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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 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 0-10796
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, INCLUDING AREA CODE: (713) 462-8700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.50 PAR VALUE
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing:
$56,258,063 BASED ON THE CLOSING PRICE OF AUGUST 14, 1995
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date:
COMMON STOCK, $.50 PAR VALUE 7,203,563
(Title of class) (Number of shares outstanding
as of August 14, 1995)
DOCUMENT INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K
Proxy Statement for the 1995 Annual
Meeting of Shareholders Part III
Exhibit Index on Page 30
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P A R T I
ITEM 1. BUSINESS
Vallen Corporation (together with its subsidiaries, the "Company" or
"Vallen") was incorporated under the laws of Texas in 1960 as the successor to a
business founded in 1947. The Company operates a manufacturing subsidiary,
Encon Safety Products, Inc. ("Encon"), a distribution subsidiary, Vallen Safety
Supply Company ("Vallen Safety"), and an inactive import subsidiary, Safety
World, Inc. Vallen Safety operates a Canadian subsidiary, Vallen Safety Supply
Company, Ltd. ("Vallen Safety Canada"). Additionally, Vallen Safety, through a
50% owned Mexican company, Proveedora de Seguridad Industrial Del Golfo, S.A.
("Proveedora") engages in distribution in Mexico.
Vallen Safety is a distributor of industrial safety and health products
designed for the protection of the individual worker and the workplace
environment. Its customer base is nationwide; major markets serviced include
chemical production, oil and gas extraction, railroad transportation, petroleum
refining, utilities, pulp and paper products, primary metals extraction, general
manufacturing, various governmental agencies, business services, transportation
equipment, electrical machinery and construction. Encon manufactures industrial
safety equipment for sale by Vallen Safety and unaffiliated distributors.
During the past fiscal year, the distribution and manufacturing segments
contributed 68% and 32%, respectively, of the Company's operating income before
corporate general and administrative expenses.
The table included in Note 12 to the Company's Consolidated Financial
Statements provides certain information regarding Vallen's distribution and
manufacturing industry segments for the Company's last three fiscal years.
The Company's corporate headquarters are in Houston, Texas. Corporate
management has responsibility for overall organization, planning, business
development and control of Company operations, as well as specific oversight in
the areas of compensation and benefits, finance and accounting, data systems,
risk management, taxes and employee training and development.
DISTRIBUTION
Vallen Safety distributes a broad range of personal protective and other
safety and health related products and services, including approved respiratory
equipment and gas detection instruments to meet specific safety and health needs
of industrial customers. Respiratory equipment and atmospheric hazard detection
instruments are used where work is performed in limited breathing environments,
or where workers are exposed to hazards associated with possible escape of toxic
or combustible gases or to carcinogens and other dangerous atmospheric
particulates.
Supplied-air respiratory equipment includes both portable self-contained
units and air line respirators worn by industrial, fire fighting and other
personnel in environments where ambient conditions require a dependable,
alternative source of breathable air. Supplied-air respiratory equipment
contributed 7.8%, 9.8% and 10.7% of consolidated net sales for the years ended
May 31, 1995, 1994 and 1993, respectively. The organization distributes air
purifying equipment including gas masks, chemical cartridge and particulate type
respirators for protection against breathing dusts, mists, fumes and fogs
associated with certain industrial process environments.
A wide variety of personal protective equipment and other workplace
commodities is distributed, including eye protection devices, head and hearing
protection items, gloves, first aid products and emergency shower and eye-wash
products, as well as protective clothing and similar items. As an additional
service business, a program has been added to provide prescription safety
eyewear service at specific customer sites.
Vallen Safety markets a series of portable electronic instruments and
colorimetric tubes used to detect and measure the presence and levels of toxic
and combustible gases or oxygen deficient atmospheres. Portable devices used in
enforcing industrial pollution control programs are also marketed.
Other product lines include fire safety equipment and fire control agents,
ergonometric enhancing products, material handling equipment and netting, safety
signs, lights and alarms.
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Vallen Safety's distribution activities are controlled centrally from the
distribution headquarters in Houston. Across the U.S., Vallen Safety has six
regional hubs that use their large distribution centers to ship directly to
customers and to supply the 35 satellite branches. Sales representatives
receive training from Vallen Safety and certain of its suppliers regarding
appropriate applications and relevant regulatory and industry standards for
various kinds of safety and health equipment. Vallen Safety also sponsors
safety equipment and safety awareness training programs and seminars for
customer personnel.
Vallen Safety has steadily expanded its "in-plant store" concept: safety
stores physically located on the customers' premises. The stores distribute a
variety of products directly to customer personnel, and Vallen Safety manages
the safety inventory stocks for the customers. The number of in-plant stores
now totals 25.
Vallen Safety maintains service centers which inspect, repair and calibrate
respiratory equipment and electronic atmospheric hazard detection instruments.
Vallen Safety also operates mobile respiratory service vans, staffed by factory
certified technicians who perform scheduled in-plant inspection and repair work
for customers.
Vallen Safety purchased 50% of the outstanding common stock of Proveedora,
a health and safety products distribution company headquartered in Tampico,
Mexico, on December 17, 1992. Proveedora, a company organized under the laws of
Mexico, represents many of the same industrial safety equipment suppliers that
Vallen Safety does. It operates through 16 locations throughout Mexico.
Vallen Safety opened its first Canadian branch operation in May, 1993.
Vallen Safety Supply Company, Ltd., a company organized under the laws of
Canada, was formed to conduct those operations. The Canadian company generally
represents the same supplier group as Vallen Safety's U.S. operations. There
are currently 3 Canadian branch operations. Sales at these locations for the
year ended May 31, 1995 were approximately $3,000,000.
The Company has announced the following acquisitions transactions, which
have been completed subsequent to May 31, 1995:
(1) Vallen Corporation and Vallen Safety announced the closing of the purchase
of a 50% interest in Century Sales and Service Limited (Century), a
Canadian corporation, that is an Edmonton, Alberta based distributor of
mill supply and industrial hardware products as of June 6, 1995.
Additional considerations for the 50% purchase will be paid in January,
1996 based upon the audited financial results of Century's November 30,
1995 fiscal year. Vallen has the option to purchase the remaining 50%
interest in Century based upon a purchase formula either 5 or 6 years
following the initial 50% purchase price closing date. Century operates a
major distribution center at its Edmonton corporate headquarters, with a
total of 12 distribution sites in Alberta and Saskatchewan provinces. Its
operations cover these two Canadian provinces plus the Northwest and Yukon
territories and parts of British Colombia. Century's sales are
approximately $50 million Canadian annually. It employs approximately 214
people in its operations.
(2) Effective July 24, 1995, Vallen Corporation and Vallen Safety completed the
purchase of the major assets and assumption of certain liabilities, as well
as the rights, to the name of Safety Centers Incorporated (SCI), a South
Holland (Chicago) Illinois based distributor of safety equipment and
protective clothing, as well as novelty merchandise through 22 on-site
safety center locations and two distribution hubs. SCI employs
approximately 120 persons. SCI's primary markets are in the steel
production and automobile and related parts manufacturing sectors. Its
markets are throughout the United States, with particular concentration in
the midwest. The safety stores will be operated as a division of Vallen
Safety. SCI's annual sales are approximately $25 million.
(3) Effective August 18, 1995, Vallen acquired 100% of the capital stock and
the business of All Supplies, Inc., a Baton Rouge, Louisiana based
distributor of mill, safety and industrial welding supplies. All Supplies
sales are approximately $9 million annually.
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Vallen Safety's distribution operations sell to a diverse customer base.
No customer accounted for 10% or more of consolidated revenues. Sales to
Proveedora and to domestic companies for export purposes were less than 3% of
distribution net sales during the year ended May 31, 1995. Vallen Safety is
unable to assess its overall market position relative to other competing
entities due to the overall fragmented nature of its principal business.
Of the more than 400 suppliers whose products are regularly distributed by
Vallen Safety, the top 10 accounted for approximately 40% in dollar amount of
distribution sales during the year ended May 31, 1995. All of the Company's
arrangements with suppliers are terminable by either party on short notice.
Sales of respiratory equipment purchased from Scott Aviation, a division of
Figgie International, Inc., comprised approximately 8.5% in dollar amount of all
products sold during the year ended May 31, 1995. Termination of Vallen
Safety's distribution of Scott equipment could have a materially adverse effect
on the Company's business. Vallen has been a distributor of safety equipment
manufactured by Scott continuously since 1953 and considers its relations with
this supplier to be satisfactory. No other supplier accounted for as much as
10% in dollar amount of distribution products sold during the year ended May 31,
1995.
Competitive factors in distribution of safety and health products include
quality and breadth of lines distributed, ability to fill orders promptly from
inventory, technically knowledgeable sales personnel, reputation, service and
repair capability in certain product lines, and price. The Company maintains
adequate inventories in order to avoid any substantial distribution backlog
created by unfilled customer orders. The Company engages in active competition
with a large number of other safety and health product distributors in each of
its product lines and geographical markets. Most such distributors are small
enterprises selling to customers in a limited geographic area. Most
manufacturers of industrial safety and health products sell through distributors
because of the relative direct marketing costs of a narrow product line to
customers. One of the major competitors in the industry, however, is an
integrated manufacturer and distributor of safety and health products whose
sales, earnings and financial resources exceed Vallen's; however, this
competitor's principal geographical areas of concentration are not within
Vallen's primary market areas.
MANUFACTURING
Encon was formed in 1964 to produce specialized safety equipment for which
the Company could find no suitable source of supply to meet customer needs.
Encon currently manufactures various lines of safety equipment for use in
industries where workers are exposed to potentially hazardous conditions. Many
components of its manufactured products are fabricated by others, although on-
site tooling and fabrication have been implemented where justified by volume,
cost and other factors.
Encon produces fixed and portable eye-wash and face-wash equipment and
emergency drench and enclosed showers for use in plant areas where workers risk
contact with dangerous chemicals or other similar hazards.
Encon produces the Encon 160, a chemical splash goggle which is designed to
be cosmetically appealing to the worker and incorporates a replaceable
cylindrical lens for increased clarity and peripheral vision. Encon also
specializes in the manufacturing of other protective eyewear including the first
spherical-lens protective goggle. This spherical-lens goggle provides the
customer with a less expensive alternative to the Encon 160, while maintaining
the optimum in eye protection. Encon also produces a high quality visitor
spectacle which meets industry specifications and standards for primary
protective eyewear.
Encon Custom Plastics, a division of Encon acquired in February 1990, is a
contract manufacturer of vacuum formed and injection molded thermoplastic parts.
Its primary product line includes wall cases for emergency self-contained
breathing apparatus and fire extinguishers, Therma Flow covers, AWARENESS(TM)
shower signs and various other products manufactured by vacuum forming and
molding.
Encon manufactures cool air delivery systems for individual workers. These
systems utilize the vortex tube assembly (a no-moving-parts heat exchanger) to
separate delivered compressed air into hot and cold streams and, in conjunction
with insulated aluminized reflective garments, permit safe and comfortable
working environments for extended periods in conditions of high ambient
temperature and radiant heat.
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During the year ended May 31, 1995, 31% of manufacturing net sales were
made to the Company's distribution operations. The remaining 69% were made
primarily to unaffiliated regional distributors and, to a lesser extent, to
industrial mail-order catalog firms, overseas sales representatives, certain
industrial users and distributors specializing in particular market segments.
Encon also sells vortex tube assemblies and certain other components to original
equipment manufacturers for incorporation into finished products. Manufactured
products are marketed primarily under the "Encon" name. Other than as noted
above, no single customer accounted for 10% or more of net sales for the
manufacturing operations for the year ended May 31, 1995.
Approximately $1,985,000, or 10%, of manufacturing net sales for the year
ended May 31, 1995, were to foreign purchasers in various geographical regions.
The Company accepts payment only in United States dollars and makes sales
outside the United States only to established customers or against letters of
credit drawn on major money center banks.
Encon competes with numerous other manufacturers, some of which have
substantially greater resources. The Company does not believe that its
manufactured products account for a significant share of any of its markets.
The Company does not consider that its manufacturing operations or its business
as a whole are materially dependent upon any one product or any related group of
products.
Effective January 12, 1995, Vallen Corporation invested cash to acquire a
50% equity interest in Nuclear Utility Products, Inc. (NUPRO), a new company
formed to manufacture and supply protective clothing and engineered products
used in the nuclear power production business. Vallen, through its wholly-owned
distribution subsidiary, Vallen Safety, has contracts to supply safety products
to the Tennessee Valley Authority (TVA). Vallen's partner in NUPRO has 25 years
experience in the manufacture and supply of such protective clothing and related
products to the nuclear power industry. The size of NUPRO and the results of
operations of this company are not significant to Vallen Corporation or its
distribution subsidiary.
The Company's manufacturing operations are not dependent on one or a small
number of suppliers or fabricators for any raw materials or tooled components.
REGULATION
Marketability of the Company's distributed and manufactured products
depends, in many instances, upon compliance with manufacturing, quality control,
performance, test and other published standards of entities such as the
Occupational Safety and Health Administration ("OSHA"), the National Institute
for Occupational Safety and Health ("NIOSH"), the American National Standards
Institute ("ANSI"), the American Society of Testing Materials ("ASTM"),
Underwriters' Laboratories ("UL"), Factory Mutual ("FM"), and the Canadian
Standards Association ("CSA"). To the extent applicable, the Company's
manufactured products currently meet or exceed such published standards or
criteria, and compliance of various other products marketed by Vallen Safety is
certified by their manufacturers. Such standards could, however, change in the
future so as to render one or more of Vallen's products or product lines at
least temporarily unmarketable. The Company believes that the manufacturers of
its products, including its manufacturing subsidiary, should be able to adapt
such products to any reasonably foreseeable new standards which might be adopted
in the future.
The Company believes that compliance by its customers with federal
regulations regarding occupational safety and health has been an important
factor in its past growth. The Company cannot predict the level of future
regulation.
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INSURANCE
Failure of a safety product marketed or manufactured by the Company could
expose it to large damage claims. The Company is named as an additional insured
under the products liability policies maintained by certain of its suppliers and
maintains product liability and other insurance in amounts believed by the
Company to be in accordance with industry practices. Nevertheless, such
insurance coverage may not be adequate to protect the Company against all
liability or loss which might arise from a product failure.
EMPLOYEES
The Company employed 732 persons at May 31, 1995 and believes that
relations with its employees are good.
ITEM 2. PROPERTIES
Vallen's corporate and distribution headquarters are located in a 50,000
square foot building in northwest Houston. The building, constructed in 1978,
and the five-acre tract on which it is situated, are owned by the Company. The
Company constructed a new 65,000 square foot manufacturing facility in Houston
and the Houston manufacturing operation moved into the new facility in fiscal
1991. The existing corporate and distribution headquarters' staff absorbed the
space vacated by the manufacturing personnel. The Company owns and operates a
10,000 square foot manufacturing facility in Coudersport, Pennsylvania and
leases a 15,000 square foot manufacturing facility in Houston, Texas. The
Company owns branch-warehouses with an aggregate of 207,000 square feet of space
in Mobile, Alabama; Bolingbrook (Chicago), Illinois; Baton Rouge, Louisiana;
Philadelphia, Pennsylvania and Beaumont, Brazosport, Corpus Christi, Dallas,
Odessa and Pasadena, Texas; and leases an aggregate of 264,000 square feet of
warehouse and office space in Birmingham, Alabama; Anchorage, Alaska; Phoenix,
Arizona; Sacramento, Pittsburg and Los Angeles, California; Atlanta, Georgia;
Peoria, Illinois; Waterloo, Iowa; Lake Charles and New Orleans, Louisiana;
Baltimore, Maryland; Midland, Michigan; Albuquerque, New Mexico; Charlotte,
North Carolina; Canton, Ohio; Tulsa, Oklahoma; Knoxville, Nashville, Kingsport
and Memphis, Tennessee; Austin, Houston, Longview and Texas City, Texas;
Richmond, Virginia; Seattle and Longview, Washington; and Kingston, Ottawa,
Sarnia and Toronto, Ontario, Canada.
As a part of the restructuring process described in the Management's
Discussion and Analysis section, the Company closed four locations, aggregating
some 24,000 square feet of warehouse and office space in fiscal 1995.
Aggregate rentals of real property during the year ended May 31, 1995 were
$1,157,000. Reference is made to Notes 5 and 10 of the Notes to Consolidated
Financial Statements for information regarding mortgages on real estate and
commitments under long-term operating leases. The Company considers all
property owned or leased by it to be well-maintained, adequately insured and
suitable for its purposes.
ITEM 3. LEGAL PROCEEDINGS
No claims are currently pending against the Company other than claims in
the ordinary course of business which are not material or as to which the
Company believes it either has adequate insurance coverage or has made adequate
provision.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no items submitted to a vote of security holders during the
fourth quarter of the year ended May 31, 1995.
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P A R T I I
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock began public trading on October 9, 1979 and is
traded over-the-counter on the NASDAQ National Market System under the symbol
VALN. At August 4, 1995 there were approximately 1,500 holders of the Company's
Common Stock including individual participants in certain security position
listings. The Company has not paid any cash dividends on its Common Stock since
its organization.
The following table sets forth for the periods indicated the high and low
sale prices for the Company's common stock as reported by the NASDAQ Stock
Market.
<TABLE>
<CAPTION>
QUARTER HIGH LOW
------- ------- -------
<S> <C> <C>
Year Ended May 31, 1995
Fourth $17 1/4 $13
Third 14 1/2 11 1/4
Second 12 1/4 10 1/2
First 12 1/2 10
Year Ended May 31, 1994
Fourth 15 1/2 11 3/4
Third 16 11 1/2
Second 17 1/4 11 7/8
First 17 1/4 15
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
VALLEN CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
IN THOUSANDS (EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OPERATING RESULTS FOR THE YEAR ENDED 1995 1994 1993 1992 1991
MAY 31, --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $203,284 $185,751 $175,605 $167,338 $151,398
Net earnings 7,142 4,557 6,257 6,306 6,578
Net earnings per common share* $ 1.00 $ .65 $ .89 $ .92 $ .98
FINANCIAL POSITION AT MAY 31,
Total assets $ 90,654 $ 81,417 $ 74,367 $ 65,830 $ 58,930
Working capital 51,721 44,301 44,508 40,548 32,447
Current asset ratio 5.5:1 5.0:1 6.0:1 6.1:1 4.7:1
Long-term debt, excluding current 5,194 3,817 3,722 3,765 3,949
maturities
Debt-to-equity ratio 0.1:1 0.1:1 0.1:1 0.1:1 0.1:1
SHAREHOLDERS' EQUITY AT MAY 31,
Shareholders' equity $ 72,682 $ 65,532 $ 60,323 $ 52,784 $ 44,634
Weighted average number of common
shares outstanding* 7,108 7,046 7,004 6,867 6,698
Book value per share* $ 10.23 $ 9.30 $ 8.61 $ 7.69 $ 6.66
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* Adjusted for stock split in 1991.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of certain aspects of the Company's
results of operations and financial conditions should be read in conjunction
with the Consolidated Financial Statements and the Selected Financial Data
included elsewhere herein.
RESULTS OF OPERATIONS
The table below is presented to assist in analyzing changes in operating
results for the fiscal years 1995, 1994 and 1993, indicating changes in various
items in the statement of earnings as a percentage of net sales, and the
increase (decrease) in such items in 1995, 1994 and 1993 compared to the prior
year.
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<CAPTION>
YEARS ENDED MAY 31,
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ITEMS IN CONSOLIDATED STATEMENT OF PERCENTAGE OF INCREASE
EARNINGS AS A PERCENTAGE OF NET SALES (DECREASE) FROM PRIOR YEAR
1995 1994 1993 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 9.4% 5.8% 4.9%
Cost of sales 73.8 73.5 72.7 9.9 7.0 6.1
Selling, general and
administrative expenses 20.7 22.2 21.7 2.0 8.6 2.7
Other income (expense), .1 (0.1) (0.1) 265.3 11.0 (53.8)
net /(1)/
Income taxes 2.0 1.5 2.0 52.5 (25.0) 1.8
Net earnings 3.5 2.5 3.6 56.7 (27.2) (0.8)
</TABLE>
/(1)/ This amount includes categories interest and dividend income, interest
expense, earnings from foreign affiliate and other income and expense in the
Consolidated Statement of Earnings.
Sales increased in the year ended May 31, 1995. Gross profit for the
distribution segment was down slightly, as a percentage of net sales, while
operating expenses were flat. The gross profit margin reduction results
primarily from increased importance of renewing annual sales contracts with
larger national and multi-national customers and strong competition in markets
serviced by the Company. Additionally, the Company's manufacturing segment
experienced significant materials cost increases in the current fiscal year, not
all of which were passed through to customers during the year due to market
competition conditions. This combination and the Company's ability to hold down
the rate of operating expense increase during the year resulted in increased net
earnings. The Company continues to invest in the long-term growth of the
Company through the opening of more efficient distribution facilities, upgrading
of its manufacturing facilities and by continuing to expand market share.
Management believes that technology investment is a key to future success and
expansion of the Company's business.
The Company purchased a 50% interest in Proveedora, based in Tampico,
Mexico, on December 17, 1992. The initial investment and subsequent capital
contribution was $2,767,000. Gross sales for Proveedora for the years ended May
31, 1995 and 1994, in U.S. dollar equivalents, were $7,701,000 and $6,927,000,
respectively.
NET SALES
Consolidated net sales increased $17,533,000 or 9.4% during fiscal 1995 as
compared to an increase of $10,146,000 or 5.8% in 1994. Sales increased 9.4% in
the distribution segment and 6.7% in the manufacturing segment during fiscal
1995. The increase in consolidated sales for fiscal 1995 and 1994 was primarily
due to new distribution branches and in-plant facilities being opened in fiscal
1995 and 1994, as well as the growth in the national accounts programs. The
increase in the manufacturing sales level was primarily related to a volume
increase in the shower and eye protection lines.
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GROSS PROFIT
Consolidated gross profit as a percentage of net sales was 26.2%, 26.5% and
27.3% for fiscal years 1995, 1994 and 1993, respectively. The manufacturing
subsidiary's gross profit margins increased slightly in fiscal 1995. The
distribution subsidiary's sales, which are at a lower gross profit margin, were
a greater percentage of the consolidated total sales. Gross profit margins for
the distribution operations were slightly lower each of the past three years,
due to increased competition for relatively flat markets in the personal
protection product lines, and in part a result of the increasing percentage of
total net sales attributable to high volume, lower margin national supply
contract sales. These factors, in combination with a trend toward lower
distribution margin, resulted in a lower consolidated margin in fiscal 1995 and
1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, as a percentage of net sales,
decreased to 20.7% in fiscal 1995, compared to 22.2% in 1994 and 21.7% in 1993.
Included in fiscal 1994's expenses are restructuring charges of $460,000,
comprised of $350,000 of lease obligations and $110,000 of severance pay for the
Company's employee terminations. Selling, general and administrative expenses
increased 2.0% to $42,123,000 in fiscal 1995 and 8.6% to $41,314,000 in fiscal
1994. New distribution locations were the primary reasons for the increase in
fiscal year 1995. In fiscal year 1994 increased locations, numbers of personnel
and related expenses were the primary expense increase factors. In addition,
fiscal 1994's expense increase was impacted by additional unabsorbed
manufacturing facility expenses.
NET EARNINGS
Consolidated net earnings as a percentage of net sales was 3.5%, 2.5% and
3.6% for fiscal year 1995, 1994 and 1993, respectively. The 1995 net earnings
of $7,142,000, or $1.00 per share, represented a 56.7% increase compared to
fiscal 1994.
The increase was primarily the result of reducing the rate of operating
expense growth relative to the net sales level growth between years. These
factors are attributable in part to the restructuring activities at the
corporate location at the beginning of fiscal 1995, and a focus on cost control
at the distribution sites in 1995.
The net earnings increase for fiscal 1995 compared to fiscal 1994 was also
attributable to a reduction in capital expenditures in fiscal 1995 and a
corresponding reduction in the depreciation expense addition in the year related
to the capital spending program, primarily in the areas of new distribution
center additions and computer hardware and software upgrades.
EARNINGS FROM FOREIGN AFFILIATE, INTEREST AND DIVIDEND INCOME, AND OTHER INCOME
(EXPENSE)
Earnings from foreign affiliate, net, were $387,000 at May 31, 1995 versus
$217,000 for the year ended May 31, 1994. The earnings are from the Company's
50% position in Proveedora.
Interest and dividend income increased in 1995 by $298,000 and decreased
in 1994 by $44,000 due to fluctuating interest rates and cash levels available
for investment. Interest expense increased in 1995 by $102,000 and in 1994 by
$6,000 primarily due to the increased long-term debt due to the Chicago building
mortgage and the variable interest rates on the Encon industrial development
bonds. In 1995, other expense, net increased $45,000 due primarily to increased
amortization of intangibles from previous acquisition activity and due to the
loss on an equity accounting basis in 1995 from Vallen's investment in NUPRO
since January 13, 1995 of $54,000. Other expense, net, in 1994 increased
$57,000 due primarily to increased amortization of intangibles.
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INCOME TAXES
The effective tax rates for fiscal years 1995, 1994 and 1993 were 36.5%,
37.2% and 36.5%, respectively.
In February 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Statement 109 requires a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Effective June 1, 1992, the Company adopted
Statement 109 and has reported the cumulative effect of the change in the method
of accounting for income taxes in the 1993 consolidated statement of earnings.
The cumulative effect of the implementation of Statement 109 was immaterial.
For a more thorough discussion of FASB Statement 109, see the Notes to
Consolidated Financial Statements.
FINANCIAL CONDITION
LIQUIDITY
The net cash provided by operations for fiscal years 1995, 1994 and 1993
was $5,799,000, $7,239,000, and $6,622,000 respectively. Management is not
aware of any potential impairment to the Company's liquidity. Included in
accrued expenses payable at May 31, 1994 is $460,000 for restructuring charges
also described in the Notes to Consolidated Financial Statements, Note 2. In
connection with certain acquisitions made subsequent to May 31, 1995, as noted
in Part 1 of this document, the Company paid a total of $6,940,904 in cash and
re-issued a total of 120,732 shares of common stock from treasury shares.
Also, in connection with these acquisitions made by the Company subsequent
to May 31, 1995, Vallen Safety and the Company, as guarantor, entered into a $6
million non-secured term-revolver credit agreement as of July 24, 1995. The
duration of the credit facility is four years, and has both prime and LIBOR
based borrowing options. As of the date of this document, $5 million has been
drawn, in connection with an acquisition made subsequent to May 31, 1995.
LONG-TERM OBLIGATIONS
On March 28, 1990, the Company issued $2,750,000 in industrial development
bonds (See Note 5 of Notes to Consolidated Financial Statements). The bonds are
secured by a letter of credit agreement and further secured by a lien upon a
manufacturing facility in Houston constructed with the proceeds.
On December 1, 1994, the Company signed a long-term loan with a bank for
$1,720,000. The loan is secured by a mortgage on the regional distribution
center and surrounding property in Bolingbrook, Illinois.
IMPACT OF INFLATION
Management of the Company believes that inflation has not significantly
impacted either net sales or net earnings during the three years ended May 31,
1995. The Company has generally been able to pass along price increases from
its manufacturing suppliers.
CAPITAL EXPENDITURES
During fiscal 1995 the Company invested $2,590,000 in capital assets for
its distribution segment and $262,000 for its manufacturing segment. The
distribution expenditures were primarily comprised of $927,000 for rental
equipment, $707,000 for land, buildings and building improvements, $544,000 for
new computer hardware and software, $392,000 for furniture and operating
equipment and $20,000 for delivery vehicles. The manufacturing expenditures
were primarily for tools, dies and other equipment used in the manufacturing
process.
The capital expenditure program is designed to (1) focus the distribution
activity of the Company in modern, technologically advanced regional centers,
(2) match the Company's management information systems to the demanding,
flexible marketplaces in which the Company competes to maintain its position as
an industry leader in customer satisfaction, and (3) maintain efficient and cost
competitive manufacturing operation facilities.
10
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VALLEN CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
<S> <C>
PAGE
REFERENCE
13 --Report of KPMG Peat Marwick LLP, Independent Auditors.
14 --Consolidated Balance Sheets -- May 31, 1995 and 1994.
15 --Consolidated Statements of Earnings -- Years ended May 31, 1995, 1994 and 1993.
16 --Consolidated Statements of Shareholders' Equity -- Years ended May 31, 1995, 1994 and 1993.
17 --Consolidated Statements of Cash Flows -- Years ended May 31, 1995, 1994 and 1993.
18 --Notes to Consolidated Financial Statements.
</TABLE>
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
VALLEN CORPORATION
We have audited the consolidated financial statements of Vallen Corporation and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vallen Corporation
and subsidiaries as of May 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended May 31, 1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
July 17, 1995
12
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
MAY 31,
-------------------
ASSETS 1995 1994
--------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,006 $ -
Investment securities, at cost which 7,255 7,231
approximates market
Accounts receivable, less allowance
for doubtful accounts of $311 and 26,039 23,895
$286 at May 31, 1995 and 1994,
respectively
Notes receivable 412 -
Inventories (Note 3) 24,026 22,066
Prepaid expenses and other current 2,565 2,062
assets ------- -------
Total current assets 63,303 55,254
-------
Property, plant and equipment, at cost 40,501 38,171
(Notes 4 and 5)
Less accumulated depreciation and 19,558 16,674
amortization ------- -------
Net property, plant and 20,943 21,497
equipment
Notes receivable, non-current 1,599 -
Investment in foreign affiliate, net 3,070 3,106
(Note 9)
Intangibles, net of accumulated
amortization of $1,567 and $1,278 at 1,235 1,411
May 31, 1995 and 1994, respectively
Other 504 149
------- -------
$90,654 $81,417
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 161 $ 43
(Note 5)
Accounts payable 8,587 8,906
Accrued bonus incentives (Note 8) 697 194
Accrued profit sharing contribution 401 72
(Note 8)
Other accrued expenses (Note 2) 1,556 1,656
Income taxes payable 180 82
------- -------
Total current liabilities 11,582 10,953
------- -------
Long-term debt, excluding current 5,194 3,817
maturities (Note 5)
Deferred income taxes (Note 7) 1,196 1,115
Shareholders' equity (Note 6):
Preferred stock $1.00 par value.
1,000,000 shares authorized and
unissued at May 31, 1995 and 1994
Common stock $.50 par value. 4,857 4,852
20,000,000 shares authorized;
9,713,884 and 9,703,472 shares
issued at May 31, 1995 and 1994,
respectively
Additional paid-in capital 3,955 3,562
Translation adjustment (417) -
Retained earnings 67,028 59,886
------- -------
75,423 68,300
Less cost of common shares held in
treasury (2,591,750 and 2,616,350 2,741 2,768
shares at May 31, 1995 and 1994, ------- -------
respectively)
Total shareholders' equity 72,682 65,532
------- -------
Commitments and contingencies (Notes 8
and 10)
$90,654 $81,417
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
13
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands of Dollars Except for Per Share Amounts)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $203,284 $185,751 $175,605
Cost of sales 150,111 136,605 127,620
-------- -------- --------
Gross profit 53,173 49,146 47,985
Selling, general and administrative
expenses (Notes 8 and 10) 42,123 41,314 38,026
Restructuring charges (Note 2) - 460 -
-------- -------- --------
Operating income 11,050 7,372 9,959
Earnings from foreign affiliate, net 387 217 122
(Note 9)
Interest and dividend income 537 239 283
Interest expense (Note 5) (285) (183) (177)
Other income (expense), net (439) (394) (337)
-------- -------- --------
Earnings before income taxes 11,250 7,251 9,850
Income taxes (Note 7) 4,108 2,694 3,593
-------- -------- --------
Net earnings $ 7,142 $ 4,557 $ 6,257
======== ======== ========
Net earnings per common share
Weighted average number of common $1.00 $.65 $.89
shares outstanding ======== ======== ========
7,108 7,046 7,004
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
14
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands of Dollars, Except for Per Share Amounts)
<TABLE>
<CAPTION>
Shares of Common Additional Total
Stock, $.50 Common Paid-in Translation Retained Treasury Shareholders'
Par Value Stock Capital Adjustment Earnings Stock Equity
------------- ------ ---------- ----------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1992 9,683,183 $4,842 $1,709 $ _ $49,072 $(2,839) $52,784
Net earnings _ _ _ _ 6,257 _ 6,257
Employee stock purchases
(Note 6) 9,366 5 153 _ _ _ 158
Exercise of stock options
(Note 6) _ _ 1,109 _ _ 15 1,124
--------- ------ ------ ---- ------- ------- -------
Balance at May 31, 1993 9,692,549 $4,847 $2,971 _ $55,329 $(2,824) $60,323
Net earnings _ _ _ _ 4,557 _ 4,557
Employee stock purchases
(Note 6) 10,923 5 132 _ _ _ 137
Exercise of stock options
(Note 6) _ _ 459 _ _ 56 515
--------- ------ ------ ---- ------- ------- -------
Balance at May 31, 1994 9,703,472 $4,852 $3,562 _ $59,886 $(2,768) $65,532
Net earnings _ _ _ _ $7,142 _ $ 7,142
Employee stock purchases
(Note 6) 10,412 5 123 _ _ _ 128
Exercise of stock options
(Note 6) _ _ 270 _ _ 27 297
Currency translation adjustment _ _ _ (417) _ _ (417)
Balance at May 31, 1995 9,713,884 $4,857 $3,955 $(417) $67,028 $(2,741) $72,682
========= ====== ====== ===== ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
15
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------
1995 1994 1993
-------- -------- --------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net earnings $ 7,142 $ 4,557 $ 6,257
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Loss on disposition of property,
plant & equipment 69 60 49
Depreciation and amortization 3,497 3,861 3,284
Undistributed earnings from
foreign affiliate, net (387) (217) (122)
Loss from joint venture, net 54 - -
Change in assets and
liabilities, net of effects
from acquisitions:
Decrease (increase) in trading (24) 1,054 (2,631)
securities
Increase in accounts receivable,
net (2,144) (1,154) (1,751)
Increase in inventories (1,960) (1,774) (190)
Increase in notes receivable (412) - -
(Increase) decrease in prepaid
expenses and other current assets (503) (615) 574
(Increase) decrease in other
assets (125) (98) (29)
Increase in accounts payable and
other current liabilities 511 1,825 1,194
Increase (decrease) in deferred 81 (260) (13)
income taxes ------- ------- -------
Net cash provided (used) by 5,799 7,239 6,622
operating activities
INVESTING ACTIVITIES:
Net additions to property, plant and
equipment, net of effects of
acquisitions (2,467) (8,397) (3,938)
Payments for acquisitions - (605) (2,767)
Increase in notes receivable (1,599) - -
Investment in joint venture (230)
------- ------- -------
Net cash used in investing activities (4,296) (9,002) (6,705)
FINANCING ACTIVITIES:
Addition to long term debt 1,720 135 -
Reduction of long-term debt (225) (40) (183)
Stock option transactions 297 515 1,124
Employee stock purchases 128 137 158
------- ------- -------
Net cash provided by financing 1,920 747 1,099
activities ------- ------- -------
Net increase (decrease) in cash and 3,423 (1,016) 1,016
cash equivalents
Effect of exchange rate changes on cash
and cash equivalents (417) - -
Cash and cash equivalents at beginning - 1,016 -
of year ------- ------- -------
Cash and cash equivalents at end of year $ 3,006 $ - $ 1,016
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest payments $ 284 $ 191 $ 172
Income tax payments $ 3,833 $ 2,965 $ 2,437
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
16
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation --- The consolidated financial statements
include the accounts of Vallen Corporation (the Company) and its wholly-owned
subsidiaries, Vallen Safety Supply Company, Encon Safety Products, Inc., Safety
World, Inc. and Vallen Safety Supply Company, Ltd. All significant inter-
company transactions and amounts have been eliminated in consolidation.
Unconsolidated affiliates are included on the equity basis. Certain prior year
amounts have been reclassified to conform with current year presentation.
Investment Securities --- The Company held only trading securities for
investment in 1995, 1994 and 1993. Cost and estimated fair value were
identical, therefore no unrealized gains or losses occurred in any year
presented. Trading securities consist of obligations of states and political
subdivisions and corporate issuers, and totaled $7,255,000 and $7,231,000 at May
31, 1995 and 1994, respectively.
Inventory Valuation --- Inventories are stated at the lower of cost
(weighted average) for Vallen Safety and lower of cost (first in, first out) for
Encon, or market (replacement).
Property, Plant and Equipment --- Depreciation of property, plant and
equipment is based on the estimated useful life, less salvage, if any, of the
various assets as follows:
<TABLE>
<CAPTION>
LIFE METHOD
---------- -------------------------
<S> <C> <C>
Buildings and improvements 5-30 years Straight-line and double-
declining-balance
Furniture, fixtures and other 3-8 years Straight-line and double-
equipment declining-balance
Data processing equipment and 3-5 years Straight-line and double-
software declining-balance
</TABLE>
Acquisitions --- Acquisitions have been accounted for by the purchase
method and, accordingly, the acquired company's assets are recorded at fair
value as of the acquisition date. Results of operations are included from the
date of acquisition.
Intangibles --- Goodwill, which represents cost in excess of fair value
of net assets of purchased businesses, is amortized over a 40 year period, and
the related accumulated amortization was $60,000 and $49,000 at May 31, 1995 and
1994, respectively. Other intangibles are amortized over their statutory or
estimated useful lives. Accumulated amortization of these other intangibles was
$1,567,000 and $1,278,000 at May 31, 1995 and 1994, respectively.
Income Taxes --- In February 1992, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Statement 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability method
of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Effective June 1, 1992, the Company adopted
Statement 109 and has reported the cumulative effect of the change in the method
of accounting for income taxes in the 1993 consolidated statement of earnings.
The cumulative effect of the implementation of Statement 109 was immaterial.
17
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
Foreign Currency Translation --- The Company's foreign subsidiaries'
books and records are maintained in the local currency. Assets and liabilities
of these operations are translated into U.S. dollars at the exchange rate in
effect at the end of each accounting period, and income statement accounts are
translated at the average exchange rate prevailing during the period. Gains and
losses from translations and transactions in foreign currencies were immaterial
in the year ended May 31, 1994. A translation adjustment of $625,000, was
recorded in the equity section of the Company's balance sheet in the third
quarter of fiscal 1995, as a result of a devaluation of the Mexican peso
relative to the U.S. dollar in December, 1994. As of May 31, 1995, the
cumulative adjustment amounted to $417,000, calculated based upon requirements
set forth in Statement of Financial Accounting Standards, No. 52, Foreign
Currency Translation.
Impairment of Long Lived Assets -- In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 is effective for fiscal years
beginning after December 15, 1995. The Company has not completed the analysis
required by SFAS 121 as of May 31, 1995; however, the impact of the adoption of
SFAS 121 is not expected to have a material impact on the Company's financial
statements.
Earnings Per Common Share --- Earnings per common share computations are
based on the weighted average number of shares of common stock outstanding
during the respective periods. Common stock equivalents have not been included
from the date of their issuance due to their insignificant effect on the
computation.
Statements of Cash Flows --- For purposes of the statements of cash
flows, the Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
NOTE 2. RESTRUCTURING CHARGES
In May 1994, the Company completed an extensive assessment of future
distribution plans and strategy. As a result, four distribution branches were
closed in fiscal 1995, due to proximity to regional shipping "hub" locations and
the need to eliminate redundant stocking and shipping activities. Certain
personnel positions associated with those closings were eliminated. Several
positions at the Company's corporate headquarters were also eliminated.
Accordingly, in the fourth quarter of fiscal 1994, the Company recorded a
restructuring charge of $460,000 which included a $350,000 non-cash recognition
of long term lease commitments related to the branches to be closed, and
$110,000 for severance pay for the eliminated positions.
NOTE 3. INVENTORIES
Effective April 1995, Vallen Safety changed its inventory valuation method
from first-in, first-out (FIFO) to a weighted-average valuation method. The
Company believes that the new accounting method provides a better matching of
inventory cost with the related revenues. The cumulative effect on prior years
and on the operating results for the current year ended May 31, 1995 are
immaterial. The manufacturing subsidiary continues to utilize the First-in,
First-out (FIFO) method.
<TABLE>
<CAPTION>
Inventory costs are summarized as
follows:
MAY 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
(Thousands of Dollars)
Raw materials $ 1,241 $ 1,228
Work in process 792 624
Finished goods 21,993 20,214
------- -------
Total inventories $24,026 $22,066
======= =======
</TABLE>
18
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment costs are summarized as follows:
<TABLE>
<CAPTION>
MAY 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
(Thousands of Dollars)
Land and improvements $ 2,930 $ 3,011
Buildings and improvements 13,033 12,574
Furniture, fixtures and other 13,654 12,226
equipment
Data processing equipment and 10,884 10,360
software ------- -------
Total property, plant and $40,501 $38,171
equipment ======= =======
</TABLE>
Maintenance and repairs are expensed as incurred. Gains and losses from
sales and retirements are recognized at the time of disposal.
NOTE 5. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
MAY 31,
------------------
1995 1994
------ ------
(Thousands of Dollars)
<S> <C> <C>
Variable rate, tax exempt,
callable at par, industrial
development bonds due March 1, 2020;
interest rate resets weekly $2,750 $2,750
(4.9% at May 31, 1995); secured
by a letter of credit, further secured
by a manufacturing facility with a
depreciated cost of $2,894,000 at May 31,
1995
9.9% mortgage note payable to a
bank, due in equal monthly
installments, final installment
due December 1, 2020; secured 1,682 -
by land and building with a
depreciated cost of $2,083,000
at May 31, 1995
9 1/8% first mortgage note payable
to an insurance company, due in equal
monthly installments, final installment 881 924
due May 1, 2008; secured by land and
building with a depreciated
cost of $1,530,000 at May 31,
1995
Other notes payable 42 186
------ ------
Total long-term debt 5,355 3,860
Less current maturities 161 43
------ ------
Long-term debt, less current $5,194 $3,817
maturities ====== ======
</TABLE>
Debt maturities for the five years subsequent to May 31, 1995 are $161,000
$165,000, $169,000, $173,000, and $174,000, respectively.
19
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 6. CAPITAL STOCK
The Company has a stock option plan for key employees, (the "Plan") and has
reserved for issuance 1,125,000 shares of its common stock. The Plan authorizes
the Company to grant to its key employees options to purchase shares of common
stock at prices per share equal to the fair market value of such stock at the
date of grant.
Options have been granted and are outstanding as to 278,000 shares as of
May 31,1995. These options are exercisable in increments of 33 1/3% , beginning
in years after fiscal 1993, should the Company achieve three specified
consolidated earnings per share targets.
Information relating to stock options is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS PRICE
SHARES RANGE PER SHARE
-------- ---------------
<S> <C> <C>
Balance Outstanding, May 31, 1992 125,860 $ 3.72 - $8.00
Exercised (38,660) $ 3.72 - $8.00
------- ---------------
Balance Outstanding, May 31, 1993 87,200 $ 4.89 - $8.00
Granted 174,000 $15.75
Exercised and expired (80,600) $ 4.89 - $15.75
------- ---------------
Balance outstanding, at May 31, 180,600 $15.75
1994
Granted 131,000 $12.75 - $13.00
Exercised and expired (33,600) $8.00
------- ---------------
Balance outstanding, at May 31, 278,000 $12.75 - $15.75
1995
Options exercisable at May 31, 1995 -0- -
</TABLE>
The Company's shareholders approved a non-employee director stock option
plan (the "Director Plan") effective October 12, 1993. The Company has reserved
for issuance 30,000 shares of its common stock to be used in the plan. The
Director Plan authorizes the Company to grant non-employee directors options to
purchase shares of common stock at prices equal to the average last sale price
of the Company's stock for the five most recent trading days on which trades
occurred including the date of grant. Each of the non-employee directors was
granted 3,000 options based upon a formula set forth in the Director Plan. The
options are exercisable ratably on the first, second and third anniversary dates
of the grant date. None of the options granted were exercised on the first
anniversary date.
The Company adopted an employee stock purchase plan effective January 1,
1991. The Company has reserved for issuance 675,000 shares of its common stock
to be used in the plan. The plan allows eligible employees to purchase shares
at 85% of the lower of market value on January 1 or December 31. The difference
between the employees' actual purchase price and the price on December 31 is
compensation expense to the Company. Employee stock purchase plan expense was
$24,000 for both years ended May 31, 1995 and 1994.
During fiscal year 1992, the Company established an Annual Incentive
Compensation Plan for its officers and has reserved 300,000 shares of the
Company common stock for issuance in connection with the stock portion of the
incentive awards. Under the Plan, the annual award pool for each year will be
an amount equal to 20% of the portion of net earnings in excess of the net
earnings required to achieve a 15% return on average shareholders' equity. One-
half of each participant's award will be paid in the form of a single cash
payment. The remaining 50% is paid in the form of Company common stock, which
vests to the participant over a five year period. No amounts were required to
be paid under the Plan for the years ended May 31, 1995 and 1994.
20
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---(CONTINUED)
<TABLE>
<CAPTION>
NOTE 7. INCOME TAXES
<S> <C> <C> <C>
Income tax expense (benefit)
consists of:
YEAR ENDED MAY 31,
-----------------------
1995 1994 1993
------ ------ ------
(Thousands of Dollars)
Current:
Federal $3,600 $2,749 $3,146
State 408 312 494
------ ------ ------
4,008 3,061 3,640
Deferred:
Federal and State 100 (367) (47)
------ ------ ------
$4,108 $2,694 $3,593
====== ====== ======
</TABLE>
The reasons for the differences between the amount of tax expense provided
and the amount of tax expense computed by applying the federal statutory income
tax rate of 34% in 1995, 1994 and 1993, to earnings before income taxes were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
(Thousands of Dollars)
Tax expense at statutory rates $3,825 $2,465 $3,349
Increase (decrease) in taxes
resulting from:
State tax expense, net of federal
benefit 269 206 326
Other, net 14 23 (82)
------ ------ ------
$4,108 $2,694 $3,593
====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at May 31, 1995 and 1994 are
presented below.
<TABLE>
<CAPTION>
Deferred tax assets:
1995 1994
---------- ----------
<S> <C> <C>
(Thousands of Dollars)
Inventories, principally due to
additional costs inventoried
for tax purposes $ 472 $ 480
Increase in accounts receivable
allowance account 104 86
Restructuring charges - 82
Other 112 12
----- -----
Total deferred tax assets $ 688 $ 660
----- -----
</TABLE>
21
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
<TABLE>
<CAPTION>
Deferred tax liabilities:
1995 1994
----------- -----------
<S> <C> <C>
(Thousands of Dollars)
Plant and equipment, principally
due to differences in $ 984 $ 826
depreciation
Software development expensed 248 275
for tax
Accelerated property tax 136 136
deduction
Other (125) (122)
------ ------
Total deferred tax liability $1,243 $1,115
------ ------
Net deferred tax liability $ 555 $ 455
====== ======
</TABLE>
There is no valuation allowance for the fiscal years ended May 31, 1995 or
May 31, 1994. It is the opinion of management that future operations will more
likely than not generate taxable income to realize the deferred tax assets.
Deferred tax assets are included in prepaid expenses and other current
assets category on the Consolidated Balance Sheets.
NOTE 8. PROFIT SHARING, DEFERRED COMPENSATION AND BONUS INCENTIVE PLANS
The Company has established a profit sharing trust which covers
substantially all employees. The Company makes quarterly cash contributions of
10% of net earnings, as defined by the trust agreement. Total profit sharing
expense for the years ended May 31, 1995, 1994 and 1993 was $622,000, $520,000
and $613,000, respectively.
During December 1990, the Company amended the profit sharing plan to
include a 401(k) deferred compensation plan covering a majority of the Company's
employees. Under the terms of the 401(k) plan, the Company makes matching
contributions equal to 25% of the participants' contributions subject to certain
participant vesting requirements. Total Company 401(k) contribution expense for
the years ended May 31, 1995, 1994 and 1993 was $236,000, $218,000 and $173,000,
respectively.
The Company also has bonus incentive plans for its officers, managers and
other key employees. Cash bonuses are awarded based on incentive award
schedules which measure achievement of individual and corporate objectives,
among other factors. Bonus incentive plan expense was $713,000, $258,000 and
$387,000, for the years ended May 31, 1995, 1994 and 1993, respectively.
NOTE 9. INVESTMENT IN FOREIGN AFFILIATE
On December 17, 1992, the Company purchased 50% of the outstanding common
stock of Proveedora de Seguridad Industrial Del Golfo, S.A. de C.V.,
(Proveedora) a company organized under the laws of Mexico, based in Tampico,
Mexico. The initial investment and subsequent capital contribution was
$2,767,000. The Company accounts for its Proveedora investment using the equity
method of accounting.
The Company's share of earnings from Proveedora, net of associated
amortization of goodwill and foreign currency translation amounts, was $387,000,
$217,000 and $122,000 for the years ended May 31, 1995, 1994 and the period
December 17, 1992 through May 31, 1993, respectively.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company conducts certain operations from leased premises under
noncancellable operating leases. Under the terms of some of the leases, the
Company pays taxes, maintenance, insurance and certain other operating expenses.
Various computer, transportation and other equipment is also leased under short-
term operating leases. Management generally intends to renew leases that expire
during the normal course of business. Rental expense for the years ended May
31, 1995, 1994 and 1993 amounted to $1,639,000, $2,056,000 and $1,560,000,
respectively. Lease commitments for noncancellable operating leases for the
five years subsequent to May 31, 1995 are $1,512,000, $1,016,000, $651,000,
$302,000 and $147,000, respectively.
22
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
Certain claims that result from litigation incurred in the ordinary course
of business have been asserted against the Company. Management believes that
the ultimate resolution of such matters will not materially affect the financial
position or results of operations of the Company.
NOTE 11. CONCENTRATION OF CREDIT RISK
The Company has a broad customer base, representing many diverse
industries, doing business in most regions of the United States and in Mexico
and Canada. The Company evaluates credit risks on an individual customer basis
before extending credit, and believes the allowance for doubtful accounts
adequately provides for losses on uncollectible accounts. In each of the years
ended May 31, 1995, 1994 and 1993, no single customer accounted for more than
10% of consolidated sales. Letters of credit are required on most foreign
sales, except to customers in Mexico and Canada. Consequently, in management's
opinion, no significant concentration of credit risk exists for the Company.
NOTE 12. BUSINESS SEGMENTS
The Company operates in two business segments, distribution of industrial
safety and health products and manufacturing of industrial safety equipment.
The following table summarizes, for the periods indicated, the amounts of
consolidated net sales, operating income, identifiable assets, capital
expenditures and depreciation and amortization attributable to the Company's
distribution and manufacturing operations. Substantially all intersegment sales
are based on published price lists, the same as to unaffiliated customers. The
Company does not derive 10% or more of its net sales from any single customer,
nor does the Company derive 10% or more of its net sales from foreign sources.
Sales of supplied-air respiratory equipment contributed 7.8%, 9.9% and 10.7% of
consolidated net sales for the year ended May 31, 1995, 1994 and 1993,
respectively. The effect of the Company's operation in Mexico and Canada is
immaterial on the amounts in the table below.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
(Thousands of Dollars)
Net sales:
Distribution $190,610 $174,282 $162,579
Manufacturing 19,691 18,461 19,856
-------- -------- --------
210,301 192,743 182,435
Intersegment sales (7,017) (6,992) (6,830)
-------- -------- --------
$203,284 $185,751 $175,605
Operating income: ======== ======== ========
Distribution $ 9,281 $ 5,626 $ 7,112
Manufacturing 4,367 3,994 4,839
-------- -------- --------
13,648 9,620 11,951
Corporate general and (2,598) (2,248) (1,992)
administrative expenses -------- -------- --------
Total $ 11,050 $ 7,372 $ 9,959
Identifiable assets: ======== ======== ========
Distribution $ 81,905 $ 72,478 $ 65,214
Manufacturing 8,749 8,939 9,153
-------- -------- --------
Total $ 90,654 $ 81,417 $ 74,367
Capital expenditures: ======== ======== ========
Distribution $ 2,590 $ 8,265 $ 3,640
Manufacturing 262 201 297
-------- -------- --------
Total $ 2,852 $ 8,466 $ 3,937
Depreciation and amortization: ======== ======== ========
Distribution $ 2,992 $ 3,319 $ 2,713
Manufacturing 505 542 571
-------- -------- --------
Total $ 3,497 $ 3,861 $ 3,284
======== ======== ========
</TABLE>
23
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
NOTE 13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's quarterly operating results for 1995 and 1994 are summarized
as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
----------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
(Thousands of Dollars, Except for Per Share Amounts)
1995
Net Sales $46,062 $50,956 $50,680 $55,586
======= ======= ======= =======
Gross profit $12,032 $13,106 $13,498 $14,537
======= ======= ======= =======
Net earnings $ 1,205 $ 1,885 $ 1,807 $ 2,245
======= ======= ======= =======
Net earnings per common share $ .17 $ .27 $ .25 $ .31
======= ======= ======= =======
1994
Net sales $43,742 $46,710 $45,635 $49,664
======= ======= ======= =======
Gross profit $11,804 $12,537 $12,124 $12,681
======= ======= ======= =======
Net earnings $ 1,314 $ 1,517 $ 1,030 $ 696
======= ======= ======= =======
Net earnings per common share $ .19 $ .22 $ .15 $ .10
======= ======= ======= =======
</TABLE>
NOTE 14. SUBSEQUENT EVENTS
Effective June 6, 1995, Vallen Corporation and Vallen Safety announced the
closing of the purchase of a 50% interest in Century Sales and Service Limited
(Century), a Canadian Corporation. Century is an Edmonton, Alberta based
distributor of mill supply and industrial hardware products. Additional
consideration for the 50% interest purchase will be paid in January, 1996 based
upon audited financial results of Century's November 30, 1995 fiscal year. The
purchase was funded with a combination of cash and Vallen common stock. Vallen
has the option to purchase the remaining 50% interest in Century based upon a
purchase formula either 5 or 6 years following the initial 50% purchase price
closing date. Century operates a total of 12 distribution centers in Alberta
and Saskatchewan provinces, including a centralized warehouse facility at its
Edmonton headquarters site. Its operations also cover the Northwest and Yukon
territories and parts of British Columbia. Century's sales are approximately
$50 million Canadian annually. It employs approximately 214 people in its
operations.
Effective July 24, 1995, Vallen Corporation and Valley Safety completed the
purchase of the major assets and assumption of certain liabilities, as well as
the rights, to the name of Safety Centers Incorporated (SCI), a South Holland
(Chicago) Illinois based distributor of safety equipment and protective
clothing, as well as novelty merchandise through 22 on-site safety center
locations and two distribution hubs. SCI employs approximately 120 persons.
The asset purchase was funded with a combination of cash and Vallen Common
stock. In connection with the assumption of certain debts of SCI, Vallen Safety
borrowed $5 million under a credit facility with a major commercial bank. SCI's
primary markets are in the steel production and automobile and related parts
manufacturing sectors. Its markets are throughout the United States, with
particular concentration in the midwest. The safety stores will be operated as
a division of Vallen Safety. SCI's annual sales are approximately $25 million.
24
<PAGE>
Effective August 18, 1995, Vallen acquired 100% of the capital stock and
the business of All Supplies, Inc., a Baton Rouge, Louisiana based distributor
of mill, safety and industrial welding supplies. The stock purchase was funded
with a combination of cash and Vallen Common stock. All Supplies sales are
approximately $9 million annually.
On July 24, 1995, Vallen Safety, and the Company as guarantor, entered into
a non-secured, term-revolver credit facility with a major bank. The credit
facility provides for borrowings up to $6 million. Interest rate options
provided are at (1) the bank's prime lending rate, or (2) at a spread over the
London Interbank offering (LIBOR) rate. The facility expires in four years. A
total of $5 million has been drawn under the facility in connection with the
financing of acquisitions subsequent to May 31, 1995, as noted above.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS OF THE REGISTRANT
The following table provides information as of August 1, 1995 regarding each
of Vallen's directors:
<TABLE>
<CAPTION>
OTHER POSITIONS AND OFFICES CURRENTLY
DIRECTOR HELD WITH THE COMPANY (AND OTHER
NAME AGE SINCE CURRENT PRINCIPAL OCCUPATION, IF DIFFERENT)
-------------- --- -------- -------------------------------------------
<S> <C> <C> <C>
Leonard J. Bruce (75) 1960 Chairman of the Board; Member, Compensation Committee
James W. Thompson (44) 1994 President and Chief Executive Officer,
Vallen Safety Supply Company
J.M. Wayne Code (65) 1985 Former President and Chief Executive Officer
Darvin M. Winick (65) 1984 Member, Audit and Compensation Committees
(President of Winick Consultants)
Kirby Attwell (59) 1978 Member, Audit and Compensation Committees
(President of Travis International, Inc.)
</TABLE>
----------
Mr. Bruce, who has 46 years of experience in safety equipment distribution,
founded the Company in 1947. He has been Chairman of the Board of Directors
since 1960.
Mr. Thompson joined the Company in June of 1994 as President and Chief
Operating Officer of Vallen Safety Supply Company. He was named President and
Chief Executive in January, 1995. He was formerly employed by Westburne Supply
Company of Naperville, Illinois as Senior Group Vice President, and prior to
that he was with Westinghouse Electric Supply Company for 18 years.
Mr. Code served as President and Chief Executive Officer of the Company from
June 1985 until January 1995. He is currently retired.
Dr. Winick has been President of Winick Consultants, or its related
management consulting firms, since 1981.
Mr. Attwell has been President of Travis International, Inc., a holding
company for industrial distribution operations, since January 1987.
25
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information as of August 1, 1995 regarding
each of Vallen's executive officers:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE POSITION WITH THE COMPANY SINCE
------ --- ------------------------- -----
<S> <C> <C> <C>
Leonard J. Bruce 75 Chairman of the Board and Director 1960
James W. Thompson 44 President, C.E.O. and Director 1994
Roland C. Wolff 49 Executive Vice President, Marketing 1995
Robin R. Hutton 49 Executive Vice President, Sales 1981
Leighton J. Stephenson 47 Vice President - Finance, Secretary and Treasurer 1993
Kent M. Edwards 47 Vice President - Human Resources, Assistant Secretary 1990
Woodie M. Zachry, Jr. 57 Vice President and General Manager,
Encon Safety Products, Inc. 1990
</TABLE>
The terms of each officer will expire at the next annual meeting of
directors or when his successor is elected and qualified.
Mr. Bruce, who has over 48 years of experience in safety equipment
distribution, founded the Company in 1947. He has been Chairman of the Board of
Directors since 1960.
Mr. Thompson joined the Company in June 1994 as President and Chief
Operating Officer of Vallen Safety Supply Company. He was named President and
Chief Executive Officer in December 1994. He was formerly with Westburne Supply
Company and Westinghouse Electric Supply Company. Mr. Thompson was elected to
the Board of Directors in June 1994.
Mr. Wolff joined the Company in February, 1995, as Executive Vice President
of Marketing. He was formally elected to this position in August, 1995. He was
formerly with Wesco/Westinghouse Electric Corporation.
Mr. Hutton has been with the Company since 1968. He was elected Vice
President - Southwest Region in 1981 and after serving in several sales and
managerial positions, including Marketing Manager of North Texas. He was named
Executive Vice President of Sales in 1989.
Mr. Stephenson has been employed with the Company since December, 1993.
Before joining Vallen, he was with United Artists Entertainment and worked six
years with the audit firm of Coopers & Lybrand.
Mr. Edwards has been with the Company since 1974. He has served Vallen in
a variety of sales and staff positions including corporate level
responsibilities for Administrative Services and Human Resources. He was named
Vice President - Human Resources in 1990.
Mr. Zachry has been with the Company since 1983. He has been General
Manager of Encon Safety Products, Inc., the Company's manufacturing subsidiary,
since 1987. He was previously responsible for marketing at Vallen Safety.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Although not formally elected to the position of Executive Vice President,
Marketing until August, 1995, Mr. Wolff has effectively acted in that capacity
since February, 1995. No Form 3 for Mr. Wolff was filed at that time.
A Form 5 with the necessary corrective information will be filed with
respect to the 1995 fiscal year.
26
<PAGE>
P A R T I I I
In accordance with General Instruction G(3) to Form 10-K, items 11, 12 and 13
have been incorporated by reference to the Company's definitive proxy statement
complying with Regulation 14A involving the election of directors which will be
filed with the Commission not later than 120 days after the close of its fiscal
year.
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following financial statements are filed as part of this report.
1. Consolidated Financial Statements, as listed in the Index to Financial
Statements provided in response to Item 8 hereof. (see page 11 for
Index)
2. Financial Statement Schedules, as listed in the Index to Financial
Statements provided in response to Item 8 hereof. (see page 11 for
Index)
3. The following exhibits are filed as part of this report:
3i. Restated Articles of Incorporation as amended. Incorporated by
reference is Exhibit 3a to the Company's Form 10-K, as filed with
the Securities and Exchange Commission on August 17, 1990 (the
"1990 Form 10-K").
3ii. Bylaws of the Company as amended through June 23, 1994 - attached.
10a. Vallen Corporation Stock Incentive Plan, specimen Non-qualified
Stock Option Agreement and specimen Stock Appreciation Rights
Agreement. Incorporated by reference is Exhibit 5.1 to the
Company's Registration Statement No. 2-65349 on Form S-1 as filed
with the Securities and Exchange Commission on August 27, 1979 (the
"Registration Statement").
10b. Vallen Corporation 1985 Stock Option Plan for Key Employees.
Incorporated by reference is Exhibit 10b. to the Company's Form 10-K
as filed with the Securities and Exchange Commission on August 27,
1985 (the "1985 Form 10-K"). *
10c. Amendment to Vallen Corporation 1985 Stock Option Plan for Key
Employees - attached. (see page 30 for Index). *
10d. Agreement dated June, 1985 between the Company and J. M. Wayne
Code. Incorporated by reference is Exhibit 10c. to the 1985 Form
10-K. *
10e. Vallen Corporation 1990 Employee Stock Purchase Plan.
Incorporated by reference is Exhibit 10d to the 1990 Form 10-K. *
10f. Vallen Corporation Annual Incentive Compensation Plan.
Incorporated by reference is Annex A to the Company's 1991 Proxy
Statement. *
10g. Agreement dated June 6, 1994 between the Company and James W.
Thompson. Incorporated by reference is Exhibit 10f to the Company's
Form 10-K as filed with the Securities and Exchange Commission on
August 17, 1994 (the "1994 Form 10-K"). *
21. Subsidiaries of the Company attached. (see page 30 for Index)
23. Consent of KPMG Peat Marwick LLP to the incorporation by reference
of their report to the Registration Statement (No. 33-16663 and 33-
38126) on Forms S-8 attached. (see page 30 for Index)
27. Financial Data Schedule.
27
<PAGE>
4. The Company hereby agrees to furnish to the Commission, on request, a
copy of any instrument which defines the rights of holders of any long
term debt of the Company in excess of 10% of the total assets of the
Company.
(b) No reports on Form 8-K were required to be filed by this registrant
during the last quarter of the fiscal year covered by this report.
* Management compensation agreement
28
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
VALLEN CORPORATION
By /s/ JAMES W. THOMPSON
_____________________________________
JAMES W. THOMPSON
President
Date: August 21, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
------------------------ ------------------------------ ---------------
<S> <C> <C>
/s/ JAMES W. THOMPSON
_______________________ President, Principal Executive
James W. Thompson Officer and Director August 21, 1995
/s/ LEIGHTON J. STEPHENSON
__________________________ Vice President -- Finance
Leighton J. Stephenson Principal Financial and
Accounting Officer August 21, 1995
/s/ KIRBY ATTWELL
_______________________ Director August 21, 1995
Kirby Attwell
/s/ LEONARD J. BRUCE
_______________________ Director August 21, 1995
Leonard J. Bruce
/s/ J. M. WAYNE CODE
_______________________ Director August 21, 1995
J. M. Wayne Code
/s/ DARVIN M. WINICK
_______________________ Director August 21, 1995
Darvin M. Winick
</TABLE>
29
<PAGE>
INDEX TO EXHIBITS
Exhibit numbers are in accordance with exhibit table in Item 601 of Regulation
S-K.
<TABLE>
<S> <C> <C>
3i. - Restated Articles of Incorporation as amended. Incorporated by
reference is Exhibit 3a to the Company's Form 10-K, as filed with
the Securities and Exchange Commission on August 17, 1990 (the
"1990 Form 10-K").
3ii. - Bylaws of the Company as amended through June 23, 1994 - attached.
10a. - Vallen Corporation Stock Incentive Plan, specimen Non-qualified
Stock Option Agreement and specimen Stock Appreciation Rights
Agreement. Incorporated by reference is Exhibit 5.1 to the
Company's Registration Statement No. 2-65349 on Form S-1 as filed
with the Securities and Exchange Commission on August 27, 1979 (the
"Registration Statement").
10b. - Vallen Corporation 1985 Stock Option Plan for Key Employees.
Incorporated by reference is Exhibit 10b. to the Company's Form 10-K
as filed with the Securities and Exchange Commission on August 27,
1985 (the "1985 Form 10-K").
10c. - Amendment to Vallen Corporation 1985 Stock Option Plan for Key
Employees - attached.
10d. - Agreement dated June, 1985 between the Company and J. M. Wayne
Code. Incorporated by reference is Exhibit 10c. to the 1985 Form
10-K.
10e. - Vallen Corporation 1990 Employee Stock Purchase Plan.
Incorporated by reference is Exhibit 10d to the 1990 Form 10-K.
10f. - Vallen Corporation Annual Incentive Compensation Plan.
Incorporated by reference is Annex A to the Company's 1991 Proxy
Statement.
10g. - Agreement dated June 6, 1994 between the Company and James W.
Thompson. Incorporated by reference is Exhibit 10f to the Company's
Form 10-K as filed with the Securities and Exchange Commission on
August 17, 1994 (the "1994 Form 10-K").
21. - Subsidiaries of the Company attached.
23. - Consent of KPMG Peat Marwick LLP to the incorporation by reference
of their report to the Registration Statement (No. 33-16663 and 33-
38126) on Forms S-8 attached.
27. - Financial Data Schedule.
</TABLE>
30
<PAGE>
EXHIBIT 3II
BYLAWS OF
VALLEN CORPORATION
(the "Company")
ARTICLE I
Offices
Section 1.1. Offices. The principal business office of the Company shall be
at 13333 Northwest Freeway, Houston, Texas 77040. The Company may have such
other business offices within or without the State of Texas as the board of
directors may from time to time establish.
ARTICLE II
Capital Stock
Section 2.1. Certificate Representing Shares. Shares of the capital stock
of the Company shall be represented by certificates in such form or forms as the
board of directors may approve, provided that such form or forms shall comply
with all applicable requirements of law or of the articles of incorporation.
Such certificates shall be signed by the president or a vice president, and by
the secretary or an assistant secretary, of the Company and may be sealed with
the seal of the Company or imprinted or otherwise marked with a facsimile of
such seal. In the case of any certificate countersigned by any transfer agent or
registrar, provided such countersigner is not the Company itself or an employee
thereof, the signature of any or all of the foregoing officers of the Company
may be represented by a printed facsimile thereof. If any officer whose
signature, or a facsimile thereof, shall have been set upon any certificate
shall cease, prior to the issuance of such certificate, to occupy the position
in right of which his signature, or facsimile thereof, was so set upon such
certificate, the Company may nevertheless adopt and issue such certificate with
the same effect as if such officer occupied such position as of such date of
issuance; and issuance and delivery of such certificate by the Company shall
constitute adoption thereof by the Company. The certificates shall be
consecutively numbered, and as they are issued, a record of such issuance shall
be entered in the books of the Company.
<PAGE>
Stock 2.2. Stock Certificate Book and Shareholders of Record. In the
absence of a duly appointed transfer agent or registrar, the secretary of the
Company shall maintain, among other records, a stock certificate book, the stubs
in which shall set forth the names and addresses of the holders of all issued
shares of the Company, the number of shares held by each, the number of
certificates representing such shares, the date of issue of such certificates,
and whether or not such shares originate from original issue or from transfer.
The names and addresses of shareholders as they appear on the stock certificate
book shall be the official list of shareholders of record of the Company for all
purposes. The board of directors may appoint a transfer agent or registrar to
maintain the stock register and to record transfer of shares thereon. The
Company shall be entitled to treat the holder of record of any shares as the
owner thereof for all purposes, and shall not be bound to recognize any
equitable or other claim to, or interest in, such shares or any rights deriving
from such shares on the part of any other person, including, but without
limitation, a purchaser, assignee, or transferee, unless and until such other
person becomes the holder of record of such shares, whether or not the Company
shall have either actual or constructive notice of the interest of such other
person.
Section 2.3. Transfer of Stock. The shares represented by any certificate
of the Company are transferable only on the books of the Company by the holder
of record thereof or by his duly authorized attorney or legal representative
upon surrender of the certificate for such shares, properly endorsed or
assigned. The board of directors may make such rules and regulations concerning
the issue, transfer, registration and replacement of certificates as they deem
desirable or necessary.
Section 2.4. Transfer Agent and Registrar. The board of directors may
appoint one or more transfer agents or registrars of the shares, or both, and
may require all share certificates to bear the signature of a transfer agent or
registrar, or both.
Section 2.5. Lost, Stolen or Destroyed Certificates. The Company may issue
a new certificate for shares of stock in the place of any certificate
theretofore issued and alleged to have been lost, stolen or destroyed, but the
board of directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to furnish an affidavit as to such
loss, theft, or destruction and to give a bond in such form and substance, and
with such surety or sureties, with fixed or open penalty, as the board may
direct, in order to indemnify the
<PAGE>
Company and its transfer agents and registrars, if any, against any claim that
may be made on account of the alleged loss, theft or destruction of such
certificate.
Section 2.6. Fractional Shares. Only whole shares of the stock of the
Company shall be issued. In case of any transaction by reason of which a
fractional share might otherwise be issued, the directors, or the officers in
the exercise of powers delegated by the directors, shall take such measures
consistent with the law, the articles of incorporation and these bylaws,
including (for example, and not by way of limitation) the payment in cash of an
amount equal to the fair value of any fractional share, as they may deem proper
to avoid the issuance of any fractional share.
ARTICLE III
The Shareholders
Section 3.1. Annual Meeting. Commencing in the calendar year 1980, the
annual meeting of the shareholders, for the election of directors and for the
transaction of such other business as may properly come before the meeting,
shall be held at the principal office of the Company, at 10:00 a.m. local time,
on the second Tuesday in October of each year unless such day is a legal
holiday, in which case such meeting shall be held at such hour on the first day
thereafter which is not a legal holiday; or at such other place and time as may
be designated by the board of directors. Failure to hold any annual meeting or
meetings shall not work a forfeiture or dissolution of the Company.
Section 3.2. Special Meetings. Except as otherwise provided by law or by
the articles of incorporation, special meetings of the shareholders may be
called by the chairman of the board, the president, or the board of directors,
or the holders of not less than one-tenth of all the shares having voting power
at such meeting, and shall be held at the principal office of the Company or at
such other place, and at such time, as may be stated in the notice calling such
meeting. Business transacted at any special meeting of shareholders shall be
limited to the purpose stated in the notice of such meeting given in accordance
with the terms of section 3.3.
Section 3.3. Notice of Meetings -- Waiver. Written or printed notice of
each meeting of shareholders, stating the place, day and hour of any meeting
and, in case of a special shareholders' meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten nor more
<PAGE>
than fifty days before the date of such meeting, either personally or by mail,
by or at the direction of the chairman of the board, the president, the
secretary, or the persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his address as it appears on the stock transfer books of the Company, with
postage thereon prepaid. Such further or earlier notice shall be given as may be
required by law. The signing by a shareholder of a written waiver of notice of
any shareholders' meeting, whether before or after the time stated in such
waiver, shall be equivalent to the receiving by him of all notice required to be
given with respect to such meeting. Attendance by a shareholder, whether in
person or by proxy, at a shareholders' meeting shall constitute a waiver of
notice of such meeting. No notice of any adjournment of any meeting shall be
required.
Section 3.4. Closing of Transfer Books and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of, or to vote at, any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend or in order to make a determination of
shareholders for any other proper purpose, the board of directors of the Company
may provide that the stock transfer books shall be closed for a stated period in
no case to exceed fifty days. If the stock transfer books shall be closed for
the purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer books,
the board of directors may fix in advance a date as the record date for any such
determination of shareholders, such date in no case to be more than fifty days
nor, in case of a meeting of shareholders, less than ten days prior to the date
on which the particular action requiring such determination of shareholders is
to be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the board of directors declaring such dividend is adopted, as
the case may be, shall be the record date of such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made, as provided in this section, such determination
shall apply to any adjournment thereof except where the determination has been
made through the closing of stock transfer books and the stated period of
closing has expired.
<PAGE>
Section 3.5. Voting List. The officer or agent having charge of the stock
transfer books for shares of the Company shall make, at least ten days before
each meeting of shareholders, a complete list of the shareholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by each, which list, for a
period of ten days prior to such meeting, shall be kept on file at the
registered office of the Company and shall be subject to lawful inspection by
any shareholder at any time during the usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. Failure to comply with this section shall not affect the validity of
any action taken at such meeting.
Section 3.6. Quorum and Officers. Except as otherwise provided by law, by
the articles of incorporation or by these bylaws, the holders of a majority of
the shares entitled to vote and represented in person or by proxy shall
constitute a quorum at a meeting of shareholders, but the shareholders present
at any meeting, although representing less than a quorum, may from time to time
adjourn the meeting to some other day and hour, without notice other than
announcement at the meeting. The vote of the holders of a majority of the shares
entitled to vote and thus represented at a meeting at which a quorum is present
shall be the act of the shareholders' meeting, unless the vote of a greater
number is required by law. The chairman of the board shall preside at, and the
secretary shall keep the records of, each meeting of shareholders, and in the
absence of either such officer, his duties shall be performed by any other
officer authorized by these bylaws or any person appointed by the meeting.
Section 3.7. Voting at Meetings. Each outstanding share shall be entitled
to one vote on each matter submitted to a vote at a meeting of shareholders
except to the extent that the articles of incorporation or the laws of the State
of Texas provide otherwise.
Section 3.8. Proxies. A shareholder may vote either in person or by proxy
executed in writing by the shareholder, or by his duly authorized
attorney-in-fact. Proxies shall be dated but need not be sealed, witnessed and
acknowledged. No proxy shall be valid after eleven (11) months from the date of
its execution unless otherwise provided in the proxy. A proxy shall be revocable
unless expressly provided therein to be irrevocable and unless otherwise made
irrevocable by law. Proxies shall be filed with the secretary of the Company
before or at the time of the meeting.
<PAGE>
Section 3.9. Balloting. Upon the demand of any shareholder, the vote upon
any question before the meeting shall be by ballot. At each meeting inspectors
of election may be appointed by the presiding officer of the meeting, and at any
meeting for the election of directors, inspectors shall be so appointed on the
demand of any shareholder present or represented by proxy and entitled to vote
in such election of directors. No director or candidate for the office of
director shall be appointed as such inspector. The number of votes cast by
shares in the election of directors shall be recorded in the minutes.
Section 3.10. Voting Rights, Prohibition of Cumulative Voting for
Directors. Each outstanding share of common stock shall be entitled to one (1)
vote upon each matter submitted to a vote at a meeting of shareholders. No
shareholder shall have the right to cumulate his votes for the election of
directors but each share shall be entitled to one vote in the election of each
director. In the case of any contested election for any directorship, the
candidate for such position receiving a plurality of the votes cast in such
election shall be elected to such position.
Section 3.11. Record of Shareholders. The Company shall keep at its
principal business office, or the office of its transfer agent or registrar, a
record of its shareholders, giving the names and addresses of all shareholders
and the number and class of the shares held by each.
Section 3.12. Action Without Meeting. Any action required by statute to be
taken at a meeting of the shareholders of the Company, or any action which may
be taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof and
such consent shall have the same force and effect as a unanimous vote of the
shareholders. Any such signed consent, or a signed copy thereof, shall be placed
in the minute book of the Company.
ARTICLE IV
The Board of Directors
Section 4.1. Number, Qualifications and Term. The business and affairs of
the Company shall be managed and controlled by the board of directors; and,
subject to any restrictions imposed by law, by the articles of incorporation, or
by these bylaws, the board of directors may exercise all the powers of the
Company. The board of directors shall consist of four
<PAGE>
members. Such number may be increased or decreased by amendment of these bylaws,
but no decrease shall have the effect of shortening the term of any incumbent
director. Directors need not be residents of Texas or shareholders of the
Company absent provision to the contrary in the articles of incorporation or
laws of the State of Texas. Except as otherwise provided in section 4.3. of
these bylaws, each position on the board of directors shall be filled by
election at the annual meeting of shareholders. Any such election shall be
conducted in accordance with section 3.7. of these bylaws. Each person elected a
director shall hold office, unless removed in accordance with section 4.2. of
these bylaws, until the next annual meeting of the shareholders and until his
successor shall have been duly elected and qualified.
Section 4.2. Removal. Any director or the entire board of directors may be
removed from office, with or without cause, at any special meeting of
shareholders by the affirmative vote of a majority of the shares of the
shareholders present in person or by proxy and entitled to vote at such meeting,
if notice of the intention to act upon such matter shall have been given in the
notice calling such meeting. If the notice calling such meeting shall have so
provided, the vacancy caused by such removal may be filled at such meeting by
the affirmative vote of a majority in number of the shares of the shareholders
present in person or by proxy and entitled to vote.
Section 4.3. Vacancies. Any vacancy occurring in the board of directors may
be filled by the vote of a majority of the remaining directors, even if such
remaining directors comprise less than a quorum of the board of directors. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any position on the board of directors to be filled
by reason of an increase in the number of directors shall be filled by election
at an annual meeting of the shareholders, or at a special meeting of
shareholders duly called for such purpose.
Section 4.4. Place of Meeting. Meetings of the board of directors may be
held either within or without the State of Texas, at whatsoever place is
specified by the officer or directors calling the meeting. In the absence of
other designation, the meeting shall be held at the principal business office of
the Company in the City of Houston, Texas.
Section 4.5. Regular Meetings. Regular meetings of the board of directors
shall be held immediately following each annual meeting of shareholders, at the
place of such meeting, and at such other times and places as the board of
directors shall determine. No notice of any kind of such regular meetings
needs
<PAGE>
to be given to either old or new members of the board of directors.
Section 4.6. Special Meetings. Special meetings of the board of directors
shall be held at any time by call of the chairman of the board, the president,
the secretary or any director. The secretary shall give notice of each special
meeting to each director at his usual business or residence address by mail at
least three days before the meeting or by telegraph or telephone at least one
day before such meeting. Except as otherwise provided by law, by the articles of
incorporation, or by these bylaws, such notice need not specify the business to
be transacted at, or the purpose of, such meeting. No notice shall be necessary
for any adjournment of any meeting. The signing of a written waiver of notice of
any special meeting by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be equivalent to the receiving of
such notice. Attendance of a director at a meeting shall also constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express and announced purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Section 4.7. Quorum. A majority of the number of directors fixed by these
bylaws shall constitute a quorum for the transaction of business and the act of
not less than a majority of such quorum of the directors shall be required
in order to constitute the act of the board of directors, unless the act of a
greater number shall be required by law, by the articles of incorporation or by
these bylaws. Any one or more directors, although less than a quorum may adjourn
the meeting to some other day or hour.
Section 4.8. Procedure at Meetings. The chairman of the board shall preside
at meetings of the board of directors. In his absence at any meeting, any
officer authorized by these bylaws or any member of the board selected by the
members present shall preside. The secretary of the Company shall act as
secretary at all meetings of the board. In his absence, the presiding officer of
the meeting may designate any person to act as secretary. At meetings of the
board of directors, the business shall be transacted in such order as the board
may from time to time determine.
Section 4.9. Presumption of Assent. Any director of the Company who is
present at a meeting of the board of directors
<PAGE>
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be entered in the minutes
of the meeting or unless he shall file his written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the Company
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
Section 4.10. Action Without a Meeting. Any action required by statute to
be taken at a meeting of the directors of the Company, or which may be taken at
such meeting, may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by each director entitled to vote at
such meeting, and such consent shall have the same force and effect as a
unanimous vote of the directors. Such signed consent, or a signed copy thereof,
shall be placed in the minute book of the Company.
Section 4.11. Compensation. Directors shall receive such compensation for
their service as directors or members of the executive committee as the board of
directors may by resolution approve. Any director may serve the Company in any
other capacity and receive compensation therefor.
Section 4.12. Executive Committee. The board of directors, by resolution
adopted by a majority of the number of directors fixed by these bylaws, may
designate an executive committee, which committee shall consist of two or more
of the directors of the Company. Such executive committee may exercise such
authority of the board of directors in the business and affairs of the Company
as the board of directors may by resolution duly delegate to it except as
prohibited by law. The designation of such committee and the delegation thereto
of authority shall not operate to relieve the board of directors, or any member
thereof, of any responsibility imposed upon it or him by law. Any member of the
executive committee may be removed by the board of directors by the affirmative
vote of a majority of the number of directors fixed by the bylaws whenever in
the judgment of the board the best interests of the Company will be served
thereby.
The executive committee shall keep regular minutes of its proceedings and
report the same to the board of directors when required. The minutes of the
proceedings of the executive committee shall be placed in the minute book of the
Company.
<PAGE>
Section 4.13. Other Committees of the Board of Directors. The board of
directors, by resolution adopted by a majority of the number of directors fixed
by the bylaws, may designate from their number such other committees as they
shall from time to time deem necessary and proper. Such committees shall be
composed of not less than two members and shall have and exercise such authority
of the board of directors as shall by resolution be delegated to them. The
designation of such other committees and the delegation of authority thereto
shall not operate to relieve the board of directors, or any member thereof, of
any responsibility imposed upon it or him by law.
Section 4.14. Meetings and Reports of the Committees. The committees shall
meet from time to time on call of the Chairman or any two or more members
thereof. Notice of each such meeting, stating the place, day and hour thereof,
shall be served personally on each member of such committee, or shall be mailed,
telegraphed or telephoned to his address on the books of the Company, at least
twenty-four (24) hours before the meeting. No such notice need state the
business proposed to be transacted at the meeting. No notice of the time or
place at any meeting of such committee need be given to any member thereof who
attends in person or who, in writing executed and filed with the records of the
meeting either before or after the holding thereof, waives such notice. No
notice need be given of an adjourned meeting of any committee. Meetings of the
committees may be held at such place or places, either within or outside of the
State of Texas, as such committee shall determine, or as may be specified or
fixed in the respective notices or waivers thereof. Each committee may fix its
own rules of procedure. They shall keep record of their proceedings and shall
report these proceedings to the board of directors at the regular meetings
thereof held next after they have been taken.
ARTICLE V
Officers
Section 5.1. Number. The officers of the Company shall consist of a
chairman of the board, a president, one or more vice presidents, a secretary and
a treasurer; and, in addition, such other officers and assistant officers and
agents as may be deemed necessary or desirable. Officers shall be elected or
appointed by the board of directors. Any two or more offices may be held by the
same person except that the president and secretary shall not be the same
person. In its discretion, the board of directors may leave unfilled any office
except those of president, treasurer and secretary.
<PAGE>
Section 5.2. Election; Term; Qualification. Officers shall be chosen by the
board of directors annually at the meeting of the board of directors following
the annual shareholders' meeting. Each officer shall hold office until his
successor has been chosen and qualified, or until his death, resignation, or
removal.
Section 5.3. Removal. Any officer or agent elected or appointed by the
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the Company shall be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create any contract rights.
Section 5.4. Vacancies. Any vacancy in any office for any cause may be
filled by the board of directors at any meeting.
Section 5.5. Duties. The officers of the Company shall have such powers
and duties, except as modified by the board of directors, as generally pertain
to their offices, respectively, as well as such powers and duties as from time
to time shall be conferred by the board of directors and by these bylaws.
Section 5.6. The Chairman of the Board. The chairman of the board shall be
the chief officer in charge of policy, planning and corporate development, and
shall be responsible directly to the board of directors. He shall be available
to consult with the president on all major decisions relating to the Company's
business and affairs. He shall preside at all meetings of shareholders and
directors. He may sign and execute in the name of the Company (i) all contracts
or other instruments authorized by the board of directors, and (ii) all
contracts or instruments in the usual and regular course of business, pursuant
to section 6.2 hereof, except in cases when the signing and execution thereof
shall be expressly delegated by the board or by these bylaws to some other
officer or agent of the Company; and, he shall perform such other duties as the
bylaws provide or the board of directors may prescribe.
Section 5.7. The President. The president shall be the chief executive
officer and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and affairs of the
Company. He may sign, with the secretary or an assistant secretary, any or all
certifi-
<PAGE>
cates of stock of the Company. He may sign and execute in the name of the
Company (i) all contracts or other instruments authorized by the board of
directors, and (ii) all contracts or instruments in the usual and regular course
of business, pursuant to section 6.2 hereof, except in cases when the signing
and execution thereof shall be expressly delegated by the board or by these
bylaws to some other officer or agent of the Company. At the request of the
chairman of the board, or in his absence or disability, he shall preside at
meetings of shareholders and directors. He shall, in general, have the powers
and duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be assigned to
him by the board of directors.
Section 5.8. The Vice Presidents. At the request of the president, or in
his absence or disability, the vice presidents, in the order of their election,
shall perform the duties of the president, and, when so acting, shall have all
the powers of, and be subject to all restrictions upon, the president. Any
action taken by a vice president in the performance of the duties of the
president shall be conclusive evidence of the absence or inability to act of the
president at the time such action was taken. The vice presidents shall perform
such other duties as may, from time to time, be assigned to them by the board of
directors or the president. A vice president may sign, with the secretary or an
assistant secretary, certificates of stock of the Company.
Section 5.9. Secretary. The secretary shall keep the minutes of all
meetings of the shareholders, of the board of directors, and of the executive
committee, if any, of the board of directors, in one or more books provided for
such purpose and shall see that all notices are duly given in accordance with
the provisions of these bylaws or as required by law. He shall be custodian of
the corporate records and of the seal (if any) of the Company and see, if the
Company has a seal, that the seal of the Company is affixed to all documents the
execution of which on behalf of the Company under its seal is duly authorized;
shall have general charge of the stock certificate books, transfer books and
stock ledgers, and such other books and papers of the Company as the board of
directors may direct, all of which shall, at all reasonable times, be open to
the examination of any director, upon application at the office of the Company
during business hours; and in general shall perform all duties and exercise all
powers incident to the office of the secretary and such other duties and powers
as the board of directors or the president from time to time may assign to or
confer on him.
<PAGE>
Section 5.10. Treasurer. The treasurer shall keep complete and accurate
records of account, showing at all times the financial condition of the Company.
He shall be the legal custodian of all money, notes, securities and other
valuables which may from time to time come into the possession of the Company.
He shall furnish at meetings of the board of directors, or whenever requested, a
statement of the financial condition of the Company, and shall perform such
other duties as these bylaws may require or the board of directors may
prescribe.
Section 5.11. Assistant Officers. Any assistant secretary or assistant
treasurer appointed by the board of directors shall have power to perform, and
shall perform, all duties incumbent upon the secretary or treasurer of the
Company, respectively, subject to the general direction of such respective
officers, and shall perform such other duties as these bylaws may require or the
board of directors may prescribe.
Section 5.12. Salaries. The salaries or other compensation of the officers
shall be fixed from time to time by the board of directors. No officer shall be
prevented from receiving such salary or other compensation by reason of the fact
that he is also a director of the Company.
Section 5.13. Bonds of Officers. The board of directors may secure the
fidelity of any officer of the Company by bond or otherwise, on such terms and
with such surety or sureties, conditions, penalties or securities as shall be
deemed proper by the board of directors.
Section 5.14. Delegation. The board of directors may delegate temporarily
the powers and duties of any officer of the Company, in case of his absence or
for any other reason, to any other officer, and may authorize the delegation by
any officer of the Company of any of his powers and duties to any agent or
employee, subject to the general supervision of such officer.
ARTICLE VI
Miscellaneous
Section 6.1. Dividends. Dividends on the outstanding shares of the Company,
subject to the provisions of the articles of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid by the Company in cash, in property, or in the
Company's own shares, but only out of the unreserved and unrestricted earned
surplus of the Company, except as otherwise allowed by law.
<PAGE>
Subject to limitations upon the authority of the board of directors imposed
by law or by the articles of incorporation, the declaration of and provision for
payment of dividends shall be at the discretion of the board of directors.
Section 6.2. Contracts. The chairman of the board and president shall each
have the power and authority to execute, on behalf of the Company, contracts or
instruments in the usual and regular course of business, and in addition, the
board of directors may authorize any officer or officers, agent or agents, of
the Company to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Company, and such authority may be general or
confined to specific instances. Unless so authorized by the board of directors
or by these bylaws, no officer, agent or employee shall have any power or
authority to bind the Company or any contract or engagement, or to pledge its
credit or to render its pecuniarily liable for any purpose or in any amount.
Section 6.3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Company shall be signed by such officers or employees of the Company
as shall from time to time be authorized pursuant to these bylaws or by
resolution of the board of directors.
Section 6.4. Depositories. All funds of the Company shall be deposited from
time to time to the credit of the Company in such banks or other depositories as
the board of directors may from time to time designate, and upon such terms and
conditions as shall be fixed by the board of directors. The board of directors
may from time to time authorize the opening and maintaining within any such
depository as it may designate, of general and special accounts, and may make
such special rules and regulations with respect thereto as it may deem
expedient.
Section 6.5. Endorsement of Stock Certificates. Subject to the specific
directions of the board of directors, any share or shares of stock issued by any
corporation and owned by the Company, including reacquired shares of the
Company's own stock, may, for sale or transfer, be endorsed in the name of the
Company by the president or any vice president; and such endorsement may be
attested or witnessed by the secretary or any assistant secretary either with or
without the affixing thereto of the corporate seal.
Section 6.6. Voting of Shares Owned by the Corporation. Unless otherwise
ordered by the board of directors, the chairman of the board, the president, the
secretary and the treasurer, or
<PAGE>
any of them, shall have full power and authority on behalf of the Company to
attend and to vote and to grant proxies to be used at any meeting of
shareholders of any corporation in which the Company may hold stock. The board
of directors may confer like powers upon any other person or persons.
Section 6.7. Corporate Seal. The corporate seal, if any, shall be in such
form as the board of directors shall approve, and such seal, or a facsimile
thereof, may be impressed on, affixed to, or in any manner reproduced upon,
instruments of any nature required to be executed by officers of the Company.
Section 6.8. Fiscal Year. The fiscal year of the Company shall begin and
end on such dates as the board of directors at any time shall determine.
Section 6.9. Books and Records. The Company shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of its
shareholders and board of directors, and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
Section 6.10. Resignations. Any director or officer may resign at any time.
Such resignations shall be made in writing and shall take effect at the time
specified therein, or, if no time is specified, at the time of its receipt by
the president or secretary. The acceptance of a resignation shall not be
necessary to make it effective, unless expressly so provided in the resignation.
Section 6.11. Indemnification of Officers and Directors.
(a) The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
that he is or was a director of the Company, or is or was serving at the request
of the Company as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company,
<PAGE>
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Company to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the Company, or is
or was serving at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Company unless and only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
(c) To the extent that a director or officer of the Company has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b), or in defense of any claim,
issue or matter therein, the Company shall indemnify him against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) The determination that an officer or director has met the applicable
standard of conduct set forth in subsections (a) and (b) (unless indemnification
is ordered by a court or required by subsection (c)) shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such quorum is
not obtainable, or, even if obtainable a quorum
<PAGE>
of disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding when authorized by the board of directors in the
specific case upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Company as authorized in this Section 6.11.
(f) For purposes of this section 6.11, references to "the Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors and officers so that any person who is or
who was a director or officer of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this section 6.11, with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
(g) The indemnification provided hereunder shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
any other bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(h) The Company intends that the indemnification provided hereunder shall
indemnify its officers and directors to the fullest extent possible under the
Texas Business Corporation Act; and if any indemnification which would otherwise
be granted by this section 6.11 shall be disallowed by any competent court or
administrative body as illegal, then any officer or director with respect to
whom such adjudication was made, and any other officer or director, shall be
indemnified to the fullest extent permitted under the Texas Business Corporation
Act.
<PAGE>
Section 6.12. Meetings by Telephone. Subject to the provisions required or
permitted by these bylaws or the laws of the State of Texas for notice of
meetings, shareholders, members of the board of directors, or members of any
committee designated by the board of directors may participate in and hold any
meeting required or permitted under these bylaws by telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this section
shall constitute presence in person at such a meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE VII
Amendments
Section 7.1. Amendments. These bylaws may be altered, amended, or repealed,
or new bylaws may be adopted, by a majority of the board of directors at any
duly held meeting of directors or by the holders of a majority of the shares
represented at any duly held meeting of shareholders; provided that notice of
such proposed action shall have been contained in the notice of any such
meeting.
List of Amendments
Amendment 1 -- dated October 12, 1983
Amendment 2 -- dated April 12, 1984
Amendment 3 -- dated October 11, 1988
<PAGE>
AMENDMENT 1
Sections 4.1 and 4.3 of the bylaws of Vallen Corporation are amended to
allow the Vallen Corporation Board of Directors to increase its number in the
interim period between annual shareholders' meetings and to fill the vacancies
created by the increase, provided that the directors may not appoint more than
two new (increased) directors, in any period between shareholders' meetings. If
the Board of Directors is to be increased by a number greater than two, a
shareholders' meeting and election of such additional directors will be
required.
Dated: October 12, 1983
<PAGE>
AMENDMENT 2
Section 4.1 of the bylaws of Vallen Corporation is amended to state that
the Board of Directors shall consist of three members.
Dated: April 12, 1984
<PAGE>
AMENDMENT 3
RESOLVED, that Section 4.1 of the Bylaws of Vallen Corporation be amended
to state that the Board of Directors shall consist of four members.
Dated: April 22, 1985
Effective: June 1, 1985
<PAGE>
AMENDMENT 4
The bylaws were amended to include a new Section 6.11.
Section 6.11. Indemnification of Officers and Directors.
(a) The Company shall indemnify any person who was or is a named defendant
or respondent or is threatened to be made a named defendant or respondent to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, any appeal to such an
action, suit or proceeding and any inquiry or investigation that could lead to
such an action, suit or proceeding (collectively, such actions, suits,
proceedings, appeals, inquiries and investigations are referred to collectively
as "Proceedings" and individually as "Proceeding") by reason of the fact that
such person either is or was a director of the Company, or while a director of
the Company, is or was serving at the request of the Company as a director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another domestic or foreign corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise,
against judgments, penalties (including excise and similar taxes), fines,
settlements and reasonable expenses actually incurred by such person in
connection with such Proceeding if it is determined that such person conducted
himself in good faith, and if such conduct was in such person's official
capacity as a director of the Company, in a manner he reasonably believed to be
in the best interests of the Company, and, in all other cases, in a manner he
reasonably believed was not opposed to the best interests of the Company and, in
the case of any criminal Proceeding, had no reasonable cause to believe his
conduct was unlawful, provided that if a person is found liable to the Company
or is found liable on the basis that personal benefit was improperly received by
him, the indemnification (i) shall be limited to reasonable expenses (including
court costs and attorneys' fees) actually incurred by the person in connection
with the Proceeding and (ii) shall not be made in respect of any Proceeding in
which the person shall have been found liable for willful or intentional
misconduct in the performance of his duty to the Company. The Company shall pay
or reimburse expenses incurred by a director in connection with such person's
appearance as a witness or other participation in a Proceeding at a time when
such person is not named defendant or respondent in such Proceeding.
<PAGE>
(b) The determination to be made in such subsection (a) of this Section
6.11 shall be made (i) by the board of directors by a majority vote of a quorum
consisting of directors who at the time of the vote are not named defendants or
respondents in the Proceeding; or (ii) if such a quorum cannot be obtained, by a
majority vote of a committee of the board of directors, designated to act in the
matter by a majority vote of all directors, consisting solely of two or more
directors who at the time of the vote are not named defendants or respondents to
the Proceeding; or (iii) by a special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in subsection (i) or
(ii), or, if such a quorum cannot be obtained and such a committee cannot be
established by a majority vote of all directors; or (iv) by the shareholders in
a vote that excludes the shares held by directors who are named defendants or
respondents in the Proceeding. A determination as to the reasonableness of
expenses (including court costs and attorneys' fees) shall be made in the same
manner as the determination that indemnification is permissible; provided,
however, that if the determination required to be made under subsection (a) of
this Section 6.11 is made by special legal counsel, the determination as to
reasonableness of expenses shall be made in the manner specified in this
subsection (b) (iii) for the selection of legal counsel.
(c) Reasonable expenses incurred by a director in connection with a
Proceeding, shall be paid by the Company in advance of the final disposition of
such Proceeding and without any of the determination specified in subsection (b)
of this Section 6.11 upon receipt by the Company of a written affirmation by the
director of his good faith belief that he has met the standard of conduct
necessary for indemnification under this Section 6.11 and a written undertaking
by or on behalf of the director to repay such amount if it is ultimately
determined that he is not entitled to be indemnified by the Company as
authorized in this Section 6.11, which undertaking shall be an unlimited general
obligation of such director and may be unsecured.
(d) The right to indemnification conferred in this Section 6.11 shall be a
contract right and shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any other law, bylaw, agreement, vote
of shareholders or disinterested directors, or otherwise, both as to action in
their official capacities and as to action in another capacity while acting as a
director and shall continue as to a person who has ceased to be a director and
shall inure to the benefit of the heirs, executors and administrators of such
person. Any indemnification of or advance of expenses to a director in
accordance with this Section 6.11 shall be reported in writing to the
shareholders in accordance with the provisions of Article 2.02-1 of the Texas
Business Corporation Act or any successor provision thereto.
<PAGE>
(e) The Company may purchase and maintain insurance on behalf of any person
who is or was a director, officer or employee of the Company, or who is or was
serving at the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
other enterprise, or employee benefit plan, against any liability asserted
against and incurred by that person in such a capacity or arising out of his
status as such a person, whether or not the Company would have the power to
indemnify such person against such liability under this Section 6.11.
(f) The Company intends that the indemnification provided hereunder shall
indemnify its directors to the fullest extent possible under the Texas Business
Corporation Act; and if any indemnification which would otherwise be granted by
this Section 6.11 shall be disallowed by any competent court or administrative
body as illegal, then any officer or director with respect to whom such
adjudication was made, and any other officer or director, shall be indemnified
to the fullest extent permitted under the Texas Business Corporation Act.
RESOLVED, that consistent with recent changes in the Texas Business
Corporation Act, the bylaws of the Company be and hereby are amended
to change the phrase "fifty days" appearing in the sixth line of
Section 3.3 and in the seventh and fourteenth lines of Section 3.4 in
each instance to read "sixty days" and to change the second sentence
of the first paragraph of Section 6.1 to read in its entirety as
follows:
"Dividends may be paid by the Company in cash, in property, or in
the Company's own shares, but only if (i) after giving effect to
such dividend the Company will not be insolvent and (ii) the
amount of such dividend does not exceed the surplus of the
Company, except as otherwise allowed by law."
<PAGE>
AMENDMENT 5
RESOLVED, that Section 4.1 of the Bylaws of Vallen Corporation be amended
to state that the Board of Directors shall consist of four members.
Dated: June 23, 1994
Effective: June 23, 1994
<PAGE>
Exhibit 10c
VALLEN CORPORATION
UNANIMOUS CONSENT OF BOARD OF DIRECTORS
August 18, 1994
WHEREAS, the Board of Directors deems it advisable and in the interest of
the Company to amend the Company's 1985 Stock Option Plan for Key Employees (the
"Plan") as set forth herein, subject to the approval of such amendments by the
shareholders of the Company;
NOW THEREFORE, it is
RESOLVED, that the Plan is hereby amended, subject to shareholder approval,
by deleting the second sentence of Section 4 of the Plan, and substituting in
lieu thereof the following sentence:
"Such Shares may be authorized and unissued shares of the Company's Common
Stock, or shares of Common Stock previously issued and held or acquired as
treasury shares."
RESOLVED FURTHER, that the foregoing amendments of the Plan shall be
submitted to the shareholders of the Company for approval at the 1994 annual
meeting of shareholders; and
RESOLVED FURTHER, that pending such approval, options may be granted under
the Plan in such a manner as to give effect to the adoption of the foregoing
amendments of the Plan, provided that no provision of such options that would
not be effective but for the amendments of the Plan affected hereby shall be
effective as to such options unless and until such shareholder approval has been
obtained.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF VALLEN CORPORATION
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
---- ---------------
<S> <C>
Vallen Safety Supply Company Delaware
Encon Safety Products, Inc. Pennsylvania
Safety World, Inc. Delaware
Vallen Safety Supply Company, Ltd. Canada
Proveedora de Seguridad Industrial Del Mexico
Golfo, S.A. de C.V.
</TABLE>
Each subsidiary does business under its respective corporate name. All
subsidiaries are wholly-owned, except Proveedora de Seguridad Industrial Del
Golfo, S.A. de C.V., which is 50% owned by Vallen Safety Supply Company.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
THE BOARD OF DIRECTORS
VALLEN CORPORATION
We consent to incorporation by reference in the Registration Statements (No. 33-
16663 and No. 33-38126) on Form S-8 of Vallen Corporation of our report dated
July 17, 1995, relating to the consolidated balance sheets of Vallen Corporation
and subsidiaries as of May 31, 1995 and 1994, and the related consolidated
statements of earnings, shareholders' equity and cash flows and related
schedules for each of the years in the three-year period ended May 31, 1995,
which report appears in the May 31, 1995 annual report on Form 10-K of Vallen
Corporation.
KPMG PEAT MARWICK LLP
Houston, Texas
August 23, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 3,006
<SECURITIES> 7,255
<RECEIVABLES> 26,350
<ALLOWANCES> 311
<INVENTORY> 24,026
<CURRENT-ASSETS> 63,303
<PP&E> 40,501
<DEPRECIATION> 19,558
<TOTAL-ASSETS> 90,654
<CURRENT-LIABILITIES> 11,582
<BONDS> 5,194
<COMMON> 4,857
0
0
<OTHER-SE> 67,852
<TOTAL-LIABILITY-AND-EQUITY> 90,654
<SALES> 203,284
<TOTAL-REVENUES> 203,284
<CGS> 150,111
<TOTAL-COSTS> 150,111
<OTHER-EXPENSES> 42,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 285
<INCOME-PRETAX> 11,250
<INCOME-TAX> 4,108
<INCOME-CONTINUING> 7,142
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<NET-INCOME> 7,142
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<EPS-DILUTED> $1.00
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