<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter period ended February 28, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 0-10796
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VALLEN CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1366847
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13333 Northwest Freeway
Houston, Texas 77040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (713) 462-8700
including area code:
Indicate by check mark 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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, exclusive of treasury shares, at April 4, 1995:
7,122,134 shares of Common Stock, $.50 Par Value
<PAGE>
PART I
Item 1. Financial Statements
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
MAY 31,
1994
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ASSETS FEBRUARY 28, (DERIVED FROM
1995 AUDITED FINANCIAL
Current assets: (Unaudited) STATEMENTS)
------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ 1,199 $ -
Investment securities, at cost which
approximates market 7,720 7,231
Accounts receivable, net 24,258 23,895
Notes receivable 412 -
Inventories 25,242 22,066
Prepaid expenses and other current
assets 2,726 2,062
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Total current assets 61,557 55,254
Property, plant and equipment, at cost 40,132 38,171
Less accumulated depreciation and
amortization 18,763 16,674
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Net property, plant and
equipment 21,369 21,497
Notes receivable, non-current 1,599 -
Investment in foreign affiliate, net 2,676 3,106
Intangibles, net of accumulated
amortization 1,217 1,411
Other 346 149
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$88,764 $81,417
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 132 $ 43
Accounts payable 9,790 8,906
Accrued incentive bonus 240 194
Accrued profit sharing contribution 180 72
Other accrued expenses 1,726 1,656
Income taxes payable 89 82
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Total current liabilities 12,157 10,953
Long-term debt, excluding current
maturities 5,265 3,817
Deferred income taxes 1,115 1,115
Shareholders' equity:
Preferred stock $1.00 par value;
1,000,000 shares authorized and
unissued
Common stock $.50 par value;
20,000,000 shares authorized;
9,713,884 and 9,703,472 shares
issued at February 28, 1995 and
May 31, 1994, respectively 4,858 4,852
Additional paid-in capital 3,953 3,562
Translation adjustment (625) -
Retained earnings 64,782 59,886
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72,968 68,300
Less cost of common shares held in
treasury (2,591,750 and 2,616,350
shares at February 28, 1995 and
May 31, 1994, respectively) 2,741 2,768
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Total shareholders' equity 70,227 65,532
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Commitments and contingencies $88,764 $81,417
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 2 of 9
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands of Dollars Except for Per Share Amounts)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
--------------------- ---------------------
1995 1994 1995 1994
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $50,680 $45,635 $147,698 $136,085
Cost of sales 37,182 33,511 109,063 99,620
------- ------- -------- --------
Gross profit 13,498 12,124 38,635 36,465
Selling, general and
administrative expenses 10,564 10,501 31,009 30,672
------- ------- -------- --------
Operating income 2,934 1,623 7,626 5,793
Earnings (loss) from foreign
affiliate, net (39) 75 195 243
Interest and dividend income 152 45 339 248
Interest expense 54 58 150 135
Other income (expense), net (116) (87) (360) (248)
------- ------- -------- --------
Earnings before income taxes 2,877 1,598 7,650 5,901
Income taxes 1,070 568 2,754 2,040
------- ------- -------- --------
Net earnings $ 1,807 $ 1,030 $ 4,896 $ 3,861
======= ======= ======== ========
Net earnings per share $0.25 $0.15 $0.69 $0.55
======= ======= ======== ========
Weighted average number of common
shares outstanding 7,119 7,054 7,103 7,036
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 3 of 9
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FEBRUARY 28, 1995 1994
- - ----------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 4,896 $ 3,861
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 2,679 2,703
Earnings from foreign
affiliate, net (195) (243)
Loss from joint venture, net (44) -
Change in assets and
liabilities, net of effects
of acquisitions:
(Increase) decrease in
investment securities (489) 1,867
(Increase) in accounts
receivable, net (363) (3)
(Increase) in inventory (3,176) (1,156)
(Increase) in notes receivable (412) -
(Increase) in prepaid
expenses and other current
assets (388) (784)
(Increase) in other assets (197) (28)
Increase (decrease) in
accounts payable and
accrued liabilities 1,104 (157)
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Net cash provided by
operating activities 3,415 6,060
INVESTING ACTIVITIES:
Net additions to property, plant and
equipment (1,724) (6,690)
Currency translation adjustment (625) -
Payments for acquisitions - (605)
Increase in notes receivable (1,599) -
Investment in joint venture (230) -
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Net cash used in investment
activities (4,178) (7,295)
FINANCING ACTIVITIES:
Increase in long-term debt 1,720 -
Payments on long-term debt (182) (194)
Employee stock transactions 424 424
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Net cash provided by
financing activities 1,962 230
------- -------
Net increase (decrease) in cash and
cash equivalents 1,199 (1,005)
Cash and cash equivalents at
beginning of period - 1,005
------- -------
Cash and cash equivalents at end of
period $ 1,199 $ -
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest payments $ 113 $ 136
Income tax payments $ 2,458 $ 2,198
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 4 of 9
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the Instructions to Quarterly Reports on Form 10-Q
required to be filed with the Securities and Exchange Commission and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, the information
furnished reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods. The
results of operations for the nine months ended February 28, 1995 are not
necessarily indicative of the results that will be realized for the fiscal year
ending May 31, 1995.
The accounting policies followed by the Company in preparing interim
consolidated condensed financial statements are similar to those described in
the "Notes to Consolidated Financial Statements" in the Company's Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, for the fiscal year ended May 31, 1993. For interim reporting purposes,
provisions for income taxes are recorded on the basis of the estimated annual
effective tax rate. Certain prior year amounts have been reclassified to
conform with present year presentation.
An investment in the common stock of a foreign affiliated company is accounted
for by the equity method. The excess of cost of the stock of this affiliate
over the Company's share of their net assets at the acquisition date is being
amortized on a straight line basis over 40 years.
On January 13, 1995, Vallen Corporation, through its distribution subsidiary
Vallen Safety Supply Company, purchased a 50% investment in the common stock of
a newly formed corporation, Nuclear Utility Products, Inc. (NUPRO). NUPRO is to
be operated as a manufacturing venture. Vallen Safety committed $600,000 in
working capital to the venture and exchanged $2,011,000 in cash for notes
receivable from the venture partner. The joint venture is accounted for by the
equity method.
Net earnings per share were computed by dividing net earnings by the weighted
average number of shares outstanding during the periods. During the nine months
ended February 28, 1995, employee stock option exercises and shares purchased
through the employee stock purchase plan increased the number of shares
outstanding by 35,012 shares. The weighted average number of shares outstanding
for the nine months ended February, 1995 and 1994 were computed based on the
actual number of common shares outstanding.
Note 2. Inventory costs are summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1995 1994
------------ --------
(Thousands of Dollars)
<S> <C> <C>
Raw materials $ 1,229 $ 1,228
Work in process 611 624
Finished goods 23,402 20,214
------- -------
Total inventories $25,242 $22,066
======= =======
</TABLE>
Page 5 of 9
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THIRD QUARTER ENDED FEBRUARY 28, 1995 COMPARED TO
THIRD QUARTER ENDED FEBRUARY 28, 1994
------------
Net sales increased 11.1% to $50,680,000, and gross profit increased by 11.3% to
$13,498,000. Approximately one-half of the sales increase for the quarter was
attributable to the opening of six in-plant stores domestically and acquiring a
Canadian store operation during fiscal 1994, which were not entirely in
operation in the quarter ended February 28, 1994. New and expanded national
sales contracts, particularly in the transportation industry, also added to the
sales increase. The manufacturing subsidiary's sales increased 17.3%, while
gross profit margins increased 20.7% compared to the same quarter in the prior
year. Competition for markets and market share in the eye protection and
industrial shower/eyewash businesses has held market penetration and margins at
historical levels for the quarter and year to date. The distribution
subsidiary's sales increased 10.3% for the quarter compared to the same quarter
in fiscal 1994. Flat gross profit margins in the distribution subsidiary,
resulting from competitive market pressures in major product line areas,
combined with the manufacturing subsidiary results, resulted in a consolidated
gross profit margin of 26.6% for the quarters ended February 28, 1995 and 1994.
Selling, general and administrative expenses increased 0.6% compared to the same
quarter in the prior year. The restructuring of corporate and field operations
and an emphasis on cost containment in both the distribution and manufacturing
operations has led to the flattening out of these costs. Selling, general and
administrative expenses as a percent of net sales were 20.8% for the quarter
ended February 28, 1995, compared to 23.0% for the quarter ended February 28,
1994. The foreign (Mexican) affiliate had an operating loss for the quarter
primarily related to the effects of the devaluation of the Mexican peso against
the U.S. dollar in December, 1994. Interest income increased significantly due
to increased cash available for investment and increased interest rates. The
tax rate for the quarter was slightly higher. Net earnings increased 75.4% for
the quarter to $1,807,000.
NINE MONTHS ENDED FEBRUARY 28, 1995 COMPARED TO
NINE MONTHS ENDED FEBRUARY 28, 1994
-----------
Sales increased 8.5% to $147,698,000 and gross profit increased 6.0% to
$38,635,000. The reasons for sales and gross profit changes for the nine month
period are consistent with the reasons discussed above for the quarter.
Selling, general and administrative expenses increased 1.1% to $31,009,000,
primarily due to personnel related expenses, operating equipment leasing and
temporary employment needs at the new on-site locations. Other expense
increased due to a one time loss on a property sale in the second quarter. The
tax rate in fiscal 1995 was slightly higher due to relative sales levels in
specific states. Net earnings increased 26.8% to $4,896,000.
Page 6 of 9
<PAGE>
FINANCIAL CONDITION
FEBRUARY 28, 1995 COMPARED TO MAY 31, 1994
-----------
Cash flows provided by operations for the year to date ended February 28, 1995
decreased to $3,415,000, compared to $6,060,000 for the year to date ended
February 28, 1994. Cash flows were utilized to increase inventories by
$3,176,000 to meet demands created by additional sales volume and to stock new
on-site locations. A combination of lower capital expenditure requirements in
the current year and higher sales levels has increased the available cash from
operations. This excess cash has been invested in bonds and other high grade
short term investments. Accounts receivable decreased $363,000 in the nine
month period.
Net additions to property, plant and equipment were $1,724,000, and included
$606,000 for the completion of the new Bolingbrook (Chicago), Illinois regional
distribution center in mid-1994. The current year to date level of capital
expenditures is significantly lower than for the same period in the previous
year, as the Company was engaged in facility upgrade programs in multiple
locations in the prior fiscal year. Employee stock options exercised and
amounts withheld in connection with the employee stock purchase plan had the
effect of increasing common stock by $6,000, additional paid-in capital by
$391,000 and reducing treasury stock by $27,000.
Due to the devaluation of the Mexican peso against the U.S. dollar during the
quarter ended February 28, 1995, the Company has recorded a translation
adjustment of $625,000 in the Shareholders' equity section of the balance sheet
against the carrying value of the equity investment in the 50% owned Mexican
affiliate.
Page 7 of 9
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal proceedings - None
Item 2. Changes in securities - None
Item 3. Defaults upon senior securities - None
Item 4. Submission of matters to a vote of security holders - None
Item 5. Other information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
Page 8 of 9
<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 thereto duly authorized.
VALLEN CORPORATION
--------------------------------------
Registrant
April 10, 1995 /s/ James W. Thompson
- - ------------------------- --------------------------------------
Date James W. Thompson
President
April 10, 1995 /s/ Leighton J. Stephenson
- - ------------------------- --------------------------------------
Date Leighton J. Stephenson
Vice President - Finance,
Secretary and Treasurer
Page 9 of 9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAY-31-1995 MAY-31-1995
<PERIOD-START> DEC-01-1994 JUN-01-1994
<PERIOD-END> FEB-28-1995 FEB-28-1995
<CASH> 0 1,199
<SECURITIES> 0 7,720
<RECEIVABLES> 0 24,562
<ALLOWANCES> 0 304
<INVENTORY> 0 25,242
<CURRENT-ASSETS> 0 61,557
<PP&E> 0 40,132
<DEPRECIATION> 0 18,763
<TOTAL-ASSETS> 0 88,764
<CURRENT-LIABILITIES> 0 12,157
<BONDS> 0 0
<COMMON> 0 4,858
0 0
0 0
<OTHER-SE> 0 71,749
<TOTAL-LIABILITY-AND-EQUITY> 0 88,764
<SALES> 50,680 147,698
<TOTAL-REVENUES> 50,680 147,698
<CGS> 37,182 109,063
<TOTAL-COSTS> 37,182 109,063
<OTHER-EXPENSES> 10,564 31,009
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 54 150
<INCOME-PRETAX> 2,877 7,150
<INCOME-TAX> 1,070 2,754
<INCOME-CONTINUING> 1,807 4,896
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,807 4,896
<EPS-PRIMARY> $.25 $.69
<EPS-DILUTED> $.25 $.69
</TABLE>
