<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 February 29, 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 April 10, 1996:
7,263,979 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>
MAY 31, 1995
(DERIVED FROM
FEBRUARY 29, 1996 AUDITED FINANCIAL
(UNAUDITED) STATEMENTS)
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,174 $ 3,006
Investment securities, at cost which 2,000 7,255
approximates market
Accounts receivable, net 34,047 26,039
Notes receivable 147 412
Inventories 31,239 24,026
Prepaid expenses and other current 5,022 2,565
assets -------- -------
Total current assets 76,629 63,303
Property, plant and equipment, at cost 44,201 40,501
Less accumulated depreciation and 23,453 19,558
amortization -------- -------
Net property, plant and equipment 20,748 20,943
Notes receivable, non-current 1,599 1,599
Investment in foreign affiliate, net 7,926 3,070
Intangibles, net of accumulated 4,691 1,235
amortization
Other 1,705 504
-------- -------
$113,298 $90,654
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 200 $ 161
Accounts payable 18,804 8,587
Other accrued liabilities 2,349 2,654
Income taxes payable -0- 180
-------- -------
Total current liabilities 21,353 11,582
Long-term debt, excluding current 10,686 5,194
maturities
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;
9,726,875 and 9,713,884 shares
issued at February 29, 1996 and
May 31, 1995, respectively 4,864 4,857
Additional paid-in capital 5,825 3,955
Translation adjustment (773) (417)
Retained earnings 72,761 67,028
-------- -------
82,677 75,423
Less cost of common shares held in
treasury (2,462,997 and 2,591,750
shares at February 29, 1996 and
May 31, 1995, respectively) (2,614) (2,741)
-------- -------
Total shareholders' equity 80,063 72,682
-------- -------
$113,298 $90,654
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 2 of 10
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VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands of Dollars Except for Per Share Amounts)
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $61,516 $50,680 $174,345 $147,698
Cost of sales 45,939 37,182 129,924 109,063
------- ------- -------- --------
Gross profit 15,577 13,498 44,421 38,635
Selling, general and
administrative expenses 12,754 10,564 36,092 31,009
------- ------- -------- --------
Operating income 2,823 2,934 8,329 7,626
Earnings (loss) from foreign
affiliate, net 311 (39) 743 195
Interest and dividend income 114 152 430 339
Interest expense 180 54 513 150
Other income (expense), net (88) (116) (363) (360)
------- ------- -------- --------
Earnings before income taxes 2,980 2,877 8,626 7,650
Income taxes 952 1,070 2,892 2,754
------- ------- -------- --------
Net earnings $ 2,028 $ 1,807 $ 5,734 $ 4,896
======= ======= ======== ========
Net earnings per share $0.28 $0.25 $0.79 $0.69
======= ======= ======== ========
Weighted average number of common
shares outstanding 7,260 7,119 7,235 7,103
</TABLE>
See accompanying Notes 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>
NINE MONTHS ENDED FEBRUARY 29 & 28,
RESPECTIVELY 1996 1995
- ---------------------------------- -------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 5,734 $ 4,896
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
(Gain) loss on disposition of
property, plant and equipment (42) -
Depreciation and amortization 2,648 2,679
Earnings from foreign affiliate, net (743) (195)
Undistributed loss from U.S
affiliate, net 122 (44)
Change in assets and liabilities,
net of effects of acquisitions:
Decrease (increase) in
investment securities 5,255 (489)
(Increase) in accounts
receivable, net (8,008) (363)
(Increase) in inventory (7,211) (3,176)
Decrease (increase) in notes
receivable 265 (412)
(Increase) in prepaid expenses
and other current assets (2,456) (388)
(Increase) in other assets (42) (197)
Increase in accounts payable
and accrued liabilities 9,730 1,104
------- -------
Net cash provided by operating
activities 5,252 3,415
INVESTING ACTIVITIES:
Net additions to property, plant and
equipment (592) (1,724)
Payments for acquisitions (8,844) (230)
Increase in notes receivable - (1,599)
------- -------
Net cash used in investment
activities (9,436) (3,553)
FINANCING ACTIVITIES:
Increase in long-term debt 5,531 1,538
Employee stock transactions 177 424
------- -------
Net cash provided by financing
activities 5,708 1,962
------- -------
Net increase in cash and cash
equivalents 1,524 1,824
Effect of exchange rate changes on
cash and cash equivalents (356) (625)
Cash and cash equivalents at
beginning of period 3,006 -
------- -------
Cash and cash equivalents at end of
period $ 4,174 $ 1,199
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest payments $ 502 $ 113
Income tax payments $ 2,846 $ 2,458
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 4 of 10
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VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (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., Century Sales and Service Limited, Shepco Manufacturing, Inc., and Griffin
Fire Safety Company. In conjunction with the acquisitions, assets acquired,
liabilities assumed, and cash paid are as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $14,939
Cost in excess of net assets of companies acquired 3,523
-------
Total assets recorded $18,462
Liabilities assumed $(7,792)
Stock issued for common stock and assets (1,826)
-------
Cash paid for common stock $ 8,844
=======
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 5 of 10
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VALLEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the Instructions to Quarterly Reports on Form 10-Q
required to be filed with the Securities and Exchange Commission and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, the information
furnished reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods. The
results of operations for the nine months ended February 29, 1996 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 present year presentation.
An investment in the common stock of a foreign affiliated company is accounted
for by the equity method. The excess of cost of the stock of this affiliate
over the Company's share of their net assets at the acquisition date is being
amortized on a straight line basis over 40 years.
Net earnings per share were computed by dividing net earnings by the weighted
average number of shares outstanding during the periods. During the nine months
ended February 29, 1996, shares purchased through the employee stock purchase
plan increased the number of shares outstanding by 12,991 shares. The weighted
average number of shares outstanding for the nine months ended February, 1996
and 1995 were computed based on the actual number of common shares outstanding.
Note 2. Inventory costs are summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
1996 1995
------------ --------
(Thousands of Dollars)
<S> <C> <C>
Raw materials $ 1,463 $ 1,241
Work in process 823 792
Finished goods 28,953 21,993
------- -------
Total inventories $31,239 $24,026
======= =======
</TABLE>
Page 6 of 10
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Thousands of Dollars)
RESULTS OF OPERATIONS
THIRD QUARTER ENDED FEBRUARY 29, 1996 COMPARED TO
THIRD QUARTER ENDED FEBRUARY 28, 1995
__________________________________________
Net sales increased 21.4% to $61,516, and gross profit increased 15.4% to
$15,577. Approximately $8,184, or 75% of the sales increase was attributable to
the companies acquired as distribution operations during fiscal 1996, and
another 5% is primarily due to the opening of new branches in western New York
State and Pittsburgh, Pa. In distribution operations, sales levels under
national contracts also contributed to this increase. Gross profit margins
declined compared to the same quarter last year, resulting from competitive
market conditions. The manufacturing operations sales increased 1% to $5,335
compared to the quarter ended February 28, 1995. Gross profits increased 7.5%
due to a change in the product mix yielding a higher gross margin and through
increased operating efficiencies attained.
Selling, general, and administrative expenses as a percent of net sales were
21% for the quarter ended February 29, 1996, remaining flat compared to the same
quarter last year. The 20.7% increase of these expenses as compared to the same
quarter in the prior year was due to the additional costs associated with
acquired companies. Earnings from foreign affiliates totaled $311, for the
quarter ended February 29, 1996. This significant increase was due to earnings
of the 50% owned Mexican affiliate of $228, and earnings of the 50% owned
Canadian affiliate, acquired in fiscal 1996 of $83. The increase in interest
expense over the quarter ended February 28, 1995, was due to the Company's
entering into a credit arrangement with a major bank related to a business
acquisition in the first quarter of fiscal 1996.
Net earnings increased 12.2% to $2,028 in the quarter ended February 29, 1996 or
$.28 per common share, compared to $1,807 or $.25 per common share for the same
period last year. The increase is due primarily to the overall increases in
sales amounts attributable to acquired operations and increased earnings from
foreign affiliates noted above, while selling, general, and administrative
expenses as a percentage of net sales remained flat.
NINE MONTHS ENDED FEBRUARY 29, 1996 COMPARED TO
NINE MONTHS ENDED FEBRUARY 28, 1995
_____________________________________________
Sales increased 18% to $174,345 and gross profit increased 15% to $44,421. The
reasons for the sales and gross profit increases between comparable periods
were consistent with those discussed above for the quarter. Selling, general,
and administrative expenses were up 16.4% to $36,092, primarily due to the
additional operating expenses associated with the acquisitions made during
fiscal year 1996. As a percent of net sales, selling, general and administrative
expenses were 21% for the period ended February 29, 1996 remaining flat as
compared to the nine months ended February 28, 1995. Net earnings increased
17.1% year to date to $5,734, or $.79 per common share, compared to $4,896, or
$.69 per common share, for the same nine month period in the previous year. The
increase is due primarily to the sales volume of companies acquired during the
current year and equity earnings from foreign operations in Mexico and Canada
which were $743 for the nine months ended February 29, 1996, compared to $195
for the comparable nine months ended February 28, 1995.
Page 7 of 10
<PAGE>
FINANCIAL CONDITION
FEBRUARY 29, 1996 COMPARED TO MAY 31, 1995
____________________________________
Cash flows provided by operations for the quarter ended February 29, 1996
totaled $5,251 compared to $3,415 for the quarter ended February 28, 1995. A
reduction of trading securities, an increase in accounts payable, coupled with
an increase in accounts receivable and inventories relating to the acquisitions
made during fiscal year 1996, contributed to this net increase of cash flows
provided by operations.
Cash and cash equivalents increased by $1,168 primarily due to the increase in
cash provided by operations discussed above. Accounts receivable increased
$8,008, and inventories increased $7,211, primarily as a result of acquisitions
and based on increased sales levels. Accounts payable and other current
liabilities increased $9,730 as a result of increased operations levels and
acquisitions taking place during the first nine months of fiscal year 1996.
Net additions to property, plant and equipment were $592, primarily for
operating equipment and computer hardware. Capital spending levels in the
current year are below those of the previous year due to significant upgrading
of facilities and equipment in prior years reducing the need for similar levels
in fiscal year 1996. Payments for acquisitions increased $8,844 for the nine
months ended February 29, 1996. The supplemental schedule of non-cash investing
and financing activities included with the Consolidated Statements of Cash Flow
includes details of investments in acquisitions for the period. Long-term debt
increased $5,531 due to debt issued in connection with acquisitions thus far
this year less required principal repayments. Stock transactions reduced for the
nine months ended February 29,1996, as no stock options were exercised in the
current year. The issuance of common stock shares held in treasury in
connection with acquisitions made through the quarter ended February 29,1996,
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:
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 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
April 10, 1996 /s/ James W. Thompson
- ------------------------ -----------------------------------------
Date James W. Thompson
President
April 10, 1996 /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> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAY-31-1996 MAY-31-1996
<PERIOD-START> DEC-01-1995 JUN-01-1996
<PERIOD-END> FEB-29-1996 FEB-29-1996
<CASH> 0 4,174
<SECURITIES> 0 2,000
<RECEIVABLES> 0 34,379
<ALLOWANCES> 0 332
<INVENTORY> 0 31,239
<CURRENT-ASSETS> 0 76,629
<PP&E> 0 44,201
<DEPRECIATION> 0 23,453
<TOTAL-ASSETS> 0 113,298
<CURRENT-LIABILITIES> 0 21,353
<BONDS> 0 0
0 0
0 0
<COMMON> 0 4,864
<OTHER-SE> 0 75,199
<TOTAL-LIABILITY-AND-EQUITY> 0 113,298
<SALES> 61,516 174,345
<TOTAL-REVENUES> 61,516 174,345
<CGS> 45,939 129,924
<TOTAL-COSTS> 45,939 129,924
<OTHER-EXPENSES> 12,754 36,092
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 180 513
<INCOME-PRETAX> 2,980 8,626
<INCOME-TAX> 952 2,892
<INCOME-CONTINUING> 2,028 5,734
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,028 5,734
<EPS-PRIMARY> .28 .79
<EPS-DILUTED> .28 .79
</TABLE>
