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 July 29, 1995
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 September 1, 1995, 5,394,316 shares, par value $.10 per share,
of common stock of the Registrant were outstanding.
PART I. FINANCIAL STATEMENTS
VARLEN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Thousands of Dollars)
July 29, January 31,
1995 1995
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 24,014 $ 13,096
Accounts receivable, less allowance
for doubtful 43,224 48,838
accounts of $1,308 and $1,318
Inventories:
Raw materials 18,230 17,774
Work in process 11,032 12,890
Finished goods 8,734 9,686
37,996 40,350
Deferred and refundable income taxes 5,221 5,229
Other current assets 3,904 4,022
Total current assets 114,359 111,535
Property, plant, and equipment 129,656 125,378
Less: accumulated depreciation 63,126 65,742
66,530 59,636
Goodwill and other intangible assets,
net 45,330 46,292
Other assets 1,551 2,723
227,770 220,186
Liabilities and Stockholders' Equity
Current maturities of long-term debt 71 67
Accounts payable 24,735 27,365
Accrued expenses 20,932 23,526
Income taxes payable 2,039 2,864
Total current liabilities 47,777 53,822
Long-term debt:
Convertible subordinated debentures 69,000 69,000
Other long-term debt 3,768 3,788
Total long-term debt 72,768 72,788
Deferred income taxes 5,257 4,838
Other liabilities 10,358 9,707
Common stock 539 487
Other stockholders' equity (note 4) 91,071 78,544
227,770 220,186
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
VARLEN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
July 29, July 30, July 29, July30,
1995 1994 1995 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net sales $ 97,753 $ 77,961 $ 204,722 $157,861
Cost of sales 73,675 59,200 153,286 119,576
Gross profit 24,078 18,761 51,436 38,285
Selling, general and
administrative
expenses 14,129 11,034 29,418 22,806
Interest expense,
net 1,219 1,147 2,392 2,388
Earnings before income
taxes 8,730 6,580 19,626 13,091
Income taxes 3,797 2,846 8,537 5,727
Net earnings 4,933 3,734 11,089 7,364
Earnings per share (note 4):
Primary $ 0.88 $ 0.68 $ 1.99 $ 1.34
Fully diluted $ 0.67 $ 0.53 $ 1.49 $ 1.05
Weighted average number of shares
outstanding - primary (note 4)
5,586 5,484 5,560 5,507
Weighted average number of shares
outstanding - fully diluted (note 4)
8,364 8,261 8,354 8,284
Dividends per common share (note 4)
$ 0.10 $ 0.09 $ 0.19 $ 0.18
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
VARLEN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Thousands of Dollars)
Six Months Ended
July 29, July 30,
Increase (Decrease) in Cash 1995 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 11,089 $ 7,364
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation 5,989 5,724
Amortization 1,215 1,586
Deferred income taxes 261 152
Change in assets and liabilities net of
effects from purchased businesses:
Accounts receivable, net 2,972 (640)
Inventories 440 1,773
Refundable income taxes 8 132
Other current assets 52 (872)
Accounts payable (2,015) 2,590
Accrued expenses (2,544) (2,415)
Income taxes payable (896) 1,120
Other noncurrent assets 983 386
Other noncurrent liabilities 624 (284)
Total adjustments 7,089 9,252
Net cash provided by operating
activities 18,178 16,616
Cash flows from investing activities:
Fixed asset expenditures (14,205) (6,264)
Cost of purchased business (1,003) ---
Sale of business 7,949 ---
Disposals and other changes in property,
plant and equipment 315 164
Net cash used in investing activities (6,944) (6,100)
Cash flows from financing activities:
Proceeds from debt 86 14
Payments of debt (43) (77)
Issuance of common stock under option
plans 383 51
Cash received on stock subscriptions 155 95
Cash dividends paid (1,022) (971)
Net cash used in financing activities (441) (888)
Effect of exchange rate changes on cash 125 105
Net increase in cash and cash
equivalents 10,918 9,733
Cash and cash equivalents at beginning
of year 13,096 5,168
Cash and cash equivalents at end of
period $ 24,014 $ 14,901
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 July 29, 1995 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. Supplementary Cash Flow Information
(in thousands):
<TABLE>
<CAPTION>
July 29, July 30,
1995 1994
<S> <C> <C>
Cash paid during the year to
date period for:
Interest $ 2,481 $ 2,466
Income taxes (net) $ 9,683 $ 4,727
</TABLE>
3. Business Segment Information
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 29 July 30 July 29 July 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales:
Transportation products $78,834 $ 59,347 $ 163,969 $ 120,228
Laboratory equipment 18,919 18,614 40,753 37,633
97,753 77,961 204,722 157,861
Operating profits*:
Transportation products 9,551 6,955 20,289 14,115
Laboratory equipment 1,706 1,535 4,549 3,601
11,257 8,490 24,838 17,716
<FN>
*Before interest and general corporate expenses.
</TABLE>
4. Stock Dividend:
On May 22, 1995, the Company's Board of Directors declared a
10% stock dividend payable on July 10, 1995 to stockholders of
record on June 23, 1995. The stock dividend increased the
Company's common shares outstanding from approximately
4,888,000 to approximately 5,376,000 as of the payable date.
The earnings per share, weighted average number of shares
outstanding and dividends per common share amounts for all
periods of financial information contained herein reflect this
stock dividend.
5. Acquisitions and Divestiture:
On January 16, 1995, the Company purchased the assets of the
Railroad Division of Prime Manufacturing Corporation
("Prime"), located in Oak Creek, Wisconsin. The acquisition
was made for $5.9 million in cash and $25,000 (1,000 shares)
of Company common stock. The Company purchased the related
land and building in June, 1995 for approximately $1.0
million. Prime manufactures a wide range of engineered
products for railroad locomotives, including heating,
ventilating and air conditioning equipment; valves and
refrigerators. Prime's products are sold to both original
equipment manufacturers and the aftermarket.
On September 30, 1994, the Company purchased the North
American distribution rights for its Walter Herzog GmbH
("Herzog") German subsidiary from UIC, Inc., Herzog's
previous North American distributor, for $1.8 million in cash
and deferred payments including $70,000 (3,000 shares) of
Company common stock. The Company also formed on that date,
Varlen Instruments, Inc., a wholly owned North American
distributor for the products of Herzog as well as of Alcor
Petroleum Instruments, Inc. and Precision Scientific
Petroleum Instruments Company, two other operations of the
Company.
On August 18, 1994, the Company acquired Acieries de
Ploermel ("AP"), a steel foundry located in the Brittany
region of northwest France. The Company initially made an
equity investment and provided loan guarantees totaling
approximately $1.1 million. The Company has injected working
capital, refinanced AP's debt to reduce interest costs and
utilized local and French government grants and interest-free
loans. AP specializes in railroad products and is an
approved source for most of the national railroads in Europe.
AP also provides castings for valve manufacturers and, to a
lesser extent, for the auto industry.
The acquisitions have been accounted for by the purchase
method of accounting with the excess of the purchase price
over the fair value of the net assets acquired amortized over
a period of between 15 and 40 years. The operating results
of the businesses acquired have been included in the
accompanying condensed consolidated results of operations
from the respective dates of acquisition. These transactions
were financed with cash on hand.
On July 18, 1995, the Company sold its National
Metalwares, Inc. Subsidiary, a maker of tubular steel
components for manufacturers of consumer durables, to a
private investment group for approximately $8.5 million in
cash less selling costs. Neither the acquisitions nor the
divestiture were material to the Company's condensed
consolidated financial statements.
6. Re-continued Operations:
On July 31, 1994, the Company re-continued its Chrome
Crankshaft Co. and Chrome Crankshaft Company of Illinois
subsidiaries which had been previously treated as
discontinued operations. These operations were recontinued
due to the termination of sale negotiations with a potential
purchaser. The results of operations of these businesses,
which are not material to the Company, have been included in
the Company's condensed consolidated financial statements
starting on July 31, 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX-MONTH PERIOD
ENDED JULY 29, 1995
Overview
The Company designs, manufactures, and markets a diverse
range of products in its transportation products and laboratory
equipment 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 and petroleum
industries. The demand for the Company's products by certain 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 six months ended July 29, 1995
were $204.7 million or 29.7% higher than the $157.9 million
achieved in the first six months of 1994. Sales increased in
both the transportation products segment and the laboratory
equipment segment with the largest increase being in the
transportation segment. For the second quarter of 1995, sales
were $97.8 million, up $19.8 million or 25.4% from sales of $78.0
million in the comparable 1994 period. Corresponding to the six-
month period, the sales increase was spread across both business
segments in a similar proportion.
Net earnings for the first six months of 1995 increased to
$11.1 million from $7.4 million in 1994's first half. Earnings
per share for the first six months in 1995 were $1.49 per share
on a fully diluted basis which compared to $1.05 per share fully
diluted in the comparable 1994 period. All per share amounts
reflect a 10% stock dividend paid on July 10, 1995 to
stockholders of record on June 23, 1995.
During the second quarter ended July 29, 1995, net earnings
increased to $4.9 million from $3.7 million in the same 1994
quarter. Earnings per share were $.67 on a fully diluted basis
for the second quarter of 1995 compared to $.53 per share on a
fully diluted basis in the equivalent 1994 period. On July 18,
1995, the company sold its National Metalwares, Inc. subsidiary
for approximately book value. This sale resulted in a pretax
loss of approximately $200,000, or $.01 per share fully diluted
during the second quarter of 1995. The second quarter of 1994
benefited from the effects of two non-operating events which had
a net $.04 per share fully diluted positive impact. Operating
profit increased in the transportation products and laboratory
equipment segments in both the six-month period and quarter ended
July 29, 1995 compared to the comparable 1994 period.
On a business segment basis, revenues in the transportation
products segment for the quarter and six months ended July 29,
1995 were $78.8 million and $164.0 million, respectively, as
compared to $59.3 million and $120.2 million in the comparable
prior year periods. During the year-to-date period, sales
increased in all three transportation businesses. Operating
profit in the first six months of 1995 was $20.3 million (12.4%
of segment sales), up 43.7% from $14.1 million (11.8% of segment
sales). Similarly, operating profit in the 1995 second quarter
increased 37.3% to $9.6 million (12.1% of segment sales) compared
to $7.0 million (11.7% of segment sales) in the comparable 1994
period. Operating profits increased in all three business areas
in the second quarter and first six months of 1995 compared to
the prior year's equivalent periods.
Heavy duty truck and trailer industry sales were
substantially higher in the 1995 periods than in the prior year
and the Company benefited from this improvement. In addition,
the Company substantially increased sales to its second largest
heavy duty truck customer. Automotive industry sales declined
slightly in the first half of 1995, although sales of light
trucks increased which continued to benefit the Company's
automotive parts operations. Sales at the Company's railroad
products business increased as a result of both improved demand
and acquisitions which occurred in the second half of 1994.
Sales in the laboratory equipment segment for the quarter
and six months ended July 29, 1995, increased to $18.9 million
and $40.8 million, respectively, compared to $18.6 million and
$37.6 million in the 1994 periods. The increase in revenues in
this segment resulted from increased sales of laboratory
appliances and petroleum instruments. The tubular metal goods
business which was sold prior to the end of the quarter had lower
sales in both the second quarter and six-month 1995 periods
compared to 1994.
Operating profit for the laboratory equipment segment for
the first six months of 1995 increased to $4.5 million (11.2% of
segment sales) compared to $3.6 million (9.6% of segment sales)
in the prior year's period. For the 1995 second quarter,
operating profit increased to $1.7 million (9.0% of segment
sales) compared to $1.5 million (8.3% of segment sales) in the
prior year's quarter. Increases in operating profit in both the
quarter and six-month period occurred at all three business
areas. However, operating profit was negatively impacted by the
approximate $200,000 pretax loss on the sale of National
Metalwares, Inc. discussed above. During the quarter and six
months ended July 29, 1995, earnings of this segment compared to
the prior year's period benefited from pretax gains of $100,000
and $205,000, respectively, from foreign currency translation.
Consolidated gross margin in the first six months increased
to 25.1% in 1995 from 24.3% in 1994, and during the second
quarter consolidated gross margin increased to 24.6% in 1995 from
24.1% in 1994. Gross margin percentages increased during these
periods at both segments with the laboratory equipment segment
having the largest increase.
Selling, general, and administrative expenses of $29.4
million or 14.4% of sales in the first six months of 1995
compared to $22.8 million or 14.5% of sales in the comparable
1994 period. During the second quarter of 1995, selling,
general, and administrative expenses were $14.1 million or 14.5%
of sales compared to $11.0 million or 14.2% of sales in the prior
year's comparable period. The expenses in 1994 are net of $.8
million ($.5 million after tax) of income from an insurance cost
reallocation. In the transportation segment, selling, general,
and administrative expenses during the quarter and six-month
periods decreased as a percent of sales from 1994 to 1995 while
they increased as a percent of sales at the laboratory equipment
segment. Within the laboratory equipment segment, gross margin
and selling, general, and administrative expenses as a percent of
sales increased as a result of acquiring the domestic
distribution rights for the Company's largest petroleum
instrument line.
Gross interest expense for the quarter and six months ended
July 29, 1995 was $1.4 million and $2.7 million, respectively,
compared to $1.3 million and $2.6 million for the prior year's
comparable periods. Borrowings and interest rates were similar
year to year. In the six-month period, interest income increased
due to higher invested cash balances.
Income taxes were provided at an effective rate during the
second quarter and first six months of 1995 of 43.5% compared to
43.3% and 43.7%, respectively, in the comparable 1994 periods.
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 second quarter and six-month periods ended July
29, 1995, the Company generated $11.9 and $18.2 million,
respectively, of cash from operating activities. As of July 29,
1995, the Company's working capital was $66.6 million, total
assets were $227.8 million, total debt, excluding current
portion, was $72.8 million and stockholders' equity was $91.6
million.
Investing activities during the second quarter and six-month
periods ended July 29, 1995 included capital expenditures of $7.6
million and $14.2 million, respectively. These capital
expenditures were primarily for machinery and equipment to
support new products and to improve operating efficiency and
included $5.6 million to purchase and equip a new facility to
begin production in December 1995. At July 29, 1995, the Company
was committed to spend approximately an additional $2.6 million
in 1995 to equip the new facility.
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 July 29,
1995, 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.
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)
September 12, 1995
By: /s/ Richard A. Nunemaker
Richard A. Nunemaker
Vice President, Finance
and Chief Financial
Officer
(Principal Financial
Officer
and Principal Accounting
Officer)
EXHIBIT INDEX
Exhibit No. Page No.
11 Computation of Per Share Earnings 13
27 Financial Data Schedule 14
VARLEN CORPORATION AND SUBSIDIARIES Exhibit 11
Computation of Per Share Earnings
Unaudited
(Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
<TABLE>
<CAPTION>
Primary Earnings Per Share: 7/29/95 7/30/94 7/29/95 7/30/94
<S> <C> <C> <C> <C>
Net earnings $ 4,933 $ 3,734 $ $ 11,089 $ 7,364
Computation of the Weighted Average Number of
Shares Outstanding as Used in the Primary
Earnings Per Share Computation:
Weighted average number of
shares outstanding
5,371 5,363 5,364 5,357
Shares assumed issued
under the treasury
stock method 215 121 196 150
Weighted average number of
shares outstanding,
as adjusted 5,586 5,484 5,560 5,507
Primary Earnings Per Share:
0.88 0.68 1.99 1.34
Fully Diluted Earnings Per Share:
Reconciliation of net earnings per the condensed consolidated
financial statements to the amount used for the fully
diluted computation:
Net earnings $ 4,933 $ 3,734 $ 11,089 7,364
Add interest on 6.5% convertible subordinated
debentures, net of income tax
effects 682 682 1,341 1,349
Net earnings, as adjusted 5,615 4,416 12,430 8,713
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 5,371 5,363 5,364 5,357
Shares assumed issued under the
treasury stock method 216 121 213 150
Shares issuable from assumed exercise of
6.5% convertible subordinated
debentures 2,777 2,777 2,777 2,777
Weighted average number of
shares outstanding,
as adjusted 8,364 8,261 8,354 8,284
Fully Diluted Earnings
Per Share: 0.67 0.53 1.49 1.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER 1995 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JUL-29-1995
<CASH> 24,014
<SECURITIES> 0
<RECEIVABLES> 43,224
<ALLOWANCES> 0
<INVENTORY> 37,996
<CURRENT-ASSETS> 114,359
<PP&E> 129,656
<DEPRECIATION> 63,126
<TOTAL-ASSETS> 227,770
<CURRENT-LIABILITIES> 47,777
<BONDS> 72,768
<COMMON> 539
0
0
<OTHER-SE> 91,071
<TOTAL-LIABILITY-AND-EQUITY> 227,770
<SALES> 204,722
<TOTAL-REVENUES> 204,722
<CGS> 153,286
<TOTAL-COSTS> 153,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,664
<INCOME-PRETAX> 19,626
<INCOME-TAX> 8,537
<INCOME-CONTINUING> 11,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,089
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.49
</TABLE>
