<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
SEPTEMBER 30,1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19162
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BW/IP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 33-0270574
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 OCEANGATE BOULEVARD
SUITE 900
LONG BEACH, CALIFORNIA 90802
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 435-3700
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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 THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK, $.01 PAR VALUE, 24,275,000
OUTSTANDING AT SEPTEMBER 30, 1994 (SHARES)
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BW/IP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1994 (unaudited) and December 31, 1993 2-3
Condensed Consolidated Statements of Income -
Three and nine months ended September 30, 1994 and
September 30, 1993 (unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1994 and
September 30, 1993 (unaudited) 5
Notes to Condensed Consolidated Financial Statements
(unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BW/IP, INC.
Condensed Consolidated Balance Sheets
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1994 1993
- - ------ ------------ -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,482 $ 7,671
Accounts and notes receivable (less allowance
for doubtful accounts of $3,739 at September 30,
1994 and $2,805 at December 31, 1993) 113,956 92,614
Inventories 83,824 77,416
Other, including net assets held for disposition 38,166 36,028
-------- --------
Total current assets 242,428 213,729
Property, plant and equipment, at cost
(net of accumulated depreciation and amortization
of $60,664 at September 30, 1994 and $54,237 at
December 31, 1993) 92,373 92,273
Goodwill (net of accumulated amortization
of $4,569 at September 30, 1994 and $3,742
at December 31, 1993) 41,485 21,392
Other assets 13,979 13,894
-------- --------
Total assets $390,265 $341,288
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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BW/IP, INC.
Condensed Consolidated Balance Sheets
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
Liabilities and Stockholders' Equity 1994 1993
- - ------------------------------------ ------------ -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 29,473 $ 34,569
Current maturities of long-term debt 15,071 9,611
Other current liabilities 52,904 46,668
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Total current liabilities 97,448 90,848
Long-term debt 77,932 54,471
Other long-term liabilities 48,848 49,578
Stockholders' equity:
Preferred stock - -
Common stock 245 245
Paid-in capital 85,763 85,763
Retained earnings 75,122 63,337
Cumulative translation adjustment 5,520 (2,341)
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166,650 147,004
Less common stock in treasury, at cost (613) (613)
-------- --------
Total stockholders' equity 166,037 146,391
-------- --------
Total liabilities and stockholders' equity $390,265 $341,288
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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BW/IP, INC.
Condensed Consolidated Statements of Income
(Dollar amounts in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Net sales $117,945 $110,707 $320,192 $315,184
Cost of sales 74,118 69,811 196,227 192,193
-------- -------- -------- --------
Gross profit 43,827 40,896 123,965 122,991
Selling, administrative
and operating expenses 30,850 27,633 89,616 82,896
-------- -------- -------- --------
Operating income 12,977 13,263 34,349 40,095
Interest expense, net 1,742 1,565 4,930 4,824
Other expenses 106 152 474 559
-------- -------- -------- --------
Income from continuing
operations before income taxes 11,129 11,546 28,945 34,712
Provision for income taxes 4,062 3,618 10,565 11,846
-------- -------- -------- --------
Income from continuing operations 7,067 7,928 18,380 22,866
Discontinued operations, net of tax (51) 414 202 917
-------- -------- -------- ---------
Net income $ 7,016 $ 8,342 $ 18,582 $ 23,783
======== ======== ======== =========
Earnings per share:
From continuing operations $ .29 $ .32 $ .76 $ .94
Discontinued operations, net of tax - .02 .01 .04
----- -------- -------- ---------
Net income per share $ .29 $ .34 $ .77 $ .98
===== ======== ======== =========
Dividends declared per share $ .10 $ .08 $ .28 $ .22
===== ======== ======== =========
Weighted average number of
shares outstanding 24,275,000 24,275,000 24,275,000 24,275,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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BW/IP, INC.
Condensed Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1994 1993
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<S> <C> <C>
Cash flows from operating activities $ 7,517 $ 12,232
Cash flows (used in) from investing activities:
Capital expenditures (7,628) (9,589)
Expenditures for acquisitions (22,977) (3,425)
Proceeds from disposition of property
and equipment 667 1,166
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Net cash (used in) investing activities (29,938) (11,848)
Cash flows from (used in) financing activities:
Net borrowings under credit agreements 36,159 13,000
Payment of senior notes (8,333) -
Dividends paid (6,312) (4,855)
Other (700) (485)
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Net cash from financing activities 20,814 7,660
Effect of exchange rate changes on cash 418 (1,568)
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Net (decrease) increase in cash and cash equivalents (1,189) 6,476
Cash and cash equivalents at beginning of period 7,671 10,214
-------- --------
Cash and cash equivalents at end of period $ 6,482 $ 16,690
======== ========
Supplemental cash flow disclosures:
Interest paid $ 4,531 $ 3,304
Income taxes paid 11,791 11,844
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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BW/IP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying condensed consolidated balance sheet as of September
30, 1994 and the related condensed consolidated statements of income
for the three and nine months, and cash flows for the nine months,
ended September 30, 1994 and 1993 are unaudited. In management's
opinion, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of such financial statements have
been made.
The accompanying condensed consolidated financial statements and notes
in this Form 10-Q are presented as permitted by Regulation S- X,
and do not contain certain information included in the Company's
annual financial statements and notes. Accordingly, the accompanying
condensed consolidated financial information should be read in
conjunction with the Company's 1993 Annual Report to Stockholders.
Interim results are not necessarily indicative of results to be
expected for a full year and are subject to audit and adjustment at
the end of the year.
BW/IP, Inc. (formerly known as BWIP Holding, Inc.) is the parent
company of BW/IP International, Inc. (BW/IP). Unless the context
otherwise requires, references herein to "the Company" are to BW/IP,
Inc. and BW/IP International, Inc. and its consolidated subsidiaries.
2. Inventories
Inventories consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
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<S> <C> C>
Finished parts $44,485 $38,121
Work in process 34,850 36,723
Raw materials and supplies 12,735 12,951
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92,070 87,795
Less progress billings (8,246) (10,379)
------- -------
Net inventories $83,824 $77,416
======= =======
</TABLE>
3. Acquisitions
In January 1994, the Company acquired Pacific Wietz GmbH & Co. KG
(Pacific Wietz), a manufacturer of mechanical seals primarily for the
chemical industry, for $24.0 million. The acquisition was accounted
for by the purchase method and, accordingly, the results of Pacific
Wietz have been included with the results of the Company from the date
of acquisition.
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4. Subsequent Event
On October 31, 1994, the Company completed the sale of its Fluid
Controls segment to E-Systems, Inc. The segment had been held for
sale pursuant to a plan established in 1993. Certain assets and
liabilities of the segment, including cash, real property and certain
accrued employee benefits, were retained by the Company. A buyer for
the real property is being actively pursued. The Company believes
that the loss provision recorded in 1993 for the disposition of Fluid
Controls is adequate.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company currently operates one business segment: Pump/Seal. The Pump/Seal
segment consists primarily of centrifugal pumps, mechanical seals, nuclear
valves and related equipment and services. In 1993, the Company initiated its
plan to dispose of its Fluid Controls segment. The disposition was completed
on October 31, 1994. Prior to that date, the segment was accounted for as a
discontinued operation and prior quarterly periods have been reclassified to
reflect this accounting.
Three Months Ended September 30, 1994 Compared To Three Months Ended September
30, 1993
Net sales of $117.9 million for the three months ended September 30, 1994 were
$7.2 million or approximately 6.5% higher than the corresponding period in
1993. Included in the third quarter 1994 sales are $6.5 million in sales
related to the Company's acquisition of Pacific Wietz GmbH & Co. KG (Pacific
Wietz), completed in January 1994. Net sales for the three months ended
September 30, 1994 were also favorably impacted by the weakening U.S. dollar.
Aftermarket sales increased slightly as a percentage of net sales to 57% in the
third quarter of 1994 from 56% in the corresponding quarter in 1993,
contributing to the improvement in gross profit.
Selling, administrative and operating expenses increased as a percentage of
sales from 25.0% for the three months ended September 30, 1993 to 26.2% for the
corresponding period in 1994. The increase was due primarily to the first
quarter 1994 addition of Pacific Wietz. Selling, administrative and operating
expenses for the three months ended September 30, 1993 were favorably impacted
by the reduction of certain performance based accruals and certain other
reserves no longer determined to be necessary.
Operating income for the three months ended September 30, 1994 was $13.0
million, a decrease of $0.3 million, or 2.2% from the comparable period in
1993. The decrease in operating income reflects the increase in selling,
administrative and operating expenses.
Nine Months Ended September 30, 1994 Compared to Nine Months Ended September
30, 1993
Net sales of $320.2 million for the nine months ended September 30, 1994 were
$5.0 million or approximately l.6% higher than the corresponding period in
1993, primarily due to the acquisition of Pacific Wietz which contributed $17.3
million in sales, offset by a decrease in sales within the Pump business.
Reflected in the net sales uplift is an increase in aftermarket sales of
approximately $10.2 million, offset by a decrease in OE sales of approximately
$5.2 million. Although aftermarket sales increased as a percentage of sales to
58% in the first three quarters of 1994 from 56% in the corresponding period of
1993, a shift in mix within aftermarket sales, and the continued competitive
environment within the OE sector, resulted in a decrease in gross profit
margin. In addition, gross profit for the nine months ended September 30, 1993
reflected favorable experience with respect to warranty costs and the reduction
of certain other reserves no longer determined to be necessary. By geographic
region, net sales were down during the nine months ended September 30, 1994 as
compared with 1993 in the United States and Europe, offset by increases in
Mexico and the Pacific Rim.
Selling, administrative and operating expenses increased as a percentage of
sales from 26.3% for the nine months ended September 30, 1993 to 28.0% for the
corresponding period in 1994. The
8
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increase was primarily due to selling expenses continuing to outpace sales
growth in the Pump business and the first quarter addition of Pacific Wietz.
Operating income for the nine months ended September 30, 1994 was $34.3
million, a decrease of $5.7 million or 14.3% from the comparable period in
1993. The decrease in operating income reflects the reduction in gross profit
margin and the increase in selling, administrative and operating expenses.
Order input for the nine months ended September 30, 1994 was $346.4 million
compared with $291.7 million for the corresponding period in 1993. The
increased input is primarily due to higher bookings in the United States and
Mexico, offset by lower bookings in Europe. Pacific Wietz contributed
approximately $20.2 million in bookings in the first three quarters of 1994.
Backlog at September 30, 1994 was $173.5 million compared to $177.5 million at
September 30, 1993.
The improved bookings trend noted during the first half of 1994 continued
during the third quarter. Aftermarket parts and services were a favorable 69%
of third quarter bookings. The improved mix reflected higher orders for
nuclear equipment for the United States and Japan, and an increase in orders
for higher margin pump parts in the United States, Canada and Europe. Certain
of the Company's markets remain sluggish, therefore, the level and mix of
bookings in the third quarter should not be viewed as a trend either positive
or negative. The uplift in third quarter bookings will have a minor impact on
1994 results.
The Company's previously announced restructuring program is ongoing. Costs
relating to severance, relocation and facility realignment were incurred during
the quarter. The site for the large component facility has been identified and
negotiations for financing are ongoing. It is anticipated that construction
will commence in late 1994/early 1995.
On October 31, 1994, the Company completed the sale of its Fluid Controls
segment to E-Systems, Inc. The segment had been held for sale pursuant to a
plan established in 1993. Certain assets and liabilities of the segment,
including cash, real property and certain accrued employee benefits, were
retained by the Company. A buyer for the real property is being actively
pursued. The Company believes that the loss provision recorded in 1993 for the
disposition of Fluid Controls is adequate.
Liquidity and Capital Resources
Cash flow from operations, credit available under its credit agreements and
customer progress payments have been the Company's primary sources of
short-term liquidity. During the nine month period ended September 30, 1994,
the Company generated $7.5 million in net funds from operating activities, as
compared to the first three quarters of 1993 during which the company generated
$12.2 million of net funds from operating activities. The decrease in
operating cash flow resulted from an increase in working capital, primarily
accounts receivable, and lower earnings during the comparable periods.
At September 30, 1994, the Company had outstanding under its credit facilities
borrowings totaling $49.3 million and letters of credit totaling $10.9 million,
and there was $50.8 million available for borrowing thereunder. In January
1994, the Company borrowed approximately $18 million under its U.S. credit
facility to finance the acquisition of Pacific Wietz. As of September 30,
1994, the Company has outstanding $23.5 of obligations relating to performance
bonds.
Interest on the Company's outstanding senior notes is fixed at 7.92%. However,
all of the Company's borrowings under its other senior credit facilities are
currently at floating interest rates. Interest costs are therefore subject to
significant changes depending upon the movement of short-term interest rates.
9
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) There were no reports on Form 8-K filed during the quarter
ended September 30, 1994.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BW/IP, INC.
-----------------------------------
(Registrant)
Date: November 14, 1994 By: /s/ E. P. Cross
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E. P. Cross
Vice President - Finance
(Duly Authorized Officer)
Date: November 14, 1994 By: /s/ N. A. Ludlam
------------------ ------------------------------
N. A. Ludlam
(Chief Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 1,337
<SECURITIES> 5,145
<RECEIVABLES> 103,115
<ALLOWANCES> 3,739
<INVENTORY> 83,824
<CURRENT-ASSETS> 242,428
<PP&E> 153,037
<DEPRECIATION> 60,664
<TOTAL-ASSETS> 390,265
<CURRENT-LIABILITIES> 97,448
<BONDS> 77,932
<COMMON> 245
0
0
<OTHER-SE> 165,792
<TOTAL-LIABILITY-AND-EQUITY> 390,265
<SALES> 320,192
<TOTAL-REVENUES> 320,192
<CGS> 196,227
<TOTAL-COSTS> 196,227
<OTHER-EXPENSES> 89,108
<LOSS-PROVISION> 982
<INTEREST-EXPENSE> 4,930
<INCOME-PRETAX> 28,945
<INCOME-TAX> 10,565
<INCOME-CONTINUING> 18,380
<DISCONTINUED> 202
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,582
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.77
</TABLE>
