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 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 June 1, 1995, 4,877,632 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)
April 29, January 31,
1995 1995
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 13,064 $ 13,096
Accounts receivable, less allowance 54,801 48,838
for doubtful accounts of $1,531 and
$1,318
Inventories:
Raw materials 19,434 17,774
Work in process 11,128 12,890
Finished goods 10,537 9,686
41,099 40,350
Deferred and refundable income taxes 5,223 5,229
Other current assets 4,931 4,022
Total current assets 119,118 111,535
Property, plant, and equipment 132,471 125,378
Less: accumulated depreciation 68,507 65,742
63,964 59,636
Goodwill and other intangible assets,
net 47,342 46,292
Other assets 1,790 2,723
$ 232,214 $ 220,186
Liabilities and Stockholders' Equity
Current maturities of long-term
debt $ 74 $ 67
Accounts payable 29,101 27,365
Accrued expenses 22,008 23,526
Income taxes payable 6,551 2,864
Total current liabilities 57,734 53,822
Long-term debt:
Convertible subordinated
debentures 69,000 69,000
Other long-term debt 3,790 3,788
Total long-term debt 72,790 72,788
Deferred income taxes 4,973 4,838
Other liabilities 9,951 9,707
Common stock 487 487
Other stockholders' equity (note 4) 86,279 78,544
$ 232,214 $ 220,186
<FN>
See Notes to Condensed Consolidated Financial Statements
/TABLE
<PAGE>
VARLEN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended
April 29, April 30,
1995 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Net sales $ 106,969 $ 79,900
Cost of sales 79,611 60,376
Gross profit 27,358 19,524
Selling, general and administrative
expenses 15,289 11,772
Interest expense, net 1,173 1,241
Earnings before income taxes 10,896 6,511
Income taxes 4,740 2,881
Net earnings $ 6,156 $ 3,630
Earnings per share (note 4):
Primary $ 1.11 $ 0.66
Fully diluted $ 0.82 $ 0.52
Weighted average number of shares
outstanding - primary (note 4) 5,546 5,536
Weighted average number of shares
outstanding - fully diluted (note 4) 8,333 8,313
Dividends per common share
(note 4) $ 0.09 $ 0.09
<FN>
See Notes to Condensed Consolidated Financial Statements
/TABLE
<PAGE>
VARLEN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Thousands of Dollars)
Three Months Ended
April 29, April 30,
1995 1994
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,156 $ 3,630
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation 2,923 2,836
Amortization 613 800
Deferred income taxes (29) 57
Change in assets and liabilities
net of effects from purchased businesses:
Accounts receivable, net (5,381) (8,637)
Inventories (131) 2,601
Refundable income taxes 6 106
Other current assets (866) (347)
Accounts payable 784 4,226
Accrued expenses (2,486) (3,457)
Income taxes payable 3,622 2,761
Other noncurrent assets 876 99
Other noncurrent liabilities 216 306
Total adjustments 147 1,351
Net cash provided by operating
activities 6,303 4,981
Cash flows from investing activities:
Fixed asset expenditures (6,637) (2,641)
Disposals and other changes in property,
plant and equipment 48 (27)
Net cash used in investing activities (6,589) (2,668)
Cash flows from financing activities:
Proceeds from debt 468 26
Payments of debt (19) (74)
Issuance of common stock under option plans 62 51
Cash received on stock subscriptions 77 10
Cash dividends paid (486) (485)
Net cash provided by (used in)
financing activities 102 (472)
Effect of exchange rate changes on cash 152 25
Net (decrease) increase in cash and cash
equivalents (32) 1,866
Cash and cash equivalents at beginning of
year 13,096 5,168
Cash and cash equivalents at end of
period $ 13,064 $ 7,034
<FN>
See Notes to Condensed Consolidated Financial Statements
/TABLE
<PAGE>
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 April 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>
April 29, April 30,
1995 1994
<S> <C> <C> <C> <C>
Cash paid during the year to
date period for:
Interest $ 201 $ 107
Income taxes (net) $ 1,582 $ 169
</TABLE>
3. Business Segment Information
(in thousands):
<TABLE>
<CAPTION>
Quarter Ended
April 29, 1995 April 30, 1994
<C> <C>
Net sales:
Transportation products $ 85,135 $ 60,881
Laboratory equipment 21,834 19,019
$106,969 $ 79,900
Operating profits*:
Transportation products $ 10,738 $ 7,160
Laboratory equipment 2,843 2,066
$ 13,581 $ 9,226
</TABLE>
*Before interest and general corporate expenses.
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 will increase the Company's common shares
outstanding from approximately 4,881,000 to approximately 5,369,000 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:
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 is committed
to purchase the related land and building in mid-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 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.
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 recent 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE-MONTH PERIOD
ENDED APRIL 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 science research,
petroleum and consumer products industries. The demand for the Company's
products by many of these industries is affected by domestic as well as
international economic conditions. 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 29, 1995 were
$107.0 million, up $27.1 million or 33.9% from sales of $79.9 million in the
comparable 1994 period. Sales increased significantly more in the
transportation products segment than the laboratory equipment segment.
Net earnings for the first three months of 1995 increased 69.6% to $6.2
million from $3.6 million in the first quarter of 1994. Earnings per share
were $1.11 per share on a primary basis and $.82 on a fully diluted basis
for the first quarter of 1995 compared to $.66 per share on a primary basis
and $.52 per share on a fully diluted basis in the first quarter of 1994.
Per share amounts for 1994 have been restated to reflect a 10% stock
dividend declared on May 22, 1995, payable July 10, 1995 to shareholders of
record on June 23, 1995. Operating profit increased in both segments
proportionately more than sales increased.
On a business segment basis, revenues in the transportation products
segment for the three months ended April 29, 1995 were $85.1 million, as
compared to $60.9 million in the comparable prior year period. Sales
increased in all businesses in this segment before considering acquisitions.
Additionally, the railroad business benefited from two 1994 acquisitions and
the 1994 re-continuance of a business. Operating profit in the first three
months of 1995 increased 50.0% to $10.7 million (12.6% of segment sales)
compared to $7.2 million (11.8% of segment sales) in the comparable 1994
period as all businesses had increased profit on higher sales.
Heavy duty truck and trailer industry sales were higher in the 1995
period than in the prior year and the Company benefited from this
improvement. In addition, the Company benefited from two new large
contracts with a large customer and from its two largest heavy duty truck
customers maintaining their number one and number two market share
positions. Automotive industry production was level with the prior year,
although industry sales declined in the latter part of the Company's 1995
first quarter. The Company's automotive components sales increased as
demand for light trucks continued to be strong. Railroad industry demand as
measured by new railcar builds, new locomotive builds and revenue ton miles
increased in 1995 compared to 1994. Sales increased substantially in the
Company's railroad business as a result of this demand and two 1994
acquisitions. On a selective basis, price increases were made in the
transportation products segment to offset higher material costs.
Sales in the laboratory equipment segment for the quarter ended April
29, 1995 increased 14.8% to $21.8 million, compared to $19.0 million in the
1994 period. Sales increased in the petroleum analysis instruments and
research laboratory instruments businesses, while sales declined slightly in
the remainder of the segment. The largest increase in sales was in the
petroleum analysis instruments business as a result of increased demand and
the Company's efforts to control its own distribution in key countries
around the world.
Operating profit for the laboratory equipment segment for the first
three months of 1995 increased to $2.8 million (13.0% of segment sales)
compared to $2.1 million (10.9% of segment sales) in the prior year's
period. The change in operating profit by business followed the trend of
sales. During the quarter, the effects of foreign currency translation
increased sales by $.6 million and operating profit by $.1 million.
Consolidated gross margin increased to 25.6% in 1995 from 24.4% in
1994. The transportation products segment and the laboratory equipment
segment gross margins both increased when compared to the 1994 quarter as a
result of higher sales, continued cost reduction efforts and selected price
increases.
Selling, general and administrative expenses of $15.3 million or 14.3%
of sales in the first three months of 1995 compared to $11.8 million or
14.7% of sales in the prior year's comparable period. In both business
segments, these expenses as a dollar amount increased while staying
relatively level as a percentage of sales. Corporate expenses were
relatively level on a dollar amount basis and correspondingly decreased as a
percentage of sales.
Gross interest expense for the quarter ended April 29, 1995 was $1.3
million which equated the prior year's comparable period. Interest income
increased $.1 million in 1995 as a result of higher cash and investment
balances.
Income taxes were provided at an effective rate during the 1995 quarter
of 43.5% compared to 44.3% in the comparable 1994 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 29, 1995, the Company
generated $6.3 million of cash from operating activities. As of April 29,
1995, the Company's working capital was $61.4 million, its total assets were
$232.2 million, its total debt, excluding current portion, was $72.8 million
and its stockholders' equity was $86.8 million.
Investing activities during the three-month period ended April 29, 1995
included capital expenditures of $6.6 million. These capital expenditures
were primarily for machinery and equipment to support new products and to
improve operating efficiency but included the acquisition of a plant
facility. At April 29, 1995 the Company was committed to purchase the land
and building for $1.0 million related to an asset acquisition in late 1994,
and was committed to spend approximately $5.0 million during 1995 to equip
the plant facility acquired during the first quarter of 1995.
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 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.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on May 23, 1995, the stockholders
voted on three items. The items voted on and the results of the voting were
as follows:
<TABLE>
<CAPTION>
Broker
For Against Withheld Abstaining Non-Votes
<S> <C> <C> <C> <C> <C>
1) Elect a Board of
Directors:
Ernest H. Lorch 4,300,381 - 149,629 - -
Richard L. Wellek 4,296,592 - 153,418 - -
Rudolph Grua 4,359,185 - 90,825 - -
L. William Miles 4,359,085 - 90,925 - -
Greg A. Rosenbaum 4,359,885 - 90,125 - -
Joseph J. Ross 4,360,085 - 89,925 - -
Theodore A. Ruppert 4,377,140 - 72,870 - -
2) Approve the appoint- 4,444,512 1,750 - 3,748 -
ment of Deloitte &
Touche LLP as the
Company's independent
auditors for the
fiscal year ending
January 31, 1996
3) Stockholder proposal 299,186 3,815,913 - 22,040 312,871
regarding executive
compensation
/TABLE
<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 12, 1995 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 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
Primary Earnings Per Share: 4/29/95 4/30/94
Net earnings $ 6,156 $ 3,630
Computation of the Weighted Average Number of
Shares Outstanding as Used in the Primary
Earnings Per Share Computation:
Weighted average number of shares
outstanding 5,355 5,353
Shares assumed issued under the treasury
stock method 191 183
Weighted average number of shares
outstanding, as adjusted 5,546 5,536
Primary Earnings Per Share: $ 1.11 $ 0.66
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 $ 6,156 $ 3,630
Add interest on 6.5% convertible subordinated
debentures, net of income tax effects 659 667
Net earnings, as adjusted $ 6,815 $ 4,297
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 5,355 5,353
Shares assumed issued under the treasury
stock method 202 184
Shares issuable from assumed exercise of
6.5% convertible subordinated debentures 2,776 2,776
Weighted average number of shares outstanding,
as adjusted 8,333 8,313
Fully Diluted Earnings Per Share: $ 0.82 $ 0.52
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER 1995 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> APR-29-1995
<CASH> 13064
<SECURITIES> 0
<RECEIVABLES> 54801
<ALLOWANCES> 0
<INVENTORY> 41099
<CURRENT-ASSETS> 119118
<PP&E> 132471
<DEPRECIATION> 68507
<TOTAL-ASSETS> 232214
<CURRENT-LIABILITIES> 57734
<BONDS> 72790
<COMMON> 487
0
0
<OTHER-SE> 86279
<TOTAL-LIABILITY-AND-EQUITY> 232214
<SALES> 106969
<TOTAL-REVENUES> 106969
<CGS> 79611
<TOTAL-COSTS> 79611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1291
<INCOME-PRETAX> 10896
<INCOME-TAX> 4740
<INCOME-CONTINUING> 6156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6156
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 0.82
</TABLE>
