<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 quarterly period ended August 31, 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 October 10, 1997:
7,282,457 shares of Common Stock, $.50 Par Value
Page 1 of 8
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PART I
Item 1. Financial Statements
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
AUGUST 31,
ASSETS 1997 May 31,
Current assets: (Unaudited) 1997
----------- -----------
Cash and cash equivalents $ -- $ 801
Investment securities, at cost which
approximates market 1,650 2,050
Accounts receivable, net 35,054 35,168
Notes receivable, affiliate 1,150 650
Inventories 40,210 36,301
Prepaid expenses and other current assets 2,390 2,580
--------- ---------
Total current assets 80,454 77,550
--------- ---------
Property, plant and equipment, at cost 45,290 43,916
Less accumulated depreciation and amortization 24,269 23,704
--------- ---------
Net property, plant and equipment 21,021 20,212
Notes receivable, non-current, affiliate 557 557
Investment in foreign affiliates, net 10,370 9,712
Intangibles, net of accumulated amortization 5,579 5,678
Other 3,861 3,693
--------- ---------
$ 121,842 $ 117,402
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 451 $ 543
Accounts payable 13,666 11,469
Accrued liabilities 2,117 2,075
Income taxes payable 860 454
--------- ---------
Total current liabilities 17,094 14,541
--------- ---------
Long-term debt, excluding current maturities 10,448 10,425
Deferred income taxes 1,071 1,097
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; 9,743,874 and 7,282,457 shares
issued and outstanding at August 31, 1997 and
9,740,874 and 7,278,707 issued and outstanding
at May 31, 1997, respectively 4,873 4,871
Additional paid-in capital 6,144 6,076
Translation adjustment (773) (773)
Retained earnings 85,598 83,779
--------- ---------
95,842 93,953
Less cost of common shares held in treasury
(2,461,417 and 2,462,167 shares at
August 31, 1997 and May 31, 1997, respectively) 2,613 2,614
--------- ---------
Total shareholders' equity 93,229 91,339
--------- ---------
$ 121,842 $ 117,402
========= =========
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 2 of 8
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VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands of Dollars Except for Per Share Amounts)
FIRST QUARTER ENDED
AUGUST 31,
----------------------
1997 1996
---------- ----------
Net sales $ 64,278 $ 59,412
Cost of sales 48,503 44,537
---------- ----------
Gross profit 15,775 14,875
Selling, general and administrative expenses 13,785 12,444
---------- ----------
Operating income 1,990 2,431
Earnings from foreign affiliates, net 659 286
Interest and dividend income 70 31
Interest expense (174) (175)
Other income (expense), net 67 (44)
---------- ----------
Earnings before income taxes 2,612 2,529
Income taxes 793 925
---------- ----------
Net earnings $ 1,819 $ 1,604
========== ==========
Net earnings per common share $ 0.25 $ 0.22
========== ==========
Weighted average number of common shares outstanding 7,279 7,264
See accompanying Notes 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)
THREE MONTHS ENDED AUGUST 31, 1997 1996
- ------------------------------- ---------- ----------
OPERATING ACTIVITIES:
Net earnings $ 1,819 $ 1,604
Adjustments to reconcile net earnings to net
cash provided by operating activities:
(Gain) loss on disposition of property,
plant and equipment (22) 4
Depreciation and amortization 805 793
Change in deferred income taxes (26) (22)
Undistributed earnings from foreign
affiliates, net (659) (291)
Undistributed loss from U.S. affiliate, net 56 26
Undistributed earnings from U.S. partnership, net (201) (52)
Decrease in trading securities 400 100
(Increase) decrease in accounts receivable, net 114 (156)
(Increase) in inventory (3,909) (1,491)
(Increase) in notes receivable, current (500) -
(Increase) decrease in prepaid expenses
and other current assets 190 (108)
(Increase) in other assets (4) (115)
Increase (decrease) in accounts payable
and other current liabilities 2,646 (80)
---------- ----------
Net cash provided by operating activities 709 212
INVESTING ACTIVITIES:
Net additions to property, plant and equipment (1,498) (517)
Payments for purchase of, and investment in
companies, net of cash acquired - (29)
Investments in affiliates (14) -
---------- ----------
Cash used for investing activities (1,512) (546)
FINANCING ACTIVITIES:
Addition of long-term debt - 244
Reduction of long-term debt (70) (250)
Stock transactions 72 -
---------- ----------
Net cash provided by or (used in)
financing activities 2 (6)
---------- ----------
Net (decrease) increase in cash and cash equivalents (801) (340)
Cash and cash equivalents at beginning of period 801 831
---------- ----------
Cash and cash equivalents at end of period $ - $ 491
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest payments $ 172 $ 249
Income tax payments $ 546 $ 298
See accompanying Notes to Consolidated Financial Statements (Unaudited).
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, 1997 are not
necessarily indicative of the results that will be realized for the fiscal year
ending May 31, 1998.
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, 1997. 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.
Investments in the common stock of foreign affiliated companies are accounted
for by the equity method. The excess 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. The weighted average
number of shares outstanding for the three months ended August 31, 1997 and 1996
were computed based on the actual number of common shares outstanding.
Note 2: Inventory costs are summarized as follows:
AUGUST 31, 1997 MAY 31, 1997
--------------- ------------
Raw Materials $ 1,640 $ 1,329
Work-in-process 683 705
Finished goods 37,887 34,267
-------- --------
Total inventories $ 40,210 $ 36,301
======== ========
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, 1997 COMPARED TO
FIRST QUARTER ENDED AUGUST 31, 1996
__________________________________________
RESULTS OF OPERATIONS
Net sales increased 8.2% to $64,278 and gross profit increased by 6.1% to
$15,775. Gross profit margins for the distribution business increased 10.2%
over last year with help from its service based business including training,
fire services and technical support. Gross profit margins were down 16.8% in
the manufacturing segment when compared to the same period last year primarily
due to a decrease in units shipped from the engineered shower and eyewash
products group. Sales were impacted by an estimated $2.7 million in August, 1997
due to the UPS strike in that month.
Selling, general and administrative expenses increased 10.8%, primarily due to
operation of distribution locations acquired or opened in the past twelve
months, in addition to expenses for new business lines initiated during the same
period. Earnings from foreign affiliates of $659 for the quarter ending August
31, 1997, increased 130.4% over the previous year's quarter primarily due to
increased earnings reported by the Company's 50% owned affiliate in Mexico.
Interest expense was flat in the first quarter of fiscal 1998 compared to the
prior year. No significant debt was added in the current period. Other income
increased primarily due to equity earnings from non-consolidated affiliates of
$201 for the quarter ending August 31, 1997 compared to $52 in the prior year
quarter.
Net earnings increased 13.4% in the quarter ended August 31, 1997 to $1,819
($.25 per common share), compared to $1,604 ($.22 per common share) in the
previous year's first quarter, due primarily to increased sales and earnings
recognized from the distribution segment and equity earnings from the foreign
affiliates.
FINANCIAL CONDITION
Cash flows provided by operations for the quarter ended August 31, 1997 totaled
to $709 compared to $212 in the comparable period of the prior year. The
reduction in the current quarter compared to the previous year's quarter is
primarily related to significant increases in inventories related to customer
requirements and new locations opened and an increase in current notes
receivable to affiliate.
The Company's financial position in the first quarter of 1998 remains strong
with working capital of $63 and a current ratio of 4.7 to 1 compared to working
capital of $63 and a current ratio of 5.3 to 1 at May 31, 1997. Management
believes the Company's liquidity, working capital and borrowing capacity are
sufficient to meet capital expenditure and working capital needs in the future.
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 10, 1997
________________________________ _________________________________
Date James W. Thompson
President
October 10, 1997
________________________________ _________________________________
Date Leighton J. Stephenson
Vice President - Finance,
Secretary and Treasurer
Page 8 of 8
<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-31-1997
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> (907)
<SECURITIES> 1,650
<RECEIVABLES> 35,353
<ALLOWANCES> 299
<INVENTORY> 40,210
<CURRENT-ASSETS> 79,547
<PP&E> 45,290
<DEPRECIATION> 24,269
<TOTAL-ASSETS> 120,935
<CURRENT-LIABILITIES> 16,187
<BONDS> 0
0
0
<COMMON> 4,873
<OTHER-SE> 88,356
<TOTAL-LIABILITY-AND-EQUITY> 120,935
<SALES> 64,278
<TOTAL-REVENUES> 64,278
<CGS> 48,503
<TOTAL-COSTS> 48,503
<OTHER-EXPENSES> 13,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> 2,612
<INCOME-TAX> 793
<INCOME-CONTINUING> 1,819
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,819
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
