
projects.
The favorable variance in interest and other expense was due primarily
to the net effect of a gain on the sale of an investment and a payment relating
to the settlement of a lawsuit.
The effective tax rate for the three months ended March 31, 1998 was
37.5% as compared to 39.8% for the same period in the prior year. The decrease
was principally due to foreign losses in the prior year for which no tax benefit
was allowed.
Liquidity and Capital Resources
The primary sources of the Company's liquidity for the three months
ended March 31, 1998 were internally generated funds, long-term borrowings, and
proceeds from the sale of assets. These funds were used primarily for capital
expenditures, reduction of short-term borrowings, and payment of cash dividends.
7
<PAGE> 8
Working capital at March 31, 1998 of $81,083,000 reflects an increase
of $4,033,000 from the balance at December 31, 1997. The change is primarily due
to an increase in inventories. Daniel considers its financial position to be
strong with a current ratio at March 31, 1998 of 2.5 to 1.0. Working capital at
March 31, 1998 included $60,283,000 in inventory and deferred tax assets, which
are not as liquid as other current assets.
Capital expenditures for the quarter ended March 31, 1998 were
$3,277,000. 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.
Year 2000
The "Year 2000" issue is the inability of computer hardware and
software to correctly recognize the change in date from 1999 to 2000. The
Company recognizes that the Year 2000 issue creates significant uncertainty and
that Year 2000 compliance to safeguard operations and minimize business
disruption is a key business obligation. While the Company has a program in
progress to ensure that critical business systems, products and services are
Year 2000 compliant, the assessment of existing products and services is
incomplete. Based on the assessments completed to date, the Company believes
that Year 2000 problems can be overcome. Although an estimate of the cost of
addressing the issue has not been completed, the Company does not believe that
the costs will be material. Costs incurred to become Year 2000 compliant will be
treated as period costs and expensed as incurred.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
8
<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: May 14, 1998 By: /s/ James M. Tidwell
------------ -------------------------------------
Executive Vice President and
Chief Financial Officer
Date: May 14, 1998 By: /s/ Wilfred M. Krenek
------------ -------------------------------------
Vice President, Controller and
Chief Accounting Officer
9
<PAGE> 10
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,543
<SECURITIES> 0
<RECEIVABLES> 60,033
<ALLOWANCES> 1,494
<INVENTORY> 54,472
<CURRENT-ASSETS> 136,568
<PP&E> 63,827
<DEPRECIATION> 0
<TOTAL-ASSETS> 235,972
<CURRENT-LIABILITIES> 55,485
<BONDS> 0
0
0
<COMMON> 21,708
<OTHER-SE> 112,744
<TOTAL-LIABILITY-AND-EQUITY> 235,972
<SALES> 67,210
<TOTAL-REVENUES> 67,210
<CGS> 41,553
<TOTAL-COSTS> 41,553
<OTHER-EXPENSES> 19,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 449
<INCOME-PRETAX> 5,988
<INCOME-TAX> 2,246
<INCOME-CONTINUING> 3,742
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,742
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
