<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 November 30, 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, (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 January 13, 1997:
7,264,461 shares of Common Stock, $.50 Par Value
Page 1 of 11
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PART I
Item 1. Financial Statements
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
MAY 31, 1996
------------------
ASSETS NOVEMBER 30, (DERIVED FROM
1996 AUDITED FINANCIAL
Current assets: (Unaudited) STATEMENTS)
------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ 833 $ 831
Trading securities, at cost which 1,850 2,001
approximates market
Accounts receivable, net 35,020 32,316
Notes receivable - 147
Inventories 33,928 33,977
Prepaid expenses and other current 4,215 4,621
assets -------- --------
Total current assets 75,846 73,893
-------- --------
Property, plant and equipment, at cost 42,794 41,580
Less accumulated depreciation and 22,614 21,191
amortization -------- --------
Net property, plant and 20,180 20,389
equipment -------- --------
Notes receivable - non-current 557 1,599
Investment in foreign affiliates, net 8,868 8,243
Intangibles, net of accumulated 5,268 5,107
amortization
Other 3,009 2,432
-------- --------
$113,728 $111,663
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 773 $ 464
Accounts payable 12,325 14,298
Other accrued liabilities 2,995 2,290
Income taxes payable 82 287
-------- --------
Total current liabilities 16,175 17,339
-------- --------
Long-term debt, excluding current 10,191 10,705
maturities
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; 9,727,358 shares
issued and 7,264,461 out-
standing at November 30, 1996
and 9,726,875 issued
and 7,263,978 outstanding at
May 31, 1996 4,864 4,864
Additional paid-in capital 5,852 5,825
Translation adjustment (772) (773)
Retained earnings 78,767 75,015
-------- --------
88,711 84,931
Less cost of common shares held in
treasury (2,462,897
shares at November 30, 1996
and at May 31, 1996) 2,614 2,614
-------- --------
Total shareholders' equity 86,097 82,317
-------- --------
$113,728 $111,663
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 2 of 11
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands of Dollars Except For Per Share Amounts)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
------------------------ ---------------------------
1996 1995 1996 1995
------- -------- --------- ------------
<S> <C> <C> <C> <C>
Net sales $63,797 $60,830 $123,209 $112,828
Cost of sales 48,040 45,460 92,578 83,984
------- ------- -------- --------
Gross profit 15,757 15,370 30,631 28,844
Selling, general and administrative
expenses 12,685 12,167 25,064 23,422
------- ------- -------- --------
Operating income 3,072 3,203 5,567 5,422
Earnings from foreign affiliates, net 338 224 624 432
Interest and dividend income 40 117 72 316
Interest expense 169 142 410 249
Other income (expense), net 119 (153) 76 (274)
------- ------- -------- --------
Earnings before income taxes 3,400 3,249 5,929 5,647
Income taxes 1,252 1,100 2,177 1,941
------- ------- -------- --------
Net earnings $ 2,148 $ 2,149 $ 3,752 $ 3,706
======= ======= ======== ========
Net earnings per common share
$0.30 $0.30 $0.52 $0.51
Weighted average number of common ==== ==== ==== ====
shares outstanding 7,265 7,251 7,264 7,222
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 3 of 11
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30, 1996 1995
- ---------------------------------------- -------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 3,752 $ 3,706
Adjustments to reconcile net
earnings to net cash
provided by operating activities:
Loss on disposition of property,
plant and equipment 3 28
Depreciation and amortization 1,719 1,603
Undistributed earnings from
foreign affiliates, net (625) (432)
Undistributed losses from U.S.
affiliate, net 118 58
Change in assets and liabilities,
net of effects from purchase of
companies:
Decrease in trading securities 151 5,255
(Increase) in accounts receivable,
net (2,704) (5,705)
(Increase) decrease in inventory 49 (6,687)
Decrease in notes receivable 147 --
(Increase) decrease in prepaid
expenses and other current assets 405 (895)
(Increase) decrease in other
assets, net 555 (226)
Increase (decrease) in accounts
payable and other current
liabilities (1,509) 3,946
------- --------
Net cash provided by operating
activities 2,061 651
INVESTING ACTIVITIES:
Net additions to property, plant and
equipment (1,263) (797)
Payments for acquisitions (21) ( 7,545)
Investments in affiliates (611) --
------- --------
Net cash used by investing activities (1,895) (8,342)
FINANCING ACTIVITIES:
Increase (decrease) of long-term debt (164) 5,622
Stock option transactions -- --
------- --------
Net cash provided by
financing activities (164) 5,622
------- --------
Net increase (decrease) in cash and
cash equivalents 2 (2,069)
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 $ 833 $ 581
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest payments $ 418 $ 170
Income tax payments $ 1,761 $ 1,756
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 4 of 11
<PAGE>
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES - CONT'D.
For the period ended November 30, 1995, the Company purchased assets or stock of
Safety Centers, Inc., All Supplies, Inc., and Century Sales and Service,
Limited. In conjunction with the acquisitions, assets acquired, liabilities
assumed, and cash paid are as follows:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Fair value of assets acquired $14,408
Cost in excess of net assets of 3,523
companies acquired -------
Total assets recorded 17,931
Liabilities assumed (7,792)
Amounts due to sellers (768)
Stock issued for common stock (1,826)
-------
Cash paid for common stock and assets $ 7,545
=======
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited)
Page 5 of 11
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VALLEN CORPORATION AND SUBSIDIARIES
NOTE 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 six months ended November 30, 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 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. The weighted average
number of shares outstanding for the six months ended November, 1996 and 1995
were computed based on the actual number of common shares outstanding.
Note 2: Inventory costs are summarized as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, 1996 MAY 31, 1996
----------------- ------------
<S> <C> <C>
Raw materials $ 1,280 $ 1,323
Work-in-process 773 740
Finished Goods 31,875 31,914
------- -------
Total inventories $33,928 $33,977
======= =======
</TABLE>
Page 6 of 11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Thousands of Dollars)
RESULTS OF OPERATIONS
SECOND QUARTER ENDED NOVEMBER 30, 1996 COMPARED TO
SECOND QUARTER ENDED NOVEMBER 30, 1995
--------------------------------------
Net sales increased 5% to $63,797 and gross profit increased by 3% to $15,757.
Sales levels for the distribution business which reached record levels in the
current quarter, were up 10% compared to the quarter ended November 30, 1995.
The manufacturing operation's sales were down 5% to $4,725 compared to the same
period in the last fiscal year. This decrease was due primarily to some
seasonal weakness in traditional product markets, whereby customers often defer
or reduce capital expenditures. During the quarter Vallen completed the
acquisition of the operating assets of Pagel Safety, Inc., a privately held
company and distributor of safety equipment and supplies. There is no
significant impact to sales or results of operations due to this acquisition.
Selling, general and administrative expenses, holding steady in line with
inflation, increased 4% compared to the same quarter in the prior year.
Selling, general and administrative expenses as a per cent of net sales were 20%
for the quarter ended November 30, 1996, remaining flat in comparison to the
same quarter last year. Earnings from foreign affiliates of $338, for the
quarter ending November 30, 1996, increased 51% over the same quarter last year,
primarily due to stronger earnings from the 50% owned Mexican affiliate,
Proveedora de Seguridad Industrial, of $142 compared to $72 in earnings for the
quarter ended November 30, 1995. Other income increased significantly in the
quarter ended November 30, 1996 compared to the same period last year due to
earnings from the Lion Vallen Limited Partnership of $264.
Net earnings were flat in the quarter ending November 30, 1996 at $.30 per
common share, compared to $.30 for the same quarter last year, primarily due to
increased pressure on gross profit margins in the Company's distribution
business and a soft market for the major product line in the Company's
manufacturing segment.
SIX MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO
SIX MONTHS ENDED NOVEMBER 30, 1995
----------------------------------
Sales increased 9% to $123,209 and gross profit increased 6% to $30,631.
Selling, general and administrative expenses increased 7% to $25,064. Net
earnings increased 1% year to date to $3,752, or $.52 per common share, compared
to $3,706, or $.51 per common share, for the comparable six month period last
year. The increase in foreign earnings was due to the 50% owned Mexican
affiliate's earnings of $277 during this six month period, compared to earnings
of $97 in the same period last year. The 50% owned Canadian affiliate, Century
Sales and Service, Limited had earnings of $347 for the six month period ending
November 30, 1996, compared to $152 for the six months ended November 30, 1995.
Page 7 of 11
<PAGE>
FINANCIAL CONDITION
NOVEMBER 30, 1996 COMPARED TO MAY 31, 1995
------------------------------------------
Cash flows provided by operations for the quarter ended November 30, 1996
totaled $2,061, compared to $625 for the six months ended November 30, 1995.
The increase in the current period compared to the same period of the prior
year, is primarily due to the effect of the 1995 acquisitions on accounts
receivable, inventory and the trade securities liquidated to finance these
acquisitions.
Cash and cash equivalents increased by $2, for the fiscal year 1997. Accounts
receivable increased $2,704 primarily as a result of increased sales levels and
partially due to the acquisition of Pagel Safety, Inc. Net additions to
property, plant and equipment of $1,263 were primarily for operating equipment,
computer hardware and software and assets added through the acquisition. The
increase in investments of affiliates of $611 relates primarily to the Lion-
Vallen Partnership and the Company's 50% equity investment in Nuclear Utility
Products, Inc.
The Company's financial position in the first half of fiscal year 1997 remains
strong with working capital of $59.7 and a current ratio of 4.7 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 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 as non-current debt.
Page 8 of 11
<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. (a) Annual stockholder meeting was held on October 8,
1996.
(b) Directors elected were Leonard J. Bruce, James W.
Thompson, Darvin M. Winick, and Kirby Attwell.
(c) First item for vote was Proposal no. 1, Election of
Directors. This matter of vote for Leonard J. Bruce, Darvin
M. Winick, and Kirby Attwell was approved by 6,527,823
shares voted in favor, and 107,202 shares withheld from
voting.
Last item for vote was Proposal no. 2, Selection of
independent auditors. This matter of vote approved by
6,597,697 shares in favor, 28,343 shares against and 9,134
shares abstained.
Item 5. Other information - None
Page 9 of 11
<PAGE>
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 10 of 11
<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
January 13, 1997 /s/ James W. Thompson
- --------------------------- -------------------------------------
Date James W. Thompson
President and Chief Executive Officer
January 13, 1997 /s/ Leighton J. Stephenson
- --------------------------- -------------------------------------
Date Leighton J. Stephenson
Vice President - Finance,
Secretary and Treasurer
Page 11 of 11
<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 6-MOS
<FISCAL-YEAR-END> MAY-31-1997 MAY-31-1997
<PERIOD-START> SEP-01-1996 JUN-01-1996
<PERIOD-END> NOV-30-1996 NOV-30-1996
<CASH> 0 833
<SECURITIES> 0 1,850
<RECEIVABLES> 0 35,337
<ALLOWANCES> 0 317
<INVENTORY> 0 33,928
<CURRENT-ASSETS> 0 75,846
<PP&E> 0 42,794
<DEPRECIATION> 0 22,614
<TOTAL-ASSETS> 0 113,728
<CURRENT-LIABILITIES> 0 16,176
<BONDS> 0 0
0 0
0 0
<COMMON> 0 4,864
<OTHER-SE> 0 81,233
<TOTAL-LIABILITY-AND-EQUITY> 0 113,728
<SALES> 63,797 123,209
<TOTAL-REVENUES> 63,797 123,209
<CGS> 48,040 92,578
<TOTAL-COSTS> 48,040 92,578
<OTHER-EXPENSES> 12,685 25,064
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 169 410
<INCOME-PRETAX> 3,400 5,929
<INCOME-TAX> 1,252 2,177
<INCOME-CONTINUING> 2,148 3,752
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,148 3,752
<EPS-PRIMARY> .30 .52
<EPS-DILUTED> .30 .52
</TABLE>
