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 November 2,1996
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
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 (630) 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 December 2, 1996, approximately 5,755,000 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)
<TABLE>
<CAPTION>
November 2, January 31,
1996 1996
Assets
<S> <C> <C>
Cash and short-term investments 2,892 22,915
Accounts receivable, less allowance
for doubtful accounts of $1,574
and $1,318 64,867 43,297
Inventories:
Raw materials 21,934 18,230
Work in process 18,354 8,760
Finished goods 12,758 9,501
53,046 36,491
Deferred and refundable income taxes 5,737 4,344
Other current assets 9,430 4,467
Total current assets 135,972 111,514
Property, plant, and equipment 201,664 137,279
Less: accumulated depreciation 73,488 67,604
128,176 69,675
Goodwill and other intangible assets,
net 121,294 42,837
Investments and other assets 7,084 6,848
392,526 230,874
Liabilities and Stockholders' Equity
Current maturities of long-term debt 40 87
Accounts payable 25,999 20,954
Accrued expenses 30,901 22,313
Income taxes payable 1,528 1,116
Total current liabilities 58,468 44,470
Long-term debt:
Convertible subordinated debentures 69,000 69,000
Other long-term debt 124,585 4,398
Total long-term debt (notes 2 and 5) 193,585 73,398
Deferred income taxes 16,171 4,539
Other liabilities 16,457 10,514
Common stock 576 541
Other stockholders' equity
(notes 7 and 8) 107,269 97,412
392,526 230,874
<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 MonthsEnded Nine Months Ended
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net sales 119,898 94,209 302,898 298,931
Cost of sales 91,653 70,524 228,377 223,810
Gross profit 28,245 23,685 74,521 75,121
Selling, general and
administrative expenses 17,737 13,385 46,084 42,803
Gain on sale of business
(note 6) --- --- 3,730 ---
Interest expense, net 3,107 1,066 5,586 3,458
Earnings before income
taxes 7,401 9,234 26,581 28,860
Income taxes 3,264 4,017 11,722 12,554
Net earnings 4,137 5,217 14,859 16,306
Earnings per share (note 7):
Primary 0.69 0.84 2.46 2.65
Fully diluted 0.53 0.64 1.86 1.99
Weighted average number of
shares outstanding - primary
(note 7) 6,009 6,185 6,038 6,133
Weighted average number of
shares outstanding - fully
diluted (note 7) 9,064 9,250 9,092 9,218
Dividends per common share
(note 7) 0.09 0.09 0.27 0.26
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
VARLEN CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Thousands of Dollars)
Nine Months Ended
November 2, October 28,
1996 1995
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
<S> <C> <C>
Cash flows from operating activities:
Net earnings 14,859 16,306
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 11,304 8,751
Amortization 2,392 1,796
Deferred income taxes 230 642
Gain on sale of business (note 6) (3,730) ---
Change in assets and liabilities
net of effects from purchased and
sold businesses:
Accounts receivable, net (4,911) (4,801)
Inventories (2,291) 2,598
Refundable income taxes --- (16)
Other current assets 471 (102)
Accounts payable 2,738 (3,944)
Accrued expenses (3,933) (406)
Income taxes payable 2,528 (337)
Other noncurrent assets (789) 980
Other noncurrent liabilities 623 383
Total adjustments 4,632 5,544
Net cash provided by operating
activities 19,491 21,850
Cash flows from investing activities:
Fixed asset expenditures (14,549) (19,932)
Cost of purchased business, net of
cash acquired (148,125) (1,753)
Proceeds from the sale of investments 4,294 ---
Sale of business 12,474 8,013
Disposals and other changes in property,
plant and equipment 152 365
Net cash used in investing activities (145,754) (13,307)
Cash flows from financing activities:
Proceeds from debt 120,241 413
Payments of debt (9,311) (63)
Issuance of common stock under
option plans 63 581
Cash received on stock subscriptions 156 233
Purchase of treasury stock (3,241) ---
Cash dividends paid (1,566) (1,567)
Net cash provided by/(used in)
financing activities 106,342 (403)
Effect of exchange rate changes on cash (102) 79
Net (decrease)/increase in cash and
short-term investments (20,023) 8,219
Cash and short-term investments at
beginning of year 22,915 13,096
Cash and short-term investments at
end of period 2,892 21,315
<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 November 2, 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. Long-term debt at period end is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
November 2 January 31
1996 1996
<S> <C> <C>
Term loan 108,500 -
Revolving credit facility 11,700 -
6.5% convertible debentures
due 2003 69,000 69,000
Industrial revenue bonds
and other debt 4,425 4,485
193,625 73,485
Less current maturities (40) (87)
Long-term debt 139,585 73,398
</TABLE>
On July 19, 1996, the Company entered into a $190 million
term loan and revolving credit agreement (the "Agreement)
which replaced its $80 million revolving credit facility.
This Agreement was obtained to facilitate the Brenco,
Incorporated acquisition as well as future acquisitions. As
amended on October 15, 1996, the Agreement is in the form of
two facilities. Facility "A" is a term-loan with a total
capacity of $110 million and facility "B" is a revolving
credit facility with an $80 million capacity. The term-loan
comes due on July 19, 2002 and requires escalating quarterly
principal payments which began in October 1996. The
revolving credit facility requires no prepayments and comes
due on July 19, 2002 with two optional one year extensions.
The Agreement provides for interest at one of three market
interest rates selected by the Company plus an applicable
margin which is dependent upon the market interest rate
chosen and the relationship of debt to cash flow. The
highest interest rate under the Agreement was the prime rate
with maximum commitment fees of 3/8 of 1% on the unused
portion of the line of credit. The average interest rate on
$40 million of this debt was fixed through interest rate
swap agreements at 7.1% which includes the current
applicable margin. The interest rate swap agreements cover
periods which can range from one to three years and were
entered into in the third quarter of 1996. The average
interest rate on all of the Agreement borrowings during the
third quarter of 1996 was approximately 7.0%.
The Agreement contains provisions which require the Company
to maintain specified levels of net worth and comply with
various financial ratios and includes, among other
provisions, restrictions on leases, investments, dividend
payments and the incurrence of additional indebtedness.
Scheduled repayments for the term loan for the remainder of
fiscal 1996 and in each of the next four fiscal years are
$1,500,000, $7,000,000, $10,000,000, $16,000,000 and
$22,000,000. The term loan repayments due in the next
twelve months are classified as long-term on the condensed
consolidated balance sheet as the Company has the ability
and intent to refinance these repayments under the facility
"B" portion of the Agreement.
3. Supplemental Cash Flow Information
(in thousands):
November 2 October 28,
1996 1995
<TABLE>
<CAPTION>
Cash paid during the year-
to-date period for:
<S> <C> <C>
Interest 3,222 2,611
Income taxes (net) 8,622 12,653
Purchase of business:
Fair value of
assets acquired 201,785
Cash paid, net of
cash acquired 148,125
Liabilities
assumed 53,660
</TABLE>
4. Business Segment Information
(in thousands):
Quarter Ended Nine Months Ended
November 2 October 28 November 2 October 28
1996 1995 1996 1995
<TABLE>
<CAPTION>
Net sales:
<S> <C> <C> <C> <C>
Transportation products 110,097 79,268 267,290 243,237
Analytical instruments 9,801 14,941 35,608 55,694
119,898 94,209 302,898 298,931
Operating profits (1):
Transportation products 10,867 9,532 28,374 29,821
Analytical instruments 1,420 2,517 8,265(2) 7,066
12,287 12,049 36,639 36,887
</TABLE>
(1) Before interest and general corporate expenses.
(2) Includes a $3,730,000 gain on the sale of the laboratory
appliance division of Precision Scientific, Inc.
5. Acquisition:
On June 15, 1996, the Company, a wholly-owned subsidiary of
the Company and Brenco, Incorporated ("Brenco"), a
manufacturer and reconditioner of specialized tapered roller
bearings for the railroad industry with headquarters in
Virginia, entered into an acquisition agreement for the
purchase of all of Brenco's outstanding common stock for
$16.125 per share. As a result of the tender offer which
expired on July 18, 1996, the Company owned approximately 96%
of the outstanding common stock of Brenco. On August 23,
1996, the remaining non-tendered shares were canceled and
converted into the right to receive $16.125 per share, making
Brenco a wholly-owned subsidiary of the Company. The total
purchase price for the common stock of Brenco was
approximately $165 million in cash and was financed within a
$190 million credit facility from the Company's existing bank
group plus cash on hand. Brenco had sales of approximately
$127 million in 1995 with net earnings of approximately $10.7
million. The acquisition is being accounted for under the
purchase method of accounting with the excess of the purchase
price over the net assets acquired amortized over 40 years.
The purchase price has been allocated to the net assets
acquired on a preliminary basis pending the completion of an
asset appraisal and other valuation procedures. The
consolidated results of operations on a pro forma basis as
though Brenco had been acquired on February 1, 1995, are as
follows (in thousands):
Quarter Ended Nine Months Ended
November 2 October 28 November 2 October 28
1996 1995 1996 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net sales 119,898 121,562 363,775 389,961
Net earnings 4,137 5,254 15,181 17,969
Net earnings per
share - primary .69 .85 2.51 2.93
Net earnings per
share - fully diluted .53 .64 1.90 2.17
</TABLE>
6. Divestitures:
On July 30, 1996, the Company sold the laboratory
appliance division of its Precision Scientific, Inc.
subsidiary, a manufacturer of research laboratory appliances
for approximately $12.0 million net of selling costs. This
sale resulted in a gain of $3,730,000 ($2,100,000 after-tax)
or $.23 per fully diluted share. Net sales from this entity
through its sale date in fiscal 1996 and for the first nine
months of 1995 were approximately $8.6 million and $15.7
million, respectively, and were $5.0 million for the third
quarter of fiscal 1995.
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.
7. 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 increased the
Company's common shares outstanding from approximately
5,230,000 to approximately 5,753,000 at July 15, 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.
8. Stock Purchase:
On January 4, 1996, the Company's Board of Directors
authorized the purchase of up to 500,000 shares of its
Common Stock or the equivalent amount of its 6 1/2 percent
convertible subordinated debentures by the Company. As of
November 2, 1996, 181,000 shares (before restatement for the
1996 10% stock dividend) of the Company's Common Stock were
purchased under this authorization and recorded as Treasury
Stock, at cost. These shares were subsequently reissued as
part of the 1996 10% stock dividend.
9. Subsequent Event:
On November 8, 1996, the Company sold Rail Link, Inc. ("Rail
Link"), a railroad switching services and short-line
railroad operator to Genesee & Wyoming, Inc. for $9.0
million in cash and additional proceeds based upon future
performance. Rail Link was a subsidiary of Brenco, which
the Company acquired at the end of the second fiscal quarter
of 1996. The earnings of Rail Link since its acquisition
through its date of sale along with the expected gain on its
sale are excluded from earnings. The earnings of Rail Link
have been recorded as adjustments to the carrying amount of
its assets with the gain on its sale to be treated as an
adjustment of the purchase price allocation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTH PERIOD
ENDED NOVEMBER 2, 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, automotive, 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 nine months ended November 2,
1996, were $302.9 million or 1.3% more than the $298.9 million
achieved in the first nine months of 1995. Sales increased in
the transportation products segment and declined in the
analytical instruments segment. For the third quarter of 1996,
sales were $119.9 million, up $25.7 million or 27.3% from sales
of $94.2 million in the comparable 1995 period. Sales increased
significantly in the transportation segment during the quarter
while sales declined in the analytical instruments segment. On
July 18, 1996, the Company acquired 96% of the stock of Brenco,
Incorporated ("Brenco"). Subsequently, on August 23, the
remaining shares of Brenco were canceled in exchange for a cash
payment. Accordingly, Brenco became a 100% owned subsidiary on
that date. The proportionate share of revenues and earnings has
been included since these respective dates in the transportation
segment.
Net earnings for the first nine months of 1996 decreased to
$14.9 million from $16.3 million in 1995's first three quarters.
Earnings per share for the first nine months in 1996 were $1.86
per share on a fully diluted basis which compared to $1.99 per
fully diluted share in the comparable 1995 period. On July 30,
1996, the Company sold the laboratory appliance division of its
Precision Scientific, Inc. subsidiary for $12.0 million net of
selling costs resulting in a pretax gain of approximately $3.7
million, or $.23 per fully diluted share during the second
quarter. All per share amounts reflect a 10% stock dividend paid
on July 15, 1996, to stockholders of record on July 1, 1996. The
effects of foreign currency translation were not material in the
1996 periods.
During the third quarter ended November 2, 1996, net
earnings decreased to $4.1 million from $5.2 million in the same
1995 quarter. Earnings per share were $.53 on a fully diluted
basis for the third quarter of 1996 compared to $.64 per share on
a fully diluted basis in the equivalent 1995 period. In the nine-
month period ended November 2, 1996, operating profit declined in
the transportation products and analytical instruments segments,
excluding the effects of disposals, compared to the comparable
1995 period. For the third quarter, transportation products'
operating profit increased while analytical instruments'
operating profit declined.
On a business segment basis, revenues in the transportation
products segment for the quarter and nine months ended November
2, 1996, were $110.1 million and $267.3 million, respectively, as
compared to $79.3 million and $243.2 million in the comparable
prior year periods. During the year-to-date and quarterly
periods, sales increased in the automotive and railroad products
businesses but declined in the heavy-duty truck business.
Excluding the effects of Brenco, railroad products' revenues
would have declined in the year-to-date period. Operating profit
in the first nine months of 1996 was $28.3 million (10.6% of
segment sales), down 4.9% from $29.8 million (12.3% of segment
sales) in the prior year period. However, operating profit in
the 1996 third quarter increased 14.0% to $10.9 million (9.9% of
segment sales) compared to $9.5 million (12.0% of segment sales)
in the comparable 1995 quarter.
Sales to the heavy-duty truck and trailer industry were
lower in the 1996 periods than in the prior year. The Company's
decline in sales was less than the industry decline due to
stronger than industry production by the Company's largest
customers as well as shipments under a contract to produce
components for a customer's new truck model. Sales to the
automotive industry increased in the 1996 third quarter resulting
in a slight increase year to date compared to the prior year
period despite relatively level industry conditions. The
increase resulted from shipments of new or improved products.
Sales of railroad products increased in the 1996 periods as a
result of the inclusion of Brenco for the entire third quarter.
Excluding sales at Brenco, sales at the Company's railroad
products business declined in the year-to-date period compared to
last year as a result of reduced industry demand in the first
half. Operating profits followed the sales trends except in the
railroad business, excluding Brenco, where earnings were down in
the third quarter despite slightly higher sales. This resulted
from costs and losses on international products.
Sales in the analytical instruments segment for the quarter
and nine months ended November 2, 1996, decreased to $9.8 million
and $35.6 million, respectively, compared to $14.9 million and
$55.7 million in the 1995 periods. The decrease in revenues in
this segment resulted primarily from the sale of two non-core
businesses in the second quarter of 1995 and the second quarter
of 1996 and to a lesser degree decreased sales of petroleum
analyzers.
Operating profit for the analytical instruments segment for
the first nine months of 1996 increased to $8.3 million (23.2% of
segment sales) compared to $7.1 million (12.7% of segment sales)
in the prior year's period. Excluding the $3.7 million pretax
gain on the sale of a business in 1996, year-to-date earnings
were down compared to the prior year's equivalent period. For
the 1996 third quarter, operating profit decreased to $1.4
million (14.5% of segment sales) compared to $2.5 million (16.9%
of segment sales) in the prior year's quarter. Excluding the
significant impacts of the businesses sold in 1995 and 1996,
earnings declined due to lower sales of petroleum analyzers and
increased costs associated with product and distribution system
development.
Consolidated gross margin in the first nine months declined
to 24.6% in 1996 from 25.1% in 1995, and during the third quarter
consolidated gross margin declined to 23.6% in 1996 from 25.1% in
1995. Gross margin percentages increased during these periods at
the analytical instruments segment due to the dispositions of two
lower gross margin businesses in 1995 and 1996 but declined in
the transportation segment as truck and railroad margin declines
more than offset automotive margin increases.
Selling, general, and administrative expenses of $46.1
million or 15.2% of sales in the first nine months of 1996
compared to $42.8 million or 14.3% of sales in the comparable
1995 period. During the third quarter of 1996, selling, general,
and administrative expenses were $17.7 million or 14.8% of sales
compared to $13.4 million or 14.2% of sales in the prior year's
comparable period. In the transportation product segment,
selling, general, and administrative expenses increased as a
percent of sales in both periods. This resulted from increased
product development costs in relation to lower non-Brenco
railroad sales and the inclusion of amortization of intangibles
at Brenco. In the analytical instruments segment, selling,
general, and administrative expenses increased in both periods as
a percent of sales due to increased costs related to product and
distribution system development and the sale of two businesses in
1995 and 1996 which had lower percentage costs than the segment
as a whole.
Net interest expense for the quarter and nine months ended
November 2, 1996, was $3.1 million and $5.6 million,
respectively, compared to $1.1 million and $3.5 million for the
prior year's comparable periods. The increase in gross interest
expense is a result of borrowings late in the 1996 second quarter
to finance the acquisition of Brenco.
Income taxes were provided at an effective rate during the
third quarter and first nine months of 1996 of 44.1% compared to
43.5% in both the comparable 1995 periods. The higher than
statutory federal rate reflects non-deductible goodwill
amortization, including that associated with the Brenco
acquisition, higher taxes on foreign operations, and state income
taxes.
Capital Resources and Liquidity
During the third quarter and nine-month period ended
November 2, 1996, the Company generated $3.2 and $19.5 million,
respectively, of cash from operating activities. As of November
2, 1996, the Company's working capital was $77.5 million, total
assets were $392.5 million, total debt excluding current portion
was $193.6 million and stockholders' equity was $107.8 million.
These amounts reflect a preliminary estimated purchase cost
allocation of Brenco which is subject to change based on
appraisals and other valuations.
Investing activities during the third quarter and nine-month
period ended November 2, 1996 included the acquisition of Brenco
for $4.9 million and $148.1 million, respectively, net of cash
acquired, and capital expenditures of $4.8 million and $14.5
million, respectively. These capital expenditures were primarily
for machinery and equipment to support new products and to
improve operating efficiency.
On July 19, 1996, the Company entered into a $190 million
term loan and revolving credit agreement which replaced the prior
$80 million revolving credit facility. This new agreement was
obtained to facilitate the Brenco acquisition as well as for
other future acquisitions. At November 2, 1996, $120.2 million
was borrowed under the facility. The Company believes that
internally generated funds will be sufficient to satisfy its
anticipated working capital needs, capital expenditures, and
scheduled debt repayments.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4(a) - Amendment No. 1 Dated as of October 15,
1996 to Credit Agreement Dated as of July 19, 1996.
Exhibit 11 - Computation of Per Share Earnings.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
During the third quarter of 1996, the Registrant filed a Form
8-K/A for the acquisition of Brenco, Incorporated dated
July 18, 1996.
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)
December 11, 1996 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.
4 (a) Amendment No. 1 Dated as of 16
October 15, 1996 to Credit Agreement
Dated as of July 19, 1996.
11 Computation of Per Share Earnings 23
27 Financial Data Schedule 25
VARLEN CORPORATION AND SUBSIDIARIES Exhibit 11
Computation of Per Share Earnings
Unaudited
(Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
11/2/96 10/28/95 11/2/96 10/28/95
Primary Earnings Per Share:
<S> <C> <C> <C> <C>
Net earnings 4,137 5,217 14,859 16,306
Computation of the Weighted
Average Number of Shares
Outstanding as Used in the Primary
Earnings Per Share Computation:
Weighted average number of shares
outstanding 5,754 5,938 5,794 5,913
Shares assumed issued under the
treasury stock method 255 247 244 220
Weighted average number of shares
outstanding, as adjusted 6,009 6,185 6,038 6,133
Primary Earnings Per Share: 0.69 0.84 2.46 2.65
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 4,137 5,217 14,859 16,306
Add interest on 6.5% convertible
subordinated debentures, net of
income tax effects 681 683 2,063 2,024
Net earnings, as adjusted 4,818 5,900 16,922 18,330
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 5,754 5,938 5,794 5,913
Shares assumed issued under the
treasury stock method 255 257 243 250
Shares issuable from assumed
exercise of 6.5% convertible
subordinated debentures 3,055 3,055 3,055 3,055
Weighted average number of
shares outstanding, as adjusted 9,064 9,250 9,092 9,218
Fully Diluted Earnings Per Share: 0.53 0.64 1.86 1.99
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE THIRD QUARTER
1996 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> NOV-02-1996
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<INVENTORY> 53046
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<DEPRECIATION> 73488
<TOTAL-ASSETS> 392526
<CURRENT-LIABILITIES> 58468
<BONDS> 193585
0
0
<COMMON> 576
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<CHANGES> 0
<NET-INCOME> 14859
<EPS-PRIMARY> 2.46
<EPS-DILUTED> 1.86
</TABLE>
AMENDMENT NO. 1
DATED AS OF OCTOBER 15, 1996
TO CREDIT AGREEMENT
DATED AS OF JULY 19, 1996
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT ("Amendment") is
made as of this 15th day of October, 1996 by and among
Varlen corporation, (the "Borrower"), the financial
institutions parties thereto as lenders (the "Lenders"), The
First National Bank of Chicago, as Agent (the "Agent") under
that certain Credit Agreement dated as of July 19, 1996 by
and among the Borrower, the Lenders and the Agent (the
"Credit Agreement"). Capitalized terms used herein and not
otherwise defined herein shall have the meaning given to them
in the Credit Agreement.
WITNESSETH
WHEREAS, the Borrower, the Lenders and the Agent are parties
to the Credit Agreement; and
WHEREAS, the Borrower has requested certain amendments to
the Credit Agreement;
WHEREAS, the Borrower, the Lenders and the Agent have agreed
to amend the Credit Agreement on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein, and other
good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Borrower, the Lenders
and the Agent have agreed to the following amendments to the
Credit Agreement.
1. Amendment to Credit Agreement. Effective as of October
15, 1996, and subject to the satisfaction of the conditions
precedent set forth in Section 2 below, the Credit Agreement
is hereby amended as follows:
1.1. Section 1.1 of the Credit Agreement is amended to
delete the defined terms "Aggregate Facility A Commitment"
and "Aggregate Facility B Commitment" therefrom in their
entirety and to substitute the following therefor:
"Aggregate Facility A commitment" means $110,000,000, as
such amount may be reduced from time to time pursuant to the
terms hereof.
"Aggregate Facility B Commitment" means $80,000,000, as such
amount may be reduced from time to time pursuant to the
terms hereof.
1.2. Section 2.1.1(d) is amended to delete the terms of
clause (i) thereof in their entirety and to substitute the
following therefor:
(i) The Facility A Loans shall be repaid in twenty-four (24)
consecutive installments, the first twenty-three (23) of
which shall be payable quarterly on the last day of each
calendar quarter commencing October 31, 1996 and continuing
thereafter to and including April 30, 2002 and the final
installment shall be payable on the Facility A Termination
Date, and the Facility A Loans shall be permanently reduced
by the amount of each installment on the date payment
thereof is required to be made hereunder. The installments
shall be in the aggregate amounts set forth below:
<TABLE>
<CAPTION>
Installment date Installment Amount
<S> <C>
October 31, 1996 $ 1,500,000
January 31, 1997 $ 1,500,000
April 30, 1997 $ 1,500,000
July 31, 1997 $ 1,500,000
October 31, 1997 $ 2,000,000
January 31, 1998 $ 2,000,000
April 30, 1998 $ 2,000,000
July 31, 1998 $ 2,000,000
October 31, 1998 $ 3,000,000
January 31, 1999 $ 3,000,000
April 30, 1999 $ 3,000,000
July 31, 1999 $ 3,000,000
October 31, 1999 $ 5,000,000
January 31, 2000 $ 5,000,000
April 30, 2000 $ 5,000,000
July 31, 2000 $ 5,000,000
October 31, 2000 $ 6,000,000
January 31, 2001 $ 6,000,000
April 30, 2001 $ 6,000,000
July 31, 2001 $ 6,000,000
October 31, 2001 $ 7,000,000
January 31, 2002 $ 7,000,000
April 30, 2002 $ 7,000,000
Facility A Termination Date $19,000,000
</TABLE>
Notwithstanding the foregoing, the final installment payable
on the Facility A Termination Date shall be in the amount of
the then outstanding principal balance of the Facility A
Loans. No installment of any Facility A Loan shall be
reborrowed once repaid.
2. Conditions of Effectiveness. This Amendment shall not
become effective unless (a) this Amendment shall have been
executed by the Borrower, the Agent and each of the Lenders
on or before October 25, 1996, (b) the Agent shall have
received an executed copy of the reaffirmation executed on
behalf of each of the Guarantors in the form attached hereto
as Exhibit A and (c) as of the effectiveness of this
Amendment there is not more than $110,000,000 outstanding as
Facility A Loans.
3. Representations and Warranties of the Borrower. The
Borrower hereby represents and warrants as follows:
(a) This Amendment and the Credit Agreement as previously
executed and as amended hereby, constitute legal, valid and
binding obligations of the Borrower, enforceable against it
in accordance with their terms (except as enforceability may
be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditor's rights generally).
(b) Upon the effectiveness of this Amendment, the Borrower
hereby reaffirms all covenants, representations and
warranties made in the Credit Agreement and the other Loan
Documents to the extent the same are not amended hereby,
agrees that all such covenants, representations and
warranties shall be deemed to have been remade as of the
effective date of this Amendment.
(c) There exists no Default or Unmatured Default.
4. Reference to the Effect on the Credit Agreement;
Substitution of Notes.
(a) Upon the effectiveness of Section 1 hereof, on and after
the date hereof, each reference in the Credit Agreement to
"this Credit Agreement," "hereunder," "hereof," "herein" or
words of like import shall mean and be a reference to the
Credit Agreement as amended hereby.
(b) Except as specifically amended above, the Credit
Agreement and all other documents, instruments and
agreements executed and/or delivered in connection
therewith, shall remain in full force and effect, and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power of remedy of the
Agent or the Lenders nor constitute a waiver of any
provision of the Credit Agreement or any other documents,
instruments and agreements executed and/or delivered in
connection therewith.
(d) Upon the effectiveness of Section 1 hereof, the Agent
and the Borrowing Entities shall make appropriate
arrangements so that replacement Notes are issued to reflect
the revised Facility A and Facility B amounts are issued
(against receipt of previously issued Notes for
cancellation), in each case reflecting the revised amount
set forth on Schedule 1 as amended. Upon the issuance of
such substitute Notes, each reference in the Credit
Agreement and the other Loan Documents to "the Notes," "the
Borrower Notes," "the Borrowing Subsidiary Notes" shall mean
and be a reference to the substitute Notes issued pursuant
to this Amendment.
5. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF
CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO
FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
6. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall
not constitute a part of this Amendment for any other
purpose.
7. Counterparts. This Amendment may be executed in any
number of counterparts, all of which taken together shall
constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart.
This Agreement shall be effective when it has been executed
by the Borrower, the Agent and each of the Lenders and each
such party has notified the Agent by facsimile or telephone
that it has taken such action.
IN WITNESS WHEREOF, this Amendment has been duly
executed as of the day and year first above written.
VARLEN CORPORATION,
as the Borrower
By:_________________________________
Print Name:__________________________
Title:_______________________________
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:_________________________________
Print Name:___________________________
Title:________________________________
HARRIS TRUST AND SAVINGS BANK
By:_________________________________
Print Name:__________________________
Title:_______________________________
NATIONSBANK, N.A.
By:________________________________
Print Name:_________________________
Title:_______________________________
ABN AMRO BANK N.V., Chicago Branch
By:_________________________________
Print Name:____________________________
Title:_________________________________
By:___________________________________
Print Name:____________________________
Title:__________________________________
