SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997 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: (972) 233-1700
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 THE GENERAL INSTRUCTIONS OF FORM 10-Q FOR
REDUCED DISCLOSURE FORMAT.
VALCOR, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets - December 31, 1996
and June 30, 1997 3-4
Consolidated Statements of Operations -
Three months and six months ended June 30, 1996
and 1997 5
Consolidated Statement of Stockholder's Equity -
Six months ended June 30, 1997 6
Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and 1997 7-8
Notes to Consolidated Financial Statements 9-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 18-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K. 22
VALCOR, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS DECEMBER 31, JUNE 30,
1996 1997
Current assets:
Cash and cash equivalents $136,054 $189,038
Accounts receivable 15,535 15,913
Receivable from affiliates 178 99
Inventories 18,222 10,699
Prepaid expenses 2,667 530
Deferred income taxes 5,160 3,633
Total current assets 177,816 219,912
Other assets:
Intangible assets 16,272 270
Property held for sale 4,638 7,414
Deferred financing costs 2,317 1,472
Other 51 -
Total other assets 23,278 9,156
Property and equipment:
Land 19,537 793
Buildings 38,572 9,591
Equipment 103,005 21,682
Construction in progress 2,492 1,276
163,606 33,342
Less accumulated depreciation 75,684 16,441
Net property and equipment 87,922 16,901
$289,016 $245,969
VALCOR, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDER'S EQUITYDECEMBER 31, JUNE 30,
1996 1997
Current liabilities:
Current maturities of long-term debt $ 1,224 $ 71
Accounts payable 14,248 5,792
Accrued liabilities 25,566 13,594
Payable to affiliates 30,967 5,472
Income taxes 1,070 798
Total current liabilities 73,075 25,727
Noncurrent liabilities:
Long-term debt 108,458 68,811
Deferred income taxes 8,717 10,945
Other 4,376 3,070
Total noncurrent liabilities 121,551 82,826
Stockholder's equity:
Common stock 1 1
Additional paid-in capital 520 520
Retained earnings 96,524 139,614
Adjustments:
Pension liabilities (2,533) (2,533)
Currency translation (122) (186)
Total stockholder's equity 94,390 137,416
$289,016 $245,969
Commitments and contingencies (Note 1)
VALCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996* 1997 1996* 1997
Revenues and other income:
Net sales $21,728 $27,427 $ 42,939 $53,256
Other, net 376 2,423 782 4,500
22,104 29,850 43,721 57,756
Costs and expenses:
Cost of sales 14,612 18,061 29,144 35,084
Selling, general and 2,410 2,728 4,862 5,665
administrative
Interest 2,515 1,904 5,030 4,422
19,537 22,693 39,036 45,171
Income before income taxes 2,567 7,157 4,685 12,585
Provision for income taxes 1,242 2,772 2,230 4,904
Income from continuing 1,325 4,385 2,455 7,681
operations
Discontinued operations 3,247 19,742 (11,051) 35,803
Extraordinary item - (394) - (394)
Net income (loss) $ 4,572 $23,733 $ (8,596) $43,090
*Reclassified for discontinued operations.
VALCOR, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
Balance at December 31, 1996 $1 $520 $ 96,524
Net income - - 43,090
Adjustments, net - - -
Balance at June 30, 1997 $1 $520 $139,614
ADJUSTMENTS
CURRENCY TOTAL
PENSION TRANSLATIONSTOCKHOLDER'S
LIABILITIES ADJUSTMENT EQUITY
Balance at December 31, 199 $(2,533) $(122) $ 94,390
Net income - - 43,090
Adjustments, net - (64) (64)
Balance at June 30, 1997 $(2,533) $(186) $137,416
VALCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(IN THOUSANDS)
1996* 1997
Cash flows from operating activities:
Net income (loss) $ (8,596) $ 43,090
Depreciation and amortization 1,438 1,538
Deferred income taxes 77 195
Discontinued operations 11,051 (35,803)
Other, net 377 960
4,347 9,980
Medite, net 12,595 (40,020)
Sybra, net 4,508 (1,078)
Change in assets and liabilities:
Accounts receivable (804) (2,805)
Inventories (280) 349
Accounts payable and accrued liabilities (528) 1,032
Accounts with affiliates (1,147) 8,164
Other, net (332) (278)
Net cash provided (used) by operatin
activities
18,359 (24,656)
Cash flows from investing activities:
Capital expenditures (1,445) (1,899)
Medite, net (8,397) 34,733
Sybra, net (2,126) 53,929
Other, net 188 -
Net cash provided (used) by investin
activities
(11,780) 86,763
Cash flows from financing activities:
Repayments of indebtedness (23) (31,439)
Dividends (383) -
Medite, net (2,228) (9)
Sybra, net (2,329) 22,381
Net cash used by financing activitie (4,963) (9,067)
Net increase $ 1,616 $ 53,040
VALCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(IN THOUSANDS)
1996* 1997
Cash and cash equivalents:
Net changes from operating, investing
and financing activities $ 1,616 $ 53,040
Currency translation 8 (56)
1,624 52,984
Balance at beginning of period 17,618 136,054
Balance at end of period $19,242 $189,038
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized $ 9,191 $ 5,024
Income taxes, net 5,100 40,924
*Reclassified for discontinued operations.
VALCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The consolidated balance sheet at December 31, 1996 has been condensed from
the Company's audited consolidated financial statements at that date. The
consolidated balance sheet at June 30, 1997 and the consolidated statements of
operations, cash flows and stockholder's equity for the interim periods ended
June 30, 1996 and 1997 have been prepared by the Company, without audit. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position,
results of operations and cash flows have been made. The results of operations
for the interim periods are not necessarily indicative of the operating results
for a full year or of future operations.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted. The accompanying consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 Annual Report"). Prior period statements of
operations and cash flows have been reclassified to present both Medite
Corporation, the Company's wholly-owned building products subsidiary, and Sybra,
Inc., the Company's wholly-owned fast food subsidiary, as discontinued
operations. See Note 7. The extraordinary loss relates to the write-off of
unamortized deferred financing costs resulting from the early retirement of
$27.6 million of the Company's Senior Notes in connection with the tender offer
completed in April 1997. See Note 5.
Commitments and contingencies are discussed in Notes 5 and 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Legal Proceedings" and the 1996 Annual Report.
NOTE 2 - BUSINESS SEGMENT INFORMATION:
The Company's continuing operations are conducted by its wholly-owned
subsidiary, CompX International Inc., in the components products industry.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1997 1996 1997
(IN MILLIONS)
Net sales $21.7 $27.5 $42.9 $53.3
Operating income $ 5.0 $ 6.9 $ 9.4 $13.2
General corporate items:
Interest income .2 2.3 .5 4.2
Expenses (.1) (.1) (.2) (.4)
Interest expense (2.5) (1.9) (5.0) (4.4)
Income before income $ 2.6 $ 7.2 $ 4.7 $12.6
taxes
NOTE 3 - INVENTORIES:
DECEMBER 31, JUNE 30,
1996 1997
(IN THOUSANDS)
Raw materials:
Component products $ 2,556 $ 2,140
Building products 4,306 55
Fast food 1,406 -
8,268 2,195
In process products:
Component products 4,974 4,984
Building products 83 -
5,057 4,984
Finished products:
Component products 3,300 3,356
Building products 1,096 106
4,396 3,462
Supplies 501 58
$18,222 $10,699
NOTE 4 - PROVISION FOR INCOME TAXES ATTRIBUTABLE TO CONTINUING OPERATIONS:
SIX MONTHS ENDED
JUNE 30,
1996 1997
(IN MILLIONS)
Expected tax expense $1.6 $4.4
Non-U.S. tax rates .2 .1
Incremental tax on non-U.S. earnings .2 .3
State income taxes and other, net .2 .1
$2.2 $4.9
NOTE 5 - LONG-TERM DEBT:
DECEMBER 31, JUNE 30
1996 1997
(IN THOUSANDS)
Valcor - 9 5/8% Senior Notes Due 2003 $100,000 $68,638
Medite:
Term loan 3,727 -
Other 168 159
3,895 159
Other:
Sybra bank credit agreements 1,081 -
Sybra capital leases 4,540 -
Other 166 85
5,787 85
109,682 68,882
Less current maturities 1,224 71
$108,458 $68,811
Medite's term loan was assumed by the purchaser of Medite's Oregon medium
density fiberboard facility in February 1997. Sybra's bank indebtedness was
repaid and terminated in April 1997 immediately prior to Valcor's sale of
Sybra's common stock, and the purchaser of Sybra's common stock assumed Sybra's
capital lease obligations. See Note 7.
The after-tax proceeds from the dispositions of Medite and Sybra, net of
repayments of their respective U.S. bank debt, are available for Valcor's
general corporate purposes, subject to compliance with certain covenants
contained in the Valcor Senior Note Indenture. See Note 7. Also under the
terms of the Indenture, Valcor is required to tender for a portion of the Senior
Notes, at par, to the extent that a specified amount of these proceeds is not
used to either permanently paydown senior indebtedness of Valcor or its
subsidiaries or invest in related businesses, as specified in the Indenture,
within one year of disposition. While Valcor was not yet required to execute a
tender offer related to Medite's asset dispositions, in March 1997 Valcor
initiated a tender offer to purchase up to $86.7 million principal amount of
Senior Notes on a pro-rata basis, at par value, in satisfaction of the covenant
contained in the Indenture related to the Medite asset dispositions. Pursuant
to its terms, the tender offer expired in April 1997, and Valcor purchased $27.6
million principal amount of Senior Notes which had been properly tendered,
including $1.1 million of Senior Notes held by Valhi. In addition, during the
first quarter of 1997, Valcor also purchased $3.8 million of Senior Notes in
open market transactions prior to commencement of the tender offer. To the
extent that the net proceeds from the disposition of Sybra's fast food
operations are not used as provided by the Indenture, a portion of the remaining
Senior Notes could be subject to a future tender offer.
On August 6, 1997, Valcor initiated a consent solicitation to amend certain
provisions of the Valcor Senior Note Indenture which, if successfully completed,
would remove restrictions that currently limit the ability of Valcor and its
subsidiaries to, among other things, incur debt, pay dividends, create liens and
enter into transactions or co-invest with affiliates. The proposed amendments
to the Indenture require the consent from holders representing at least a
majority of the $68.6 million principal amount of Senior Notes currently
outstanding. If the consent solicitation is successfully completed, Valcor will
pay to all holders who validly consent on or prior to August 27, 1997 a cash
consent fee of $10 per $1,000 principal amount of Senior Notes. The consent
solicitation also includes a concurrent offer by Valcor to purchase the Senior
Notes of all holders who validly tender on or prior to September 4, 1997 at a
cash purchase price of $1,040 per $1,000 principal amount. Holders who tender
their Senior Notes are generally obligated to consent to the proposed amendments
to the Indenture, but holders may consent to the proposed amendments without
tendering their Senior Notes. However, Valcor's obligation to purchase the
Senior Notes is contingent upon the successful completion of the consent
solicitation.
NOTE 6 - ACCRUED AND OTHER LIABILITIES:
DECEMBER 31, JUNE 30,
1996 1997
(IN THOUSANDS)
Current accrued liabilities:
Employee benefits $ 7,880 $ 2,956
Plant closure costs 7,669 5,604
Interest 1,648 1,106
Insurance claims and expenses 3,037 982
Other 5,332 2,946
$25,566 $13,594
Payable to affiliates:
Income taxes payable to Valhi $30,760 $ 5,316
Other, net 207 156
$30,967 $ 5,472
Other noncurrent liabilities:
Accrued pension and OPEB costs $ 1,510 $ 1,510
Environmental costs 1,000 946
Insurance claims and expenses 445 444
Other 1,421 170
$ 4,376 $ 3,070
NOTE 7 - DISCONTINUED OPERATIONS:
The components of discontinued operations are presented in the following
table.
SIX MONTHS ENDED
JUNE 30,
1996 1997
(IN THOUSANDS)
Medite Corporation $(12,734)$16,057
Sybra, Inc. 1,683 19,746
$(11,051)$35,803
Medite. In the fourth quarter 1996, Medite Corporation sold its timber and
timberlands and its Irish medium density fiberboard ("MDF") subsidiary. In
February 1997 Medite sold its Oregon MDF facility for approximately $36 million
cash consideration (before fees and expenses) plus the assumption of
approximately $3.7 million of Medite indebtedness. Medite's two remaining
facilities have been closed, and Medite expects to complete the sale of such
facilities later in the year. Accordingly, the accompanying financial
statements present the results of operations of Medite's building products
business segment as discontinued operations for all periods presented.
Medite's first quarter 1996 results include a pre-tax charge of $24 million
for the estimated costs of permanently closing its New Mexico MDF plant. Medite
also recognized a $13 million pre-tax charge in the fourth quarter of 1996 for
the estimated costs of permanently closing the stud lumber and veneer
facilities. Approximately $26 million of such charges represent non-cash costs,
most of which related to the net carrying value of property and equipment in
excess of estimated net realizable value. These non-cash costs were deemed
utilized upon adoption of the respective closure plans. Approximately $11
million of such charges represent workforce, environmental and other estimated
cash costs associated with the closure of the facilities, of which approximately
$5 million had been paid at June 30, 1997 ($3 million paid at December 31,
1996).
Condensed income statement data for Medite is presented below. The $24
million pre-tax New Mexico MDF plant closure charge is included in Medite's
operating income for 1996 because the decision to close the New Mexico MDF
facility occurred prior to the decision to permanently dispose of the entire
business segment. The gain on disposal in 1997 relates to the first quarter
sale of the Oregon MDF facility. Interest expense represents interest on
indebtedness of Medite and its subsidiaries.
SIX MONTHS ENDED
JUNE 30,
1996 1997
(IN MILLIONS)
Operations of Medite:
Net sales $ 94.6 $20.5
Operating income (loss) $(16.9) $ 2.8
Interest expense and other, net (4.1) (.2)
Pre-tax income (loss) (21.0) 2.6
Income tax expense (benefit) (8.3) 1.0
(12.7) 1.6
Net gain on disposal:
Pre-tax gain - 22.3
Income tax expense - 7.9
- 14.4
$(12.7) $16.0
Condensed balance sheets for Medite, included in the Company's consolidated
balance sheets, are presented below.
DECEMBER 31, JUNE 30,
1996 1997
(IN MILLIONS)
Current assets $21.2 $13.1
Property and equipment, net 18.2 .4
Property held for sale and other assets 4.8 6.8
$44.2 $20.3
Current liabilities $17.6 $ 8.8
Long-term debt 3.7 .1
Deferred income taxes 1.6 3.7
Other liabilities 3.0 3.1
Stockholder's equity (*) 18.3 4.6
$44.2 $20.3
* Eliminated in consolidation.
Condensed cash flow data for Medite (excluding dividends paid to and
intercompany loans with Valcor) is presented below.
SIX MONTHS ENDED
JUNE 30,
1996 1997
(IN MILLIONS)
Cash flows from operating activities $12.6 $(40.0)
Cash flows from investing activities:
Capital expenditures (8.6) (.4)
Proceeds from disposal of assets - 35.1
Other, net .2 -
(8.4) 34.7
Cash flows from financing activities -
Indebtedness, net (2.2) -
$ 2.0 $ (5.3)
Sybra. On April 30, 1997, Valcor completed the disposition of its fast
food operations conducted by Sybra. The disposition was accomplished in two
separate, simultaneous transactions. The first transaction involved the sale of
certain restaurant real estate owned by Sybra for $45 million cash
consideration. Substantially all of the net-of-tax proceeds from this
transaction were distributed to Valcor. The second transaction involved
Valcor's sale of 100% of the common stock of Sybra for $14 million cash
consideration plus the repayment by the purchaser of approximately $23.8 million
of Sybra's intercompany indebtedness owed to Valcor. Under certain conditions,
the purchaser of Sybra's common stock is obligated to pay additional contingent
consideration of approximately $2 million to Valcor in the future. Accordingly,
the accompanying financial statements present the results of operations of
Sybra's fast food operations as discontinued operations for all periods
presented.
Condensed income statement data for Sybra through the date of disposal
is presented below. Interest expense represents interest on indebtedness of
Sybra. The gain on disposal includes both Sybra's sale of its restaurant real
estate and Valcor's sale of Sybra's common stock. The provision for income
taxes applicable to the pre-tax gain on disposal varies from the 35% federal
statutory income tax rate due principally to the excess of tax basis over book
basis of the common stock of Sybra sold for which no deferred income tax benefit
was previously recognized.
SIX MONTHS ENDED
JUNE 30,
1996 1997
(IN MILLIONS)
Operations of Sybra:
Net sales $56.9 $37.9
Operating income $ 4.0 $ 1.7
Interest expense and other, net (1.3) (.6)
Pre-tax income 2.7 1.1
Income tax expense 1.0 .5
1.7 .6
Net gain on disposal:
Pre-tax gain - 23.2
Income tax expense - 4.1
- 19.1
$ 1.7 $19.7
A condensed balance sheet for Sybra at December 31, 1996, included in the
Company's consolidated balance sheet, is presented below.
AMOUNT
(IN MILLIONS)
Current assets $ 6.0
Intangible assets 16.0
Property and equipment, net 53.6
$75.6
Current liabilities $14.4
Long-term debt 4.7
Loan payable to Valcor (*) 20.0
Other liabilities 1.4
Stockholder's equity (*) 35.1
$75.6
(*) Eliminated in consolidation
Condensed cash flow data for Sybra (excluding dividends paid to and
intercompany loans with Valcor, but including the net proceeds from Valcor's
sale of Sybra's common stock) is presented below.
SIX MONTHS ENDED
JUNE 30,
1996 1997
(IN MILLIONS)
Cash flows from operating activities $ 4.5 $(1.1)
Cash flows from investing activities:
Capital expenditures (2.2) (1.8)
Proceeds on disposal of assets - 55.3
Other, net .1 .4
(2.1) 53.9
Cash flows from financing activities -
Indebtedness, net
(2.3) 22.4
$ .1 $75.2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
OVERVIEW
The Company reported income from continuing operations of $7.7 million in
the first six months of 1997 compared to $2.4 million in the first six months of
1996. Discontinued operations include both the results of operations of Medite
Corporation and Sybra, Inc., and in 1997 include (i) a first quarter after-tax
gain on disposal of $14 million ($22 million pre-tax) related to the sale of
Medite's Oregon MDF facility and (ii) a second quarter after-tax gain on
disposal of $19 million ($23 million pre-tax) related to the disposition of
Sybra's fast food operations. See Note 7 to the Consolidated Financial
Statements.
The statements in this Quarterly Report on Form 10-Q relating to matters
that are not historical facts, including, but not limited to, statements found
in this "Management's Discussion and Analysis of Financial Condition and Results
of Operations", are forward-looking statements that involve a number of risks
and uncertainties. Factors that could cause actual future results to differ
materially from those expressed in such forward-looking statements include, but
are not limited to, future supply and demand for the Company's products
(including cyclicality thereof), general economic conditions, competitive
products and substitute products, customer and competitor strategies, the impact
of pricing and production decisions, environmental matters, government
regulations and possible changes therein, completion of business unit
dispositions, the ultimate resolution of pending litigation and possible future
litigation and other risks and uncertainties as discussed in this Quarterly
Report and the 1996 Annual Report.
COMPONENT PRODUCTS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, % JUNE 30, %
1996 1997 CHANGE 1996 1997 CHANGE
(IN MILLIONS) (IN MILLIONS)
Net sales $21.7 $27.5 +26% $42.9 $53.3 +24%
Operating 5.0 6.9 +38% 9.4 13.2 +40%
income
Sales, operating income and margins increased in 1997 due primarily to
increased volumes in all three major product lines (ergonomic workstations,
drawer slides and locks). Relative changes in product mix also favorably
impacted comparisons, as 1996 sales included a relatively higher volume of
lower-margin products, including those resulting from an August 1995 business
acquisition. Lock sales were also aided by certain price increases instituted
at the beginning of 1997, which helped to partially offset increases in certain
raw material costs (primarily zinc and copper).
OTHER
General corporate interest income increased in 1997 due principally to a
higher level of funds available for investment resulting from the funds
generated from the Medite and Sybra asset dispositions. Interest expense is
expected to be lower in calendar 1997 as compared to calendar 1996 due primarily
to a lower amount of Senior Notes outstanding as a result of the Valcor Senior
Notes purchased in April 1997 pursuant to the Company's tender offer. See Note
5 to the Consolidated Financial Statements.
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 effective income tax rate. See Note 4 to the Consolidated
Financial Statements.
Discontinued operations include both the results of operations of Medite
and Sybra. See Note 7 to the Consolidated Financial Statements.
The extraordinary loss in 1997 resulted from the pro-rata write-off of
deferred financing costs resulting from the Valcor Senior Notes purchased in
April 1997 pursuant to the Company's tender offer. See Note 5 to the
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES:
Cash flows from operating activities. Cash flow from operating activities
attributable to continuing operations before changes in assets and liabilities
was $4.3 million in the first six months of 1996 and $10.0 million in the first
six months of 1997. Changes in assets and liabilities generally result from the
timing of production, sales, purchases and income tax payments.
Cash flows from investing and financing activities. CompX's capital
expenditures in calendar 1997 are currently expected to approximate $3 million.
Net repayments of indebtedness in 1997 consists of Valcor Senior Notes
purchased. See Note 5 to the Consolidated Financial Statements. At June 30,
1997, CompX had approximately $5 million of U.S. or the equivalent Canadian
dollar borrowing availability under its Canadian bank credit facility.
Cash flows from discontinued operations. Condensed cash flow data for
Medite and Sybra are included in Note 7 to the Consolidated Financial
Statements. Under the terms of Internal Revenue Code and similar state
regulations regarding the timing of estimated tax payments, Valcor was not
required to pay income taxes related to Medite's 1996 sales of its timber and
timberlands and Irish MDF subsidiary until 1997, at which time such payment
(approximately $38 million) was shown as a reduction in cash flows from
operating activities even though the pre-tax proceeds from disposition of such
assets were shown as part of cash flows from investing activities in the fourth
quarter of 1996. Similarly, cash income taxes related to Medite's February 1997
sale of the Oregon MDF facility are also shown as a reduction from cash flows
from operating activities, and cash income taxes of approximately $4 million
related to the April 1997 disposition of Sybra's fast food operations are not
required to be paid until later in 1997.
Other. At June 30, 1997, assets held for sale, recorded at estimated net
realizable value, consist principally of land, building and equipment from
Medite's former veneer facility and land from Medite's former stud lumber
facility and another former Medite facility closed before 1996. The salvageable
property and equipment from the stud facility, included in assets held for sale
at December 31, 1996, were sold during the first quarter of 1997 for an amount
approximating previously-estimated net realizable value.
Valcor's continuing operations are conducted through CompX. 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 CompX, along with its parent
company level cash resources. CompX's Canadian bank credit agreement contains
customary limitations on the ability of the subsidiary to pay dividends to
CompX. There are no restrictions on the ability of CompX to pay dividends to
Valcor. Valcor has not guaranteed any indebtedness of CompX. The Company
believes that future distributions from its subsidiaries, along with its parent
company level cash resources, will be sufficient to enable Valcor to meet its
obligations. Valcor dividends to Valhi are generally limited to 50% of
consolidated net income, as defined in the Senior Note Indenture. At June 30,
1997, no amounts were available for dividends.
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 has in the past and may in the future seek to raise
additional capital, refinance or restructure indebtedness, repurchase
indebtedness in the market or otherwise, 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 and former 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 or hold noncontrolling interests in business
units.
The after-tax proceeds from the dispositions of Medite and Sybra, net of
repayments of their respective U.S. bank debt, are available for Valcor's
general corporate purposes, subject to compliance with certain covenants
contained in the Valcor Senior Note Indenture. See Note 7 to the Consolidated
Financial Statements. Also under the terms of the Indenture, Valcor is required
to tender for a portion of the Senior Notes, at par, to the extent that a
specified amount of these proceeds is not used to either permanently paydown
senior indebtedness of Valcor or its subsidiaries or invest in related
businesses, as specified in the Indenture, within one year of disposition.
While Valcor was not yet required to execute a tender offer related to Medite's
asset dispositions, in March 1997 Valcor initiated a tender offer to purchase up
to $86.7 million principal amount of Senior Notes on a pro-rata basis, at par
value, in satisfaction of the covenant contained in the Indenture related to the
Medite asset dispositions. Pursuant to its terms, the tender offer expired in
April 1997, and Valcor purchased $27.6 million principal amount of Senior Notes
which had been properly tendered, including $1.1 million of Senior Notes held by
Valhi. In addition, during the first quarter of 1997, Valcor also purchased
$3.8 million of Senior Notes in open market transactions prior to commencement
of the tender offer. To the extent that the net proceeds from the disposition of
Sybra's fast food operations are not used as provided by the Indenture, a
portion of the remaining Senior Notes could be subject to a future tender offer.
On August 6, 1997, Valcor initiated a consent solicitation to amend certain
provisions of the Valcor Senior Note Indenture which, if successfully completed,
would remove restrictions that currently limit the ability of Valcor and its
subsidiaries to, among other things, incur debt, pay dividends, create liens and
enter into transactions or co-invest with affiliates. The proposed amendments
to the Indenture require the consent from holders representing at least a
majority of the $68.6 million principal amount of Senior Notes currently
outstanding. If the consent solicitation is successfully completed, Valcor will
pay to all holders who validly consent on or prior to August 27, 1997 a cash
consent fee of $10 per $1,000 principal amount of Senior Notes. The consent
solicitation also includes a concurrent offer by Valcor to purchase the Senior
Notes of all holders who validly tender on or prior to September 4, 1997 at a
cash purchase price of $1,040 per $1,000 principal amount. Holders who tender
their Senior Notes are generally obligated to consent to the proposed amendments
to the Indenture, but holders may consent to the proposed amendments without
tendering their Senior Notes. However, Valcor's obligation to purchase the
Senior Notes is contingent upon the successful completion of the consent
solicitation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to the 1996 Annual Report and prior 1997 quarterly
periodic reports for descriptions of certain legal proceedings.
Discovery has been stayed in the previously-reported Medite Corporation v.
Public Services Company of New Mexico pending oral arguments at a hearing
scheduled for August 1997 on motions for partial summary judgment and summary
judgment filed by the plaintiff and defendant, respectively.
Trial is currently scheduled to begin in September 1997 in the previously-
reported Midgard Corporation v. Medite of New Mexico, Inc., et al.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 -Financial Data Schedule for the six-month period ended June 30,
1997.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended June 30, 1997.
April 25, 1997 - Reported Items 5 and 7.
April 30, 1997 - Reported Items 2 and 7.
May 2, 1997 - Reported Items 5 and 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALCOR, INC.
(Registrant)
Date August 6, 1997 By /s/ Bobby D. O'Brien
Bobby D. O'Brien
(Vice President,
Principal Financial Officer)
Date August 6, 1997 By /s/ Gregory M. Swalwell
Gregory M. Swalwell
(Controller,
Principal Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALCOR, INC.
(Registrant)
Date August 6, 1997 By
Bobby D. O'Brien
(Vice President,
Principal Financial Officer)
Date August 6, 1997 By
Gregory M. Swalwell
(Controller,
Principal Accounting Officer)