SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1994
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 0-5374
VARLEN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2651100
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
55 Shuman Boulevard, P.O. Box 3089
Naperville, Illinois 60566-7089
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (708)420-0400
Indicate by check 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
At June 1, 1994, 4,851,507 shares, par value $.10 per share, of common
stock of the Registrant were outstanding.
<PAGE>
PART I. FINANCIAL STATEMENTS
VARLEN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Unaudited
(Thousands of Dollars)
<TABLE>
<CAPTION>
April 30, January 31,
1994 1994
<S> <C> <S> <C> <C>
Assets
Cash $ 7,034 $ 5,168
Accounts receivable, less allowance for doubtful 44,203 34,455
accounts of $1,275 and $1,207
Inventories:
Raw materials 12,835 12,594
Work in process 9,380 13,228
Finished goods 12,373 11,245
34,588 37,067
Deferred and refundable income taxes 3,993 4,095
Other current assets 2,971 2,621
Net current assets of discontinued operations 69 169
Total current assets 92,858 84,575
Property, plant, and equipment 109,342 106,700
Less: accumulated depreciation 56,517 53,833
52,825 52,867
Goodwill and other intangible assets, net 45,539 45,829
Other assets 2,447 2,461
Net non-current assets of discontinued operations 514 532
194,183 $ 186,264
Liabilities and Stockholders' Equity
Current maturities of long-term debt $ 65 $ 122
Accounts payable 21,043 16,784
Accrued expenses 14,909 18,230
Income taxes payable 3,162 393
Total current liabilities 39,179 35,529
Long-term debt:
Convertible subordinated debentures 69,000 69,000
Other long-term debt 3,713 3,698
Total long-term debt (notes 2 and 5) 72,713 72,698
Deferred income taxes 5,310 5,217
Other liabilities 9,482 9,176
Common stock 485 485
Other stockholders' equity (notes 5 and 6) 67,014 63,159
$ 194,183 $ 186,264
</TABLE>
See Notes to Condensed Consolidated Financial Statements
VARLEN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
April 30, May 1,
1994 1993
<S> <C> <C>
Net sales $ 79,900 $ 78,607
Cost of sales 60,376 58,727
Gross profit 19,524 19,880
Selling, general and administrative expenses 11,772 12,018
Interest expense, net 1,241 1,364
Earnings before income taxes 6,511 6,498
Income taxes (note 7) 2,881 2,957
Net earnings $ 3,630 $ 3,541
Earnings per share (notes 5 and 6):
Primary $ 0.72 $ 0.73
Fully diluted $ 0.57 $ 0.73
Weighted average number of shares outstanding - primary
5,033 4,875
Weighted average number of shares outstanding - fully diluted
7,557 4,875
Dividends per common share $ 0.10 $ 0.10
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
VARLEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Three Months Ended
April 30, May 1,
1994 1993
<C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities:
Net earnings $ 3,630 $ 3,541
Adjustments to reconcile net earnings to net cash provided
by continuing operating activities:
Depreciation 2,836 2,220
Amortization 800 602
Deferred income taxes 57 234
Change in assets and liabilities net of effects
from purchased and discontinued businesses:
Accounts receivable, net (8,637) (3,612)
Inventories 2,601 (2,585)
Refundable income taxes 106 (78)
Other current assets (347) (143)
Accounts payable 4,226 449
Accrued expenses (3,457) (303)
Income taxes payable 2,761 840
Other noncurrent assets (19) 34
Other noncurrent liabilities 306 (91)
Total adjustments 1,233 (2,433)
Net cash provided by continuing operating activities
4,863 1,108
Net cash provided by (used in) discontinued operations
118 (273)
Net cash provided by operating activities
4,981 835
Cash flows from investing activities:
Fixed asset expenditures (2,641) (3,079)
Disposals and other changes in property, plant and equipment
(27) 42
Net cash used in investing activities
(2,668) (3,037)
Cash flows from financing activities:
Proceeds from debt 26 1,419
Payments of debt (74) (79)
Issuance of common stock under option plans
51 676
Cash received on stock subscriptions 10 ---
Cash dividends paid (485) (480)
Net cash (used in) provided by financing activities
(472) 1,536
Effect of exchange rate changes on cash 25 42
Net increase (decrease) in cash 1,866 (624)
Cash at beginning of year 5,168 1,292
Cash at end of period $ 7,034 $ 668
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited condensed consolidated financial statements of Varlen
Corporation (the "Company") included herein have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. In the opinion of the Company, all adjustments which are
considered necessary for a fair presentation of the results for the
interim periods presented and the balance sheet at April 30, 1994 have
been made. These financial statements, which are condensed and do not
include all disclosures included in annual financial statements, should
be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's latest annual report on Form
10-K.
2. Long-term debt is comprised of the following (in thousands):
<TABLE>
<CAPTION>
April 30, January 31,
1994 1994
<C> <S> <C> <C>
6.5% Convertible Subordinated $ 69,000 $ 69,000
Debentures Due 2003
Industrial revenue bonds 3,778 3,820
and other notes
72,778 72,820
Less current portion (65) (122)
Long-term debt $ 72,713 $ 72,698
3. Supplementary Cash Flow Information
(in thousands):
April 30, May 1,
1994 1993
Cash paid during the year to
date period for:
Interest $ 107 $ 930
Income taxes (net) $ 169 $ 2,158
<PAGE>
4. Business Segment Information
(in thousands):
Quarter Ended
April 30, 1994 May 1, 1993
Net sales:
Transportation products $60,881 $59,840
Laboratory and other products 19,019 18,767
$79,900 $78,607
Operating profits*:
Transportation products $ 7,160 $ 8,652
Laboratory and other products 2,066 399
$ 9,226 $ 9,051
</TABLE>
*Before interest and general corporate expenses.
5. Issuance of Convertible Debentures:
During the second quarter of 1993, the Company issued $69 million
aggregate principal amount of 6.5% Convertible Subordinated Debentures Due
2003. The debentures are initially convertible into common stock of the
Company at $27.33 per share and are callable in whole or in part after
June 3, 1996 at the option of the Company at specified redemption prices
plus accrued interest. The proceeds from the issuance were used to reduce
outstanding indebtedness under the Company's revolving credit agreement
with the excess proceeds used for general corporate purposes.
6. Stock Split:
On August 23, 1993, the Company's Board of Directors declared a three-for-
two stock split, effected in the form of a stock dividend, payable on
October 14, 1993 to stockholders of record on September 30, 1993. The
stock split increased the Company's common shares outstanding from
approximately 3,214,000 to approximately 4,821,000 as of the declaration
date. In addition, the quarterly cash dividend of $.15 per share was
adjusted to $.10 per share to maintain the net amount of the dividend
payment at its previous level. The earnings per share, weighted average
number of shares outstanding and dividends per common share for all
periods of financial information contained herein reflect this stock
split.
7. Income Taxes:
During the third quarter of 1993, U.S. federal tax legislation was enacted
that impacted the Company, principally by increasing the statutory tax
rate to 35%, retroactive to January 1, 1993, and disallowing certain
deductions related to business travel and entertainment beginning in 1994.
Offsetting this were changes in German tax law also enacted during the
third quarter that reduce the statutory tax rate on distributed earnings
to 30% beginning in 1994 and impose a 7.5% surtax beginning in 1995. As
a result of these changes, deferred tax liabilities decreased by $114,000.
The effect was recognized as a component of income tax expense in the
third quarter of 1993.
8. Acquisition:
On November 23, 1993, the Company acquired the petroleum analysis
equipment and testing services division of San Antonio-based Alcor, Inc.,
a privately held company. The acquisition was made for $5.4 million in
cash and $499,000 (19,550 shares) of the Company's common stock. The
acquired business, which had annual revenues of approximately $4 million,
designs, develops, manufactures and sells petroleum analysis equipment.
It is also engaged in the testing of petroleum products in its laboratory,
and the sale of petroleum product reference samples. The acquired
business markets its products and services under the name of Alcor
Petroleum Instruments, Inc. The acquisition has been accounted for by the
purchase method of accounting with the preliminary allocation of the
excess of the purchase price over the fair value of the net assets
acquired amortized over 40 years. The operating results of the business
acquired have been included in the accompanying condensed consolidated
statements of earnings from the date of acquisition. The transaction was
financed with cash on hand.
<PAGE>
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD
ENDED APRIL 30, 1994
Overview
The Company designs, manufactures and markets a diverse range of products
in its transportation products and laboratory and other products business
segments. These products are marketed to the railroad, heavy duty truck and
trailer and automotive industries, as well as to the life sciences research,
petroleum and consumer products industries. The demand for the Company's
products by many of these industries is affected by economic conditions in the
United States and abroad. The Company's manufacturing operations have a
significant fixed cost component. Accordingly, during periods of changing
product demand the profitability of many of the Company's operations may change
proportionately more than revenues of such operations.
Results of Operations
The Company's sales in the three months ended April 30, 1994 were $79.9
million, up $1.3 million or 1.6% from sales of $78.6 million in the comparable
1993 period. Sales increased approximately 1.5% in both the transportation
products segment and the laboratory and other products segment.
Net earnings for the first three months of 1994 increased to $3.6 million
from $3.5 million in the first quarter of 1993. Earnings per share was $.72
per share on a primary basis and $.57 on a fully diluted basis for the first
quarter of 1994 compared to $.73 per share on both a primary and fully diluted
basis in the first quarter of 1993. Operating profit increased in the
laboratory and other products segment while a decline was experienced in the
transportation products segment.
On a business segment basis, revenues in the transportation products
segment for the three months ended April 30, 1994 were $60.9 million, as
compared to $59.8 million in the comparable prior year period. For the
quarter, heavy duty truck/trailer and automotive sales increased while railroad
business sales declined. Operating profit in the first three months of 1994
declined 17.2% to $7.2 million (11.8% of segment sales) compared to $8.7
million (14.5% of segment sales) in the comparable 1993 period as lower
railroad products sales resulted in decreased profitability.
Heavy duty truck and trailer industry sales were substantially higher in
the 1994 period than in the prior year and the Company benefitted from this
improvement. In addition, the Company benefitted as its two largest heavy duty
truck customers maintained their number one and number two market share
positions during 1994. Automotive industry sales, particularly light truck
sales, increased during 1994 over the year earlier period which benefitted the
Company's automotive parts operations. Despite volume increases in both of
these businesses, selling prices were not able to be increased. Offsetting
increased large truck/tractor and automotive demand, sales for the Company's
railroad products decreased as a result of program deferrals, bad weather and
lower selling prices.
Sales in the laboratory and other products segment for the quarter ended
April 30, 1994, increased to $19.0 million, compared to $18.8 million in the
1993 period. A decline in revenues in the laboratory appliance business
portion of this segment occurred due to weak demand and the sale of a facility
after the first quarter of 1993. Offsetting this, however, was an increase in
sales of tubular metal products and petroleum analysis instruments. Tubular
metal products sales increased as a result of new products and higher demand
while revenues of petroleum analysis instruments included an acquisition made
in November 1993.
Operating profit for the laboratory and other products segment for the
first three months of 1994 increased substantially to $2.1 million (10.9% of
segment sales) compared to $.4 million (2.1% of segment sales) in the prior
year's period. All business areas contributed to the increased operating
profit. The largest increase was in the research laboratory appliance business
where a program of cost reductions begun over a year ago, including sale of a
facility and resizing the work force at the remaining facility, reduced costs
and reversed the losses incurred in the first quarter of 1993. Increased sales
of tubular goods and the petroleum analysis instrument acquisition resulted in
higher earnings in the remaining sectors of this segment.
Consolidated gross margin decreased to 24.4% in 1994 from 25.3% in 1993.
The transportation products segment gross margin declined as a result of margin
pressure in the railroad business caused by both lower volume and prices. The
gross margin of the laboratory and other products segment increased during the
three months ended April 30, 1994 compared to the prior year period. The
increase resulted from the impact of cost reduction programs mentioned
previously and the acquisition of a high gross margin business late in 1993.
Selling, general and administrative expenses of $11.8 million or 14.7% of
sales in the first three months of 1994 compared to $12.0 million or 15.3% of
sales in the prior year's comparable period. The expenses in 1994 include $.2
million ($.1 million after tax) of costs related to an aborted acquisition.
In the transportation segment, selling, general and administrative expenses as
a dollar amount and as a percent of sales were relatively level from 1993 to
1994. In the laboratory and other products segment, selling, general and
administrative expenses as a dollar amount and as a percent of sales declined
due to the cost reductions mentioned previously offset by selling, general and
administrative expenses of the acquired petroleum instrument business.
Gross interest expense for the quarter ended April 30, 1994 was $1.3
million compared to $1.4 million for the prior year's comparable period.
Interest expense in 1994 reflected slightly higher interest rates on slightly
lower borrowings.
Income taxes were provided at an effective rate during the 1994 quarter
of 44.3% compared to 45.5% in the comparable 1993 period. The higher than
statutory federal rate reflects non-deductible goodwill amortization, higher
taxes on foreign operations and state income taxes.
Capital Resources and Liquidity
During the three month period ended April 30, 1994, the Company generated
$5.0 million of cash from operating activities. As of April 30, 1994, the
Company's working capital was $53.7 million, its total assets were $194.2
million, its total debt, excluding current portion, was $72.7 million and its
stockholders' equity was $67.5 million.
Investing activities during the three month period ended April 30, 1994
included capital expenditures of $2.6 million. These capital expenditures were
primarily for machinery and equipment to support new products and to improve
operating efficiency. At April 30, 1994 the company did not have any material
commitments for capital expenditures.
On May 27, 1993, the Company publicly issued $60 million of its 6.5%
Convertible Subordinated Debentures Due 2003, the proceeds of which were used
to reduce indebtedness under the revolving credit facility. On June 18, 1993,
an additional $9 million of the same debentures were issued pursuant to an
over-allotment option granted to the underwriter of the debentures. To support
its investing activities, the Company has an $80 million revolving credit
agreement which expires on December 6, 1997. This credit facility is expected
to be used by the Company as the principal source of acquisition financing.
At April 30, 1994, the Company had no debt outstanding under this credit
facility. The Company believes that internally generated funds will be
sufficient to satisfy its anticipated working capital needs, capital
expenditures and scheduled debt repayments.
Beginning in 1990, the Company was subject to the direct effects of
currency movements as a result of a foreign acquisition in Germany. The
effects of foreign currency fluctuations did not have a significant impact in
the three months of 1994 compared to 1993.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on May 24, 1994, the stockholders voted
on two items. The items voted on and the results of the voting were as
follows:
For Against
Withheld Abstaining
<TABLE>
<CAPTION>
1) Elect a Board of Directors:
<S> <C> <C> <C> <C> <C>
Ernest H. Lorch 3,880,144 - 100,147 -
Richard L.Wellek 3,880,498 - 99,793 -
Rudolph Grua 3,956,161 - 24,130 -
L. William Miles 3,956,161 - 24,130 -
Greg A. Rosenbaum 3,880,498 - 99,793 -
Joseph J. Ross 3,956,987 - 23,304 -
Theodore A. Ruppert 3,955,255 - 25,036 -
2) Approve the appointment of 3,971,048 2,768 - 6,475
Deloitte & Touche as the
Company's independent
auditors for the fiscal
year ending January 31, 1995
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
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.
VARLEN CORPORATION
(Registrant)
June 9, 1994 By:/s/ Richard A. Nunemaker
Richard A. Nunemaker
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
11 Computation of Per Share Earnings 14
27 Financial Data Schedule 15
VARLEN CORPORATION AND SUBSIDIARIES
Computation of Per Share Earnings
(Thousands, Except Per Share Amounts)
Primary Earnings Per Share:
Net earnings $
Computation of the Weighted Average Number of
Shares Outstanding as Used in the Primary
Earnings Per Share Computation:
Weighted average number of shares outstanding
Shares assumed issued under the treasury
stock method
Weighted average number of shares outstanding, as adjusted
Primary Earnings Per Share: $
Fully Diluted Earnings Per Share:
Reconciliation of net earnings per the financial statements
to the amount used for the fully diluted computation:
Net earnings $
Add interest on 6.5% convertible subordinated
debentures, net of income tax effects
Net earnings, as adjusted $
Computation of the Weighted Average Number of
Shares Outstanding as Used in the Fully
Diluted Earnings Per Share Computation:
Weighted average number of shares outstanding
Shares assumed issued under the treasury
stock method
Shares issuable from assumed exercise of
6.5% convertible subordinated debentures
Weighted average number of shares outstanding, as adjusted
Fully Diluted Earnings Per Share: $
Exhibit 11
For The Quarter Ende
4/30/94 5/1/93
3,630 $ 3,541
4,866 4,776
167 99
5,033 4,875
0.72 $ 0.73
3,630 $ 3,541
667 ---
4,297 $ 3,541
4,866 4,776
167 99
2,524 ---
7,557 4,875
0.57 $ 0.73
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JAN-31-1994
<PERIOD-END> APR-30-1994
<CASH> 7034
<SECURITIES> 0
<RECEIVABLES> 44203
<ALLOWANCES> 1275
<INVENTORY> 34588
<CURRENT-ASSETS> 92858
<PP&E> 109342
<DEPRECIATION> 56517
<TOTAL-ASSETS> 194183
<CURRENT-LIABILITIES> 39179
<BONDS> 0
<COMMON> 485
0
0
<OTHER-SE> 67014
<TOTAL-LIABILITY-AND-EQUITY> 194183
<SALES> 79900
<TOTAL-REVENUES> 79900
<CGS> 60376
<TOTAL-COSTS> 60376
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1265
<INCOME-PRETAX> 6511
<INCOME-TAX> 2881
<INCOME-CONTINUING> 3630
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3630
<EPS-PRIMARY> .72
<EPS-DILUTED> .57
</TABLE>
