SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) - FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMMISSION FILE NUMBER 33-63044
VALCOR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2678674
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5430 LBJ FREEWAY, SUITE 1700, DALLAS, TEXAS 75240-2697
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 233-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None.
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
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF VALHI, INC. (FILE NO. 1-5467) AND
MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS J(1)(A) AND (B) OF FORM
10-K FOR REDUCED DISCLOSURE FORMAT.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
(INSIDE FRONT COVER)
(Chart showing (i) Valhi's 100% ownership of Valcor and (ii) Valcor's 100%
ownership of Medite Corporation, National Cabinet Lock, Inc. and Sybra. Inc.)
PART I
ITEM 1. BUSINESS
GENERAL:
Valcor, Inc., based in Dallas, Texas, is engaged in the building products,
hardware products and fast food industries. Information regarding the Company's
business segments and the wholly-owned operating subsidiaries conducting such
businesses is set forth below. Business and geographic segment financial
information is included in Note 3 to the Consolidated Financial Statements,
which information is incorporated herein by reference.
Building Products Medite is the world's second
Medite Corporation largest producer of medium
density fiberboard ("MDF"), a
wood fiber-based engineered
building board product serving as
a cost effective alternative to
certain traditional timber
products. With MDF plants in the
United States and Ireland, Medite
has an estimated 13% market share
in North America and a 5% share
in Europe and offers a wide range
of specialty MDF products.
Medite also conducts traditional
timber products operations in
Oregon where it owns 168,000
acres of timberland.
Hardware Products National Cabinet Lock is a
National Cabinet Lock, leading North American
Inc. manufacturer of low and medium
security locks, computer keyboard
support arms and precision ball
bearing drawer slides for
furniture and other markets.
Fast Food Sybra is the second-largest
Sybra, Inc. franchisee of Arby's restaurants
with approximately 160 stores
clustered principally in Texas,
Michigan, Pennsylvania and
Florida.
Valcor, a Delaware corporation, is a wholly-owned subsidiary of Valhi, Inc.
(NYSE: VHI). The Company was formed in 1993, and Valhi contributed to the
Company the stock of Medite, National Cabinet Lock and Sybra (collectively, the
"Combination"). For financial reporting purposes, the Combination was accounted
for as a combination of entities under common control in a manner similar to a
pooling of interests.
Contran Corporation holds, directly or through subsidiaries, approximately
90% of Valhi's outstanding common stock. Substantially all of Contran's
outstanding voting stock is held by trusts established for the benefit of the
children and grandchildren of Harold C. Simmons, of which Mr. Simmons is the
sole trustee. Mr. Simmons is Chairman of the Board and Chief Executive Officer
of the Company, Valhi and Contran, and may be deemed to control each of such
companies.
BUILDING PRODUCTS - MEDITE CORPORATION:
Overview. Medite's principal business is the international production and
sale of medium density fiberboard. MDF is a fiber-based engineered building
board product manufactured primarily from pre-commercial forest thinnings and
forest product industry residuals (wood chips, shavings and sawdust) which are
bonded together with resins to form a machineable, composite panel. Relative to
traditional timber products, MDF has cost-in-use advantages which promote the
use of MDF in an increasing variety of applications, including furniture,
cabinetry, shop fittings, mouldings, millwork and joinery. According to
industry sources, furniture currently accounts for approximately 85% of MDF use
in Europe and 55% in the United States.
Medite sells MDF primarily in North America (48% of 1994 sales) and Europe
(43%) and believes that Medite is the world's most recognized MDF trademark. In
addition to standard Medite, the Company offers a wide range of specialty MDF
products which are sold for higher prices and result in higher operating margins
than standard MDF products.
Medite's MDF production facilities are located in the Republic of Ireland,
Oregon and New Mexico. The Company expects a capacity addition completed in
late 1994 at Medite's Irish plant will increase its annual production capacity
by 15% (to 580,000 cubic meters) in 1995 and ultimately increase it by 25% (to
635,000 M3) by 1998. With the recently completed capacity addition in Ireland,
Medite is the world's second largest MDF producer, in terms of rated capacity.
The Company believes MDF is among the world's fastest growing building
board products with increased demand during recent years driven primarily by
increasing product substitution principally resulting from (i) MDF product
characteristics that have expanded the range of MDF applications, (ii) cost
advantages relative to traditional timber products, (iii) the development of
specialty MDF products satisfying specialized customer requirements and (iv)
increased environmental awareness.
Medite's strategy consists of the following components: (i) continue to
focus on MDF; (ii) strive to remain at the forefront of developing higher margin
specialty MDF products; (iii) continue to focus on developing new commercial
uses for MDF, including applications in cabinetry, joinery, millwork and
mouldings; (iv) continue to seek to expand its MDF operations through
acquisitions, strategic joint ventures and capacity additions; and (v) manage
its fee timber resources on a longer-term sustainable basis and seek to maximize
the operating contribution of its harvested timber.
In addition to its MDF operations, Medite owns 168,000 acres of timberland
in Southern Oregon containing approximately 660 million board feet ("MMBF") of
generally second growth merchantable timber and produces and sells traditional
timber products including logs, lumber, veneer and wood chips. Medite actively
manages its fee timberlands, which have become an increasingly valuable resource
as the volume of timber offered for sale in the Pacific Northwest by U.S.
government agencies has declined substantially in recent years.
In March 1995, Medite filed a Registration Statement with the Securities
and Exchange Commission for a proposed public offering of approximately $100
million of its common stock, which Registration Statement has not yet become
effective. If such offering is completed, Valcor's ownership of Medite would be
reduced by approximately one-third. See Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
MDF products. Medite's standard MDF product, Medite, was first introduced
in 1975 and is produced exclusively for interior applications such as furniture,
shelving, door frames, cabinet doors and interior paneling. In 1994, standard
Medite accounted for approximately 72% of Medite's total MDF sales dollars, with
specialty products, described below, accounting for 28%.
Medex, designed for exterior applications, is used in facade application on
storefronts, decorative shop fronts in many areas in Europe, counter tops, doors
and window sills. Medite believes that it is currently the leading exterior
grade MDF producer in the world. Medex, first produced in 1987, accounted for
8% of 1994 MDF sales.
Medite 313 is a specialty MDF product designed for interior applications
that involve high-humidity environments, such as bathroom and kitchen cabinetry
and mouldings. Medite 313 was introduced in 1987 and accounted for 13% of 1994
MDF sales. Principal markets for Medite 313 have been in the U.K. and Ireland.
Medite FR, developed by Medite primarily to address strict building code
requirements in Europe for flame/fire resistance, meets Class 1 flame-retardant
guidelines in France and Germany. Medite FR, first produced in 1989, accounted
for 4% of 1994 MDF sales.
Medite II was developed by Medite in 1991 to meet the market need for a low
formaldehyde-content MDF product for use in sensitive interior applications such
as schools, museums and hospitals. Medite II is produced without the
introduction of formaldehyde based resins (bonding agents) and additives.
Medite believes it is a leader in the production of interior MDF that does not
utilize resins containing formaldehyde. Medite II accounted for 3% of 1994 MDF
sales.
MDF production facilities and raw materials. Medite believes it is one of
only a relatively small number of MDF manufacturers in the world with the
technology and expertise to currently produce specialty MDF products, such as
exterior grade, moisture resistant and fire retardant MDF. Medite uses two
different press technologies in completing its finished MDF products.
Multiopening presses, used at all of Medite's facilities, are more efficient in
producing thicker MDF (16 to 30 millimeters) while a continuous line press is
more efficient in producing thin board MDF (three to 15 millimeters). Medite
operates a continuous press at its Irish MDF plant.
Medite's Clonmel, Republic of Ireland MDF plant produces standard and
specialty MDF products under the ISO 9000 quality management certification. A
$31 million expansion was completed in the fourth quarter of 1994, raising
future production capacity to 300,000 M3. Production during 1994 (excluding the
new continuous press production line) amounted to approximately 160,000 M3
(approximately 100% of the capacity of the original production line).
Approximately 40% of 1994 Clonmel production consisted of specialty MDF
products. Medite believes this plant is the only MDF facility in the world that
operates both a multiopening and continuous press in one location, making it
unique in its ability to offer to its customers high quality products in the
full range of MDF thicknesses (from three to 30 millimeters). Medite has what
it considers to be an attractive long-term supply contract with the Irish
Forestry Service, pursuant to which Medite has a reliable, fixed price supply of
pre-commercial thinnings from Irish forests. These and other private sources of
pre-commercial thinnings accounted for approximately one-half of the Clonmel
plant's fiber raw materials in 1994. The balance of fiber requirements are
provided by wood chips acquired from local sawmill operators, which Medite
believes will be available in adequate supply due to the continuing development
of the Irish forest products industry. In 1994, approximately 50% of Medite's
Irish production was sold in the United Kingdom, with 18% sold within Ireland
and the balance sold primarily in other Northern European countries.
Production at the Oregon MDF plant during 1994 was approximately 94% of its
175,000 M3 capacity, with standard Medite accounting for approximately 84% of
production. The primary fiber sources are wood chips, shavings and sawdust,
almost all purchased from sawmills located in close proximity to the plant at
spot market prices.
While the Irish and Oregon MDF plants were built by Medite, the New Mexico
MDF plant was built by a third party and purchased by Medite in 1989.
Production at the New Mexico plant during 1994 was approximately 93% of its
160,000 M3 capacity, substantially all of which was standard Medite product.
The primary fiber sources are wood chips, shavings and sawdust produced within a
150-mile radius of the plant, most of which are purchased pursuant to short-term
purchase contracts. Increasingly, however, fiber has been acquired from the
"urban forest" (sawdust and shavings produced from shipping crates, pallets and
recycled lumber). In 1994, these "post-consumer" fiber sources comprised
approximately 14% of the New Mexico plant's fiber supply.
Through its Oregon fee timberlands, its long-term wood supply agreements
with the Irish Forestry Service and other sources, Medite believes it has access
to adequate fiber supplies to meet current and expected operating needs for its
existing facilities. However, Medite anticipates increasing competition for
wood fiber in future years and, accordingly, there can be no assurance that
long-term future fiber supply will be adequate, with respect to quantity and
price, to maintain Medite's recent MDF margins or to provide for future capacity
expansion.
Medite purchases urea formaldehyde resins for standard MDF products from
suppliers located in close proximity to its plants. Resins for U.S. specialty
MDF products are purchased primarily from suppliers in Texas and Louisiana with
resins for specialty MDF products produced in Ireland purchased primarily from
U.K. suppliers.
Traditional timber products - products, operations and properties. Medite
produces and sells lumber used in residential and commercial construction, and
veneer which is used in the production of plywood and laminated veneer lumber
("LVL"), and wood chips, which are a basic raw material for the MDF and paper
industries. Logs harvested from Medite's fee timberlands are utilized in the
production of lumber, veneer and wood chips. Certain sizes and species of logs
harvested by Medite that are not used in its manufacturing operations are sold
to other mills in the Northwest.
Medite owns approximately 168,000 acres of timberland, including 77,000
acres added since Medite was acquired by Valhi in 1984. Medite's timberlands
contain approximately 660 million board feet of generally second growth
merchantable timber. The dominant species is Douglas Fir and the average annual
timber growth rate is approximately 4%. Medite's timber holdings are within
close proximity to its Oregon production facilities and are in relatively
accessible terrain.
Medite produces veneer in Rogue River, Oregon and stud lumber in White
City, Oregon. Annual capacities of these plants are 80,000 square feet (3/8"
basis) of veneer and 70,000 board feet of lumber plus a combined annual wood
chip capacity of 70,000 bone dry units. The Rogue River plant, completed in
late 1993 to replace a similar facility destroyed by fire in June 1992, is
designed to process cull (defective) logs from throughout the Southern Oregon
area and the smaller second-growth timber expected to be available from Company-
owned timberlands on a longer-term basis. Veneer from this plant is sold to the
LVL industry as well as to traditional soft-wood and hardwood plywood products
manufacturers. The White City mill produces primarily 2x4 studs, used in
residential construction in California, from small logs and "peeler cores", a
by-product of veneer conversion facilities.
Distribution and sale of products. Medite's manufactured products are sold
primarily to wholesalers of building materials. Medite's MDF major markets
include the United Kingdom, Northern Europe and the Republic of Ireland; West
and Central United States; the Pacific Rim and Mexico. In 1994, approximately
48% of Medite's total MDF sales were in North America with 43% in Europe (21% in
the United Kingdom). U.S. distribution is primarily by rail and common carrier
trucking, while most Irish production is shipped by containerized ocean cargo.
Manufactured traditional timber products are sold primarily in Western U.S.
markets. Logs are sold primarily to other Oregon mills. Although logging
operations are seasonal due to inclement weather conditions during winter and
spring months, the production and sale of manufactured products is not
particularly seasonal in nature.
Medite's operations are not dependent upon one or a few customers, the loss
of which would have a material adverse effect on its operations. Medite's ten
largest customers accounted for about one-fourth of sales in each of the past
three years. Reflecting Medite's evolving MDF focus, six of the ten largest
1994 customers were primarily MDF customers, up from five in 1993 and two in
1992.
Cyclicality. Demand for Medite's MDF products is in part derived from the
general level of economic activity in the principal markets served by Medite
(North America and Europe). Economic activity in these markets is currently
expanding but as recently as 1991 was at one of its lower levels since World War
II. In contrast to demand for MDF, demand for Medite's traditional timber
products is largely influenced by new U.S. construction, which is highly
cyclical in nature. Medite believes that demand for its MDF products is
significantly less cyclical than demand for its traditional timber products due
to more geographically dispersed production and markets, the wide range and
relative diversity of MDF applications, the overall growth in MDF unit demand
and Medite's broad range of specialty MDF products. Nonetheless, Medite expects
its future operating performance will be affected in part by both general and
industry specific economic conditions, some of which are cyclical in nature.
Competition. Medite operates in highly competitive industries. Within the
MDF segment of its business, Medite competes on the basis of quality, product
breadth, customer service and price. In the traditional timber products
business, Medite competes primarily on the basis of price. Transportation costs
generally limit the geographic markets in which Medite's and its competitors'
products are sold.
Medite's MDF operations compete in North America principally with a number
of producers of MDF and other composite board products such as particle board,
and in the Pacific Rim with Australian, New Zealand and other U.S.
manufacturers. In Europe, Medite competes principally with other European Union
producers. The cost of shipping products, which is borne by the customer, is
significant and Medite may operate at a competitive disadvantage relative to
certain other producers who are located closer to certain markets. In addition,
some of Medite's competitors may possess greater financial resources, including
in some cases the financial support of the governments of the countries in which
such competitors are located. Due to periodic declines in the value of the U.S.
dollar relative to other currencies, Medite's operations in Ireland have also
experienced periodic competition from North American producers.
Recently, global demand for MDF has exceeded availability and numerous
producers, including Medite, have placed customers on allocation. High MDF
operating rates and increasing product prices, coupled with favorable forecasts
for increasing MDF demand, are expected to attract additional competition. A
survey by Wood Based Panels International, an MDF industry trade publication,
projects worldwide capacity increases of 15% through 1996, which could outstrip
demand growth and result in excess MDF production capacity in certain regional
markets. Historically, due to the technological difficulties traditionally
encountered with new MDF manufacturing facilities that generally adversely
impact their effective operating rates, announced MDF capacity additions may be
delayed or deferred and effective production levels can be significantly below
forecasted "nameplate" capacity. In addition, Medite believes its specialty MDF
products provide it with a certain degree of insulation from the competitive
effects of future MDF capacity additions.
Medite's traditional timber products operations compete primarily with
numerous other producers in the Pacific Northwest, Canada and, increasingly, the
Southern United States. While Medite's fee timber is a valuable resource which
aids its ability to control product costs, other companies with greater supplies
of fee timber may have a competitive product cost advantage.
Environmental matters and governmental regulation. Medite's MDF and
traditional timber products manufacturing operations are subject to numerous
national, state and local laws and regulations relating to, among other things,
raw materials handling, production procedures, operating environment, emissions
and waste disposal, air and water quality, worker and product safety and
protection of the environment generally. As Medite engages in manufacturing
activities in the United States and Europe, it must at times contend with
differing regulatory standards and requirements. Medite believes that it is in
material compliance with all such existing regulations and does not believe that
future expenditures to comply with such regulations will be material. There can
be no assurance, however, that new or more rigorous regulations affecting
Medite's products or manufacturing operations will not be adopted or that future
expenditures to comply with any such regulations would not be material.
Medite's traditional timber products operations are subject to a variety of
Oregon and federal laws and regulations dealing with timber harvesting,
reforestation and endangered species. The Northern Spotted Owl is currently
designated as a threatened species under the Endangered Species Act ("ESA").
Generally, habitat for these owls is found in old growth timber stands, and not
in Medite's predominantly second growth timber. Consequently, the Northern
Spotted Owl's ESA status has not to date had, and, Medite believes, will not in
the future have, a material adverse effect on its timber harvesting practices.
A 1994 amendment to the Oregon Forest Practices Act imposed more restrictive
regulations on the harvest of timber near rivers and streams, including
intermittent stream beds. Medite believes that this amendment will not
materially impact its ability to harvest timber from its timberlands. There can
be no assurance, however, that future legislation or governmental regulations
will not adversely affect Medite or its ability to harvest timber and sell logs
in the manner currently contemplated.
Urea formaldehyde resin is used as a binding agent in the production of
standard MDF products. Formaldehyde, which also occurs naturally in wood and
other natural resources, is listed as a "suspected" carcinogen by the U.S.
federal government based upon results of laboratory studies performed using
maximum tolerated doses. While Medite's MDF products that contain urea
formaldehyde resins currently meet applicable regulations, there can be no
assurance that the MDF industry, including Medite, will not be compelled to
reduce or even eliminate the use of urea formaldehyde resins in the future. As
Medite is currently manufacturing a "formaldehyde-free" MDF product (Medite II),
Medite believes that the adverse impact of any such changes on it would be less
than for certain competitors.
Medite's MDF manufacturing operations also release formaldehyde into the
atmosphere as a waste by-product. These emissions have been targeted for
increasingly stringent regulation under the U.S. Clean Air Act, although final
regulations for emissions are not scheduled to be promulgated by the
Environmental Protection Agency until 1997. While Medite currently meets air
emission permit requirements at all of its MDF operating facilities, it cannot
predict what, if any, future pollution control technology may be required. The
cost of any such technology could be significant in the years in which it might,
in the future, be required to be installed.
Trademarks and patents. Medite believes that the patents it holds for MDF
products and production processes are important to its MDF business. Medite's
major MDF trademarks, Medite and Medex, are protected by registration in the
United States and certain other countries. Medite also has a non-exclusive
worldwide license relating to application of resins in the manufacture of Medex
and a patent on the apparatus and method of manufacture of Medex.
Employees. As of December 31, 1994, Medite employed approximately 710
persons including 510 in the U.S. and 200 in Europe. Approximately 30% of U.S.
employees and 70% of non-U.S. employees were represented by various labor
unions. The collective bargaining agreements related to its veneer plant, its
Irish MDF plant and its Oregon MDF plant expire in June 1996, March 1997 and
September 1997, respectively. Medite believes that its labor relations are
satisfactory.
Risk of loss from fire or other casualties. Medite assumes substantially
all risks of loss from fire and other casualties on its timberlands, as do the
owners of most other timber tracts in the United States. Consistent with the
past practices of Medite and most other U.S. timber owners, Medite does not
maintain fire insurance in respect of standing timber. Medite is a participant
with state agencies and other timberland owners in cooperative fire fighting and
aerial fire surveillance programs. The extensive roads on Medite's acreage also
serve as fire breaks and facilitate implementation of fire control techniques
and utilization of fire fighting equipment. Medite's various timber tracts are
also somewhat geographically dispersed, which also reduces the possibility of
significant fire damage. The only forest fire on Medite's timberlands of any
significance during the past five years occurred in July 1994 and resulted in
damage to approximately 1,200 acres, which were salvaged with minimal loss.
Medite's production facilities are susceptible to fire because of the
nature of their operations, and in 1992 the Rogue River veneer mill was
completely destroyed by fire. To reduce the risk of significant fire damage,
Medite's present facilities employ sophisticated fire monitoring and detection
systems. The Company also maintains property and business interruption
insurance to mitigate potential risk of loss arising from fires or other
casualty losses.
HARDWARE PRODUCTS - NATIONAL CABINET LOCK, INC.:
Products, operations and properties. National Cabinet Lock manufactures
low and medium-security locks, precision ball bearing drawer slides, computer
keyboard support arms and other components for furniture and a variety of other
applications. Lock products accounted for approximately 40% of the Company's
hardware products sales in 1994 with drawer slides constituting 34% and keyboard
arms 26%. Locks are produced by National Cabinet Lock in Mauldin, South
Carolina, and in Mississauga, Ontario. Drawer slides and keyboard support arms
are produced in Kitchener, Ontario under the Waterloo Furniture Components name.
The Company believes its hardware products compete in relatively well-defined
niche markets and that it is (i) the largest U.S. cabinet lock producer, (ii)
the largest Canadian producer of drawer slides and (iii) the largest supplier of
computer keyboard support arms to the North American office furniture
manufacturing market.
Purchased components, including zinc castings, are the principal raw
materials used in the manufacture of latching and security products. Strip
steel is the major raw material used in the manufacture of drawer slides and
keyboard arm products. These raw materials are purchased from several suppliers
and are readily available. The cost of zinc, copper and steel increased
throughout 1994 as general economic activity has increased, and such costs have
continued to rise into 1995. There can be no assurance that any future raw
material cost increases can be fully recovered through product price increases.
Strategy. National Cabinet Lock seeks to maintain its relatively high
margins through improved manufacturing efficiency and cost control, development
of specialty, higher margin products focused on niche markets and engineered to
customer specification and by capitalizing on future opportunities that may
emerge with targeted original equipment manufacturers. In this regard, the
newly developed patented Swinglift work surface arm and ISL (integrated
slidelock) drawer slide are expected to be important contributors to future
sales volume growth. The Company will also search for synergistic acquisitions
or product licensing to expand its product base and seek to expand its
established market positions by emphasizing customer service, promoting its
distribution programs and seeking greater penetration of the replacement lock
market.
Competition and customer base. Competition in the Company's hardware
products markets is based on product features, customer service, quality,
distribution channels, consumer brand preferences and price. Approximately 30%
of lock sales are made through National Cabinet Lock's STOCK LOCKS distribution
program, a program believed to offer a competitive advantage because delivery
generally is made within 72 hours. Most remaining lock sales are to original
equipment manufacturers' specifications. Precision ball bearing drawer slides
and computer keyboard support arms are produced in Canada under the Waterloo
Furniture Components tradename. The primary market for these products are
office furniture manufacturers in the United States and Canada. National
Cabinet Lock markets its products primarily through its own sales organization
as well as select manufacturers' representatives.
The Company's major competitors include Chicago Lock, Hudson Lock and Fort
Lock (locks), Accuride and Hettich/Grant (drawer slides) and Weber Knapp and
Jacmorr (computer keyboard support arms). National Cabinet Lock also competes
with a large number of other manufacturers, and the variety of relatively small
competitors generally makes significant price increases difficult. National
Cabinet Lock does not believe it is dependent upon one or a few customers, the
loss of which would have a material adverse effect on its operations. National
Cabinet Lock's ten largest customers accounted for about one-third of its sales
in each of the past three years, with the largest customer less than 10% in each
year. In 1994, seven of the ten largest customers were located in the U.S. with
three in Canada. Of such customers, nine were primarily purchasers of Waterloo
Furniture Components' products and one was a U.S. lock customer.
Patents and trademarks. National Cabinet Lock holds a number of patents
relating to its hardware products operations, none of which by itself is
considered significant, and owns a number of trademarks, including National
Cabinet Lock, STOCK LOCKS and Waterloo Furniture Components, which the Company
believes are well recognized in the hardware products industry.
Employees. As of December 31, 1994, National Cabinet Lock employed
approximately 640 persons, of which 240 were in the United States and 400 were
in Canada. Approximately 60% of Canadian employees are covered by a three-year
collective bargaining agreement expiring February 1997. National Cabinet Lock
believes that its labor relations are satisfactory.
Regulatory and environmental matters. The Company's hardware products
operations are subject to various federal, state, provincial and local
provisions regulating, among other things, worker and product safety and
protection, the discharge of materials into the environment and other
environmental protection matters. National Cabinet Lock believes it is in
substantial compliance with existing permits and regulations and does not
believe future expenditures to comply with these regulations will be material.
FAST FOOD - SYBRA, INC.:
Products and operations. Sybra (Arby's spelled backwards) operates
approximately 160 Arby's restaurants clustered in four regions, principally in
Michigan, Texas, Pennsylvania and Florida, pursuant to licenses with Arby's,
Inc. According to information provided by Arby's, Sybra is the second-largest
franchisee in the Arby's restaurant system based upon the number of restaurants
operated and gross sales. Arby's is a well-established fast food restaurant
chain and features a menu that highlights roast beef sandwiches along with a
variety of chicken sandwiches and products, deli sandwiches, potato products and
soft drinks. Arby's represents a niche segment of the fast food restaurant
industry. Arby's current advertising campaign includes the slogan "Go West....,
It's Better Out Here" and emphasizes the Arby's western hat logo.
Sandwich category items have accounted for over 60% of Sybra's total sales
during the past few years. New product development is important to the
continued success of a restaurant system, and Sybra has introduced several new
menu items in recent years including chicken fingers, chicken, submarine and
alternative roast beef sandwiches, curly fried potatoes and desserts. Sybra's
menu has evolved whereby roast beef accounts for approximately two-thirds of
sandwich sales compared to 80% five years ago.
Sybra's 162 Arby's restaurants at the end of 1994 represent a net increase
of 103 stores from the 59 Arby's restaurants Sybra operated when it was acquired
in 1979 by a predecessor of Valhi. Sybra has also remodeled over 35 stores
during the past five years. Sybra currently expects a net increase of two to
three stores in 1995, as it plans to open eight to ten new restaurants within
its existing regions and to close five to seven stores. The first new
restaurants in 1995 are scheduled to open in March, with five stores closed or
to be closed during the first quarter. During the past three years, 13 of the
14 new restaurants opened were free-standing stores as are all of the new stores
planned for 1995. Sybra continuously evaluates its individual restaurants and
closes unprofitable stores when considered appropriate.
Strategy. Given the extremely competitive environment in which Sybra
operates, Sybra will (i) continue its strong emphasis on operational details,
(ii) routinely review the profit contribution of each restaurant with a view
toward closing those stores which do not meet expectations; and (iii) continue
to follow its "clustering" concept in opening new stores in order to capitalize
on the economies of scale realized in management and advertising as a result of
geographic proximity. Sybra's development rights with Arby's in the Dallas/Ft.
Worth, Texas and Tampa, Florida areas, discussed below, provide future growth
opportunities consistent with Sybra's store clustering concept. New stores are
likely to be free-standing restaurants, which the Company has found generally to
yield a greater rate of return, and most stores likely to be closed will be mall
units. Sybra also plans to continue to increase market share in its geographic
markets through periodic promotions including the introduction of innovative
menu items to complement its main product offerings.
Properties. At the end of 1994, Sybra operated 162 Arby's restaurants of
which 57 were in its Southwestern Region (Texas), 52 in the Northern Region
(principally Michigan), 32 in the Eastern Region (Pennsylvania and Maryland/
Virginia) and 21 in the Southeastern Region (Florida).
Of the 162 stores operated at the end of 1994, 121 were free-standing
stores and the remaining 41 are located within regional shopping malls or strip
shopping centers. Sybra leases 109 locations and owns the remainder. Lease
terms vary with most leases being on a long-term basis and providing for
contingent rents based on sales in addition to base monthly rents. At the end
of 1994, approximately 90% of the leases of free-standing locations contain
purchase options at fair market values and/or various renewal options. During
the next five years, 29 free-standing leases and 33 mall or food court leases
will expire. In most cases, Sybra expects that leases could be renewed or
replaced by other leases, although rental rates may increase. Contingent
rentals based upon various percentages of gross sales of individual restaurants
were less than 10% of Sybra's total rent expense in each of the past three
years. Sybra also leases corporate or regional office space in five states.
Sybra has a Consolidated Development Agreement ("CDA") with Arby's, Inc.
which, as revised in 1994, provides Sybra with exclusive development rights
within certain counties in the Dallas/Fort Worth, Texas area, and provides Sybra
and Arby's with joint development rights in the Tampa, Florida area. Sybra is
required to open an aggregate of 31 stores in its existing regional markets
during the five year term (1993 - 1997) of the CDA. Sybra had opened ten stores
pursuant to the CDA through December 31, 1994, is required to open eight more
stores in 1995 and is required to open 13 additional stores by various dates
through 1997. Sybra currently expects its expansion program will meet or exceed
this schedule. Sybra does not have any other territorial or development
agreements which would prohibit others from operating an Arby's restaurant in
the general geographic markets in which Sybra now operates.
Food products and supplies. Sybra and other Arby's franchisees are members
of ARCOP, Inc., a non-profit cooperative purchasing organization. ARCOP
facilitates negotiations of national contracts for food and distribution, taking
advantage of the larger purchasing requirements of the member franchisees.
Since Arby's franchisees are not required to purchase any food products or
supplies from Arby's, Inc., ARCOP facilitates control over food supply costs and
avoids franchisor conflicts of interest.
License terms and royalty fees. The 28-year relationship between Sybra and
Arby's, Inc. has been governed principally by licenses relating to each
restaurant location. Generally, such franchise agreements require that Sybra
comply with certain requirements as to business operations and facility
maintenance. Currently, Sybra pays an initial franchise fee of $25,000 and a
royalty rate of 4% of sales for a standard 20-year license. Because some of
Sybra's licenses were issued at times when license terms were perpetual and
lower royalty rates were in effect, 44% of Sybra's franchise agreements have no
fixed termination date and royalties for all locations aggregated 2.6% to 2.8%
of sales in each of the past three years. Sybra's average royalty rate is
expected to increase over time as new stores are opened or existing 20-year
licenses are renewed at then-prevailing royalty rates. The first of Sybra's 20-
year licenses expires in 2003.
In 1993, there was a change in the ownership of the controlling interest in
Triarc Company, the parent company of Arby's, Inc. Sybra believes that the new
ownership of Triarc is a positive development for the Arby's system.
Advertising and marketing. For the past several years, Sybra has directed
about 71/2% of its total restaurant sales toward marketing. All franchisees of
Arby's, Inc. must belong to AFA Service Corporation ("AFA"), a non-profit
association of Arby's restaurant operators, and must contribute a specified
portion (up to 1.2%) of their gross revenues as dues to AFA. In return, AFA
provides franchisees creative materials such as television and radio
commercials, ad mats for newspapers, point-of-purchase graphics and other
advertising materials. Although Arby's, Inc., as an operator of Arby's
restaurants, is a member of AFA, the direction and management of AFA is
principally controlled by the member franchisees. Sybra and other franchisees
currently contribute .7% of their gross revenues to AFA. In addition to the AFA
contribution, Sybra devotes approximately 3% of its restaurant sales to coupon
sales promotions, including the direct cost of discounted food, and newspaper
and direct mail inserts, and approximately 3.5% of its restaurant sales to local
advertising, including outdoor advertising and electronic media.
Competition and seasonality. The fast food industry is extremely
competitive and subject to pressures from major business cycles and competition
from many established and new restaurant concepts. According to industry data,
there is a significant disparity in the revenues and number of restaurants
operated by the largest restaurant systems and the Arby's system. As a result,
some organizations and franchised restaurant systems have significantly greater
resources for advertising and marketing than the Arby's restaurant system or
Sybra, which is an important competitive factor. Sybra's response to these
competitive factors has been to cluster its stores in certain geographic areas
where it can achieve economies of scale in advertising and other activities.
Operating results of Sybra's restaurants have historically been affected by
both retail shopping patterns and weather conditions. Accordingly, Sybra
historically has experienced its most favorable results during the fourth
calendar quarter (which includes the holiday shopping season) and its least
favorable results during the first calendar quarter (which includes winter
weather that can be adverse in certain markets).
Employees. As of December 31, 1994, Sybra had approximately 4,300
employees, of which 3,700 were part-time employees. Approximately 4,200
employees work in Sybra's restaurants with the remainder in its corporate or
regional offices. Employees are not covered by collective bargaining agreements
and Sybra believes that its employee relations are satisfactory.
Governmental regulation. A significant portion of Sybra's restaurant
employees work on a part-time basis and are paid at rates related to the minimum
wage rate. Restaurant labor costs currently are approximately 28% of sales.
The increase in the minimum wage rate being considered by the current session of
Congress and any mandatory medical insurance benefits to part-time employees
would increase Sybra's labor costs. Although Sybra's competitors would likely
experience similar increases, there can be no assurance that Sybra will be able
to increase sales prices to offset future increases, if any, in these costs.
Various federal, state and local laws affect Sybra's restaurant business,
including laws and regulations relating to minimum wages, overtime and other
working conditions, health, sanitation, employment and safety standards and
local zoning ordinances. Sybra has not experienced and does not anticipate
unusual difficulties in complying with such laws and regulations.
FOREIGN OPERATIONS:
The Company has substantial operations and assets located outside the
United States, primarily Ireland (Medite) and Canada (National Cabinet Lock).
Foreign operations are subject to, among other things, currency exchange rate
fluctuations and the Company's results of operations have in the past been both
favorably and unfavorably affected by fluctuations in currency exchange rates.
See Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Medite maintains a multi-currency revolving credit agreement with
borrowings thereunder used to mitigate exchange rate risk on receivables and has
in the past used currency forward contracts to eliminate exchange rate
fluctuation risk on equipment purchase commitments denominated in foreign
currencies. See Note 15 to the Consolidated Financial Statements. The Company
does not otherwise engage in currency hedging activities.
ITEM 2. PROPERTIES
The principal properties used in the operations of the Company are
described in the applicable business sections of Item 1 - "Business." The
Company believes that its facilities are adequate and suitable for their
respective uses.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various environmental, contractual, product
liability and other claims and disputes incidental to its business. The Company
currently believes that the disposition of all claims and disputes, individually
or in the aggregate, should not have a material adverse effect on the Company's
consolidated financial condition, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction "J" of Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
All of Valcor's common stock is held by Valhi. The Indenture governing
Valcor's 95/8% Senior Notes Due 2003 generally limits dividends or other
distributions to Valhi to 50% of the Company's consolidated net income, as
defined. Valcor currently expects to continue to pay the dividends permitted by
the Indenture, however declaration and payment of future dividends and the
amount thereof is dependent upon the Company's results of operations, financial
condition, cash requirements for its businesses and other factors deemed
relevant by the Company's Board of Directors. See Note 4 to the Consolidated
Financial Statements. On March 9, 1995, the Company declared a $2.2 million
dividend to Valhi, which amount approximated dividend availability as of
December 31, 1994.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." For financial reporting purposes, the Combination was accounted
for as a combination of entities under common control in a manner similar to a
pooling of interests.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1990 1991 1992 1993 1994
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales:
Building products $197.4 $179.7 $194.8 $174.3 $189.9
Hardware products 52.6 44.8 54.0 64.4 70.0
Fast food 103.6 101.5 103.8 111.6 115.5
$353.6 $326.0 $352.6 $350.3 $375.4
Operating income:
Building products $ 22.8 $ 8.0 $ 22.0 $ 26.3 $ 36.4
Hardware products 9.0 7.9 10.7 17.5 20.9
Fast food 8.6 7.8 8.5 9.7 9.0
40.4 23.7 41.2 53.5 66.3
Other, net 2.7 (.1) 4.0 .4 (.5)
Interest expense (11.2) (8.1) (5.1) (6.4) (17.6)
Income before income taxes 31.9 15.5 40.1 47.5 48.2
Income taxes 12.2 5.4 15.0 19.2 17.1
Income before cumulative effect of changes in
accounting principles 19.7 10.1 25.1 28.3 31.1
Cumulative effect of changes in accounting principles (1) - - .9 - -
Net income $ 19.7 $ 10.1 $ 26.0 $ 28.3 $ 31.1
Cash dividends (2) $ 23.5 $ 7.6 $ 21.1 $148.9 $ 9.6
BALANCE SHEET DATA (AT YEAR END):
Current assets $ 75.3 $ 62.0 $ 69.0 $ 70.6 $ 90.6
Total assets 268.3 244.5 256.0 272.5 320.7
Current liabilities 66.8 42.7 50.4 46.7 54.8
Long-term debt 67.7 61.4 45.1 185.7 201.8
Stockholder's equity 127.2 129.8 134.7 13.9 34.9
</TABLE>
[FN]
(1) Relates primarily to income tax accounting. See Note 12 to the
Consolidated Financial Statements.
(2) Dividends in 1993 include $135 million paid from proceeds of new long-term
borrowings.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
OVERVIEW
Operating and net income improved in each of the past three years as the
Company's overall operating income margin increased to 18%, up from 15% in 1993
and 12% in 1992. The improvements in operating earnings and margins were
primarily driven by higher volumes and in 1994 by significantly higher average
selling prices for MDF, the Company's principal building product. The increase
in 1994 interest expense resulted from the Company's recapitalization completed
during the last half of 1993. The Company lowered its effective income tax rate
in 1994 primarily through improved utilization of foreign tax credits.
BUILDING PRODUCTS
Results of operations during the past three years have been affected by
Medite's ongoing strategy to expand its emphasis on MDF, to increase the
relative proportion of higher margin specialty MDF products and to downsize its
commodity-type traditional timber products operations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, % CHANGE
1992 1993 1994 1992-93 1993-94
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales:
Medium density fiberboard $111.6 $112.1 $134.9 + 0% +20%
Traditional timber products 85.4 63.7 56.1 -25% -12%
Eliminations (2.2) (1.5) (1.1)
$194.8 $174.3 $189.9 -11% + 9%
Operating income:
Medium density fiberboard $ 12.1 $ 13.9 $ 27.1 +15% +95%
Traditional timber products 9.9 12.4 9.3 +26% -25%
$ 22.0 $ 26.3 $ 36.4 +20% +38%
Operating income margins:
Medium density fiberboard 10.8% 12.4% 20.1%
Traditional timber products 11.6% 19.5% 16.5%
Aggregate margin 11.3% 15.1% 19.1%
MDF sales volume (M3 thousands):
Specialty products 28.0 55.4 94.7 + 98% +71%
Standard grade 434.7 419.7 385.7 - 3% - 8%
462.7 475.1 480.4 + 3% + 1%
</TABLE>
Medium density fiberboard. Medite's MDF plants have been operating at a
high rate of capacity and, consequently, increased volume of higher margin
specialty MDF products has displaced production of standard grade MDF. A new
production line in Ireland became operational during the fourth quarter of 1994
and is expected to enable Medite to increase both standard and specialty product
volumes and to more efficiently produce thin-board MDF. Over the past two
years, the increased cost of traditional timber products has led to higher
demand for substitute products such as MDF and resulted in MDF operating rates
approaching effective capacity. In this environment, MDF prices have increased
notably, and Medite's increased emphasis on specialty products has also
favorably impacted its average selling prices. At the end of 1994, selling
prices of standard MDF products were approximately 27% higher than one year
earlier and Medite implemented additional price increases averaging over 4%
during the first quarter of 1995. Further 1995 improvement in aggregate MDF
prices is currently expected to be influenced primarily by specialty product mix
and changes, if any, in raw material costs.
The significant improvements in MDF sales, operating income and operating
income margins in 1994 were driven by both higher selling prices and higher
volumes of specialty MDF products. Overall average MDF selling prices were 19%
higher in 1994 due to combined effects of a 16% increase in average selling
prices of standard MDF products and increased sales of higher-priced/higher-
margin specialty products. Average per-unit MDF costs increased approximately
6% in 1994 primarily as a result of higher resin costs (due to increased prices
for resins of standard MDF products and the increased use of higher-cost resins
associated with specialty MDF products) and higher wood fiber costs. The price
of standard MDF resins increased principally due to recent worldwide shortages
of methanol, a primary element in resin manufacture. Continued increases in
resin costs could hamper margins as there is no assurance that they can continue
to be recovered through additional product price increases. Fluctuations in the
value of the U.S. dollar relative to other currencies accounted for
approximately one percentage point of the increase in average selling prices and
less than one percentage point of the increase in per-unit costs.
MDF sales in 1993, in U.S. dollar terms, were only nominally higher than
1992. The positive effects of higher total volume, higher specialty products
volume and selling price increases (in billing currency terms) were
substantially offset by fluctuations in currency exchange rates. Average
selling prices, in billing currency terms, of standard MDF increased 7% in the
U.S. and decreased 3% at the Ireland facility. The decline in average Irish
prices was primarily due to lower volumes of cut-to-size standard products. MDF
operating income margins improved, however, as currency fluctuations were also a
significant factor in the 4% reduction of per-unit MDF costs. The effect of
currency fluctuations, along with moderate improvement in operating efficiency
in the U.S., more than offset increased per-unit wood and resin costs resulting
primarily from higher production of specialty products.
The U.S. dollar value of Medite's foreign sales and operating costs are
subject to currency exchange rate fluctuations which, as noted above, may
favorably or adversely impact reported earnings and affect the comparability of
operating results. Approximately 30% of Medite's 1994 MDF sales were
denominated in currencies other than the U.S. dollar, principally the U.K. Pound
Sterling and the European Currency Unit. Medite's Irish operations accounted
for approximately 35% of its MDF production in 1994. Fiber, labor and most
other production costs in Ireland are denominated principally in Irish punts,
while Irish resins are purchased primarily in Sterling. The percentage of non-
dollar sales and costs are expected to increase as a result of the additional
production capacity recently added to the Irish MDF plant and could, therefore,
increase the magnitude of the effect of future currency fluctuations.
Traditional timber products. Traditional timber products operations for
the past three years are not, in certain respects, directly comparable due to
the January 1993 closure of Medite's plywood operations (in response to the
rising cost and declining availability of government timber in recent years) and
the fire at its Rogue River chipping and veneer plant in June 1992, as discussed
below. Rogue River chipping operations resumed in July 1993 and veneer
operations resumed in January 1994. Medite expects to meet its longer-term
timber needs from its own lands and other private sources and does not
anticipate acquiring any significant amount of new government timber contracts
in the foreseeable future.
Medite's strategy is to maximize the operating contributions from its fee
timberlands by allocating its harvested timber between log sales and its
traditional timber products conversion facilities depending upon prevailing
market conditions. Primarily as a result of market-based volume decisions made
by Medite, including a relative reduction in the volume of logs offered for sale
and curtailment of veneer and lumber production during a portion of 1994,
traditional timber products sales and operating income declined in 1994 relative
to 1993. Average sales prices for logs and lumber during 1994 were about 5%
higher than during 1993, although year-end 1994 prices were 15% and 25%,
respectively, below the averages for the year. Operating income in 1994 was
favorably impacted by lower log costs, which on a per unit basis were 18% lower
than in 1993. This decrease in average log costs results from the combined
effects of log mix (31% of logs obtained from lower cost fee timber in 1994
compared to 22% in 1993) and a $3 million favorable impact of reductions in LIFO
log inventories in 1994. The favorable effects of lower log costs on operating
income, including the favorable LIFO effect that is not necessarily recurring,
were substantially offset by adverse effects of start-up of Rogue River veneer
operations in the first half of 1994.
Average selling prices increased significantly in 1993 over 1992 levels
(lumber up 29%; logs up 46%) due primarily to the combined effects of the
continuing Pacific Northwest timber shortage, closure of certain competitor
operations and increased demand for building products. These factors also
significantly increased Medite's timber costs. The average unit cost of logs
used in Medite's traditional timber product operations increased about 24% in
1993 following a 28% increase in 1992 due primarily to increases in the cost of
timber from government and other sources. Business interruption insurance from
the Rogue River fire recognized as a component of operating income ($3.7 million
in 1992 and $1.9 million in 1993) had a significant favorable, non-recurring
effect on traditional timber product operating income margins in 1992 and 1993
as this income had no associated cost.
HARDWARE PRODUCTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, % CHANGE
1992 1993 1994 1992-93 1993-94
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales $54.0 $64.4 $70.0 +19% + 9%
Operating income 10.7 17.5 20.9 +63% +19%
Operating income margin 19.8% 27.2% 29.8%
</TABLE>
National Cabinet Lock reported new highs in both sales and operating income
in each of 1993 and 1994 as volumes increased in each of its three major product
lines (locks, computer keyboard support arms and drawer slides). Keyboard
support arms have been the fastest growing product line and were up 18% in 1994,
to about one-fourth of total hardware product sales. The Company's principal
facilities are operating at a high rate of capacity, and overtime was used
throughout 1994 in order to meet market demand.
National Cabinet Lock continues to add new products to its STOCK LOCKS
product line as well as to its Waterloo Furniture Components support arm and
drawer slide lines. National Cabinet Lock currently expects more modest growth
in 1995 than in the past two years due to production capacity considerations and
certain changes in customer mix. A lock contract with a U.S. Government agency
that accounted for approximately 5% of 1994 sales will be completed in about
March 1995, and the agency has indicated it has an adequate supply of locks for
its remaining 1995 requirements. National Cabinet Lock believes it will be able
to compensate through increased sales to other customers.
Almost two-thirds of the Company's hardware products sales are generated by
its Canadian operations. About two-thirds of these Canadian-produced sales are
denominated in U.S. dollars while substantially all of the related costs are
incurred in Canadian dollars. As a result, fluctuations in the value of the
U.S. dollar relative to the Canadian dollar favorably impacted operating results
in both 1994 and 1993 compared to the respective prior year.
FAST FOOD
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, % CHANGE
1992 1993 1994 1992-93 1993-94
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales $103.8 $111.6 $115.5 + 7% +3%
Operating income 8.5 9.7 9.0 +13% -6%
Operating income margin 8.2% 8.6% 7.8%
Arby's units operated:
At end of year 160 160 162 - +1%
Average during the year 158 159 159 + 1% -
</TABLE>
Sales in 1994 were a new Sybra record, with comparable store sales up about
2% in large part because 1994 was a 53-week year. An $800,000 year-to-year
increase in store closing costs was a principal factor in the decline in
operating income. The fast food industry continues to be very competitive.
Despite stable to lower food costs, increased usage of lower-margin value-priced
sandwiches and the market responsive introduction of higher cost new menu items
have served to dampen operating margins. Any increase in the minimum wage rate
would increase labor costs, which currently are about 28% of sales. There is no
assurance that any such cost increase could, particularly in the short-term, be
recovered through product price increases.
Improving general economic conditions contributed significantly to a 6%
increase in comparable store sales during 1993. Customer traffic increased in
part due to certain regional promotions marketed to price-driven consumers with
various levels of advertising support.
Sybra expects to open eight to ten new Arby's restaurants in 1995, which is
expected to result in a net increase in the number of stores operated of two or
three. Sybra continually evaluates the profitability of its individual
restaurants and intends to continue to close unprofitable stores when
appropriate. In addition to five stores closed during the first quarter of
1995, Sybra may close one to two additional stores later in the year.
OTHER
Interest expense was $5.1 million in 1992, $6.4 million in 1993 and $17.6
million in 1994. The increase in interest expense in 1993 and 1994 resulted
primarily from borrowings under Medite's timber-secured credit facility obtained
in August 1993 and the Valcor Senior Notes issued in November 1993. Interest
expense in 1994 was also impacted by higher variable interest rates.
Approximately $159 million of the Company's indebtedness bears interest at fixed
rates averaging 9.1%. The average interest rate on $55 million of floating rate
subsidiary borrowings outstanding at December 31, 1994 was 7.8%, up from 5.4% on
outstanding variable rate borrowings one year ago.
Completion of Medite's proposed public stock offering and application of
proceeds therefrom as currently proposed would (i) reduce outstanding variable
rate debt, (ii) reduce Valcor's ownership of Medite and (iii) could potentially
require Valcor to make an offer to purchase a portion of its Senior Notes, at
par. See "Liquidity and Capital Resources."
Business unit dispositions are described in Note 5 to the Consolidated
Financial Statements. Other general corporate items include $.5 million of
interest income in 1992 related to refunds resulting from the settlement of
income taxes for 1986 to 1988.
PROVISION FOR INCOME TAXES
Income tax rates vary by jurisdiction (country and/or state), and relative
changes in the geographic source of the Company's pre-tax earnings, and in the
related availability and usage of foreign tax credits, can result in
fluctuations in the Company's consolidated effective income tax rate. See Note
10 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES:
CONSOLIDATED CASH FLOWS
Operating activities. Cash flow from operating activities before changes
in assets and liabilities increased from $44 million in 1992 to $46 million in
1993 and $53 million in 1994 reflecting the Company's improved operating
results. Changes in assets and liabilities, which generated cash in 1992 and
used cash in both 1993 and 1994, result primarily from the timing of production,
sales and purchases and generally tend to even out over time. Changes in assets
and liabilities are expected to use cash in 1995 as net working capital assets
are increased to support production from the new MDF line in Ireland.
Start up of the new Irish MDF line will increase future depreciation, which
increase should be mitigated in part by certain production facilities becoming
substantially fully depreciated in 1996.
Semi-annual interest payments on the Valcor Senior Notes began in 1994 and
accounted for about 80% of the comparative increase in cash interest payments.
Investing activities. Capital expenditures during the past three years
aggregated $89 million and included $52 million related to Medite's Irish MDF
expansion and the rebuild of Medite's Rogue River chipping and veneer plant.
Capital expenditures for 1995 are estimated at approximately $38 million, or $8
million less than 1994, and are expected to be financed primarily from the
respective subsidiary's operations or existing credit facilities. Lower capital
spending resulting from completion of the Irish MDF plant expansion is expected
to be offset in part by higher spending by Sybra for new stores. Capital
expenditures related to environmental protection and improvement programs are
expected to be less than $1 million in 1995. At December 31, 1994, the
estimated cost to complete capital projects in process approximated $4 million,
most of which related to new Sybra stores and final payments on the Irish MDF
expansion. The $11 million of insurance proceeds in 1992 related to the fire at
Medite's Rogue River plant.
Financing activities. Net borrowings in 1994 included approximately $21
million of project financing for Medite's Irish MDF expansion while net
borrowings in 1993 include the Valcor Senior Notes ($100 million) and net new
borrowings under Medite's timber-secured credit facility ($39 million). Net
repayments in 1992 relate principally to reductions in Medite's indebtedness.
At December 31, 1994, unused credit available under existing subsidiary credit
facilities approximated $33 million.
Dividends paid to Valhi in 1993 include special dividends aggregating $135
million from the proceeds of borrowings under Medite's Timber Credit Agreement
and the Valcor Senior Notes.
BUILDING PRODUCTS
Medite's MDF plants have been operating at high levels of capacity
utilization (approximately 100% in Europe and 92% in the U.S. during 1994) and
customers have been served on an allocation basis. The recent completion of a
second MDF production line in Ireland is expected to increase Medite's worldwide
MDF capacity by approximately 25% by 1998 (by 15% in 1995). This $31 million
project was financed in part by a $22 million bank term loan. In connection
with the expansion, Medite has obtained $4 million in grants from the Irish
government, $3 million of which is expected to be received during 1995 and used
to reduce bank borrowings. At December 31, 1994, amounts available for
borrowing under Medite's existing bank credit agreements aggregated $12 million.
Medite intends to add new MDF production capacity during the next two to
three years. Although Medite has no plan or arrangement in place with respect
to such MDF capacity additions, it is actively exploring expansion opportunities
through acquisitions, strategic joint ventures and new construction. Medite
recently offered to enter into exclusive negotiations with a third party for the
purchase of an existing MDF plant, certain timber resources and certain other
assets, which offer was declined. While Medite may renew its efforts at a later
date, no assurance can be given that it will be successful in any such
acquisition efforts. To the extent it identifies appropriate opportunities to
expand its MDF production capacity, Medite could use additional borrowings
(including credit availability resulting from the expected paydown of bank debt
described below) to fund such expansion opportunities.
In February 1995, Medite paid a $50 million non-cash dividend to Valcor by
distributing Medite preferred stock bearing a 12% cumulative annual dividend
rate. Such preferred stock is redeemable, at Medite's option, for $50 million
plus accrued dividends. Valcor currently owns 100% of Medite's common and
preferred stock.
In March 1995, Medite filed a Registration Statement with the Securities
and Exchange Commission for a proposed public offering of approximately $100
million of its common stock, which Registration Statement has not yet become
effective. Medite intends to use a portion of the net proceeds of such proposed
stock offering to pay down approximately $40 million of variable interest rate
debt and to redeem the $50 million of its preferred stock (plus any accrued
dividends) held by Valcor. The remainder of the net proceeds from the proposed
offering, along with the borrowing availability discussed below, would be
available for Medite's general corporate purposes, including capital
expenditures and expansion. In March 1995, Medite also amended its Timber
Credit Agreement to, among other things, provide that prepayments of the fixed
term portion (Tranche A) of its term loan would increase the reducing revolving
term portion (Tranche B) of the facility. Accordingly, the approximately $40
million of bank debt expected to be repaid from proceeds of the proposed common
stock offering could be reborrowed subject to reducing availability through
2000. If Valcor's ownership of Medite falls below 80%, as is contemplated by
the proposed offering, Medite would become a separate U.S. federal taxpayer and
would no longer be a member of the consolidated tax group. There can be no
assurance that any such public offering of Medite common stock will be
completed.
As a result of the closure of its plywood operations, Medite has a 105 acre
site in Medford, Oregon which is believed to have alternative development
possibilities and is held for sale.
HARDWARE PRODUCTS
National Cabinet Lock's major plants are operating at a high rate of
capacity and capital spending continues to address market demands. In this
regard, a new $2 million plating line designed to increase capacity, reduce
costs and improve quality in the Canadian drawer slide line was recently
completed. The Company continues to explore additional expansion and/or
acquisition opportunities for its high-margin hardware products business.
At December 31, 1994, National Cabinet Lock had approximately $6 million of
borrowing availability under its existing Canadian credit agreements.
FAST FOOD
Sybra, like most restaurant businesses, is able to operate with nominal
working capital because sales are for cash, inventory turnover is rapid, and
payments to trade suppliers are generally not due for 30 days.
Sybra's Consolidated Development Agreement with Arby's, Inc. requires Sybra
to open 31 new stores during 1993-1997 in its existing markets, of which ten
units had been opened through December 31, 1994 with eight more required to be
opened in 1995. The aggregate cost of this expansion during the remaining three
years of the CDA is estimated at approximately $25 million, including $12
million in 1995, and is expected to be financed primarily with revolving credit
borrowings and internally generated funds. Sybra currently anticipates that its
planned expansion program, which includes eight to ten new stores in 1995, will
meet or exceed the CDA requirements. Approximately one-fourth of Sybra's 1995
capital budget of $15 million relates to its continuing program to remodel and
update existing stores. Approximately 40% of Sybra's capital expenditures in
the past three years related to remodeling older stores.
At December 31, 1994, Sybra had $16 million of borrowing availability under
its existing revolving credit agreements. Sybra is currently negotiating to
increase such credit facilities by $5 million for its expansion and remodeling
programs.
GENERAL CORPORATE
Valcor's operations are conducted through its subsidiaries (Medite,
National Cabinet Lock and Sybra). Accordingly, Valcor's long-term ability to
meet its parent company level obligations (principally debt service on the
Senior Notes) is largely dependent on the receipt of dividends or other
distributions from its subsidiaries, the realization of its investments through
the sale of interests in such entities and investment income. Various credit
agreements to which Valcor's subsidiaries are parties contain customary
limitations on the payment of dividends, typically a percentage of net income or
cash flow. See Note 4 to the Consolidated Financial Statements. The Company
believes that future distributions from its subsidiaries will be sufficient to
enable Valcor to meet its obligations. Valcor Corporate's cash availability of
$22 million at December 31, 1994 included $20 million of demand loans receivable
from subsidiaries, which advances were made primarily for overall cash
management purposes. Valcor has not guaranteed any indebtedness of its
subsidiaries.
In the event Medite's proposed public offering is completed and it redeems
for cash the $50 million of Medite preferred stock held by Valcor (plus any
accrued dividends), availability of such funds for Valcor's general corporate
purposes could be influenced in part by the terms of the Indenture governing the
Valcor Senior Notes. Under the terms of such Indenture, Medite's sale of common
stock to the public would constitute an "asset disposition" (as defined) and a
portion of the "available cash" (as defined) from Medite's offering not used
within one year of completing the offering to either (i) repay certain
indebtedness of Valcor or certain of its subsidiaries or (ii) invest in related
businesses, could constitute "excess proceeds" (as defined) and require Valcor
to make an offer to purchase a portion of its Senior Notes, at par. There is no
assurance that Medite's offering will be completed, or that if completed there
will be any "excess proceeds" requiring an offer to purchase Valcor Senior
Notes.
Valcor dividends to Valhi are generally limited to 50% of consolidated net
income, as defined in the Senior Note indenture. On March 9, 1995, Valcor
declared a $2.2 million dividend to Valhi, which amount approximated dividend
availability as of December 31, 1994.
The Company routinely compares its liquidity requirements and alternative
uses of capital against the estimated future cash flows to be received from its
subsidiaries and the estimated sales value of those units. As a result of this
process, the Company may in the future seek to raise additional capital,
refinance or restructure indebtedness, modify its dividend policy, consider the
sale of interests in subsidiaries, business units or other assets, or take a
combination of such steps or other steps, to increase liquidity, reduce
indebtedness and fund future activities. The Company may also evaluate
acquisitions of interests in, or combinations with, companies related to its
current businesses. The Company and its subsidiaries intend to consider such
acquisition activities in the future and, in connection with this activity, may
consider issuing additional equity securities and increasing the indebtedness of
the Company and its subsidiaries. In this regard, the Valcor Senior Note
Indenture contains limitations on the ability of the Company and its
subsidiaries to incur indebtedness. See Note 4 to the Consolidated Financial
Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in a separate section
of this Annual Report. See "Index of Financial Statements and Schedules" on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted pursuant to General Instruction "J" of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction "J" of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to General Instruction "J" of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction "J" of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d) Financial Statements and Schedules
The consolidated financial statements and schedules listed on the
accompanying Index of Financial Statements and Schedules (see page
F-1) are filed as part of this Annual Report.
(b) Reports on Form 8-K
Reports on Form 8-K filed for the quarter ended December 31, 1994
and the months of January and February 1995.
October 25, 1994 - Reported Items 5 and 7.
January 30, 1995 - Reported Items 5 and 7.
(c) Exhibits
Included as exhibits are the items listed in the Exhibit Index.
Valcor will furnish a copy of any of the exhibits listed below upon
payment of $4.00 per exhibit to cover the costs to Valcor of
furnishing the exhibits. Instruments defining the rights of
holders of long-term debt issues which do not exceed 10% of
consolidated total assets will be furnished to the Commission upon
request.
PAGE NUMBER:
MANUALLY
ITEM NO. SIGNED COPY EXHIBIT INDEX
3.1 Certificate of Incorporation of the
Registrant - incorporated by reference to
Exhibit 3.1 to a Registration Statement on
Form S-1 (No. 33-63044) filed by the
Registrant.
3.2 By-Laws of the Registrant - incorporated by
reference to Exhibit 3.2 to a Registration
Statement on Form S-1 (No. 33-63044) filed by
the Registrant.
4.1 Indenture dated November 1, 1993 governing
the Valcor, Inc. 95/8% Senior Notes Due 2003,
including form of Note -incorporated by
reference to Exhibit 4.1 of a Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1993 filed by the Registrant
(File No. 33-63044).
10.1 Form of Intercorporate Services Agreement
between the Registrant and Valhi -
incorporated by reference to Exhibit 10.1 to
a Registration Statement on Form S-1 (No. 33-
63044) filed by the Registrant.
10.2 Agreement between the Master for Fisheries
and Forestry of Ireland and Medite of Ireland
Limited dated March 18, 1981 - incorporated
by reference to Exhibit 10.2 to a
Registration Statement on Form S-1 (No. 33-
63044) filed by the Registrant.
10.3 Form of License Agreement between Arby's,
Inc. and Sybra, Inc. - incorporated by
reference to Exhibit 10.5 to a Registration
Statement on Form S-1 (No. 33-63044) filed by
the Registrant.
10.4 Consolidation of Development Agreements dated
August 31, 1992 between Arby's, Inc. and
Sybra, Inc./Subsidiary, Inc. - incorporated
by reference to Exhibit 10.6 to a
Registration Statement on Form S-1 (No. 33-
63044) filed by the Registrant.
10.5 Letter amendment to the Consolidated
Development Agreement between Arby's, Inc.
and Sybra, Inc. dated May 26, 1994 -
incorporated by reference to Exhibit 10.1 of
the Registrant's Quarterly Report on Form
10-Q (File No. 33-63044) for the quarter
ended June 30, 1994.
10.6 Loan Agreement between Medite Corporation and
United States National Bank of Oregon dated
July 16, 1993 - incorporated by reference to
Exhibit 10.1 of a Quarterly Report on Form
10-Q for the quarter ended June 30, 1993
filed by Valhi, Inc. (File No. 1-5467).
10.7 Loan Extension Agreement among Medite
Corporation, United States National Bank of
Oregon, NationsBank of North Carolina, N.A.
and Societe Generale, Southwest Agency as of
September 30, 1994 - incorporated by
reference to Exhibit 10.5 to a Registration
Statement on Form S-1 (No. 33-57891) filed by
Medite.
10.8 Modification Agreement among Medite
Corporation, United States National Bank of
Oregon, NationsBank of North Carolina, N.A.
and Societe Generale, Southwest Agency dated
as of February 14, 1995 - incorporated by
reference to Exhibit 10.11 to a Registration
Statement on Form S-1 (No. 33-57891) filed by
Medite.
27.1 Financial Data Schedule for the year ended
December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VALCOR, INC.
(Registrant)
By: /s/ Harold C. Simmons
Harold C. Simmons, March 17, 1995
(President)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Harold C. Simmons /s/ Glenn R. Simmons
Harold C. Simmons, March 17, 1995 Glenn R. Simmons, March 17, 1995
(Chairman of the Board, President and (Vice Chairman of the Board)
Chief Executive Officer)
/s/ Robert W. Singer /s/ William C. Timm
Robert W. Singer, March 17, 1995 William C. Timm, March 17, 1995
(Vice President and Director) (Vice President-Finance, Treasurer
and Chief Financial Officer)
/s/ J. Thomas Montgomery, Jr.
J. Thomas Montgomery, Jr.,
March 17, 1995
(Vice President, Controller and Chief
Accounting Officer)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VALCOR, INC.
(Registrant)
By:
Harold C. Simmons, March , 1995
(President)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Harold C. Simmons, March , 1995 Glenn R. Simmons, March , 1995
(Chairman of the Board, President and (Vice Chairman of the Board)
Chief Executive Officer)
Robert W. Singer, March , 1995 William C. Timm, March , 1995
(Vice President and Director) (Vice President-Finance, Treasurer
and Chief Financial Officer)
J. Thomas Montgomery, Jr.,
March , 1995
(Vice President, Controller and Chief
Accounting Officer)
ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(A) AND 14(D)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS PAGE
Reports of Independent Accountants F-2/F-3
Consolidated Balance Sheets - December 31, 1993 and 1994 F-4/F-5
Consolidated Statements of Income - Years ended
December 31, 1992, 1993 and 1994 F-6
Consolidated Statements of Stockholder's Equity - Years ended
December 31, 1992, 1993 and 1994 F-7
Consolidated Statements of Cash Flows - Years ended
December 31, 1992, 1993 and 1994 F-8/F-9
Notes to Consolidated Financial Statements F-10/F-28
FINANCIAL STATEMENT SCHEDULES
Reports of Independent Accountants S-1/S-2
Schedule I - Condensed financial information of Registrant S-3/S-7
Schedule II - Valuation and qualifying accounts S-8
Schedules III and IV are omitted because they are not applicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Directors of Valcor, Inc.:
We have audited the accompanying consolidated balance sheets of Valcor,
Inc. as of December 31, 1993 and 1994, and the related consolidated statements
of income, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Medite Corporation, which subsidiary constituted
approximately two-thirds of consolidated assets as of December 31, 1993 and 1994
and approximately one-half of consolidated net sales for each of the three years
in the period ended December 31, 1994. These statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion, insofar
as it relates to amounts included for Medite, is based solely upon their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Valcor, Inc. as of December 31, 1993 and
1994, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, in 1992
the Company changed its method of accounting for postretirement benefits other
than pensions and income taxes in accordance with Statements of Financial
Accounting Standards Nos. 106 and 109, respectively.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 10, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Medite Corporation:
We have audited the consolidated balance sheets of Medite Corporation as of
December 31, 1993 and 1994, and the related consolidated statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1994 (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements (not presented
separately herein) referred to above present fairly, in all material respects,
the consolidated financial position of Medite Corporation as of December 31,
1993 and 1994, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed in Note 7 to the consolidated financial statements (not
presented separately herein), in 1992 the Company changed its method of
accounting for postretirement benefits other than pensions and income taxes in
accordance with Statements of Financial Accounting Standards Nos. 106 and 109,
respectively.
ARTHUR ANDERSEN LLP
Portland, Oregon,
January 27, 1995
VALCOR, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
1993 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,363 $ 23,256
Accounts receivable, net of allowance of $888
and $570 25,137 26,888
Receivable from affiliates 313 4,285
Inventories 28,600 31,016
Prepaid expenses 5,241 3,553
Deferred income taxes 904 1,595
Total current assets 70,558 90,593
Other assets:
Timber and timberlands 51,868 53,114
Intangible assets 21,080 19,202
Other 12,123 11,947
Total other assets 85,071 84,263
Property and equipment:
Land 15,989 19,186
Buildings 33,286 44,345
Equipment 136,252 177,790
Construction in progress 16,009 2,001
201,536 243,322
Less accumulated depreciation 84,688 97,483
Net property and equipment 116,848 145,839
$272,477 $320,695
</TABLE>
VALCOR, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1993 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
1993 1994
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 9,086 $ 12,738
Accounts payable 14,673 16,207
Accrued liabilities 19,279 24,430
Payable to affiliates 975 69
Income taxes 2,697 1,318
Total current liabilities 46,710 54,762
Noncurrent liabilities:
Long-term debt 185,690 201,796
Deferred income taxes 21,987 25,938
Other 4,239 3,349
Total noncurrent liabilities 211,916 231,083
Stockholder's equity:
Preferred stock, $1 par value; 1,000 shares
authorized; none issued - -
Common stock, $1 par value; 1,000 shares
authorized, issued and outstanding 1 1
Additional paid-in capital 520 520
Retained earnings 13,095 34,623
Currency translation adjustment 235 (294)
Total stockholder's equity 13,851 34,850
$272,477 $320,695
</TABLE>
[FN]
Commitments and contingencies (Note 14)
VALCOR, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Revenues and other income:
Net sales $352,669 $350,309 $375,378
Other income, net 5,416 3,137 2,580
Business unit dispositions, net 3,490 500 -
361,575 353,946 377,958
Costs and expenses:
Cost of sales 292,580 277,162 287,547
Selling, general and administrative 23,805 22,882 24,581
Interest 5,119 6,359 17,591
321,504 306,403 329,719
Income before income taxes 40,071 47,543 48,239
Provision for income taxes 14,979 19,193 17,141
Income before cumulative effect of
changes in accounting principles 25,092 28,350 31,098
Cumulative effect of changes in
accounting principles 934 - -
Net income $ 26,026 $ 28,350 $ 31,098
</TABLE>
VALCOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
INVESTMENT ADDITIONAL
OF PARENT COMMON PAID-IN RETAINED
COMPANY STOCK CAPITAL EARNINGS
<S> <C> <C> <C> <C>
Balance at December 31, 1991 $ 60,033 $- $ - $ 68,765
Net income - - - 26,026
Dividends - - - (21,114)
Other, net 488 - - -
Balance at December 31, 1992 60,521 - - 73,677
Net income - - - 28,350
Capitalization (60,521) 1 60,520 -
Dividends - - (60,000) (88,932)
Other, net - - - -
Balance at December 31, 1993 - 1 520 13,095
Net income - - - 31,098
Dividends - - - (9,570)
Other, net - - - -
Balance at December 31, 1994 $ - $ 1 $ 520 $ 34,623
</TABLE>
<TABLE>
<CAPTION>
CURRENCY TOTAL
TRANSLATION STOCKHOLDER'S
ADJUSTMENT EQUITY
<S> <C> <C>
Balance at December 31, 1991 $ 956 $ 129,754
Net income - 26,026
Dividends - (21,114)
Other, net (445) 43
Balance at December 31, 1992 511 134,709
Net income - 28,350
Capitalization - -
Dividends - (148,932)
Other, net (276) (276)
Balance at December 31, 1993 235 13,851
Net income - 31,098
Dividends - (9,570)
Other, net (529) (529)
Balance at December 31, 1994 $(294) $ 34,850
</TABLE>
VALCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 26,026 $ 28,350 $ 31,098
Depreciation, depletion and amortization 18,818 16,378 17,320
Deferred income taxes 3,088 2,600 3,343
Business unit dispositions, net (3,490) (500) -
Other, net 733 (657) 1,690
Cumulative change in accounting principles (934) - -
44,241 46,171 53,451
Change in assets and liabilities:
Accounts receivable (1,044) (1,522) (1,601)
Inventories 350 1,008 (2,416)
Accounts payable and accrued liabilities 4,928 284 4,005
Accounts with affiliates 2,379 (2,512) (4,878)
Other, net 681 660 (262)
Net cash provided by operating
activities 51,535 44,089 48,299
Cash flows from investing activities:
Capital expenditures (15,182) (27,779) (46,246)
Insurance proceeds - property loss 10,887 - -
Purchase of business unit (1,237) - -
Other, net (1,028) (463) (163)
Net cash used by investing activities (6,560) (28,242) (46,409)
Cash flows from financing activities:
Indebtedness:
Borrowings 58,018 237,060 89,878
Principal payments (75,766) (102,986) (70,120)
Dividends (21,114) (148,932) (9,570)
Grants and other 488 - 1,235
Net cash provided (used) by financing
activities (38,374) (14,858) 11,423
Net cash provided $ 6,601 $ 989 $ 13,313
</TABLE>
VALCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Cash and cash equivalents:
Net increase from operating, investing and
financing activities $ 6,601 $ 989 $13,313
Currency translation (309) (212) (420)
6,292 777 12,893
Balance at beginning of year 3,294 9,586 10,363
Balance at end of year $ 9,586 $10,363 $23,256
Supplemental disclosures - cash paid for:
Interest, net of amount capitalized $ 6,120 $ 4,437 $16,319
Income taxes 10,063 17,635 18,971
</TABLE>
VALCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Valcor, Inc., a Delaware corporation, is a wholly-owned subsidiary of
Valhi, Inc. (NYSE: VHI). Valcor was formed in 1993 at which time Valhi
contributed to Valcor the stock of the Company's operating subsidiaries - Medite
Corporation (building products), National Cabinet Lock, Inc. (hardware products)
and Sybra, Inc. (fast food) - (collectively, the "Combination"). For financial
reporting purposes, the Combination was accounted for as a combination of
entities under common control in a manner similar to a pooling of interests.
Accordingly, the Company's financial statements for periods prior to the
Combination represent the combined financial position, results of operations and
cash flows of the entities comprising the Company following the Combination.
All of Valcor's outstanding common stock is held by Valhi. Contran
Corporation holds, directly or through subsidiaries, approximately 90% of
Valhi's outstanding common stock. Substantially all of Contran's outstanding
voting stock is held by trusts established for the benefit of the children and
grandchildren of Harold C. Simmons, of which Mr. Simmons is the sole trustee.
Mr. Simmons, the Chairman of the Board and Chief Executive Officer of Valcor,
Valhi and Contran, may be deemed to control each of such companies.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation. The consolidated financial statements include
the accounts of Valcor and its wholly-owned subsidiaries (collectively, the
"Company"). All material intercompany accounts and balances have been
eliminated. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Ultimate actual results may, in some instances, differ from
previously estimated amounts.
Translation of foreign currencies. Assets and liabilities of subsidiaries
whose functional currency is deemed to be other than the U.S. dollar are
translated at year-end rates of exchange and revenues and expenses are
translated at average exchange rates prevailing during the year. Resulting
translation adjustments, net of related deferred income tax effects, are
accumulated in the currency translation adjustments component of stockholder's
equity. Currency transaction gains and losses are recognized in income
currently.
Cash and cash equivalents. Cash equivalents include bank time deposits and
government and commercial notes and bills with original maturities of three
months or less.
Inventories and cost of sales. Inventories are stated at the lower of cost
or market. The last-in, first-out method is used to determine the cost of
approximately one-half of total inventories at December 31, 1994 (60% at
December 31, 1993). Other inventory costs are generally based on average cost.
Timber and timberlands and depletion. Timber and timberlands are stated at
cost less accumulated depletion. Depletion is computed by the
unit-of-production method.
Intangible assets and amortization. Goodwill, representing the excess of
cost over fair value of individual net assets acquired in business combinations
accounted for by the purchase method, is amortized by the straight-line method
over 40 years. Fast food restaurant franchise fees and other intangible assets
are amortized by the straight-line method over the periods (10 to 20 years)
expected to be benefitted.
Property, equipment and depreciation. Property and equipment are stated at
cost. Maintenance, repairs and minor renewals are expensed; major improvements
are capitalized. Interest costs related to major long-term capital projects are
capitalized as a component of construction costs and were nominal in 1992,
$410,000 in 1993 and $616,000 in 1994.
Depreciation is computed principally by the straight-line and unit-of-
production methods over the estimated useful lives of eight to 40 years for
buildings and three to 12 years for equipment.
Income taxes. Valcor, its qualifying subsidiaries and Valhi are members of
Contran's consolidated United States federal income tax group (the "Contran Tax
Group"). The policy for intercompany allocation of federal income taxes provides
that subsidiaries included in the Contran Tax Group compute the provision for
income taxes on a separate company basis. Subsidiaries of Valhi make payments
to or receive payments from Valhi in the amounts they would have paid to or
received from the Internal Revenue Service had they not been members of the
Contran Tax Group. The separate company provisions and payments are computed
using the tax elections made by Contran.
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities, including
investments in the Company's non-U.S. subsidiaries (which are not members of the
Contran Tax Group).
Other. Sales are recorded when products are shipped (fast food sales at
the time of retail sale).
Accounting and funding policies for retirement plans and postretirement
benefits other than pensions ("OPEB") are described in Note 11.
Advertising costs, expensed as incurred, were $8.9 million in 1992, $9.6
million in 1993 and $9.8 million in 1994. Research and development costs,
expensed as incurred, were $300,000 in each of 1992 and 1993 and $400,000 in
1994.
NOTE 3 - BUSINESS AND GEOGRAPHIC SEGMENTS:
Business segments
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994
(In millions)
<S> <C> <C> <C>
Net sales:
Building products - Medite $194.8 $174.3 $189.9
Hardware products - National Cabinet Lock 54.0 64.4 70.0
Fast food - Sybra 103.8 111.6 115.5
$352.6 $350.3 $375.4
Operating income:
Building products $ 22.0 $ 26.3 $ 36.4
Hardware products 10.7 17.5 20.9
Fast food 8.5 9.7 9.0
41.2 53.5 66.3
Business unit dispositions, net 3.5 .5 -
General corporate items, net .5 (.1) (.5)
Interest expense (5.1) (6.4) (17.6)
Income before income taxes $ 40.1 $ 47.5 $ 48.2
Depreciation, depletion and amortization:
Building products $ 11.0 $ 8.5 $ 9.6
Hardware products 1.7 1.7 1.8
Fast food 6.1 6.2 5.9
$ 18.8 $ 16.4 $ 17.3
Capital expenditures:
Building products $ 9.7 $ 20.8 $ 32.0
Hardware products 1.0 2.7 3.4
Fast food 4.5 4.3 10.8
$ 15.2 $ 27.8 $ 46.2
</TABLE>
Capital expenditures include additions to property and equipment and timber
and timberlands, excluding amounts attributable to business units acquired in
business combinations accounted for by the purchase method. In 1992, the
Company's Canadian hardware products subsidiary purchased certain assets of a
competitor for $1.2 million cash.
Geographic segments
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994
(IN MILLIONS)
<S> <C> <C> <C>
Net sales - point of origin:
United States $262.9 $261.5 $270.5
Republic of Ireland 54.9 47.1 58.8
Canada 34.8 41.7 46.1
$352.6 $350.3 $375.4
Net sales - point of destination:
United States $259.0 $260.5 $275.4
Europe 54.7 44.2 58.5
Other North America 18.2 22.0 26.3
Pacific Rim and other 20.7 23.6 15.2
$352.6 $350.3 $375.4
Operating income:
United States $ 26.9 $ 36.5 $ 40.9
Republic of Ireland 9.0 6.4 12.3
Canada 5.3 10.6 13.1
$ 41.2 $ 53.5 $ 66.3
Identifiable assets
DECEMBER 31,
1993 1994
(IN MILLIONS)
Business segments:
Building products $170.6 $208.1
Hardware products 31.3 37.8
Fast food 65.1 68.6
Corporate 8.0 27.4
Eliminations (2.5) (21.2)
$272.5 $320.7
Geographic segments:
United States $215.1 $221.3
Republic of Ireland 38.4 75.3
Canada 19.0 24.1
$272.5 $320.7
</TABLE>
Corporate assets consist principally of cash, cash equivalents and loans to
subsidiaries. Eliminations consist principally of intercompany receivables,
including loans to subsidiaries.
At December 31, 1994, the net assets of non-U.S. subsidiaries included in
consolidated net assets were approximately $53 million.
NOTE 4 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Valcor - Senior Notes $100,000 $100,000
Medite:
Bank term loans 62,700 89,411
Bank working capital facilities 6,741 8,802
Other 4,595 4,360
74,036 102,573
Other:
Sybra bank credit agreements 13,387 5,500
Sybra capital lease obligations 7,174 6,321
National Cabinet Lock capital lease obligation 179 140
20,740 11,961
194,776 214,534
Less current maturities 9,086 12,738
$185,690 $201,796
</TABLE>
Valcor. Valcor's 95/8% Senior Notes Due November 2003 are redeemable at
the Company's option beginning November 1998, initially at 104.813% of principal
amount declining to 100% after November 2000. In the event of a Change of
Control, as defined, Valcor would be required to make an offer to purchase the
Senior Notes at 101% of principal amount. At December 31, 1993 and 1994, the
quoted market price of the Senior Notes was $100.75 and $89.60, respectively.
The Indenture governing the Senior Notes limits, among other things, the
incurrence of additional indebtedness by Valcor and its subsidiaries, the
creation of liens and transactions and co-investing with affiliates. The
Indenture generally limits the ability of the Company to pay dividends or make
other distributions to Valhi to 50% of consolidated net income, as defined,
subsequent to 1993. At December 31, 1994, $2.2 million was available for
dividends.
Medite. Medite's U.S. bank credit agreement (the "Timber Credit
Agreement") provides for (i) term loan financing ($67 million at December 31,
1994) due in annual installments of $8 million through 1999 with the balance due
in 2000, and (ii) a $15 million revolving working capital facility ($2 million
outstanding at December 31, 1994) through September 1996. Borrowings generally
bear interest at rates 1.5% to 2% over LIBOR, are collateralized by Medite's
timber and timberlands, and borrowings under the working capital facility are
also collateralized by Medite's U.S. receivables and inventories. Medite has
entered into interest rate swaps to mitigate the impact of changes in interest
rates for $26 million of the term loan due in 1998-2000 that results in a
weighted average interest rate of 7.6% for such borrowings. The Company is
exposed to interest rate risk in the event of nonperformance by the other
parties to the agreements, although it does not anticipate nonperformance by
such parties. See Note 15.
Medite's Irish subsidiary, Medite of Europe Limited, has bank credit
agreements providing for (i) a $22.4 million bank term loan repayable in
installments from 1995 through 2000 and (ii) a $12 million multi-currency
revolving working capital facility through April 1996. Borrowings under both
facilities ($29.2 million at December 31, 1994) are collateralized by
substantially all of Medite/Europe's assets. The term loan bears interest at a
weighted average fixed rate of 8.4% while borrowings under the revolving
facility bear interest at rates based upon LIBOR.
At December 31, 1994, the weighted average interest rates on Medite's
outstanding U.S. and non-U.S. bank borrowings, including the effect of the
interest rate swaps discussed above, were 7.8% and 7.9%, respectively (6.3% and
6.7%, respectively, at December 31, 1993). Amounts available for borrowing
under the existing bank credit facilities aggregated $12 million at December 31,
1994.
Other Medite indebtedness consists principally of a State of Oregon term
loan that matures in monthly installments through March 2008, bears interest at
6.9% and is collateralized by certain of Medite's property and equipment.
Other. Sybra's revolving bank credit agreements provide for unsecured
credit facilities aggregating $21 million with interest generally at LIBOR plus
1.25%. Borrowings under these agreements mature July 1996, subject to renewal
by the parties through July 1997. At December 31, 1993 and 1994, the weighted
average interest rate on outstanding revolving borrowings was 4.7% and 7.7%,
respectively. Amounts available for borrowing aggregated $15.5 million at
December 31, 1994.
Capital lease obligations are stated net of imputed interest. Future
minimum payments under capital lease obligations at December 31, 1994, including
amounts representing interest, are approximately $1.5 million in each of the
next four years and an aggregate of $4.5 million thereafter. The gross amount
of assets recorded under capital leases, included in property and equipment, was
$6.7 million and $6.5 million at December 31, 1993 and 1994, respectively.
Accumulated amortization of assets recorded under capital leases was $3.4
million and $4.0 million at December 31, 1993 and 1994, respectively.
National Cabinet Lock has a Canadian bank credit agreement which currently
provides for approximately $6 million of U.S. or Canadian dollar borrowings,
with interest generally at LIBOR plus .5% and collateralized by substantially
all of National Cabinet Lock's Canadian assets. At December 31, 1994, the full
amount of this facility was available for borrowing.
Aggregate maturities of long-term debt at December 31, 1994
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
(IN THOUSANDS)
<S> <C>
1995 $ 13,456
1996 28,337
1997 15,016
1998 14,438
1999 12,266
2000 and thereafter 135,069
218,582
Less amounts representing interest on capital leases 4,048
$214,534
</TABLE>
Credit agreements of subsidiaries typically require the respective
subsidiary to maintain minimum levels of equity, require the maintenance of
certain financial ratios, limit dividends and additional indebtedness and
contain other provisions and restrictive covenants customary in lending
transactions of this type. At December 31, 1994, the restricted net assets of
the Company's subsidiaries approximated $93 million.
NOTE 5 - BUSINESS UNIT DISPOSITIONS, NET:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Insurance gain on plant destroyed by fire $ 8,490 $ - $ -
Operations permanently closed (5,000) 500 -
$ 3,490 $500 $ -
</TABLE>
The 1992 insurance gain relates to Medite's veneer and chipping plant in
Rogue River, Oregon, as insurance proceeds exceeded the net carrying value of
the assets destroyed and related cleanup costs. The aggregate insurance
proceeds of $16.5 million included $10.9 million attributable to property loss
and $5.6 million attributable to business interruption insurance, which was
recognized as a component of operating income through August 1993. In 1992,
Medite accrued a loss on its plywood business and related facilities permanently
closed in January 1993, most of which related to the net carrying value of
property and equipment in excess of estimated net realizable sales value. In
1993, Medite changed its estimate of the aggregate loss primarily because the
auction sale proceeds of certain equipment exceeded the previously estimated net
realizable value.
NOTE 6 - INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Raw materials:
Building products $14,704 $13,050
Hardware products 1,034 1,313
Fast food 1,329 1,426
17,067 15,789
In process products:
Building products 1,450 1,481
Hardware products 3,179 4,437
4,629 5,918
Finished products:
Building products 1,260 2,711
Hardware products 1,901 2,510
3,161 5,221
Supplies 3,743 4,088
$28,600 $31,016
</TABLE>
The current cost of LIFO inventories exceeded the net carrying value of
such inventories by approximately $7.6 million and $4.1 million at December 31,
1993 and 1994, respectively. The effect of reductions in certain building
products LIFO inventory quantities increased operating income by $1.9 million in
1992, $.5 million in 1993 and $3.2 million in 1994.
NOTE 7 - OTHER INCOME:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994
(IN THOUSANDS)
<S> <C> <C> <C>
General corporate interest income $ 467 $ - $ 211
Miscellaneous interest income 361 313 460
Business interruption insurance 3,700 1,900 -
Currency transaction gains (losses), net 43 (114) 896
Disposal of property and equipment 208 304 23
Other, net 637 734 990
$5,416 $3,137 $2,580
</TABLE>
NOTE 8 - INTANGIBLE AND OTHER NONCURRENT ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Intangible assets, net of accumulated
amortization of $7,856 and $8,551:
Goodwill $ 5,500 $ 5,328
Franchise fees 7,257 6,299
Other 8,323 7,575
$21,080 $19,202
Other assets:
Deferred financing costs $ 4,189 $ 3,537
Prepaid pension cost 3,899 4,363
Property held for sale 3,810 3,979
Other 225 68
$12,123 $11,947
</TABLE>
Property held for sale is carried at the lower of cost or estimated net
realizable value under current market conditions.
NOTE 9 - ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Current accrued liabilities:
Employee benefits $ 9,133 $ 9,978
Interest 1,698 2,221
Insurance claims and expenses 3,304 3,412
Equipment purchases - 2,157
Other 5,144 6,662
$19,279 $24,430
Other noncurrent liabilities:
Insurance claims and expenses $ 1,541 $ 1,339
Accrued OPEB cost 279 298
Other 2,419 1,712
$ 4,239 $ 3,349
</TABLE>
NOTE 10 - INCOME TAXES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994
(IN MILLIONS)
<S> <C> <C> <C>
Components of pretax income:
United States $26.7 $31.1 $23.7
Non-U.S. subsidiaries 13.4 16.4 24.5
$40.1 $47.5 $48.2
Expected tax expense, at U.S. federal statutory
income tax rate of 35% (34% in 1992) $13.6 $16.6 $16.9
Non-U.S. tax rates (1.8) (1.8) (2.4)
Incremental U.S. tax on non-U.S. earnings 3.4 3.6 1.7
Rate change adjustment of deferred taxes - .4 -
Other, net (.2) .4 .9
$15.0 $19.2 $17.1
Components of income tax expense:
Currently payable:
U.S. federal $ 9.1 $11.7 $ 7.9
U.S. state .7 .6 1.0
Non-U.S. 2.1 4.3 4.9
11.9 16.6 13.8
Deferred income taxes, principally U.S. 3.1 2.6 3.3
$15.0 $19.2 $17.1
December 31,
1993 1994
Components of deferred tax assets (liabilities): (In millions)
Tax effect of temporary differences relating to:
Inventories $ (1.7) $ (1.6)
Timber and timberlands (11.3) (11.1)
Property and equipment (5.7) (7.1)
Capital lease assets and obligations 1.4 1.5
Accrued liabilities and other deductible differences 5.2 4.8
Other taxable differences (8.8) (8.4)
Investments in non-U.S. subsidiaries (.2) (2.4)
Net deferred tax liabilities $(21.1) $(24.3)
Current deferred tax assets $ .9 $ 1.6
Noncurrent deferred tax liabilities (22.0) (25.9)
$(21.1) $(24.3)
</TABLE>
NOTE 11 - EMPLOYEE BENEFIT PLANS:
Company-sponsored pension plans
Approximately 30% of the Company's worldwide full and part-time employees
(over 80% of full-time employees) participate in one or more company-sponsored
defined benefit or defined contribution pension plans. Defined pension benefits
are generally based on years of service and compensation under fixed dollar,
final pay or career average formulas, and the related expenses are based on
independent actuarial valuations. The funding policies for U.S. defined benefit
plans are to contribute amounts satisfying funding requirements of the Employee
Retirement Income Security Act of 1974, as amended. Non-U.S. defined benefit
plans are funded in accordance with applicable statutory requirements.
Defined contribution plans. Approximately 90% of the Company's full-time
U.S. employees are eligible to participate in contributory savings plans with
Company contributions based on matching or other formulas, and certain employees
also participate in an unleveraged noncontributory Employee Stock Ownership Plan
maintained by Valhi. Contributions to the ESOP are discretionary and are
allocated to participants based upon compensation. The Company's expense
related to the savings plans and the ESOP approximated $1.5 million in 1992,
$1.7 million in 1993 and $1.8 million in 1994.
Defined benefit plans. About 40% of the Company's worldwide full-time
employees are covered by defined benefit plans. The rates used in determining
the actuarial present value of benefit obligations were (i) discount rate - 8.5%
(1993 - 7.5%), and (ii) rate of increase in future compensation levels - 4%.
The expected long-term rates of return on assets used ranged from 7.5% to 10%.
The plans' assets are primarily mutual funds.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic pension cost:
Service cost $ 749 $ 484 $ 519
Interest cost on PBO 1,443 1,524 1,592
Actual return on plan assets (1,071) (2,395) 594
Net amortization and deferral (1,288) (63) (2,922)
Net expense (credit) $ (167) $ (450) $ (217)
</TABLE>
The 1992 loss related to the permanent closure of Medite's plywood
operations (see Note 5) includes a pretax pension curtailment loss of $.6
million.
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $18,120 $16,573
Nonvested benefits 1,524 1,102
Accumulated benefit obligations 19,644 17,675
Effect of projected salary increases 1,267 1,558
Projected benefit obligations ("PBO") 20,911 19,233
Plan assets at fair value 22,492 21,080
Plan assets over PBO 1,581 1,847
Unrecognized net loss from experience different from
actuarial assumptions 2,727 2,703
Unrecognized prior service cost 494 448
Unrecognized net assets being amortized over periods
of 9 to 11 years (903) (635)
Prepaid pension cost $ 3,899 $ 4,363
Postretirement benefits other than pensions
</TABLE>
Certain Medite retirees receiving benefits from Medite's U.S. salaried
pension plan are eligible to participate in Medite's group health program until
age 65, and contribute to the cost of such benefits.
The rates used in determining the actuarial present value of the
accumulated OPEB obligation were (i) discount rate - 8.5% (1993 - 7.5%), (ii)
rate of increase in future compensation levels - 4% annually and (iii) rate of
increase in future health care costs - 14% in 1995, gradually declining to 6% in
2016 and thereafter. If the health care cost trend rate was increased by one
percentage point for each year, OPEB expense would have increased $5,000 in
1994, and the actuarial present value of accumulated OPEB obligation at December
31, 1994 would have increased $30,000.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic OPEB cost:
Service cost $21 $28 $24
Interest cost 17 21 20
$38 $49 $44
</TABLE
>
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated OPEB obligation:
Retiree benefits $ 25 $ 50
Other fully eligible active plan participants 59 20
Other active plan participants 244 203
328 273
Unrecognized net gain (loss) from experience different
from actuarial assumptions (37) 37
Total accrued OPEB cost 291 310
Less current portion 12 12
Noncurrent accrued OPEB cost $279 $298
</TABLE>
Multiemployer pension plans
Employees of certain former operations were covered by union-sponsored,
collectively-bargained multiemployer pension plans. Contributions to
multiemployer plans based upon collectively-bargained agreements were $54,000 in
1992, $8,000 in 1993 and nil in 1994. Based upon information provided by the
multiemployer plans' administrators, such plans had no unfunded vested benefits
at December 31, 1991 (the latest date available to the Company).
NOTE 12 - CHANGES IN ACCOUNTING PRINCIPLES:
The Company adopted both SFAS No. 106 (OPEB) and SFAS No. 109 (income
taxes) as of January 1, 1992, applied SFAS No. 109 prospectively and elected
immediate recognition of the OPEB transition obligation.
<TABLE>
<CAPTION>
AMOUNT
(IN THOUSANDS)
<S> <C>
Increase (decrease) in net assets at January 1, 1992:
Inventories $ 2,629
Timber and timberlands 8,606
Franchise fees and other intangible assets 5,647
Property and equipment (1,696)
Accrued OPEB cost (226)
Deferred income taxes, net (14,026)
$ 934
</TABLE>
NOTE 13 - RELATED PARTY TRANSACTIONS:
The Company may be deemed to be controlled by Harold C. Simmons. See
Note 1. The Indenture governing the Valcor Senior Notes prohibits co-investment
with affiliates and contains restrictions on other transactions with affiliates.
It is the policy of the Company to engage in transactions with related parties
on terms, in the opinion of the Company, no less favorable to the Company than
could be obtained from unrelated parties.
Loans historically were made between the Company and Valhi pursuant to term
and demand notes, principally for cash management purposes. Such loans
generally bore interest at rates related to credit agreements with unrelated
parties. Interest expense on loans from Valhi was $2,000 in 1992 and $1,000 in
1993.
Receivables from affiliates at December 31, 1994 include $4.1 million for
refundable income taxes (1993 - $.3 million). Interest income from Valhi
related to prior years' income tax refunds was $467,000 in 1992.
Under the terms of Intercorporate Services Agreements with Valhi, Valhi
provides certain management and administrative services to the Company on a fee
basis. Such fees are based upon estimates of time devoted to affairs of the
Company by individual Valhi employees and the salaries of such persons. Fees
charged to the Company were $752,000 in 1992, $760,000 in 1993 and $920,000 in
1994. Net charges from related parties for services provided in the ordinary
course of business, principally charges for insuring property and other risks
and foreign sales corporation commissions, aggregated $3 million in 1992, $2.9
million in 1993 and $2.2 million in 1994. Such charges are principally pass-
through in nature and, in the Company's opinion, are not materially different
from those that would have been incurred on a stand-alone basis.
Certain employees of the Company have been awarded shares of restricted
Valhi common stock and/or granted options to purchase Valhi common stock under
the terms of Valhi's stock option plans. The Company will pay Valhi the
aggregate difference between the option price and the market value of Valhi's
common stock on the exercise date of the options. For financial reporting
purposes, the Company accounts for the related option expense (credit) of
$(54,000) in 1992, $(5,000) in 1993 and $433,000 in 1994 in a manner similar to
accounting for stock appreciation rights. At December 31, 1994, employees of
the Company held options to purchase 680,000 Valhi shares at prices ranging from
$5.00 to $15.00 per share (428,000 shares at prices lower than the December 31,
1994 quoted market price of $7.625 per share).
Restricted stock is forfeitable unless certain periods of employment are
completed. The Company pays Valhi the market value of restricted shares on the
dates the restrictions expire, and accrues the related expense over the
restriction period. Expense related to restricted stock was $15,000 in each of
1992 and 1993 and $65,000 in 1994. At December 31, 1994, 8,300 shares of Valhi
common stock, restricted for periods of up to 18 months, were held by Valhi in
escrow for employees for the Company.
Mr. Edward J. Hardin, a director of the Company, is a partner in the law
firm of Rogers & Hardin which has provided legal services to the Company.
Rogers & Hardin has also provided and may in the future provide legal services
to other entities that may be deemed to be controlled by Harold C. Simmons.
Fees paid by the Company to Rogers & Hardin were less than $250,000 in each of
the past three years.
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
Legal proceedings. The Company is involved in various environmental,
contractual, product liability and other claims and disputes incidental to its
business. The Company currently believes that the disposition of all claims and
disputes, individually or in the aggregate, should not have a material adverse
effect on the Company's consolidated financial condition, results of operations
or liquidity.
Environmental matters. The Company's operations are governed by various
federal, state, local and foreign environmental laws and regulations. The
Company's policy is to comply with environmental laws and regulations at all of
its plants and to continually strive to improve environmental performance in
association with applicable industry initiatives and believes that its
operations are in substantial compliance with applicable requirements of
environmental laws. From time to time, the Company may be subject to
environmental regulatory enforcement under various statutes, resolution of which
typically involves the establishment of compliance programs. Occasionally
resolution of these matters may result in the payment of penalties, but to date
such penalties have not involved amounts having a material adverse effect on the
Company. The Company does not anticipate significant future expenditures for
environmental matters, however the imposition of more strict standards or
requirements under environmental laws and resolutions could result in
expenditures in excess of amounts currently estimated to be required for such
matters.
Income taxes. The Company is undergoing examinations of certain of its
income tax returns, and tax authorities have or may propose tax deficiencies.
The Company believes that it has adequately provided accruals for additional
income taxes and related interest expense which may ultimately result from such
examinations and believes that the ultimate disposition of all such examinations
should not have a material adverse effect on its consolidated financial
position, results of operations or liquidity.
Capital expenditures. At December 31, 1994, the estimated cost to complete
capital projects in process approximated $4 million.
Timber cutting contracts. Deposits are made on timber cutting contracts
with public and private sources from which Medite obtains a portion of its
timber requirements. Medite records only the cash deposits and advances on
these contracts because it does not obtain title to the timber until it has been
harvested. At December 31, 1994, timber and log purchase obligations aggregated
$9.5 million under agreements expiring principally in 1995.
Royalties. Royalty expense, which relates principally to fast food
operations, was $3.8 million in 1992, $4.0 million in 1993 and $3.9 million in
1994. Fast food royalties are paid to the franchisor based upon a percentage of
gross sales, as specified in the franchise agreement related to each individual
restaurant.
Concentrations of credit risk. Medite's sales are made primarily to
wholesalers of building materials located principally in the Western United
States, Pacific Rim and European countries and Mexico. In each of the past
three years, Medite's ten largest customers accounted for approximately one-
fourth of its sales with at least seven of such customers in each year located
in the U.S.
National Cabinet Lock's products are sold primarily to original equipment
manufacturers in the U.S. and Canada. In each of the past three years, National
Cabinet Lock's ten largest customers accounted for approximately one-third of
its sales with at least seven of such customers in each year located in the U.S.
Sybra's restaurants are clustered in four regions, principally Texas,
Michigan, Pennsylvania and Florida. All fast food sales are for cash.
At December 31, 1994, about 25% of the Company's cash and cash equivalents
was on deposit with a single Irish bank and 20% was invested in U.S. treasury
securities (1993 - 40% on deposit with a single Canadian bank).
Operating leases. The Company leases various fast food retail and other
facilities and equipment. Most of the leases contain purchase and/or various
term renewal options at fair market and fair rental values, respectively. In
most cases the Company expects that, in the normal course of business, leases
will be renewed or replaced by other leases. Net rent expense approximated $5.0
million in each of 1992, 1993 and 1994. Contingent rentals based upon gross
sales of individual fast food restaurants were less than 10% of total rent
expense in each of the past three years.
At December 31, 1994, substantially all future minimum payments under
noncancellable operating leases having an initial or remaining term of more than
one year relate to fast food restaurant facilities.
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
(IN THOUSANDS)
<S> <C>
1995 $ 4,631
1996 4,131
1997 3,353
1998 2,521
1999 2,016
2000 and thereafter 9,825
26,477
Less minimum rentals due under noncancellable subleases 1,559
Net minimum commitments $24,918
</TABLE>
NOTE 15 - FINANCIAL INSTRUMENTS:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 10.4 $ 10.4 $ 23.3 $23.3
Long-term debt (excluding capitalized leases):
Valcor Senior Notes $100.0 $100.8 $100.0 $89.6
Medite debt with rates fixed via interest rate swaps 26.0 26.1 26.0 23.3
Other fixed-rate debt 6.3 6.3 26.8 26.0
Variable rate debt 55.1 55.1 55.3 55.3
</TABLE>
Fair value of the Valcor Senior Notes is based upon quoted market prices
(per $100 principal amount) of $100.75 at December 31, 1993 and $89.60 at
December 31, 1994. See Note 4.
The fair value of Medite debt on which interest rates have been effectively
fixed through the use of interest rate swaps is deemed to approximate the book
value of the debt plus or minus the fair value of the related swaps. See Note
4. Fair values of Medite's interest rate swaps are estimated to be a $.1
million payable at December 31, 1993 and a $2.7 million receivable at December
31, 1994, representing the estimated amounts Medite would pay or receive if it
were to terminate the swap agreements at those dates, and are based upon quotes
obtained from the counter party financial institution.
Fair values of other fixed rate debt have been estimated based upon
relative changes in the Company's variable borrowing rates since the dates the
interest rates were fixed. Fair values of variable interest rate debt are
deemed to approximate book value.
Medite entered into certain currency forward contracts to eliminate
exchange rate fluctuation risk on the equivalent of approximately $1 million of
equipment purchase commitments denominated principally in Deutsche Marks ($4
million at December 31, 1993). Such currency forward contracts effectively
fixed the U.S. dollar cost of the related equipment. At December 31, 1993 and
1994, the fair value of the currency contracts, estimated by obtaining quotes
from the counter party financial institutions, approximated the contract amount.
NOTE 16 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Net sales $84,746 $98,454 $95,240 $96,938
Operating income 11,844 18,894 17,547 17,986
Net income 4,251 9,069 9,010 8,768
Year ended December 31, 1993
Net sales $80,128 $87,134 $92,400 $90,647
Operating income 10,338 13,406 13,267 16,444
Net income 6,133 7,680 6,470 8,067
Year ended December 31, 1992
Net sales $83,077 $90,448 $89,558 $89,586
Operating income 7,415 10,768 10,208 12,803
Net income 5,114 5,784 7,631 7,497
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Stockholder and Board of Directors of Valcor, Inc.:
Our report on the consolidated financial statements of Valcor, Inc. as of
December 31, 1993 and 1994 and for each of the three years in the period ended
December 31, 1994 is herein included in this Annual Report on Form 10-K. As
discussed in Note 12 to the consolidated financial statements, in 1992 the
Company changed its method of accounting for postretirement benefits other than
pensions and income taxes in accordance with Statements of Financial Accounting
Standards Nos. 106 and 109, respectively. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedules listed in the index on page F-1 of this Annual Report on Form 10-K.
These consolidated financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statement schedules based on our audits. We did not
audit the financial statements of Medite Corporation, which subsidiary
constituted approximately two-thirds of consolidated assets as of December 31,
1993 and 1994 and approximately one-half of consolidated net sales for each of
the three years in the period ended December 31, 1994. These statements were
audited by other auditors whose report thereon was furnished to us and our
opinion expressed herein, insofar as it relates to amounts included for Medite,
is based solely upon their report.
In our opinion, based upon our audits and the report of other auditors, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 10, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Stockholder and Board of Directors of Medite Corporation:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements (not presented separately herein) of
Medite Corporation as of December 31, 1993 and 1994 and for each of the three
years in the period ended December 31, 1994, and have issued our report thereon
dated January 27, 1995. As discussed in Note 7 to the consolidated financial
statements (not presented separately herein), in 1992 the Company changed its
method of accounting for postretirement benefits other than pensions and income
taxes in accordance with Statements of Financial Accounting Standards Nos. 106
and 109, respectively. Our audits of the financial statements were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The financial statement schedule II (not presented separately herein) is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and are not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Portland, Oregon,
January 27, 1995
VALCOR, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1993 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,086 $ 922
Demand loans to subsidiaries 2,000 21,250
Income taxes receivable from affiliates, net 530 2,238
Other 11 3
Total current assets 4,627 24,413
Other assets:
Investment in subsidiaries 107,385 109,092
Deferred financing costs 3,368 3,025
Total other assets 110,753 112,117
$115,380 $136,530
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accrued interest $ 1,417 $ 1,604
Payable to affiliates 56 62
Other 56 14
Total current liabilities 1,529 1,680
Long-term debt - Senior Notes Due 2003 100,000 100,000
Stockholder's equity 13,851 34,850
$115,380 $136,530
</TABLE>
VALCOR, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Interest income $ - $ 23 $ 1,099
General and administrative expenses - (55) (172)
Interest expense - (1,482) (9,968)
Loss before income taxes - (1,514) (9,041)
Income tax benefit (expense) (478) 530 5,523
(478) (984) (3,518)
Equity in earnings of subsidiaries 25,570 29,334 34,616
Income before cumulative effect of
changes in accounting principles 25,092 28,350 31,098
Cumulative effect of changes in
accounting principles 934 - -
Net income $26,026 $28,350 $31,098
</TABLE>
VALCOR, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 26,026 $ 28,350 $ 31,098
Undistributed earnings of subsidiaries:
Equity in earnings (25,570) (29,334) (34,616)
Distributions 21,114 56,382 32,380
Other, net (10) 57 343
Change in assets and liabilities, net - 988 (1,549)
Cumulative change in accounting principles (934) - -
Net cash provided by operating
activities 20,626 56,443 27,656
Cash flows from investing activities - loans
to subsidiaries, net - (2,000) (19,250)
Cash flows from financing activities:
Additions to long-term debt - 100,000 -
Dividends to Valhi (21,114) (148,932) (9,570)
Other, net 488 (3,425) -
Net cash used by financing activities (20,626) (52,357) (9,570)
Net increase (decrease) in cash - 2,086 (1,164)
Balance at beginning of year - - 2,086
Cash and cash equivalents at end of year $ - $ 2,086 $ 922
Supplemental disclosures - cash paid
(received) for:
Interest expense $ - $ 8 $ 9,438
Income taxes, net 488 - (3,811)
</TABLE>
VALCOR, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO CONDENSED FINANCIAL INFORMATION
NOTE 1 - GENERAL:
The Company's Consolidated Financial Statements are incorporated herein by
reference.
NOTE 2 - INVESTMENT IN SUBSIDIARIES:
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Medite $ 59,393 $ 54,940
National Cabinet Lock 19,377 26,187
Sybra 28,615 27,965
$107,385 $109,092
</TABLE>
NOTE 3 - EQUITY IN EARNINGS OF SUBSIDIARIES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Medite $14,566 $14,894 $18,347
National Cabinet Lock 6,685 9,528 11,919
Sybra 4,319 4,912 4,350
$25,570 $29,334 $34,616
</TABLE>
NOTE 4 - DIVIDENDS FROM SUBSIDIARIES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Medite, net $12,000 $47,000 $22,800
National Cabinet Lock 4,114 4,382 4,580
Sybra 5,000 5,000 5,000
$21,114 $56,382 $32,380
</TABLE>
NOTE 5 - CASH PAID FOR INCOME TAXES:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1992 1993 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Received from subsidiaries:
Medite $2,373 $ 7,435 $ 8,140
National Cabinet Lock 1,919 3,002 3,506
Sybra 2,963 3,857 3,465
7,255 14,294 15,111
Paid to:
Valhi 7,623 14,294 11,300
Tax authorities 120 - -
7,743 14,294 11,300
Cash paid (received) for income taxes, net $ 488 $ - $(3,811)
</TABLE>
Medite's Irish subsidiary (Medite of Europe Limited) and National Cabinet
Lock's Canadian subsidiary (Waterloo Furniture Components Limited) are not
members of the consolidated federal income tax group of which Valcor, Medite,
Sybra and National Cabinet Lock are members.
NOTE 6 - CHANGES IN ACCOUNTING PRINCIPLES:
The Company adopted both SFAS No. 106 (OPEB) and SFAS No. 109 (income
taxes) as of January 1, 1992, applied SFAS No. 109 prospectively and elected
immediate recognition of the OPEB transition obligation.
<TABLE>
<CAPTION>
AMOUNT
(IN THOUSANDS)
<S> <C>
Increase (decrease) in net assets at January 1, 1992:
Investment in subsidiaries, principally Medite $1,237
Deferred income taxes, net (303)
$ 934
</TABLE>
VALCOR, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND
DESCRIPTION OF YEAR EXPENSES
<S> <C> <C>
Year ended December 31, 1992:
Allowance for doubtful accounts $1,122 $ 566
Amortization of intangible assets:
Goodwill $ 677 $ 165
Franchise fees and other 3,893 1,550
$4,570 $1,715
Year ended December 31, 1993:
Allowance for doubtful accounts $1,223 $ 11
Amortization of intangible assets:
Goodwill $ 842 $ 166
Franchise fees and other 5,424 1,571
$6,266 $1,737
Year ended December 31, 1994:
Allowance for doubtful accounts $ 888 $ 184
Amortization of intangible assets:
Goodwill $1,008 $ 172
Franchise fees and other 6,848 1,423
$7,856 $1,595
</TABLE>
<TABLE>
<CAPTION>
BALANCE
AT END
DESCRIPTION DEDUCTIONS OF YEAR
<S> <C> <C>
Year ended December 31, 1992:
Allowance for doubtful accounts $ (465) $1,223
Amortization of intangible assets:
Goodwill $ - $ 842
Franchise fees and other (19) 5,424
$ (19) $6,266
Year ended December 31, 1993:
Allowance for doubtful accounts $ (346) $ 888
Amortization of intangible assets:
Goodwill $ - $1,008
Franchise fees and other (147) 6,848
$ (147) $7,856
Year ended December 31, 1994:
Allowance for doubtful accounts $ (502) $ 570
Amortization of intangible assets:
Goodwill $ - $1,180
Franchise fees and other (900) 7,371
$ (900) $8,551
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VALCOR,
INC.'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1994,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 23,256
<SECURITIES> 0
<RECEIVABLES> 27,354
<ALLOWANCES> 570
<INVENTORY> 31,016
<CURRENT-ASSETS> 90,593
<PP&E> 243,322
<DEPRECIATION> 97,483
<TOTAL-ASSETS> 320,695
<CURRENT-LIABILITIES> 54,762
<BONDS> 201,796
<COMMON> 1
0
0
<OTHER-SE> 34,849
<TOTAL-LIABILITY-AND-EQUITY> 320,695
<SALES> 375,378
<TOTAL-REVENUES> 375,378
<CGS> 287,547
<TOTAL-COSTS> 287,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 184
<INTEREST-EXPENSE> 17,591
<INCOME-PRETAX> 48,239
<INCOME-TAX> 17,141
<INCOME-CONTINUING> 31,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,098
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
