<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 28, 1997
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 7, 1997:
7,278,707 shares of Common Stock, $.50 Par Value
Page 1 of 10
<PAGE>
PART I
Item 1. Financial Statements
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
MAY 31, 1996
ASSETS (DERIVED FROM
FEBRUARY 28, 1997 AUDITED FINANCIAL
Current assets: (UNAUDITED) STATEMENTS)
------------------ ------------------
<S> <C> <C>
Cash and cash equivalents $ 3,361 $ 831
Investment securities, at cost which
approximates market 1,850 2,001
Accounts receivable, net 35,271 32,316
Notes receivable 82 147
Inventories 36,286 33,977
Prepaid expenses and other current
assets 3,089 4,621
-------- --------
Total current assets 79,939 73,893
-------- --------
Property, plant and equipment, at cost 43,493 41,580
Less accumulated depreciation and
amortization 23,255 21,191
-------- --------
Net property, plant and equipment 20,238 20,389
Notes receivable, non-current 557 1,599
Investment in foreign affiliates, net 9,274 8,243
Intangibles, net of accumulated
amortization 5,166 5,107
Other 3,357 2,432
-------- --------
$118,531 $111,663
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 975 $ 464
Accounts payable 15,096 14,298
Other accrued liabilities 2,591 2,290
Income taxes payable 247 287
-------- --------
Total current liabilities 18,909 17,339
-------- --------
Long-term debt, excluding current
maturities 9,952 10,705
Deferred income taxes 1,265 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,
9,741,604 shares issued and
7,278,707 outstanding at
February 28, 1997 and 9,726,875
shares issued and 7,263,978
outstanding at May 31, 1996 4,872 4,864
Additional paid-in capital 6,075 5,825
Translation adjustment (772) (773)
Retained earnings 80,844 75,015
-------- --------
91,019 84,931
Less cost of common shares held in
treasury (2,462,897 at
February 28, 1997 and May 31,
1996, respectively) 2,614 (2,614)
-------- --------
Total shareholders' equity 88,405 82,317
-------- --------
$118,531 $111,663
======== ========
</TABLE>
See accompanying Notes 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>
THIRD QUARTER ENDED NINE MONTHS ENDED
---------------------------- ---------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 29,
1997 1996 1997 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales $67,032 $61,516 $190,241 $174,345
Cost of sales 50,983 45,939 143,560 129,924
------- ------- -------- --------
Gross profit 16,049 15,577 46,681 44,421
Selling, general and
administrative expenses 13,153 12,754 38,282 36,092
------- ------- -------- --------
Operating income 2,896 2,823 8,399 8,329
Earnings (loss) from foreign
affiliates, net 406 311 1,030 743
Interest and dividend income 83 114 155 430
Interest expense 170 180 514 513
Other income (expense), net (58) (88) 17 (363)
------- ------- -------- --------
Earnings before income taxes 3,157 2,980 9,087 8,626
Income taxes 1,079 952 3,257 2,892
------- ------- -------- --------
Net earnings $ 2,078 $ 2,028 $ 5,830 $ 5,734
======= ======= ======== ========
Net earnings per common share $0.29 $0.28 $0.80 $0.79
======= ======= ======== ========
Weighted average number of common
shares outstanding 7,270 7,260 7,266 7,235
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 3 of 10
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FEBRUARY 28 & 29,
RESPECTIVELY 1997 1996
- ---------------------------------------- -------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 5,830 $ 5,734
Adjustments to reconcile net earnings
to net cash provided by operating activities:
(Gain) loss on disposition of
property, plant and equipment 5 (42)
Depreciation and amortization 2,953 2,648
Undistributed earnings from
foreign affiliates, net (1,030) (743)
Undistributed loss from U.S affiliate, net 206 122
Change in assets and liabilities,
net of effects of acquisitions:
Decrease in investment securities 151 5,255
(Increase) in accounts receivable, net (2,955) (8,008)
(Increase) in inventory (2,308) (7,211)
Decrease in notes receivable 65 265
Decrease (increase) in prepaid
expenses and other current assets 1,531 (2,456)
(Increase) in other assets (654) (42)
Increase in accounts payable
and accrued liabilities 1,020 9,730
------- -------
Net cash provided by operating activities 4,814 5,252
INVESTING ACTIVITIES:
Net additions to property, plant and
equipment (2,428) (592)
Payments for acquisitions (59) (8,844)
Investments in affiliates (896) -
Decrease in notes receivable 1,042 -
------- -------
Net cash used in investment activities (2,341) (9,436)
FINANCING ACTIVITIES:
Increase (decrease) in long-term debt (201) 5,531
Employee stock transactions 258 177
------- -------
Net cash provided by financing activities 57 5,708
------- -------
Net increase in cash and cash equivalents 2,530 1,524
Effect of exchange rate changes on
cash and cash equivalents - (356)
Cash and cash equivalents at
beginning of period 831 3,006
------- -------
Cash and cash equivalents at end of period $ 3,361 $ 4,174
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest payments $ 581 $ 502
Income tax payments $ 2,925 $ 2,846
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 4 of 10
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Thousands of Dollars)
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING
AND FINANCING ACTIVITIES - CONT'D.
For the period ended February 29, 1996, 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>
<CAPTION>
<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
<PAGE>
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 28, 1997 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 present year presentation.
Investments in the common stock of the foreign affiliated companies are
accounted for by the equity method. The excess of cost of the stock of these
affiliates 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 28, 1997, shares purchased through the employee stock purchase
plan increased the number of shares outstanding by 13,999 shares. The weighted
average number of shares outstanding for the nine months ended February, 1997
and 1996 were computed based on the actual number of common shares outstanding.
Note 2. Inventory costs are summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1997 1996
------------ --------
(Thousands of Dollars)
<S> <C> <C>
Raw materials $ 1,632 $ 1,323
Work in process 595 740
Finished goods 34,059 31,914
------- -------
Total inventories $36,286 $33,977
======= =======
</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 28, 1997 COMPARED TO
THIRD QUARTER ENDED FEBRUARY 29, 1996
__________________________________________
Net sales increased 9% to $67,032, and gross profit increased 3% to $16,049.
Strong sales for the months of January and February in the Company's core
distribution business resulted in record sales of $63,827 for the quarter ended
February 28, 1997, up 10% when compared to the same period last year. The
manufacturing operations sales decreased 11% to $4,758 compared to the quarter
ended February 29, 1996. The decrease in this segment is attributed to a soft
market for major product lines.
Selling, general, and administrative expenses as a percent of net sales were
20% for the quarter ended February 28, 1997, remaining flat compared to the same
quarter last year. These expenses increased 3% when compared to the same
quarter in the prior year. Earnings from foreign affiliates totaled $406, for
the quarter ending February 28, 1997, a 31% increase over the same quarter last
year. The increase was due to higher earnings from the 50% owned Canadian
affiliate, Century Sales and Service, Limited of $209 compared to $81 for the
quarter ended February 29, 1996. Earnings from the Mexican affiliate,
Proveedora de Seguridad were down 15% from the same period last year, partially
due to changes in the peso to dollar exchange rate in the current year quarter.
Net earnings increased 2% to $2,078 in the quarter ended February 28, 1997 or
$.29 per common share, compared to $2,028 or $.28 per common share for the same
period last year. The increase is due primarily to the record sales and higher
levels of operating income in the Company's distribution businesses, offset in
part by a decrease in sales by the manufacturing segment. Selling, general, and
administrative expenses as a percentage of net sales remained flat.
NINE MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO
NINE MONTHS ENDED FEBRUARY 29, 1996
_____________________________________________
Sales increased 9% to $190,241 and gross profit increased 5% to $46,681. The
reasons for the sales and gross profit increases between comparable periods were
consistent with those discussed above for the comparable quarters. Selling,
general, and administrative expenses were up 6% to $38,282. As a percent of net
sales, selling, general, and administrative expenses were 20% for the period
ended February 28, 1997 remaining flat as compared to the nine months ended
February 29, 1996. Net earnings increased 2% year to date to $5,830, or $.80 per
common share, compared to $5,734, or $.79 per common share, for the same nine
month period in the previous year. The increase is due primarily to the
distribution segment's higher sales during the current year and equity earnings
from foreign operations in Mexico and Canada which were up 39% from the period
ended February 29, 1996.
Page 7 of 10
<PAGE>
FINANCIAL CONDITION
FEBRUARY 28, 1997 COMPARED TO MAY 31, 1996
____________________________________
Cash flows provided by operations for the nine months ended February 28, 1997
totaled $4,814 compared to $5,252 for the nine months ended February 29, 1996.
The decrease in the current period compared to the same period of the prior
year, is primarily due to the effect of the 1995 acquisitions on working capital
items offset by higher earnings from foreign affiliates in the current period.
Cash and cash equivalents decreased by $813 primarily due to the decrease in
cash provided by operations discussed above. Accounts receivable increased
$2,955, and inventories increased $2,308, primarily as a result of increased
sales levels. Net additions to property, plant and equipment were $2,428,
primarily for operating equipment and computer hardware and software, and assets
added through the acquisition of Pagel Safety, Inc. in the second quarter of
fiscal 1997. The increase in investments of affiliates of $896 is primarily due
to the Lion-Vallen Partnership and the Company's 50% equity investment in
Nuclear Utility Products, Inc. The decrease in notes receivable relates to
repayment of a loan to an affiliate. Employee stock transactions increased for
the nine months ended February 28, 1997, with the issuance of 13,999 shares in
January, 1997.
The Company's total working capital as of the end of the third quarter of fiscal
1997 is $61 million compared to $57 million at May 31, 1996. The current ratio
of 4.2 to 1 at February 28, 1997 compares to 4.3 to 1 at May 31, 1996.
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 first quarter ended August 31, 1996, the Company extended
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 to the non-current
debt category.
Page 8 of 10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal proceedings - None
Item 2. Changes in securities - None
Item 3. Defaults upon senior securities - None
Item 4. Submission of matters to a vote of security holders - None
Item 5. Other information - None
Item 6. (a) Exhibits:
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 7, 1997 /s/ James W. Thompson
- ------------------------ --------------------------------------
Date James W. Thompson
President
April 7, 1997 /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 10Q 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-31-1997 MAY-31-1997
<PERIOD-START> DEC-01-1996 JUN-01-1996
<PERIOD-END> FEB-28-1997 FEB-28-1997
<CASH> 0 3,361
<SECURITIES> 0 1,850
<RECEIVABLES> 0 35,594
<ALLOWANCES> 0 (323)
<INVENTORY> 0 36,286
<CURRENT-ASSETS> 0 79,939
<PP&E> 0 43,493
<DEPRECIATION> 0 23,255
<TOTAL-ASSETS> 0 118,531
<CURRENT-LIABILITIES> 0 18,909
<BONDS> 0 0
0 0
0 0
<COMMON> 0 4,872
<OTHER-SE> 0 83,533
<TOTAL-LIABILITY-AND-EQUITY> 0 118,531
<SALES> 67,032 190,241
<TOTAL-REVENUES> 67,032 190,241
<CGS> 50,983 143,560
<TOTAL-COSTS> 50,983 143,560
<OTHER-EXPENSES> 13,153 38,282
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 83 155
<INCOME-PRETAX> 3,157 9,087
<INCOME-TAX> 1,079 3,257
<INCOME-CONTINUING> 2,078 5,830
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,078 5,830
<EPS-PRIMARY> 0.29 0.80
<EPS-DILUTED> 0.29 0.80
</TABLE>
