-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Ao0gXXF29dYCDiAzfvwHxWUwJwXH0h+YO1q4mObYmSHpf1LoRR+kHzXoV4tGtZxq TnvyvM4theeGvKJkjsKKkA== 0000109446-94-000002.txt : 19940215 0000109446-94-000002.hdr.sgml : 19940215 ACCESSION NUMBER: 0000109446-94-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZURN INDUSTRIES INC CENTRAL INDEX KEY: 0000109446 STANDARD INDUSTRIAL CLASSIFICATION: 4991 IRS NUMBER: 251040754 STATE OF INCORPORATION: PA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 001-05502 FILM NUMBER: 94506732 BUSINESS ADDRESS: STREET 1: ONE ZURN PL CITY: ERIE STATE: PA ZIP: 16505 BUSINESS PHONE: 8144522111 MAIL ADDRESS: STREET 1: PO BOX 2000 CITY: ERIE STATE: PA ZIP: 16514 10-Q 1 10-Q TEST FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended December 31, 1993 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 1-5502 ZURN INDUSTRIES, INC. IRS Employer State of Address and Identification Incorporation Telephone Number Number Pennsylvania One Zurn Place 25-1040754 Erie, Pennsylvania 16505 814/452-2111 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, 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 registrant's classes of common stock as of the latest practicable date. February 4, 1994 -- Common Stock, $.50 Par Value -- 12,403,200 Exhibit Index 10 Total Pages 13 -1- PART I - FINANCIAL INFORMATION CONSOLIDATED FINANCIAL POSITION (Thousands) December 31, March 31, 1993 1993 Assets Current assets Cash and equivalents $ 4,957 $ 25,491 Marketable securities 77,809 65,152 Accounts receivable 127,729 151,433 Inventories Finished products 43,879 45,897 Work in process 15,839 22,612 Raw materials and supplies 17,693 16,763 77,411 85,272 Contracts in progress 11,907 7,066 Other current assets 45,272 31,699 Total current assets 345,085 366,113 Property, plant, and equipment 162,688 162,391 Less allowances for depreciation and amortization 94,594 91,968 68,094 70,423 Investments 35,649 35,896 Other assets 18,654 17,746 $467,482 $490,178 Liabilities and Stockholders' Equity Current liabilities Trade accounts payable $ 46,208 $ 66,347 Other current liabilities 133,865 115,988 Total current liabilities 180,073 182,335 Long-term obligations 11,449 18,694 Retirement obligations 41,447 40,051 Stockholders' equity Common stock 6,285 6,285 Other stockholders' equity 228,228 242,813 234,513 249,098 $467,482 $490,178 See notes to consolidated financial statements. -2- CONSOLIDATED OPERATIONS (Thousands Except Per Share Amounts) Three Months Ended Nine Months Ended December 31 December 31 1993 1992 1993 1992 Net sales $142,724 $191,043 $646,993 $511,807 Costs and expenses Cost of products sold 113,859 159,099 551,381 415,323 Marketing, administrative, and general expenses 21,242 29,190 62,205 76,285 Restructuring 9,000 135,101 188,289 622,586 491,608 Operating income 7,623 2,754 24,407 20,199 Interest income 1,041 889 3,339 2,711 Other income 538 5,016 1,434 5,912 Interest expense (1,060) (594) (2,064) (1,918) Litigation (36,247) Income (loss) before income taxes 8,142 8,065 (9,131) 26,904 Income tax expense (benefit) 3,220 1,220 (4,250) 8,190 Net income (loss) $ 4,922 $ 6,845 $ (4,881) $ 18,714 Earnings (loss) per share $.40 $.55 $(.39) $1.50 Average shares outstanding 12,441 12,476 12,451 12,522 Cash dividends declared per common share $.22 $.22 $.66 $.66 See notes to consolidated financial statements. -3- CONSOLIDATED CASH FLOWS (Thousands) Nine Months Ended December 31 1993 1992 Operations Net (loss) income $ (4,881) $18,714 Litigation 34,573 Deferred income taxes (14,470) Restructuring 8,088 Operating assets and liabilities (21,258) (4,100) Depreciation and amortization 7,903 7,965 Miscellaneous (457) 8 9,498 22,587 Investing Marketable securities (12,657) (14,088) Capital expenditures (8,121) (11,245) Sales of operations 2,508 (183) Long-term investments (756) (1,313) Miscellaneous 167 2,253 (18,859) (24,576) Financing Dividends paid (8,220) (8,260) Treasury stock purchased (2,412) (5,563) Debt payments (1,666) (1,606) Stock options exercised 1,125 813 (11,173) (14,616) Cash and equivalents (Decrease) (20,534) (16,605) Beginning of year 25,491 27,459 End of period $ 4,957 $ 10,854 See notes to consolidated financial statements. -4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the results for the interim periods presented. The results of operations for the nine months ended December 31, 1993 are not necessarily indicative of the results to be expected for the full year. Earnings per share are based on income and the average shares of common stock and dilutive stock options outstanding during the period. The $50,000,000 commitment the Company had from a group of banks for revolving credit loans has been extended to March 1994. The nine months of the current year include an $8,363,000 ($.41 per share) recovery of a receivable written off in fiscal 1992, a $1,850,000 ($.15 per share) benefit from revaluing net deferred tax assets as a result of federal tax legislation, and restructuring costs of $9,000,000 ($.44 per share). A $36,247,000 pre-tax charge, including a $9,747,000 write-off of accounts receivable, ($23,197,000 after-tax, or $1.87 per share) was recognized in the first quarter of the current year as the result of a jury verdict against the Company in connection with a contract to construct an agricultural waste- burning power plant. If all issues are lost on the appeal which is being aggressively pursued, the ultimate amount could reach $55,000,000. The third quarter of last year includes $4,667,000 after-tax ($.37 per share) from the favorable settlement of prior year state income tax assessments and $5,377,000 ($.27 per share) for the costs of the agricultural waste-burning power plant legal proceedings. In the normal course of business, financial and performance guarantees are made in connection with major engineering and construction contracts and a liability is recognized when a probable loss occurs. Also, there are various claims, legal, and environmental proceedings which management believes will have no material effect on the Company's financial position or results of operations when they are resolved. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition At December 31, 1993, liquid assets were invested to a greater extent in longer-term debt instruments causing 62% of the decline in cash and equivalents and the increase in marketable securities. The balance of the decline was caused primarily by the Power Systems segment paying significant amounts of trade accounts payable and accrued expenses as several power plant projects were completed. About 40% of the accounts receivable reduction is attributable to collections of fiscal 1993 fourth quarter Lynx Golf sales, -5- while the accounts receivable write off associated with the litigation charge described in the notes to consolidated financial statements caused a significant portion of the remaining reduction and the increase in other current liabilities. The deferred income taxes included in other current assets increased because of the litigation charge and their revaluation due to tax legislation. Most of the inventory change is associated with fewer steam generating equipment orders for the Power Systems segment. Power plant performance efficiency payments earned by the Power Systems segment, but payable in future years, more than offset the $5.0 million reduction in long-term investments that resulted from relinquishing the limited partnership investment related to the collection of the $8.4 million receivable described in the notes to financial statements. The collection of the receivable also resulted in the cancellation of a $5.0 million nonrecourse note payable causing a substantial part of the decline in long-term obligations. Most of the change in stockholders' equity was the result of the net loss for the nine-month period and the payment of dividends. While the financial condition changes reduced working capital and the current ratio, neither they nor an unfavorable resolution of the contingencies described in the financial statement notes are expected to have an adverse effect on the Company's business plans. Results of Operations Sales by the Company's industry segments were as set forth below. Three Months Ended Nine Months Ended December 31 December 31 1993 1992 1993 1992 (Thousands) Power Systems $ 66,706 $114,224 $403,502 $269,826 Water Control 59,413 57,784 189,174 180,195 Lynx Golf 7,117 5,181 26,332 26,345 Others 9,488 13,854 27,985 35,441 $142,724 $191,043 $646,993 $511,807 The Power Systems segment nine-month revenue increase reflects the higher level of power plant construction activity on projects having more major purchased equipment. Substantial portions of the projects were completed in the first half and, with only one new order and fewer projects under construction, third quarter revenues declined compared to last year. Increases in Water Control segment sales of plumbing products and revenues from water resource construction projects more than offset the expected decline in fire sprinkler systems revenues this year, while last year's nine- month sales included $15,989,000 from businesses which have been sold ($5,075,000 in the third quarter). The Lynx Golf sales increase for the quarter was derived from the reduction of specialty inventory items and, for the nine months, its sales have been adversely affected by a substantially slowed worldwide market for premium-priced golf clubs and a first quarter -6- delay in the production of the new line of metal woods. Other businesses' sales last year included an operation that was sold at the beginning of this year. The year-to-date gross profit margin decline is attributable to the Power Systems segment's steam generating equipment market decline and power plant projects having more major purchased equipment, higher Lynx Golf production costs, and greater competition for water resource construction projects. In the third quarter, the profit margin decline which otherwise would have occurred was offset by Power Systems earnings which were particularly strong as several power plant projects were completed with final profitability which was enhanced by achieving performance efficiencies beyond contract requirements. General expenses were greater in the third quarter last year because of the cost of legal proceedings and businesses which were subsequently sold. For the nine months this year, general expenses were reduced by the collection in the second quarter of a fully-reserved receivable while Lynx Golf promotional efforts and first quarter legal costs offset the absence of expenses from sold businesses. The restructuring charge was provided to cover the costs of realigning operations and writing off certain assets. The litigation charge and the effects of legislation on income taxes are described in the notes to financial statements. However, this year's effective tax rate is higher primarily because of reduced earnings expectations in states with relatively lower tax rates. The ongoing accrual of interest associated with the litigation provision affected interest expense in the third quarter. Last year's third quarter net income included the favorable settlement of prior year state income tax assessments, with previously accrued interest being included in other income and the reversal of tax reserves reducing the effective income tax rate. The Company's backlog of unfilled orders by industry segment was as follows: December September December 1993 1993 1992 (Millions) Power Systems $150 $149 $484 Water Control 85 101 149 Lynx Golf 9 4 12 Others 11 12 13 $255 $266 $658 The Company's sales and earnings for the fourth quarter will be below last year's levels before the gain from the sales of businesses. Power Systems segment sales are expected to be at a level similar to this year's third quarter with lower earnings. Lynx Golf, which has operated each quarter at a loss greater than last year, is expected to have substantially improved and profitable results compared to last year's fourth quarter. Pending further additions to the backlog, Power Systems sales for fiscal 1995 are anticipated to be less than half of this year's level. -7- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On September 24, 1993, the Superior Court of Imperial County California entered a judgment in the amount of $25,746,000 against the Company and its subsidiary, National Energy Production Corporation (NEPCO), in connection with a cross complaint filed in February 1991 by Imperial Resource Recovery Associates, L.P., a California Limited Partnership, which alleged that NEPCO had failed to construct an electric generating facility in accordance with contract terms. The Court also assessed prejudgment interest of $6,133,050. An appeal from the entire judgment was taken on September 24, 1993 by the Company and NEPCO and is pending in the California Court of Appeals Fourth District. On October 19, 1993, the Commonwealth of Pennsylvania Department of Environmental Resources (Department) filed a complaint in the United States District Court for the Western District of Pennsylvania against the Company and twenty-six others seeking to recover past and future specified and unspecified costs exceeding $2,200,000 arising out of the Department's involvement at the Millcreek Dumpsite in Erie County, Pennsylvania. In January 1994, the State of California filed a complaint in the Municipal Court of the Los Angeles Judicial District against the Company's subsidiary, Zurn Constructors, Inc., two of its employees, and another company and individual alleging felony and misdemeanor violations of the State's Health and Safety, Water, and Penal codes in connection with the discharge of a pollutant from the other company's property into a Coyote Creek tributary. The maximum fines for the alleged charges sought in the complaint against Zurn Constructors total $570,000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits The exhibits listed in the Exhibit Index to this report on Form 10-Q are incorporated herein by reference. Reports on Form 8-K No reports were filed during the quarter for which this report is filed. -8- 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. ZURN INDUSTRIES, INC. (Registrant) February 11, 1994 /s/ Dennis Haines Dennis Haines General Counsel and Secretary February 11, 1994 /s/ John E. Rutzler III John E. Rutzler III Vice President-Controller -9- EXHIBIT INDEX 4 Instruments Defining the Rights of Security Holders, Including Indentures Description of Common Stock contained in the prospectus Incorporated dated July 26, 1972 beginning on page 18 ("Description of by reference Capital Stock") forming a part of Amendment No. 3 to the Form S-1 Registration Statement No. 2-44631 Description of Common Stock as set forth in the Restated Incorporated Articles of Incorporation with Amendments through by reference August 7, 1987 filed as Exhibit 19A to Form 10-Q for the quarter ended September 30, 1987 Description of Preferred Share Purchase Rights contained Incorporated in the Form 8-A Registration Statement dated May 22, 1986 by reference Description of 5-3/4% Convertible Subordinated Debentures Incorporated due 1994 contained in the prospectus dated November 12, by reference 1969 beginning on page 15 ("Description of Debentures") forming a part of the Form S-1 Registration Statement filed November 12, 1969 10 Material Contracts 1986 Stock Option Plan filed as Exhibit 28A to Form S-8 Incorporated Post-Effective Amendment No. 1 Registration Statement No. by reference 33-19103 1989 Directors Stock Option Plan filed as Exhibit 28 to Incorporated Form S-8 Registration Statement No. 33-30383 by reference 1991 Stock Option Plan filed as Exhibit 28 to Form S-8 Incorporated Registration Statement No. 33-49224 by reference Supplemental Executive Retirement Plan of Zurn Incorporated Industries, Inc. filed as Exhibit 19A to Form 10-Q for by reference the quarter ended December 31, 1992 1982 Retirement Plan for Outside Directors of Zurn Incorporated Industries, Inc. filed as Exhibit 19A to Form 10-Q for by reference the quarter ended June 30, 1989 1986 Retirement Plan for Outside Directors of Zurn Incorporated Industries, Inc. filed as Exhibit 19B to Form 10-Q for by reference the quarter ended June 30, 1989 -10- Agreements Relating to Employment dated June 5, 1989 with Incorporated D.F. Fessler, W.A. Freeman, C.L. Hedrick, G.H. Schofield, by reference and J.A. Zurn filed as Exhibit 10H to Form 10-Q for the quarter ended June 30, 1989 Zurn Industries, Inc. Deferred Compensation Plan for Non- Incorporated Employee Directors filed as Exhibit 19E to Form 10-Q for by reference the quarter ended June 30, 1989 Zurn Industries, Inc. Deferred Compensation Plan for Incorporated Salaried Employees filed as Exhibit 19F to Form 10-Q for by reference the quarter ended June 30, 1989 Zurn Industries, Inc. Optional Deferment Plan for Incorporated Incentive Compensation Plan Participants filed as Exhibit by reference 19G to Form 10-Q for the quarter ended June 30, 1989 Zurn Industries, Inc. Supplemental Pension Plan for Incorporated Participants in the Deferred Compensation Plan for by reference Salaried Employees filed as Exhibit 19B to Form 10-Q for the quarter ended December 31, 1992 Indemnity Agreements dated August 14, 1986 with K.S. Incorporated Axelson, E.J. Campbell, A.S. Cartwright, G.H. Schofield, by reference D.W. Wallace, and J.A. Zurn filed as Exhibit 19J to Form 10-Q for the quarter ended September 30, 1986 Indemnity Agreements dated October 20, 1986 with D.F. Incorporated Fessler, W.A. Freeman, and C.L. Hedrick filed as Exhibit by reference 19A to Form 10-Q for the quarter ended December 31, 1986 and with J.E. Rutzler III filed as Exhibit 10B to Form 10-Q for the quarter ended December 31, 1988 Indemnity Agreements dated January 25, 1993 with W.E. Incorporated Butler, April 1, 1993 with D. Haines, and August 6, 1993 by reference with Z. Baird filed as Exhibit 10A to Form 10-Q for the quarter ended June 30, 1993 Irrevocable Trust Agreements for the Grantor's: 1982 Incorporated Retirement Plan for Outside Directors of Zurn Industries, by reference Inc.; 1986 Retirement Plan for Outside Directors of Zurn Industries, Inc.; Deferred Compensation Plan for Non- Employee Directors; Supplemental Executive Retirement Plan for Zurn Industries, Inc.; Zurn Industries, Inc. Supplemental Pension Plan for Participants in the Deferred Compensation Plan for Salaried Employees; Deferred Compensation Plan for Salaried Employees; Optional Deferment Plan for Incentive Compensation Plan Participants filed as Exhibit 19I to Form 10-Q for the quarter ended September 30, 1986 -11- Second Irrevocable Trust Agreement for the Grantor's Incorporated Indemnity Agreements filed as Exhibit 10A to Form 10-Q by reference for the quarter ended December 31, 1988 Incentive Compensation Plan filed as Exhibit 10A to Form Incorporated 10-K for the year ended March 31, 1993 by reference 11 Statement Re Computation of Per Share Earnings Computation of Earnings Per Share Page 13 -12- EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE (Thousands Except Per Share Amounts) Three Months Ended Nine Months Ended December 31 December 31 1993 1992 1993 1992 Primary Earnings Per Share Net income (loss) $ 4,922 $ 6,845 $(4,881) $18,714 Preferred stock dividends 1 2 3 $ 4,922 $ 6,844 $(4,883) $18,711 Shares outstanding Weighted average common shares 12,441 12,402 12,451 12,467 Net common shares issuable on Anti- Anti- exercise of stock options dilutive 74 dilutive 55 Average common shares outstanding as adjusted 12,441 12,476 12,451 12,522 Primary earnings (loss) per share $.40 $.55 $(.39) $1.50 Fully Diluted Earnings Per Share Net income A $ 6,845 A $18,714 Interest on convertible debentures, n n net of applicable income taxes t 9 t 28 i i d $ 6,854 d $18,742 i i Shares outstanding l l Average common shares as adjusted u u for primary computation t 12,476 t 12,522 Common shares issuable if the i i preferred stock and convertible v v debentures were converted at e e the beginning of the year 76 79 Additional common shares issuable on exercise of stock options 44 16 Average common shares outstanding as adjusted 12,596 12,617 Fully diluted earnings per share $.55 $1.49 -13- -----END PRIVACY-ENHANCED MESSAGE-----