<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, 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 January 13, 1998:
7,285,457 shares of Common Stock, $.50 Par Value
Page 1 of 9
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PART I
Item 1. Financial Statements
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
MAY 31, 1997
------------
ASSETS NOVEMBER 30, (DERIVED FROM
1997 AUDITED FINANCIAL
(Unaudited) STATEMENTS)
----------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ 801
Trading securities, at cost which approximates market 1,000 2,050
Accounts receivable, net 39,307 35,168
Notes receivable, affiliate 1,150 650
Inventories 44,125 36,301
Prepaid expenses and other current assets 2,907 2,580
--------- ---------
Total current assets 88,489 77,550
Property, plant and equipment, at cost 46,416 43,916
Less accumulated depreciation and amortization 24,957 23,704
--------- ---------
Net property, plant and equipment 21,459 20,212
Notes receivable - non-current, affiliate 557 557
Investment in foreign affiliates, net 11,052 9,712
Intangibles, net of accumulated amortization 5,453 5,678
Other 7,358 3,693
--------- ---------
$ 134,368 $ 117,402
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 357 $ 543
Accounts payable 19,346 11,469
Other accrued liabilities 2,416 2,075
Income taxes payable 144 454
--------- ---------
Total current liabilities 22,263 14,541
--------- ---------
Long-term debt, excluding current maturities 15,239 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 shares issued and 7,285,457 out-
standing at November 30, 1997 and 9,740,874 issued
and 7,278,707 outstanding at May 31, 1997 4,873 4,871
Additional paid-in capital 6,182 6,076
Translation adjustment (773) (773)
Retained earnings 88,122 83,779
--------- ---------
98,404 93,953
Less cost of common shares held in treasury (2,458,417
shares at November 30, 1997 and at May 31, 1997 2,609 2,614
--------- ---------
Total shareholders' equity 95,795 91,339
--------- ---------
$ 134,368 $ 117,402
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 2 of 9
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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,
-------------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $75,138 $63,797 $139,416 $123,209
Cost of sales 56,813 48,040 105,315 92,578
------- ------- -------- --------
Gross profit 18,325 15,757 34,101 30,631
Selling, general and administrative
expenses 15,229 12,685 29,014 25,064
------- ------- -------- --------
Operating income 3,096 3,072 5,087 5,567
Earnings from foreign affiliates, net 682 338 1,341 624
Interest and dividend income 46 40 116 72
Interest expense 227 169 401 410
Other income (expense), net 109 119 176 76
------- ------- -------- --------
Earnings before income taxes 3,706 3,400 6,319 5,929
Income taxes 1,182 1,252 1,976 2,177
------- ------- -------- --------
Net earnings $ 2,524 $ 2,148 $ 4,343 $ 3,752
======= ======= ======== ========
Net earnings per common share $ 0.35 $ 0.30 $ 0.60 $ 0.52
======= ======= ======== ========
Weighted average number of common shares
outstanding 7,279 7,265 7,281 7,264
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 3 of 9
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VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
SIX MONTHS ENDED NOVEMBER 30, 1997 1996
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net earnings $ 4,304 $ 3,752
Adjustments to reconcile net earnings to net cash
provided by operating activities:
(Gain) loss on disposition of property, plant and
equipment (19) 3
Depreciation and amortization 1,720 1,719
Change in deferred income taxes (26) (37)
Undistributed earnings from foreign affiliates, net (1,302) (625)
Undistributed losses from U.S. affiliate, net 67 118
Undistributed earnings from U.S. partnership, net (64) (326)
Change in assets and liabilities, net of
Effects from purchase of companies:
Decrease in trading securities 1,050 151
(Increase) in accounts receivable, net (4,140) (2,704)
(Increase) decrease in inventory (7,825) 49
(Increase) decrease in notes receivable (500) 147
(Increase) decrease in prepaid expenses and
other current assets (327) 405
Decrease in other assets, net 61 555
Increase (decrease) in accounts payable
and other current liabilities 7,909 (1,472)
------- -------
Net cash provided by operating activities 908 1,735
INVESTING ACTIVITIES:
Net additions to property, plant and equipment (2,757) (1,263)
Payments for acquisitions (3,600) (21)
Investments in affiliates (94) (285)
------- -------
Net cash used by investing activities (6,451) (1,569)
FINANCING ACTIVITIES:
Increase (decrease) of long-term debt 4,629 (164)
Stock option transactions 113 -
------- -------
Net cash provided by financing activities 4,742 (164)
------- -------
Net increase (decrease) in cash and cash equivalents (801) 2
Cash and cash equivalents at beginning of period 801 831
------- -------
Cash and cash equivalents at end of period $ - $ 833
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest payments $ 345 $ 418
Income tax payments $ 2,422 $ 1,761
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 4 of 9
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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, 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 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, 1997 and 1996
were computed based on the actual number of common shares outstanding.
Note 2: Inventory costs are summarized as follows:
NOVEMBER 30, 1997 MAY 31, 1997
----------------- ------------
Raw materials $ 1,525 $ 1,329
Work-in-process 581 705
Finished Goods 42,019 34,267
------- -------
Total inventories $44,125 $36,301
======= =======
Page 5 of 9
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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, 1997 COMPARED TO
SECOND QUARTER ENDED NOVEMBER 30, 1996
Net sales increased 17.8% to $75,138 and gross profit increased by 16.3% to
$18,325. Sales levels for the distribution business, which reached record
levels in the current quarter, were up 17.3% compared to the quarter ended
November 30, 1996. The manufacturing operation's sales were up 8.6% to $5,133
compared to the same period in the last fiscal year. During the quarter Vallen
completed the acquisition of the operating assets of Sheridan Safety, Inc., a
privately held company and distributor of safety equipment and supplies in
Dayton, Ohio and the acquisition of Superior Safety in Waterloo, Ontario. The
combined impact on sales for the quarter due to these two acquisitions was an
increase of $680.
Selling, general and administrative expenses increased 20% 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, 1997,
remaining flat as a percent of net sales in comparison to the same quarter last
year. Earnings from foreign affiliates of $682 for the quarter ending November
30, 1997, increased 102% over the same quarter last year, primarily due to
stronger earnings from the 50% owned Mexican affiliate, Proveedora de Seguridad
Industrial, of $438 compared to $142 in earnings for this Company for the
quarter ended November 30, 1996. Interest expense rose 34% in the quarter ended
November 30, 1997 compared to the same period last year, due to borrowings to
finance the Sheridan acquisition and working capital needs.
Net earnings were up 17.5% in the quarter ending November 30, 1997 at $.35 per
common share, compared to $.30 for the same quarter last year, primarily due to
increased sales level in the Company's distribution business and excellent
returns from the Company's foreign affiliates.
SIX MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO
SIX MONTHS ENDED NOVEMBER 30, 1996
Sales increased 13.2% to $139,416 and gross profit increased 11.2% to $34,101.
The reasons for sales and gross profit changes for the six month period are
consistent with the reasons discussed above for the quarter. Selling, general
and administrative expenses increased 15.8% to $29,014, primarily due to
additional businesses acquired and opening of new branches in the distribution
business. Net earnings increased 15.8% year to date to $4,343, or $.60 per
common share, compared to $3,752, or $.52 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 $925 during this six month period,
compared to earnings of $277 in the same period last year. The 50% owned
Canadian affiliate, Century Sales and Service, Limited earnings were $416 for
the six month period ending November 30, 1997, compared to $347 for the six
months ended November 30, 1996.
Page 6 of 9
<PAGE>
FINANCIAL CONDITION
NOVEMBER 30, 1997 COMPARED TO NOVEMBER 30, 1996
Cash flows provided by operations for the six months ended November 30, 1997
totaled $908, compared to $1,735 for the six months ended November 30, 1996.
The decrease in the current period compared to the same period of the prior
year, is primarily due to increased (undistributed) earnings of foreign
affiliated and start-up costs for new locations opened.
The Company's financial position in the first half of fiscal year 1998 remains
strong with working capital of $66.2 and a current ratio of 4.0 to 1. During the
second quarter ended November 30, 1997, the Company made additional bank
borrowings of $4,800 to finance the acquisition of Sheridan Safety, Inc. and to
meet working capital requirements for expansion of the distribution business.
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 7 of 9
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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. (a) Annual stockholder meeting was held on October 14, 1997.
(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 5,971,077 shares voted
in favor, and 25,387 shares withheld from voting.
Last item for vote was Proposal no. 2, Selection of independent
auditors. This matter of vote approved by 5,990,379 shares in
favor, 3,593 shares against and 2,492 shares abstained.
Item 5. Other information - None
Item 6. (a) Exhibits - 27 - Financial Data Schedule
(b) Form 8-K - None
Page 8 of 9
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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
January 7, 1998 /s/ JAMES W. THOMPSON
- ------------------------- ----------------------------------
Date James W. Thompson
President and Chief Executive Officer
January 7, 1998 /s/ LEIGHTON J. STEPHENSON
- ------------------------- ----------------------------------
Date Leighton J. Stephenson
Vice President - Finance,
Secretary and Treasurer
Page 9 of 9
<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-31-1998 MAY-31-1998
<PERIOD-START> SEP-01-1997 JUN-01-1997
<PERIOD-END> NOV-30-1997 NOV-30-1997
<CASH> 0 0
<SECURITIES> 0 1,000
<RECEIVABLES> 0 39,747
<ALLOWANCES> 0 440
<INVENTORY> 0 44,125
<CURRENT-ASSETS> 0 88,489
<PP&E> 0 46,416
<DEPRECIATION> 0 24,957
<TOTAL-ASSETS> 0 134,368
<CURRENT-LIABILITIES> 0 22,263
<BONDS> 0 0
0 0
0 0
<COMMON> 0 4,873
<OTHER-SE> 0 90,922
<TOTAL-LIABILITY-AND-EQUITY> 0 134,368
<SALES> 75,138 139,416
<TOTAL-REVENUES> 75,138 139,416
<CGS> 56,813 105,315
<TOTAL-COSTS> 56,813 105,315
<OTHER-EXPENSES> 15,229 29,014
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 227 401
<INCOME-PRETAX> 3,706 6,319
<INCOME-TAX> 1,182 1,976
<INCOME-CONTINUING> 2,524 4,343
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,524 4,343
<EPS-PRIMARY> 0.35 0.60
<EPS-DILUTED> 0.35 0.60
</TABLE>
