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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, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the transition period from ______to______
________________________________
Commission File Number 0-10796
________________________________
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
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 4, 1996:
7,264,708 shares of Common Stock, $.50 Par Value
Page 1 of 8
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<TABLE>
<CAPTION>
PART I
Item 1. Financial Statements
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
AUGUST 31,
ASSETS 1996 MAY 31,
Current assets: (Unaudited) 1996
----------- ----------
<S> <C> <C>
Cash and cash equivalents $ 491 $ 831
Investment securities, at cost which approximates market 1,901 2,001
Accounts receivable, net 32,472 32,316
Notes receivable 147 147
Inventories 35,468 33,977
Prepaid expenses and other current assets 4,728 4,621
-------- --------
Total current assets 75,207 73,893
-------- --------
Property, plant and equipment, at cost 42,094 41,580
Less accumulated depreciation and amortization 21,948 21,191
-------- --------
Net property, plant and equipment 20,146 20,389
-------- --------
Notes receivable, non-current 1,599 1,599
Investment in foreign affiliate, net 8,535 8,243
Intangibles, net of accumulated amortization 5,074 5,107
Other 2,569 2,432
-------- --------
$113,130 $111,663
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 667 $ 464
Accounts payable 13,597 14,298
Other accrued expenses 2,340 2,290
Income taxes payable 856 287
-------- --------
Total current liabilities 17,460 17,339
-------- --------
Long-term debt, excluding current maturities 10,454 10,705
-------- --------
Deferred income taxes 1,281 1,302
-------- --------
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; 9,726,875 and 7,264,708 shares issued and
outstanding at August 31, 1996 and 9,726,875 and
7,263,978 issued and outstanding at May 31, 1996,
respectively 4,864 4,864
Additional paid-in capital 5,838 5,825
Translation adjustment (772) (773)
Retained earnings 76,619 75,015
------- --------
86,549 84,931
Less cost of common shares held in treasury (2,462,167 and
2,462,897 shares at August 31, 1996 and
May 31, 1996, respectively) 2,614 2,614
------- --------
Total shareholders' equity 83,935 82,317
------- --------
$113,130 $111,663
======== ========
</TABLE>
See accompanying Note to Consolidated Financial Statements (Unaudited).
Page 2 of 8
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<TABLE>
<CAPTION>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands of Dollars Except for Per Share Amounts)
FIRST QUARTER ENDED
AUGUST 31,
-------------------------------
1996 1995
-------------------- ---------
<S> <C> <C>
Net sales $59,412 $52,002
Cost of sales 44,537 38,537
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Gross profit 14,875 13,465
Selling, general and administrative expenses 12,444 11,307
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Operating income 2,431 2,158
Earnings from foreign affiliate, net 286 208
Interest and dividend income 31 200
Interest expense (175) (103)
Other income (expense), net (44) (126)
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Earnings before income taxes 2,529 2,337
Income taxes 925 762
------- -------
Net earnings $ 1,604 $ 1,575
======= =======
Net earnings per share $0.22 $0.22
======= =======
Weighted average number of common
shares outstanding 7,264 7,194
</TABLE>
See accompanying Note to Consolidated Financial Statements (Unaudited).
Page 3 of 8
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VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 1,604 $ 1,575
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loss on disposition of property,
plant and equipment 4 18
Depreciation and amortization 793 796
Undistributed earnings from foreign affiliates, net (291) (208)
Undistributed loss from U.S. affiliate, net 26 14
Change in assets and liabilities, net of effects
from purchase and investment in companies:
Decrease in trading securities 100 5,155
(Increase) decrease in accounts
receivable, net (156) (4,528)
(Increase) in inventory (1,491) (8,118)
(Increase) decrease in prepaid expenses
and other current assets (108) (512)
(Increase) decrease in other assets (115) (213)
Increase (decrease) in accounts payable
and other current liabilities (80) 8,009
(Decrease) in deferred income taxes (22) 0
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Net cash provided by operating activities 264 1,988
INVESTING ACTIVITIES:
Net additions to property, plant and equipment (517) (700)
Payments for purchase of, and investment in
companies, net of cash acquired (29) (6,941)
Investments in affiliates (52) 0
------- -------
Cash used for investing activities (598) (7,641)
FINANCING ACTIVITIES:
Addition of long-term debt 0 5,618
Reduction of long-term debt (6) 0
Stock transactions 0 0
------- -------
Net cash provided by financing activities (6) 5,618
------- -------
Net (decrease) increase in cash and cash equivalents (340) (35)
Effect of exchange rate changes on cash and
cash equivalents 0 (56)
Cash and cash equivalents at beginning of period 831 3,006
------- -------
Cash and cash equivalents at end of period $ 491 $ 2,915
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest payments $ 249 $ 93
Income tax payments $ 11 $ 25
</TABLE>
Page 4 of 8
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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, 1996 are not
necessarily indicative of the results that will be realized for the fiscal year
ending May 31, 1997.
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, 1996. 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 31, 1996 and 1995
were computed based on the actual number of common shares outstanding.
Note 2: Inventory costs are summarized as follows:
AUGUST 31, 1996 MAY 31, 1996
--------------- ------------
Raw Materials $ 1,419 $ 1,323
Work-in-process 645 740
Finished goods 33,404 31,914
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Total inventories $35,468 $33,977
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Page 5 of 8
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Thousands of Dollars)
FIRST QUARTER ENDED AUGUST 31, 1996 COMPARED TO
FIRST QUARTER ENDED AUGUST 31, 1995
__________________________________________
RESULTS OF OPERATIONS
Net sales increased 14.2% to $59,412 and gross profit increased by 15.6% to
$14,875. Overall gross profit margins were slightly higher, due principally to
changes in the product mix in the distribution subsidiaries. The manufacturing
subsidiary's sales increased 1.5% due to increased market penetration in core
products business. Gross profit margins in the manufacturing subsidiary were
comparable to those in the previous year.
Selling, general and administrative expenses increased 10.1%, primarily due to
operation of distribution locations acquired or opened in the past twelve
months. Earnings from foreign affiliates of $286 for the quarter ending August
31, 1996, increased 37.5% over the previous year's quarter due to increased
earnings reported by the Company's 50% owned affiliates in Mexico and Canada.
Interest expense increased 69.9% in the first quarter of fiscal 1996 compared to
the prior year, due to increased lines of credit primarily related to
acquisition financing.
Net earnings increased 1.8% in the quarter ended August 31, 1996 to $1,604 ($.22
per common share), compared to $1,575 ($.22 per common share) in the previous
year's first quarter, due primarily to increased sales and earnings recognized
from consolidated and equity basis acquisitions.
FINANCIAL CONDITION
Cash flows provided by operations for the quarter ended August 31, 1996 totaled
to $264 compared to $1,988 in the comparable period of the prior year. The
reduction in the current quater compared to the previous year's quarter is
primarily related to significant reduction in trading security investments in
the prior year's quarter relative to funding various acquisitions during that
period.
The Company's financial position in the first quarter of 1997 remains strong
with working capital of $58.0 and a current ratio of 4.3 to 1. Management
believes the Company's liquidity, working capital and borrowing capacity are
sufficient to meet capital expenditure and working capital needs in the future.
During the current quarter, the Company extended the periods of amortization of
principal amounts under its primary bank borrowing facility by one year. The
impact of this modification of the credit agreement was to reclassify
approximately $938 as of August 31, 1996 as non-current debt.
Page 6 of 8
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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:
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.
3ii. Bylaws of the Company, as amended, through June 23,
1994. Incorporated by reference is Exhibit 3ii to the
Company's Form 10-Q, as filed with the Securities and
Exchange Commission on January 16, 1996.
27 - Financial Data Schedule, attached hereto.
Page 7 of 8
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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 4, 1996
- ------------------------ -----------------------------
Date James W. Thompson
President
October 4, 1996
- ------------------------ -----------------------------
Date Leighton J. Stephenson
Vice President - Finance,
Secretary and Treasurer
Page 8 of 8
<TABLE> <S> <C>
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<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-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 491
<SECURITIES> 1,901
<RECEIVABLES> 32,780
<ALLOWANCES> 308
<INVENTORY> 35,468
<CURRENT-ASSETS> 75,207
<PP&E> 42,094
<DEPRECIATION> 21,948
<TOTAL-ASSETS> 113,130
<CURRENT-LIABILITIES> 17,460
<BONDS> 0
0
0
<COMMON> 4,864
<OTHER-SE> 79,071
<TOTAL-LIABILITY-AND-EQUITY> 113,130
<SALES> 59,412
<TOTAL-REVENUES> 59,412
<CGS> 44,537
<TOTAL-COSTS> 44,537
<OTHER-EXPENSES> 12,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 175
<INCOME-PRETAX> 2,529
<INCOME-TAX> 925
<INCOME-CONTINUING> 1,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,604
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
