<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter period ended August 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 (Zip Code)
offices)
Registrant's telephone number, (713) 462-8700
including area code:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
_____ _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, exclusive of treasury shares, at October 5, 1995:
7,250,988 shares of Common Stock, $.50 Par Value
Page 1 of 10
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PART I
Item 1. Financial Statements
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
AUGUST 31,
1995 MAY 31,
ASSETS (Unaudited) 1995
----------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,915 $ 3,006
Investment securities, at cost which
approximates market 2,100 7,255
Accounts receivable, net 30,567 26,039
Notes receivable 412 412
Inventories 32,146 24,026
Prepaid expenses and other current
assets 3,077 2,565
-------- -------
Total current assets 71,217 63,303
-------- -------
Property, plant and equipment, at cost 43,743 40,501
Less accumulated depreciation and
amortization 22,620 19,558
-------- -------
Net property, plant and equipment 21,123 20,943
Notes receivable, non-current 1,599 1,599
Investment in foreign affiliate, net 7,088 3,070
Intangibles, net of accumulated
amortization 5,438 1,235
Other 1,275 504
-------- -------
$107,740 $90,654
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 228 $ 161
Accounts payable 14,878 8,587
Accrued bonus incentive 136 697
Accrued profit sharing contribution 374 401
Other accrued expenses 3,358 1,556
Income taxes payable 686 180
-------- -------
Total current liabilities 19,660 11,582
======== =======
Long-term debt, excluding current
maturities 10,745 5,194
Deferred income taxes 1,196 1,196
Shareholders' equity:
Preferred stock $1.00 par value;
1,000,000 shares authorized
and unissued
Common stock $.50 par value;
20,000,000 shares
authorized; 9,842,637 and
9,713,884 shares issued
at August 31, 1995 and May 31,
1995, respectively 4,858 4,857
Additional paid-in capital 5,654 3,955
Translation adjustment (361) (417)
Retained earnings 68,602 67,028
-------- -------
78,753 75,423
Less cost of common shares held in
treasury (2,462,997 and 2,591,750
shares at August 31, 1995 and
May 31, 1995, respectively) 2,614 2,741
-------- -------
Total shareholders' equity 76,139 72,682
-------- -------
Commitments and contingencies
$107,740 $90,654
======== =======
</TABLE>
See accompanying Note to Consolidated Financial Statements (Unaudited).
Page 2 of 10
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands of Dollars Except for Per Share Amounts)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
AUGUST 31,
---------------------
1995 1994
---------- ---------
<S> <C> <C>
Net sales $52,002 $46,062
Cost of sales 38,537 34,030
------- -------
Gross profit 13,465 12,032
Selling, general and administrative
expenses 11,307 10,260
------- -------
Operating income 2,158 1,772
Earnings from foreign affiliate, net 208 123
Interest and dividend income 200 88
Interest expense (103) (47)
Other income (expense), net (126) (67)
------- -------
Earnings before income taxes 2,337 1,869
Income taxes 762 664
------- -------
Net earnings $ 1,575 $ 1,205
======= =======
Net earnings per share $0.22 $0.17
======= =======
Weighted average number of common
shares outstanding 7,194 7,087
</TABLE>
See accompanying Note to Consolidated Financial Statements (Unaudited).
Page 3 of 10
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VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31, 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 1,575 $ 1,205
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Loss (gain) on disposition of
property, plant and equipment 18 (10)
Depreciation and amortization 796 866
Undistributed earnings from
foreign affiliate, net (208) (123)
Undistributed loss from U.S.
affiliate, net 14 0
Change in assets and liabilities,
net of effects from purchase and
investment in companies:
Decrease in trading securities 5,155 461
(Increase) decrease in accounts
receivable, net (4,528) 3,259
(Increase) in inventory (8,118) (1,364)
(Increase) decrease in prepaid
expenses and other current assets (512) 96
(Increase) decrease in other
assets (213) 20
Increase (decrease) in accounts
payable and other current
liabilities 8,009 (120)
------- -------
Net cash provided by operating
activities 1,988 4,290
INVESTING ACTIVITIES:
Net additions to property, plant and
equipment (700) (1,015)
Payments for purchase of, and
investment in companies, net of cash
acquired (6,941) 0
------- -------
Cash used for investing activities (7,641) (1,015)
FINANCING ACTIVITIES:
Increase (decrease) of long-term debt 5,618 (11)
Stock transactions 0 65
------- -------
Net cash provided by financing
activities 5,618 54
------- -------
Net increase (decrease) in cash and
cash equivalents (35) 3,329
Effect of exchange rate changes on
cash and cash equivalents (56) 0
Cash and cash equivalents at
beginning of period 3,006 -
------- -------
Cash and cash equivalents at end of
period $ 2,915 $ 3,329
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest payments $ 93 $ 43
Income tax payments $ 25 $ 180
</TABLE>
Page 4 of 10
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VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES - CONT'D.:
The Company purchased assets or stock of Safety Centers, Inc., All Supplies,
Inc., and Century Sales and Services, Ltd. In conjunction with the
acquisitions, liabilities assumed and cash paid are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $14,046
Cost in excess of net assets of
companies acquired 3,523
-------
Total assets recorded $17,569
Liabilities assumed $(7,792)
Amounts due to sellers (1,009)
Stock issued for common stock (1,827)
-------
Cash paid for common stock and assets $ 6,941
=======
</TABLE>
See accompanying Note to Consolidated Financial Statements (Unaudited).
Page 5 of 10
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VALLEN CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Thousands of Dollars)
Note 1: Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the Instructions to Quarterly Reports on Form 10-Q
required to be filed with the Securities and Exchange Commission and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, the information
furnished reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods. The
results of operations for the three months ended August 31, 1995 are not
necessarily indicative of the results that will be realized for the fiscal year
ending May 31, 1996.
The accounting policies followed by the Company in preparing interim
consolidated condensed financial statements are similar to those described in
the "Notes to Consolidated Financial Statements" in the Company's Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, for the fiscal year ended May 31, 1995. For interim reporting purposes,
provisions for income taxes are recorded on the basis of the estimated annual
effective tax rate. Certain prior year amounts have been reclassified to
conform with current year presentation.
An investment in the common stock of a foreign affiliated company is accounted
for by the equity method. The excess cost of the stock of this affiliate over
the Company's share of their net assets at the acquisition date is being
amortized on a straight line basis over 40 years.
Net earnings per share were computed by dividing net earnings by the weighted
average number of shares outstanding during the periods. The weighted average
number of shares outstanding for the three months ended August, 1995 and 1994
were computed based on the actual number of common shares outstanding.
Note 2: Inventory costs are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, 1995 MAY 31, 1995
--------------- ------------
<S> <C> <C>
Raw Materials $ 1,374 $ 1,241
Work-in-process 703 792
Finished goods 30,069 21,993
------- -------
Total inventories $32,146 $24,026
======= =======
</TABLE>
Page 6 of 10
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Thousands of Dollars)
RESULTS OF OPERATIONS
FIRST QUARTER ENDED AUGUST 31, 1995 COMPARED TO
FIRST QUARTER ENDED AUGUST 31, 1994
__________________________________________
Net sales increased 12.9% to $52,002 and gross profit increased by 11.9% to
$13,465. Approximately $2,500, or 5% of the sales increase for the quarter was
attributable to acquisitions added during the quarter ended August 31, 1995.
Additionally, national accounts sales in the distribution subsidiary were up.
Overall gross profit margins were slightly higher, due principally to changes in
the product mix in the distribution subsidiary. The manufacturing subsidiary's
sales increased 7.8% due to an increase in the number of unit sales in the
emergency shower and eye wash line marketed in addition to a pass through of
price increases for materials. Gross profit margins in the manufacturing
subsidiary were comparable to those in the previous year.
Selling, general and administrative expenses increased 10.2%, due in part to
increased marketing activity and related expenditures in the distribution
subsidiary, as well as certain non-capitalized expenses related to acquisitions
of businesses in the first quarter of fiscal 1996. Earnings from foreign
affiliates of $208 for the quarter ending August 31, 1995, increased 69.1% over
the previous year's quarter due to increased earnings reported by the Company's
50% owned Mexican affiliate, and includes the earnings recognized from the
Company's 50% ownership position in Century Sales and Services, Limited,
effective June 6, 1995, of $115. Interest expense increased 119.1% in the first
quarter of fiscal 1996 compared to the prior year, due to the Company's entering
into a credit arrangement with a major bank in July, 1995, related to the
acquisition of the business of Safety Centers, Incorporated (SCI).
Net earnings increased 30.8% in the quarter ended August 31, 1995 to $.22 per
common share, compared to $.17 in the previous year's first quarter, due
primarily to increased sales, slightly higher gross profit margins, and earnings
recognized from the above mentioned acquisitions during the quarter ended August
31, 1995.
Page 7 of 10
<PAGE>
Item 2. (Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Thousands of Dollars)
RESULTS OF OPERATIONS
AUGUST 31, 1995 COMPARED TO MAY 31, 1995
____________________________________
FINANCIAL CONDITION
Cash flows provided by operations for the quarter ended August 31, 1995 totaled
to $1,988 compared to $4,290 in the comparable period of the prior year. The
reduction results from a net increase in inventories assumed from acquisitions
made during the quarter ended August 31, 1995, and a related decrease in trading
securities held, which were liquidated in part to provide funding for the
acquisitions.
Cash and cash equivalents decreased by $35, primarily from the use of cash for
acquisitions during the first quarter of fiscal 1996. Accounts receivable
increased $4,528 and inventory increased $8,118, primarily as a result of
acquisitions and based on increased sales levels. Net additions to property,
plant and equipment were $700. Additions were primarily for operating
equipment, computer hardware and software and assets added through acquisitions.
Accounts payable increased $8,009 as a result of increased operating levels and
acquisitions in the quarter ending August 31, 1995. Long-term debt increased
$5,618 due to debt issued in connection with acquisitions in the quarter ended
August 31, 1995 less required principal repayments. The issuance of common
stock shares from treasury in connection with acquisitions made during the
quarter ended August 31, 1995, had the effect of increasing paid-in capital by
$1,826, including the change in treasury stock held.
Page 8 of 10
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PART II OTHER INFORMATION
Item 1. Legal proceedings - None
Item 2. Changes in securities - None
Item 3. Defaults upon senior securities - None
Item 4. Submission of matters to a vote of security holders - None
Item 5. Other information - None
Item 6. (a) Exhibits - 27 - Financial Data Schedule.
(b) Reports on Form 8-K - On August 8, 1995, the Company filed a
report on form 8-K pursuant to Section 13 of the Securities
Exchange Act of 1934. The report was filed pursuant to the
acquisition by the Company of the business of Safety Centers,
Inc. (SCI) a distributor of personal safety products, uniform
and garment supply programs.
On September 14, 1995, the Company filed a supplementary form
8-K/A, including (a) the audited financial statements of SCI
for the fiscal years ending July 31, 1994 and July 31, 1993,
and the related Notes to Financial Statements, and (b)
proforma Consolidated Condensed Financial Information as of
and for the fiscal year ended May 31, 1995 for the Company,
and as of and for the period ended July 24, 1995 for SCI, and
related notes to the proforma Consolidated Condensed
Financial Information.
Page 9 of 10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
VALLEN CORPORATION
---------------------------------
Registrant
October 5, 1995 /s/ James W. Thompson
- ------------------------------ ---------------------------------
Date James W. Thompson
President
October 5, 1995 /s/ Leighton J. Stephenson
- ------------------------------- ---------------------------------
Date Leighton J. Stephenson
Vice President - Finance,
Secretary and Treasurer
Page 10 of 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> AUG-31-1995
<CASH> 2,915
<SECURITIES> 2,100
<RECEIVABLES> 30,885
<ALLOWANCES> 318
<INVENTORY> 32,146
<CURRENT-ASSETS> 71,217
<PP&E> 43,743
<DEPRECIATION> 22,620
<TOTAL-ASSETS> 107,740
<CURRENT-LIABILITIES> 19,660
<BONDS> 10,745
<COMMON> 4,858
0
0
<OTHER-SE> 71,281
<TOTAL-LIABILITY-AND-EQUITY> 107,740
<SALES> 52,002
<TOTAL-REVENUES> 52,002
<CGS> 38,537
<TOTAL-COSTS> 38,537
<OTHER-EXPENSES> 11,307
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> 2,337
<INCOME-TAX> 762
<INCOME-CONTINUING> 1,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,575
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
