UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter period ended November 30, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ______to______
________________________________
Commission File Number 0-10796
________________________________
VALLEN CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1366847
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13333 Northwest Freeway
Houston, Texas 77040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 462-8700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, exclusive of treasury shares, at January 12, 1996:
7,250,988 shares of Common Stock, $.50 Par Value
Page 1 of 11
PART I
Item 1. Financial Statements
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
MAY 31, 1995
------------------
ASSETS NOVEMBER 30, (DERIVED FROM
1995 AUDITED FINANCIAL
Current assets: (Unaudited) STATEMENTS)
------------- ------------------
Cash and cash equivalents $ 581 $ 3,006
Trading securities, at cost which
approximates market 2,000 7,255
Accounts receivable, net 31,744 26,039
Notes receivable 147 412
Inventories 30,716 24,026
Prepaid expenses and other current
assets 3,725 2,565
-------- -------
Total current assets 68,913 63,303
Property, plant and equipment, at cost 44,619 40,501
Less accumulated depreciation and
amortization 23,569 19,558
======== =======
Net property, plant and equipment 21,050 20,943
Notes receivable - non-current 1,599 1,599
Investment in foreign affiliate, net 7,616 3,070
Intangibles, net of accumulated
amortization 4,707 1,235
Other 1,513 504
-------- -------
$105,398 $90,654
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 239 $ 161
Accounts payable 11,672 8,587
Other accrued liabilities 3,642 2,654
Income taxes payable 53 180
-------- -------
Total current liabilities 15,606 11,582
Long-term debt, excluding current
maturities 10,737 5,194
Deferred income taxes 1,196 1,196
Shareholders' equity:
Preferred stock $1.00 par value;
1,000,000 shares
authorized and unissued
Common stock $.50 par value;
20,000,000 shares
authorized; 9,713,884 shares
issued at
November 30, 1995 and May 31, 1995 4,858 4,857
Additional paid-in capital 5,654 3,955
Translation adjustment (773) (417)
Retained earnings 70,734 67,028
-------- -------
80,473 75,423
Less cost of common shares held in
treasury (2,462,997
shares at November 30, 1995 and
2,591,750 shares at
May 31, 1995) 2,614 2,741
-------- -------
Total shareholders' equity 77,859 72,682
-------- -------
$105,398 $90,654
======== =======
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 2 of 11
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands of Dollars Except For Per Share Amounts)
SECOND QUARTER ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- -----------
Net sales $60,830 $50,956 $112,828 $97,018
Cost of sales 45,460 37,850 83,984 71,880
------- ------- -------- -------
Gross profit 15,370 13,106 28,844 25,138
Selling, general and administrative
expenses 12,167 10,186 23,422 20,445
------- ------- -------- -------
Operating income 3,203 2,920 5,422 4,693
Earnings from foreign affiliates, net 224 110 432 234
Interest and dividend income 117 98 316 186
Interest expense 142 49 249 96
Other income (expense), net (153) (174) (274) (243)
------- ------- -------- -------
Earnings before income taxes 3,249 2,905 5,647 4,774
Income taxes 1,100 1,020 1,941 1,685
------- ------- -------- -------
Net earnings $ 2,149 $ 1,885 $ 3,706 $ 3,089
======= ======= ======== =======
Net earnings per common share $0.30 $0.27 $0.51 $0.44
======= ======= ======== =======
Weighted average number of common
shares outstanding 7,251 7,104 7,222 7,096
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 3 of 11
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
SIX MONTHS ENDED NOVEMBER 30, 1995 1994
- ---------------------------------------- --------- --------
OPERATING ACTIVITIES:
Net earnings $ 3,706 $ 3,089
Adjustments to reconcile net earnings
to net cash
provided by operating activities:
Loss (gain) on disposition of
property, plant and equipment 28 (50)
Depreciation and amortization 1,603 1,772
Undistributed earnings from
foreign affiliate, net (432) (234)
Undistributed losses from U.S.
affiliate, net 58 0
Change in assets and liabilities,
net of effects from purchase of
companies
Decrease (increase) in trading
securities 5,255 (1,481)
(Increase) decrease in accounts
receivable, net (5,705) 354
(Increase) in inventory (6,687) (2,540)
(Increase) in prepaid expenses
and other current assets (895) (289)
(Increase) decrease in other
assets, net (226) 20
Increase in accounts payable
and other current liabilities 3,946 307
-------- -------
Net cash provided by operating
activities 651 948
INVESTING ACTIVITIES:
Net additions to property, plant and
equipment (797) (1,091)
Payments for acquisitions (7,545) -
-------- -------
Net cash used by investing activities (8,342) (1,091)
FINANCING ACTIVITIES:
Increase (decrease) of long-term debt 5,622 (152)
Stock option transactions - 295
-------- -------
Net cash provided by financing
activities 5,622 143
-------- -------
Net decrease in cash and cash
equivalents (2,069) -
Effect of exchange rate changes on
cash and cash equivalents (356) -
Cash and cash equivalents at
beginning of period 3,006 -
-------- -------
Cash and cash equivalents at end of
period $ 581 $
======== -------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest payments $ 170 $ 71
Income tax payments $ 1,756 $ 1,550
See accompanying Notes to Consolidated Financial Statements (Unaudited).
Page 4 of 11
VALLEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES - CONT'D.
The Company purchased assets or stock of Safety Centers, Inc., All Supplies,
Inc., and Century Sales and Service, Limited. In conjunction with the
acquisitions, assets acquired, liabilities assumed, and cash paid are as
follows:
Fair value of assets acquired $14,408
Cost in excess of net assets of
companies acquired 3,523
-------
Total assets recorded $17,931
Liabilities assumed $(7,792)
Amounts due to sellers (768)
Stock issued for common stock (1,826)
-------
Cash paid for common stock and assets $ 7,545
=======
See accompanying Notes to Consolidated Financial Statements (Unaudited)
Page 5 of 11
VALLEN CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the Instructions to Quarterly Reports on Form 10-Q
required to be filed with the Securities and Exchange Commission and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, the information
furnished reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods. The
results of operations for the six months ended November 30, 1995 are not
necessarily indicative of the results that will be realized for the fiscal year
ending May 31, 1996.
The accounting policies followed by the Company in preparing interim
consolidated condensed financial statements are similar to those described in
the "Notes to Consolidated Financial Statements" in the Company's Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, for the fiscal year ended May 31, 1995. For interim reporting purposes,
provisions for income taxes are recorded on the basis of the estimated annual
effective tax rate. Certain prior year amounts have been reclassified to
conform with present year presentation.
An investment in the common stock of a foreign affiliated company is accounted
for by the equity method. The excess of cost of the stock of this affiliate
over the Company's share of their net assets at the acquisition date is being
amortized on a straight line basis over 40 years.
Net earnings per share were computed by dividing net earnings by the weighted
average number of shares outstanding during the periods. The weighted average
number of shares outstanding for the six months ended November, 1995 and 1994
were computed based on the actual number of common shares outstanding.
Note 2: Inventory costs are summarized as follows:
NOVEMBER 30, 1995 MAY 31, 1995
----------------- ------------
Raw materials $ 1,580 $ 1,241
Work-in-process 757 792
Finished Goods 28,379 21,993
------- -------
Total inventories $30,716 $24,026
======= =======
Page 6 of 11
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Thousands of Dollars)
RESULTS OF OPERATIONS
SECOND QUARTER ENDED NOVEMBER 30, 1995 COMPARED TO
SECOND QUARTER ENDED NOVEMBER 30, 1994
--------------------------------------
Net sales increased 19.4% to $60,830 and gross profit increased by 17.3% to
$15,370. Approximately $7,032, or 11.5% of the sales increase is attributable
to the acquisitions made during fiscal 1996. In distribution operations, sales
levels under national contracts also contributed to this increase. Gross profit
margins increased primarily due to changes in the product and customer mix for
the distribution operations. The manufacturing operations sales increased 5.5%
to $4,732 compared to the same period in the last fiscal year. This increase
was due primarily to increased shipments from higher backlog levels in the
shower and eyewash lines. Gross profit margins for the manufacturing operations
were down as compared to the quarter ended November, 1994 due to an adjustment
resulting from a physical inventory taken during the same quarter last year.
During the quarter Vallen completed the acquisition of the primary assets of
Shepco Manufacturing Company, a producer of lint free uniforms and garments for
workers in clean room environments in the automotive and other industries.
There is no significant impact to sales or results of operations due to this
acquisition.
Selling, general and administrative expenses increased 19.4% compared to the
same quarter in the prior year. The increase is primarily attributable to the
additional costs associated with the companies acquired since May 31, 1995.
Selling, general and administrative expenses as a per cent of net sales were 20%
for the quarter ended November 30, 1995, remaining flat in comparison to the
same quarter last year. Earnings from foreign affiliates of $224, for the
quarter ending November 30, 1995, increased 103.6% over the same quarter last
year, due to earnings from the 50% owned Canadian affiliate, Century Sales and
Service, Limited, of $152. Interest expense increased 189.8% in the second
quarter of fiscal 1996 compared to the same quarter in fiscal 1995, due to the
Company's entering into a credit arrangement with a major bank related to a
business acquisition in the first quarter of fiscal 1996.
Net earnings increased 14% in the quarter ending November 30, 1995 to $.30 per
common share, compared to $.27 for the same quarter last year. The increase is
due primarily to the overall increased sales and earnings from the above
mentioned foreign affiliate.
SIX MONTHS ENDED NOVEMBER 30, 1995 COMPARED TO
SIX MONTHS ENDED NOVEMBER 30, 1994
----------------------------------
Sales increased 16.3% to $112,828 and gross profit increased 14.7% to $28,844.
The reasons for sales and gross profit changes for the six month period are
consistent with the reasons discussed above for the quarter. Selling, general
and administrative expenses increased 14.6% to $23,422, primarily due to the
additional operating expenses associated with the acquisitions. Net earnings
increased 20% year to date to $3,706, or $.51 per common share, compared to
$3,089, or $.44 per common share, for the comparable six month period last year.
The increase is due primarily to the sales volume of companies acquired during
this year and the increase in earnings from foreign affiliates which are up to
$432 for the six months ending November 30, 1995 compared to $234 for the same
period last year. This increase in foreign earnings was due to the 50% owned
Canadian affiliate's earnings of $274 during this six month period.
Page 7 of 11
FINANCIAL CONDITION
NOVEMBER 30, 1995 COMPARED TO MAY 31, 1995
------------------------------------------
Cash flows provided by operations for the quarter ended November 30, 1995
totaled $651, compared to $948 for the quarter ended November 30, 1994. Cash
was utilized as funding for the acquisitions in the first quarter of 1996,
thereby reducing trading securities held. The increase in inventories and
receivables assumed from acquisitions also contributed to reduce cash flows
provided by operations.
Cash and cash equivalents decreased by $2,425, primarily from the use of cash
for acquisitions thus far for the fiscal year 1996. Accounts receivable
increased $5,705 and inventory increased $6,687, primarily as a result of
acquisitions and based on increased sales levels. Net additions to property,
plant and equipment were $797. Additions were primarily for operating
equipment, computer hardware and software and assets added through acquisitions.
Accounts payable and other current liabilities increased $3,946 as a result of
increased operating levels and acquisitions taking place during the first half
of the fiscal year 1996. Long-term debt increased $5,622 due to debt issued in
connection with acquisitions thus far this year less required principal
repayments. The issuance of common stock shares held in treasury in connection
with acquisitions made through the quarter ended November 30, 1995, had the
effect of increasing paid-in capital by $1,826, including the change in treasury
stock held.
Page 8 of 11
PART II OTHER INFORMATION
Item 1. Legal proceedings - None
Item 2. Changes in securities - None
Item 3. Defaults upon senior securities - None
Item 4. (a) Annual stockholder meeting was held on October 10, 1995.
(b) Directors elected were Leonard J. Bruce, James W. Thompson,
Darvin M. Winick, and Kirby Attwell.
(c) First item for vote was Proposal no. 1, Election of
Directors. This matter of vote for Leonard J. Bruce, Darvin M.
Winick, and Kirby Attwell was approved by 6,001,470 shares voted
in favor, and 5,581 shares withheld from voting. The matter of
vote for James W. Thompson was approved by 6,001,020 shares in
favor and 6,031 shares withheld from voting.
Second item for vote was Proposal no. 2, Adoption of the
executive incentive compensation plan. This matter of vote was
approved by 5,845,650 shares in favor, 148,495 shares against and
12,906 shares abstained.
Third item for vote was Proposal no. 3, Amendment of the employee
stock purchase plan. This matter of vote approved by 5,744,876
shares in favor, 251,683 shares against, and 10,492 shares
abstained.
Fourth item for vote was Proposal no. 4, Amendment to the 1993
non-employee director stock option plan. This matter of vote
approved by 5,606,176 shares in favor, 388,956 shares against,
and 11,919 shares abstained.
Last item for vote was Proposal no. 5, Selection of independent
auditors. This matter of vote approved by 5,955,727 shares in
favor, 39,107 shares against and 12,217 shares abstained.
Item 5. Other information - None
Page 9 of 11
Item 6. (a) Exhibits
3i. Restated Articles of Incorporation as amended. Incorporated
by reference is Exhibit 3a to the Company's Form 10-K, as
filed with the Securities and Exchange Commission on August
17, 1990.
3ii. Bylaws of the Company, as amended, through June 23, 1994,
attached hereto.
27. Financial Data Schedule, attached hereto.
Page 10 of 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
VALLEN CORPORATION
Registrant
January 12, 1996 /s/ James W. Thompson
--------------------------- --------------------------------
Date James W. Thompson
President and Chief Executive Officer
January 12, 1996 /s/ Leighton J. Stephenson
--------------------------- --------------------------------
Date Leighton J. Stephenson
Vice President - Finance,
Secretary and Treasurer
Page 11 of 11