-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JzR/O1ortr0nGMqJsKg9rK2l+CdwFqF5yJxeyRKIicPN9jT+BtYy+/86gchNx+eZ YyBq8kIsJct2Vp+PxqQRtA== 0000950129-99-002117.txt : 19990513 0000950129-99-002117.hdr.sgml : 19990513 ACCESSION NUMBER: 0000950129-99-002117 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DANIEL INDUSTRIES INC CENTRAL INDEX KEY: 0000026821 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 741547355 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06098 FILM NUMBER: 99618046 BUSINESS ADDRESS: STREET 1: 9753 PINE LAKE DR CITY: HOUSTON STATE: TX ZIP: 77055 BUSINESS PHONE: 7134676000 MAIL ADDRESS: STREET 1: 9753 PINE LAKE DRIVE CITY: HOUSTON STATE: TX ZIP: 77055 10-Q 1 DANIEL INDUSTRIES, INC. - DATED 03/31/99 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, 1999 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 May 11, 1999, there were outstanding 19,482,588 shares of Common Stock, $1.25 par value, of the registrant. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DANIEL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET (in thousands except per share data) (Unaudited)
March 31, December 31, 1999 1998 --------- ------------ ASSETS Current assets: Cash and cash equivalents ............................................. $ 10,118 $ 7,506 Receivables, net of reserve of $1,712 and $1,756 ...................... 62,339 64,867 Costs and estimated earnings in excess of billings on uncompleted contracts ....................................... 7,325 6,313 Inventories ........................................................... 47,467 47,905 Deferred taxes on income .............................................. 5,096 5,043 Other ................................................................. 4,010 2,971 --------- ------------ Total current assets ........................................... 136,355 134,605 Property, plant and equipment, net ........................................ 64,872 65,592 Intangibles and other assets .............................................. 35,233 36,227 --------- ------------ Total assets ................................................... $ 236,460 $ 236,424 ========= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable ........................................................... $ 6,668 $ 5,857 Current maturities of long-term debt .................................... 4,781 4,756 Accounts payable ........................................................ 15,718 16,046 Accrued liabilities ..................................................... 23,101 27,552 --------- ------------ Total current liabilities ........................................ 50,268 54,211 Long-term debt .............................................................. 33,304 30,639 Deferred taxes on income .................................................... 6,345 6,202 --------- ------------ Total liabilities ................................................ 89,917 91,052 --------- ------------ 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, 17,719 and 17,508 shares issued .................................. 22,083 21,885 Capital in excess of par value .............................................. 99,532 96,839 Accumulated other comprehensive income (loss) ............................... (6,233) (4,690) Retained earnings ........................................................... 31,161 31,338 --------- ------------ Total stockholders' equity ....................................... 146,543 145,372 --------- ------------ Total liabilities and stockholders' equity ....................... $ 236,460 $ 236,424 ========= ============
See accompanying Notes to Consolidated Condensed Financial Statements. 2 3 DANIEL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands except per share data) (Unaudited)
Quarter Ended March 31, ----------------------- 1999 1998 ------- ------- Revenues ................................................. $62,013 $67,210 ------- ------- Costs, expenses and other income: Cost of sales ....................................... 39,134 41,553 Selling, engineering and administrative expenses .... 20,575 18,077 Research and development expenses ................... 1,012 1,143 Interest and other expenses ......................... 321 449 ------- ------- Total costs, expenses and other income ........ 61,042 61,222 ------- ------- Income before income tax expense ......................... 971 5,988 Income tax expense ....................................... 359 2,246 ------- ------- Net income ............................................... $ 612 $ 3,742 ======= ======= Basic earnings per common share .......................... $ .03 $ .22 ======= ======= Diluted earnings per common share ........................ $ .03 $ .21 ======= ======= Cash dividends per common share .......................... $ .045 $ .045 ======= ======= Average shares outstanding ............................... 17,530 17,331 ======= ======= Average diluted shares outstanding ....................... 17,678 18,053 ======= =======
DANIEL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in thousands) (Unaudited)
Quarter Ended March 31, ----------------------- 1999 1998 ------- ------- Net income................................................ $ 612 $ 3,742 Other comprehensive income (loss): Foreign currency translation adjustments............ (1,543) 506 ------- ------- Comprehensive income (loss)............................... $ (931) $ 4,248 ======= =======
See accompanying Notes to Consolidated Condensed Financial Statements. 3 4 DANIEL INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Condensed) (in thousands) (Unaudited)
Quarter Ended March 31, ---------------------------- 1999 1998 -------- -------- Cash flows from operating activities: Net income........................................................ $ 612 $ 3,742 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization.............................. 2,842 2,268 Changes in operating assets and liabilities................ (3,428) (3,009) -------- -------- Net cash provided by operating activities............................ 26 3,001 -------- -------- Cash flows from investing activities: Capital expenditures.............................................. (2,325) (3,277) Proceeds from sales of assets..................................... 107 657 -------- -------- Net cash used in investing activities................................. (2,218) (2,620) -------- -------- Cash flows from financing activities: Net borrowings (payments) under notes payable..................... 844 (1,168) Payments on long-term debt........................................ (5,210) 929 Borrowings on long-term debt...................................... 8,000 -- Cash dividends paid............................................... (789) (781) Activity under stock option plans................................. 2,891 560 -------- -------- Net cash provided by (used in) financing activities................... 5,736 (460) -------- -------- Effect of exchange rate changes on cash............................... (932) 59 -------- -------- Increase(decrease) in cash and cash equivalents....................... 2,612 (20) Cash and cash equivalents, beginning of period........................ 7,506 7,563 -------- -------- Cash and cash equivalents, end of period.............................. $ 10,118 $ 7,543 ======== ========
See accompanying Notes to Consolidated Condensed Financial Statements. 4 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, 1998. Certain reclassifications have been made to prior year amounts in order to conform to the current year classifications. The Company intends to adopt the Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", in its financial statements for the year ending December 31, 2000. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value will be recorded each period in either current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction, and if so, the type of hedge transaction. Due to Daniel's limited use of derivative instruments, management anticipates that adoption of SFAS 133 will not have a significant effect on the Company's results of operations or its financial position. Note 2 - Earnings Per Share 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 three months ended March 31, 1999 and 1998, average shares outstanding were increased by 148,000 and 722,000, 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 Other comprehensive income is comprised of unrealized gains or losses on the Company's foreign currency translation adjustments, which prior to adoption of SFAS 130 were reported as a separate component of stockholders' equity. Total comprehensive income (loss) for the quarters ended March 31, 1999 and 1998 amounted to approximately $(.9) million and $4.2 million, respectively. 5 6 Note 4 - Inventories
March 31, December 31, 1999 1998 ----------- -------------- (in thousands) Raw materials........................................................ $26,621 $25,867 Work in process...................................................... 10,272 10,595 Finished goods....................................................... 17,977 18,753 ------- ------- Inventories before LIFO reserve................................. 54,870 55,215 Less LIFO reserve.................................................... 7,403 7,310 ------- ------- Total inventories............................................... $47,467 $47,905 ======= =======
Note 5 - Debt Long-term debt includes the following:
March 31, December 31, 1999 1998 ----------- -------------- (in thousands) Term loan from banks (unsecured) 6.52% interest payable monthly; principal payable in quarterly installments of $1,071; matures April 30, 2004.................................. $23,571 $24,643 Revolving credit facility (unsecured); interest (5.44% at March 31, 1999 and 6.10% at December 31, 1998) payable monthly; matures April 30, 2000......................... 12,000 8,000 Term loan from bank (secured); interest at Canadian prime rate (6.75% at March 31, 1999 and December 31, 1998); principal and interest payable monthly; payable through August 31, 2001....... 828 898 Miscellaneous obligations........................................... 1,686 1,854 ------- ------- Total obligations.......................................... 38,085 35,395 Less portion due within one year.................................... 4,781 4,756 ------- ------- Long-term debt............................................. $33,304 $30,639 ======= =======
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, 1999, the Company had both committed and uncommitted short-term lines of credit aggregating approximately $28,300,000, which are available for short-term borrowings or issuance of letters of credit. At March 31, 1999 and December 31, 1998, borrowings under these lines were $6,700,000 and $5,900,000, respectively, with approximately $12,400,000 available for short-term borrowings at March 31, 1999. The Company had letters of credit outstanding at March 31, 1999 totaling $8,200,000 under these lines and the Company's revolving credit facility. 6 7 Note 6 - Industry Segments Daniel's reportable segments consist of the primary products and services provided by the Company. These products and services include measurement and control products and systems, valve actuators and valves. The measurement and control products and systems segment includes products which employ a method known as pressure differential orifice measurement to measure fluids. This segment also includes electronic instruments used in conjunction with the flow measurement products, as well as flow measurement systems. The valve actuator segment includes valve actuators and controls used to remotely and automatically open or close quarter-turn or linear valves. The valve segment includes gate valves and the repair of pipeline valves. The accounting policies of the segments are the same as those described in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. There are no material intersegment revenues. Daniel evaluates the performance of its segments based on revenues and operating profit. INFORMATION ON INDUSTRY SEGMENTS (in thousands)
Operating Income Revenues (Loss) -------- --------- Quarter Ended March 31, 1999 Segments: Measurement and control ........................ $ 34,016 $ 1,596 Valve actuators ................................ 19,618 1,705 Valves ......................................... 8,379 593 -------- --------- Subtotal ................................... 62,013 3,894 Corporate ......................................... (2,602) Other income and expense .......................... 326 Interest expense .................................. (647) -------- --------- Total ...................................... $ 62,013 $ 971 ======== ========= Quarter Ended March 31, 1998 Segments: Measurement and control ........................ $ 32,657 $ 3,711 Valve actuators ................................ 24,019 3,074 Valves ......................................... 10,534 1,735 -------- --------- Subtotal ................................... 67,210 8,520 Corporate ......................................... (2,083) Other income and expense .......................... 608 Interest expense .................................. (1,057) -------- --------- Total ...................................... $ 67,210 $ 5,988 ======== =========
7 8 Note 7 - Subsequent Event On May 11, 1999, Daniel acquired all of the outstanding stock of Hytork International plc, a designer, manufacturer and marketer of rack and pinion actuators, for 1,732,710 shares of common stock of Daniel. The acquisition will be accounted for by the purchase method and accordingly, the purchase price will be allocated to the net assets acquired based on their fair market value with any excess accounted for as goodwill and amortized over a 30-year period. The operations related to this acquisition are not material to Daniel's results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Quarter Ended March 31, 1999 vs. Quarter Ended March 31, 1998 Revenues for the quarter ended March 31, 1999 were $62,013,000 compared to $67,210,000 for the same period in 1998. The reduction in revenues is due principally to lower sales in the valve actuation and valve segments which more than offset the additional revenues of $1,359,000 in the measurement and control segment primarily due to METCO Services, Ltd. ("METCO") which was acquired in October 1998. This decrease is attributed to a slowdown in project activity associated with lower energy prices. The Company's backlog at March 31, 1999 was $56,551,000, a decrease of 4% and 26% from the backlog balance at December 31, 1998 and March 31, 1998, respectively. The gross profit margin for the quarter ended March 31, 1999 decreased to 37% of revenues from 38% of revenues in the quarter ended March 31, 1998. The decreased margin is primarily attributable to the lower production levels noted above in the valve actuator and valve segments and a change in product mix at the measurement and control segment. Selling, engineering and administrative ("SE&A") expenses increased $2,498,000 to $20,575,000 in the current period when compared to the same quarter of last year. The increase was primarily attributable to higher selling expenses, the additional general and administrative costs associated with the new Daniel Measurement Services division and METCO, and expenses of approximately $400,000 associated with a strategic review undertaken by the Company. Research and development expenses decreased $131,000 to $1,012,000 in the current period reflecting decreased spending on electronic development projects. The favorable variance in interest and other expense was due primarily to the net effect of reduced interest expense resulting from lower debt outstanding and less gains on the sale of assets. The effective tax rate for the three months ended March 31, 1999 was 37% as compared to 37.5% for the same period in the prior year. The decrease is not considered significant. Current Operating Conditions As mentioned above, the Company's backlog at March 31, 1999 decreased approximately 26% from the year earlier amount. The decrease in backlog is due principally to lower energy prices which have caused customers to delay or postpone various projects. As a result of this decline in business activity, 8 9 the Company anticipates that it, along with others in the industry, will encounter difficult business conditions for the remainder of 1999 and expects results for the second quarter of 1999, while profitable, to be below the second quarter 1998 results of $.25 per share on a diluted basis. Liquidity and Capital Resources The primary sources of the Company's liquidity for the three months ended March 31, 1999 were internally generated funds, long-term borrowings, and stock option activity. These funds were used primarily for capital expenditures and payment of cash dividends. Working capital at March 31, 1999 of $86,087,000 reflects an increase of $5,693,000 from the balance at December 31, 1998. The change is primarily due to a decrease in accounts payable and accrued liabilities. Daniel considers its financial position to be strong with a current ratio at March 31, 1999 of 2.7 to 1.0. Working capital at March 31, 1999 included $52,563,000 in inventory and deferred tax assets, which are not as liquid as other current assets. Capital expenditures for the quarter ended March 31, 1999 were $2,325,000. 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. On May 11, 1999, Daniel acquired all of the outstanding stock of Hytork International plc, a designer, manufacturer and marketer of rack and pinion actuators, for 1,732,710 shares of common stock of Daniel. The acquisition will be accounted for by the purchase method and accordingly, the purchase price will be allocated to the net assets acquired based on their fair market value with any excess accounted for as goodwill and amortized over a 30-year period. The operations related to this acquisition are not material to Daniel's results of operations. 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 systems (both hardware and software) to recognize the change in date from 1999 to 2000. The issue affects not only information technology ("IT") but non-IT systems as well. Non-IT systems typically include embedded technology such as microcontrollers. These system types are more difficult to assess and often require replacement rather than repair. The Company has recognized the significant uncertainty associated with the Year 2000 issue and has developed a team approach at each of its business segments. These teams are charged with the responsibility of eliminating or minimizing any effects Year 2000 issues may have. Each team's remediation efforts are reported monthly to senior management of the business segment and to the Company's Chief Financial Officer. The Audit Committee of the Board of Directors reviews the current status of all Year 2000 issues at each committee meeting. 9 10 Products The Company has established a phased program for testing its products for Year 2000 compliance. Phase One of that testing program, the testing of currently marketed products, is complete. It is Daniel's belief that substantially all necessary modifications will be completed and tested by June 30, 1999. Certain of the Company's products contain customized software, either added by the customer after delivery or, at the customer's request, added by the Company. Testing of such customized products is usually only practical at the customer's location and is generally undertaken only if requested, and paid for, by the customer. Internal Systems The review of Daniel's internal systems is proceeding toward a scheduled completion date of June 30, 1999. At the present time, no "mission critical" systems requiring significant modification or replacement have been identified, other than the management information systems discussed below. Substantially all mission critical internal systems have been reviewed and remediated. The Company recently implemented a new management information system, licensed from JD Edwards World Solutions Company ("JD Edwards"), which is being utilized at two of the Company's domestic operating divisions as well as at Corporate headquarters. This new system replaces various obsolete legacy systems that have been developed internally over many years. The decision during 1998 to replace the existing systems was heavily influenced by the extremely high estimate of the costs required to make the legacy systems Year 2000 compliant. The cost of the new JD Edwards system, which will be amortized over its expected useful life, was approximately $4,700,000, exclusive of the internal costs of installation and related systems modification. The essential management information systems of Daniel's other operating divisions are either substantially Year 2000 compliant due to the installation of regular upgrades to existing systems, which are primarily packaged systems provided by major suppliers, or will be made compliant through such upgrades prior to the end of 1999. No material expenditures, which would not have been made absent Year 2000 considerations, have been required in relation to the various upgrades. Other than the capital expended for the JD Edwards system, Daniel absorbed approximately $130,000 through the first quarter of 1999 for expenses related to the Year 2000 project. The additional cost estimated to bring the project to completion is $50,000, which will be treated as a period cost and expensed as incurred. Vendors Daniel is in the process of identifying and communicating with those of its suppliers and vendors where failure by such third parties to achieve Year 2000 compliance could reasonably be expected to have a material, lasting impact on the Company. This process is scheduled to be substantially complete by June 30, 1999. Daniel is presently in the process of contacting vendors that did not previously respond to the initial compliance questionnaire. 10 11 Contingency plans will be developed for any suppliers or vendors who may pose a material risk to Daniel's ability to manufacture products. With the exception of third parties, such as banks and telephone service providers, where business interruption would impact a large section of the economy, the Company has not identified any significant dependency for which alternate sources are not readily available. "Most Likely Worst Case Scenario" The Company has not developed a "most likely worst case scenario" as referred to by the Securities and Exchange Commission. If reasonably quantifiable risks are identified, development of such a scenario will be considered. ITEM 3a. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISKS Market risk is considered immaterial. 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, 1999. 11 12 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 12, 1999 By: /s/ James M. Tidwell ------------ ----------------------------------- James M. Tidwell Executive Vice President and Chief Financial Officer Date: May 12, 1999 By: /s/ Wilfred M. Krenek ------------ ----------------------------------- Wilfred M. Krenek Vice President, Controller and Chief Accounting Officer 12 13 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 10,118 0 64,051 1,712 47,467 136,355 147,042 82,170 236,460 50,268 0 0 0 22,083 124,460 236,460 62,013 62,013 39,134 39,134 21,587 0 647 971 359 612 0 0 0 612 .03 .03
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