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
May 4, 1996
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 Identification No.)
of incorporation or organization)
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 3, 1996, approximately 5,768,000 shares, par value $.10
per share, of common stock of the Registrant were outstanding.
This amount reflects a 10% stock dividend declared by the issuer
on May 29, 1996 to holders of record on July 1, 1996. See Note 4
to the condensed consolidated financial statements.
<PAGE>
PART I. FINANCIAL STATEMENTS
VARLEN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Thousands of Dollars)
May 4, January 31,
1996 1996
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and short-term investments 19,795 22,915
Accounts receivable, less 46,412 43,297
allowance for doubtful
accounts of $1,152 and $1,318
Inventories:
Raw materials 19,489 18,230
Work in process 9,172 8,760
Finished goods 8,819 9,501
37,480 36,491
Deferred and refundable income
taxes 4,344 4,344
Other current assets 3,977 4,467
Total current assets 112,008 111,514
Property, plant, and equipment 141,946 137,279
Less: accumulated depreciation 70,341 67,604
71,605 69,675
Goodwill and other intangible
assets, net 41,985 42,837
Investments and other assets 8,525 6,848
234,123 230,874
Liabilities and Stockholders' Equity
Current maturities of long-term
debt 62 87
Accounts payable 22,204 20,954
Accrued expenses 17,759 22,313
Income taxes payable 4,176 1,116
Total current liabilities 44,201 44,470
Long-term debt:
Convertible subordinated
debentures 69,000 69,000
Other long-term debt 4,403 4,398
Total long-term debt 73,403 73,398
Deferred income taxes 4,522 4,539
Other liabilities 10,598 10,514
Common stock 541 541
Other stockholders' equity
(note 4) 100,858 97,412
234,123 230,874
<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
May 4, April 29,
1996 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Net sales 91,975 106,969
Cost of sales 68,178 79,611
Gross profit 23,797 27,358
Selling, general and administrative
expenses 14,254 15,289
Interest expense, net 1,053 1,173
Earnings before income taxes 8,490 10,896
Income taxes 3,668 4,740
Net earnings 4,822 6,156
Earnings per share (note 4):
Primary 0.79 1.01
Fully diluted 0.60 0.75
Weighted average number of shares
outstanding - primary (note 4) 6,095 6,101
Weighted average number of shares
outstanding - fully diluted (note 4) 9,159 9,166
Dividends per common share (note 4) 0.09 0.08
<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
May 4, April 29,
1996 1995
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
<S> <C> <C>
Cash flows from operating activities:
Net earnings 4,822 6,156
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 2,896 2,923
Amortization 576 613
Deferred income taxes 17 (29)
Change in assets and liabilities net
of effects from purchased businesses:
Accounts receivable, net (3,262) (5,381)
Inventories (1,151) (131)
Refundable income taxes --- 6
Other current assets 485 (866)
Accounts payable 1,489 784
Accrued expenses (4,300) (2,486)
Income taxes payable 3,066 3,622
Other noncurrent assets (128) 876
Other noncurrent liabilities 89 216
Total adjustments (223) 147
Net cash provided by operating
activities 4,599 6,303
Cash flows from investing activities:
Fixed asset expenditures (4,983) (6,637)
Investments (478) ---
Sale of business --- ---
Disposals and other changes in
property, plant and equipment (6) 48
Net cash used in investing activities (5,467) (6,589)
Cash flows from financing activities:
Proceeds from debt 26 468
Payments of debt (134) (19)
Issuance of common stock under option
plans 32 62
Cash received on stock subscriptions 78 77
Purchase of treasury stock (1,666) ---
Cash dividends paid (530) (486)
Net cash (used in)/provided by
financing activities (2,194) 102
Effect of exchange rate changes
on cash (58) 152
Net decrease in cash and short-term
investments (3,120) (32)
Cash and short-term investments at
beginning of year 22,915 13,096
Cash and short-term investments
at end of period 19,795 13,064
<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 May 4, 1996 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. Supplemental Cash Flow Information
(in thousands):
<TABLE>
<CAPTION>
May 4, April 29,
1996 1995
<C> <S> <S>
Cash paid during the year-
to-date period for:
Interest 108 201
Income taxes (net) 433 1,582
</TABLE>
3. Business Segment Information
(in thousands):
<TABLE>
<CAPTION>
Quarter Ended
May 4, 1996 April 29, 1995
<S> <C> <C>
Net sales:
Transportation products 77,589 85,135
Analytical instruments 14,386 21,834
91,975 106,969
Operating profits*:
Transportation products 8,941 10,738
Analytical instruments 2,034 2,843
10,975 13,581
<FN>
*Before interest and general corporate expenses.
</TABLE>
<PAGE>
4. Stock Dividend:
On May 29, 1996, the Company's Board of Directors declared a
10% stock dividend payable on July 15, 1996 to stockholders of
record on July 1, 1996. The stock dividend increases the
Company's common shares outstanding from approximately
5,243,000 to approximately 5,768,000 as of June 3, 1996. 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. Divestitures:
The Company plans to divest the laboratory equipment
division of its Precision Scientific, Inc. subsidiary, a
manufacturer of research laboratory appliances, subsequent
to the first quarter of fiscal 1996. This division, which
is being divested for strategic reasons, is included in the
Company's Analytical Instruments business segment and had
the following sales and operating profits:
<TABLE>
<CAPTION>
Quarter Ended
May 4, 1996 April 29, 1995
<S> <C> <C>
Net sales 4,643 5,622
Operating profits 643 576
</TABLE>
The book value of the assets at May 4, 1996 that are to be
disposed of is approximately $7.4 million. No loss is
expected upon the disposition of this division.
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. Net sales from this subsidiary for 1995 through the
date of sale were approximately $11.0 million and were
approximately $6.2 million in the first quarter of fiscal
1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE-MONTH PERIOD
ENDED MAY 4, 1996
Overview
The Company designs, manufactures and markets a diverse
range of products in its transportation products and analytical
instruments 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
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 May 4, 1996,
were $92.0 million, down $15.0 million or 14.0% from sales of
$107.0 million in the comparable 1995 period. Sales declined in
both segments.
Net earnings for the first three months of 1996 declined
21.7% to $4.8 million from $6.2 million in the first quarter of
1995. Earnings per share were $.79 per share on a primary basis
and $.60 on a fully diluted basis for the first quarter of 1996
compared to $1.01 per share on a primary basis and $.75 per share
on a fully diluted basis in the first quarter of 1995. Per share
amounts for 1995 have been restated to reflect a 10% stock
dividend declared on May 29, 1996, payable July 15, 1996, to
shareholders of record on July 1, 1996. Operating profit
decreased in both segments and in the transportation segment
declined proportionately more than sales decreased.
On a business segment basis, revenues in the transportation
products segment for the three months ended May 4, 1996, were
$77.6 million, as compared to $85.1 million in the comparable
prior year period. Sales declined in all business areas within
this segment. Operating profit in the first three months of 1996
decreased 16.7% to $8.9 million (11.5% of segment sales) compared
to $10.7 million (12.6% of segment sales) in the comparable 1995
period as profits increased at the automotive business but
declined in the heavy-duty truck and railroad businesses.
Heavy-duty truck and trailer industry sales were lower in
the 1996 period as industry-wide sales declined. The Company's
decline in sales was less than the industry decline due to
stronger than industry production by the company's largest
customer. During the first quarter of 1996, shipments were begun
in limited quantities under a previously signed contract to
provide components for a new customer truck model. An operating
loss of $420,000 was incurred during the 1996 quarter at a
facility that was in the start-up phase to support this new
contract. Automotive industry sales were relatively level with
the prior year's first quarter. However, sales at the Company's
automotive components business declined due to the elimination of
a selected low margin business in mid 1995 and a strike by this
business' largest customer, General Motors, in the first quarter
of 1996. Despite a reduction of operating income of
approximately $425,000 as a result of this strike, earnings at
this business improved in 1996 compared to the 1995 first
quarter. Railroad industry demand as measured by new railcar
builds, new locomotive builds and revenue ton miles decreased in
the first quarter compared to the equivalent period in 1995.
Railroad mergers and the General Motors strike, combined with
poor winter weather and lower industrial production, appear to
have caused the decrease. As a result of the industry
conditions, sales declined at the company's railroad components
business. Correspondingly, earnings declined on the lower sales
levels as well as being negatively affected by approximately
$250,000 of development and start-up costs related to new orders
from the Chinese Rail Ministry for locomotive and railroad
passenger car air conditioning units. On a selective basis,
price increases were made in the transportation products segment
which offset increases in certain material costs.
Sales in the analytical instruments segment for the quarter
ended May 4, 1996, decreased 34.1% to $14.4 million, compared to
$21.8 million in the 1995 period. The bulk of the sales decrease
resulted from the July 1995 sale of a business that generated
$6.2 million of sales in the first quarter of 1995. However,
sales in both remaining business areas in this segment were also
lower as order patterns declined. Operating profit for the
analytical instruments segment for the first three months of 1996
decreased to $2.0 million (14.1% of segment sales) compared to
$2.8 million (13.0% of segment sales). Again, the greatest
portion ($.6 million) of the decline resulted from the sale of
the non-strategic business in July 1995. The remainder of the
decline occurred in the petroleum instrumentation business.
Despite lower operating profits, the operating profit margin
percent increased. This resulted from the 1995 divestiture
having a lower operating margin than the segment as a whole.
During the quarter, the effects of foreign currency translation
were not material.
Consolidated gross margin increased slightly to 25.9% in the
first quarter of 1996 from 25.6% in 1995. The transportation
products segment declined in the first quarter of 1996 due in
part to the start-up costs at the new truck components facility,
the effect of the General Motors strike, and start-up costs on
the Chinese air conditioner order. The gross margin increased at
the analytical instruments business as a result of the 1995 sale
of a low margin business.
Selling, general and administrative expenses of $14.3
million or 15.5% of sales in the first three months of 1996
compared to $15.3 million or 14.3% of sales in the prior year's
comparable period. In both business segments, these expenses as
a dollar amount decreased while increasing as a percentage of
sales. Corporate expenses were relatively level on a dollar
amount basis and correspondingly increased as a percentage of
sales.
Gross interest expense for the quarter ended May 4, 1996,
was $1.3 million which equated to the prior year's comparable
period. Interest income increased $.1 million in the first
quarter of 1996 as a result of higher cash and investment
balances.
Income taxes were provided at an effective rate during the
1996 quarter of 43.2% compared to 43.5% in the comparable 1995
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 May 4, 1996, the Company
generated $4.6 million of cash from operating activities. As of
May 4, 1996, the Company's working capital was $67.8 million, its
total assets were $234.1 million, its total debt was $73.5
million and its stockholders' equity was $101.4 million.
Investing activities during the three-month period ended May
4, 1996, included capital expenditures of $5.0 million. These
capital expenditures were primarily for machinery and equipment
to support new products and to improve operating efficiency.
Through May 4, 1996, the Company had purchased 110,000 shares of
its treasury stock for $2.6 million under an authorization from
the board of directors for up to 500,000 shares of common stock.
To support its investing activities, the Company has an $80
million revolving credit agreement which expires on December 6,
1998. This credit facility is expected to be used by the Company
principally as a source of acquisition financing. At May 4,
1996, 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 29, 1996, the
stockholders voted on one item. The item voted on and the
results of the voting were as follows:
<TABLE>
<CAPTION>
For Withheld
1. Elect a Board of
Directors:
<C> <C> <C>
Ernest H. Lorch 4,127,632 90,679
Richard L. Wellek 4,127,614 90,697
Rudolph Grua 4,212,159 6,152
L. William Miles 4,212,159 6,152
Joseph J. Ross 4,212,159 90,679
Greg A. Rosenbaum 4,127,632 6,152
Theodore A. Ruppert 4,212,159 6,152
Total number of shares eligible
to be voted at the Annual Meeting
of Stockholders 5,306,466
</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, 1996 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: 5/4/96 4/29/95
<TABLE>
<CAPTION>
<S> <C> <C>
Net earnings 4,822 6,156
Computation of the Weighted Average
Number of Shares Outstanding as Used
in the Primary Earnings Per Share
Computation:
Weighted average number of shares
outstanding 5,853 5,890
Shares assumed issued under the treasury
stock method 242 211
Weighted average number of shares
outstanding, as adjusted 6,095 6,101
Primary Earnings Per Share: 0.79 1.01
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 4,822 6,156
Add interest on 6.5% convertible
subordinated debentures, net of
income tax effects 703 659
Net earnings, as adjusted 5,525 6,815
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 5,853 5,890
Shares assumed issued under the
treasury stock method 252 222
Shares issuable from assumed exercise of
6.5% convertible subordinated debentures 3,054 3,054
Weighted average number of shares
outstanding, as adjusted 9,159 9,166
Fully Diluted Earnings Per Share: 0.60 0.75
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FIRST QUARTER
1996 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-31-1996
<PERIOD-END> MAY-04-1996
<CASH> 19795
<SECURITIES> 0
<RECEIVABLES> 46412
<ALLOWANCES> 0
<INVENTORY> 37480
<CURRENT-ASSETS> 112008
<PP&E> 141946
<DEPRECIATION> 70341
<TOTAL-ASSETS> 234123
<CURRENT-LIABILITIES> 44201
<BONDS> 73403
0
0
<COMMON> 541
<OTHER-SE> 100858
<TOTAL-LIABILITY-AND-EQUITY> 234123
<SALES> 91975
<TOTAL-REVENUES> 91975
<CGS> 68178
<TOTAL-COSTS> 68178
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1297
<INCOME-PRETAX> 8490
<INCOME-TAX> 3668
<INCOME-CONTINUING> 4822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4822
<EPS-PRIMARY> .79
<EPS-DILUTED> .60
</TABLE>
