UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________________ FORM 10-Q/A1 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter period ended November 30, 1997 OR [_] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from ______to______ ________________________________ Commission File Number 0-10796 ________________________________ VALLEN CORPORATION (Exact name of registrant as specified in its charter) Texas 74-1366847 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13333 Northwest Freeway Houston, Texas 77040 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 462-8700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate the number of shares outstanding of each of the issuer's classes of common stock, exclusive of treasury shares, at January 13, 1998: 7,285,457 shares of Common Stock, $.50 Par Value Page 1 of 9 PART I Item 1. Financial Statements VALLEN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands of Dollars) MAY 31, 1997 ------------ ASSETS NOVEMBER 30, (DERIVED FROM 1997 AUDITED FINANCIAL (Unaudited) STATEMENTS) ----------- ----------------- Current assets: Cash and cash equivalents $ - $ 801 Trading securities, at cost which approximates market 1,000 2,050 Accounts receivable, net 39,307 35,168 Notes receivable, affiliate 1,150 650 Inventories 44,125 36,301 Prepaid expenses and other current assets 2,907 2,580 --------- --------- Total current assets 88,489 77,550 Property, plant and equipment, at cost 46,416 43,916 Less accumulated depreciation and amortization 24,957 23,704 --------- --------- Net property, plant and equipment 21,459 20,212 Notes receivable - non-current, affiliate 557 557 Investment in foreign affiliates, net 11,052 9,712 Intangibles, net of accumulated amortization 5,453 5,678 Other 7,358 3,693 --------- --------- $ 134,368 $ 117,402 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 357 $ 543 Accounts payable 19,346 11,469 Other accrued liabilities 2,416 2,075 Income taxes payable 144 454 --------- --------- Total current liabilities 22,263 14,541 --------- --------- Long-term debt, excluding current maturities 15,239 10,425 Deferred income taxes 1,071 1,097 Shareholders' equity: Preferred stock $1.00 par value; 1,000,000 shares authorized and unissued Common stock $.50 par value; 20,000,000 shares authorized; 9,743,874 shares issued and 7,285,457 out- standing at November 30, 1997 and 9,740,874 issued and 7,278,707 outstanding at May 31, 1997 4,873 4,871 Additional paid-in capital 6,182 6,076 Translation adjustment (773) (773) Retained earnings 88,122 83,779 --------- --------- 98,404 93,953 Less cost of common shares held in treasury (2,458,417 shares at November 30, 1997 and at May 31, 1997 2,609 2,614 --------- --------- Total shareholders' equity 95,795 91,339 --------- --------- $ 134,368 $ 117,402 ========= ========= See accompanying Notes to Consolidated Financial Statements (Unaudited). Page 2 of 9 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, -------------------- ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- Net sales $75,138 $63,797 $139,416 $123,209 Cost of sales 56,813 48,040 105,315 92,578 ------- ------- -------- -------- Gross profit 18,325 15,757 34,101 30,631 Selling, general and administrative expenses 15,229 12,685 29,014 25,064 ------- ------- -------- -------- Operating income 3,096 3,072 5,087 5,567 Earnings from foreign affiliates, net 682 338 1,341 624 Interest and dividend income 46 40 116 72 Interest expense 227 169 401 410 Other income (expense), net 109 119 176 76 ------- ------- -------- -------- Earnings before income taxes 3,706 3,400 6,319 5,929 Income taxes 1,182 1,252 1,976 2,177 ------- ------- -------- -------- Net earnings $ 2,524 $ 2,148 $ 4,343 $ 3,752 ======= ======= ======== ======== Net earnings per common share $ 0.35 $ 0.30 $ 0.60 $ 0.52 ======= ======= ======== ======== Weighted average number of common shares outstanding 7,279 7,265 7,281 7,264 See accompanying Notes to Consolidated Financial Statements (Unaudited). Page 3 of 9 VALLEN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Thousands of Dollars) SIX MONTHS ENDED NOVEMBER 30, 1997 1996 - -------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net earnings $ 4,343 $ 3,752 Adjustments to reconcile net earnings to net cash provided by operating activities: (Gain) loss on disposition of property, plant and equipment (19) 3 Depreciation and amortization 1,720 1,719 Change in deferred income taxes (26) (37) Undistributed earnings from foreign affiliates, net (1,341) (625) Undistributed losses from U.S. affiliate, net 67 118 Undistributed earnings from U.S. partnership, net (64) (326) Change in assets and liabilities, net of Effects from purchase of companies: Decrease in trading securities 1,050 151 (Increase) in accounts receivable, net (4,140) (2,704) (Increase) decrease in inventory (7,825) 49 (Increase) decrease in notes receivable (500) 147 (Increase) decrease in prepaid expenses and other current assets (327) 405 Decrease in other assets, net 61 555 Increase (decrease) in accounts payable and other current liabilities 7,909 (1,472) ------- ------- Net cash provided by operating activities 908 1,735 INVESTING ACTIVITIES: Net additions to property, plant and equipment (2,757) (1,263) Payments for acquisitions (3,600) (21) Investments in affiliates (94) (285) ------- ------- Net cash used by investing activities (6,451) (1,569) FINANCING ACTIVITIES: Increase (decrease) of long-term debt 4,629 (164) Stock option transactions 113 - ------- ------- Net cash provided by financing activities 4,742 (164) ------- ------- Net increase (decrease) in cash and cash equivalents (801) 2 Cash and cash equivalents at beginning of period 801 831 ------- ------- Cash and cash equivalents at end of period $ - $ 833 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest payments $ 345 $ 418 Income tax payments $ 2,422 $ 1,761 See accompanying Notes to Consolidated Financial Statements (Unaudited). Page 4 of 9 VALLEN CORPORATION AND SUBSIDIARIES NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1: Basis of Presentation and Significant Accounting Policies The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the Instructions to Quarterly Reports on Form 10-Q required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, the information furnished reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. The results of operations for the six months ended November 30, 1997 are not necessarily indicative of the results that will be realized for the fiscal year ending May 31, 1998. The accounting policies followed by the Company in preparing interim consolidated condensed financial statements are similar to those described in the "Notes to Consolidated Financial Statements" in the Company's Form 10-K Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, for the fiscal year ended May 31, 1997. For interim reporting purposes, provisions for income taxes are recorded on the basis of the estimated annual effective tax rate. Certain prior year amounts have been reclassified to conform with present year presentation. Investments in the common stock of the foreign affiliated companies are accounted for by the equity method. The excess of cost of the stock of these affiliates over the Company's share of their net assets at the acquisition date is being amortized on a straight line basis over 40 years. Net earnings per share were computed by dividing net earnings by the weighted average number of shares outstanding during the periods. The weighted average number of shares outstanding for the six months ended November, 1997 and 1996 were computed based on the actual number of common shares outstanding. Note 2: Inventory costs are summarized as follows: NOVEMBER 30, 1997 MAY 31, 1997 ----------------- ------------ Raw materials $ 1,525 $ 1,329 Work-in-process 581 705 Finished Goods 42,019 34,267 ------- ------- Total inventories $44,125 $36,301 ======= ======= Page 5 of 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Thousands of Dollars) RESULTS OF OPERATIONS SECOND QUARTER ENDED NOVEMBER 30, 1997 COMPARED TO SECOND QUARTER ENDED NOVEMBER 30, 1996 Net sales increased 17.8% to $75,138 and gross profit increased by 16.3% to $18,325. Sales levels for the distribution business, which reached record levels in the current quarter, were up 17.3% compared to the quarter ended November 30, 1996. The manufacturing operation's sales were up 8.6% to $5,133 compared to the same period in the last fiscal year. During the quarter Vallen completed the acquisition of the operating assets of Sheridan Safety, Inc., a privately held company and distributor of safety equipment and supplies in Dayton, Ohio and the acquisition of Superior Safety in Waterloo, Ontario. The combined impact on sales for the quarter due to these two acquisitions was an increase of $680. Selling, general and administrative expenses increased 20% compared to the same quarter in the prior year. Selling, general and administrative expenses as a per cent of net sales were 20% for the quarter ended November 30, 1997, remaining flat as a percent of net sales in comparison to the same quarter last year. Earnings from foreign affiliates of $682 for the quarter ending November 30, 1997, increased 102% over the same quarter last year, primarily due to stronger earnings from the 50% owned Mexican affiliate, Proveedora de Seguridad Industrial, of $438 compared to $142 in earnings for this Company for the quarter ended November 30, 1996. Interest expense rose 34% in the quarter ended November 30, 1997 compared to the same period last year, due to borrowings to finance the Sheridan acquisition and working capital needs. Net earnings were up 17.5% in the quarter ending November 30, 1997 at $.35 per common share, compared to $.30 for the same quarter last year, primarily due to increased sales level in the Company's distribution business and excellent returns from the Company's foreign affiliates. SIX MONTHS ENDED NOVEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED NOVEMBER 30, 1996 Sales increased 13.2% to $139,416 and gross profit increased 11.2% to $34,101. The reasons for sales and gross profit changes for the six month period are consistent with the reasons discussed above for the quarter. Selling, general and administrative expenses increased 15.8% to $29,014, primarily due to additional businesses acquired and opening of new branches in the distribution business. Net earnings increased 15.8% year to date to $4,343, or $.60 per common share, compared to $3,752, or $.52 per common share, for the comparable six month period last year. The increase in foreign earnings was due to the 50% owned Mexican affiliate's earnings of $925 during this six month period, compared to earnings of $277 in the same period last year. The 50% owned Canadian affiliate, Century Sales and Service, Limited earnings were $416 for the six month period ending November 30, 1997, compared to $347 for the six months ended November 30, 1996. Page 6 of 9 FINANCIAL CONDITION NOVEMBER 30, 1997 COMPARED TO NOVEMBER 30, 1996 Cash flows provided by operations for the six months ended November 30, 1997 totaled $908, compared to $1,735 for the six months ended November 30, 1996. The decrease in the current period compared to the same period of the prior year, is primarily due to increased (undistributed) earnings of foreign affiliated and start-up costs for new locations opened. The Company's financial position in the first half of fiscal year 1998 remains strong with working capital of $66.2 and a current ratio of 4.0 to 1. During the second quarter ended November 30, 1997, the Company made additional bank borrowings of $4,800 to finance the acquisition of Sheridan Safety, Inc. and to meet working capital requirements for expansion of the distribution business. Management believes the Company's liquidity, working capital and borrowing capacity are sufficient to meet capital expenditure and working capital needs in the future. The Company has evaluated the impact of Year 2000 (millenium) issues on its computer and related peripheral systems and applications. A plan has been developed and required conversion activities are in process, under the direction of its MIS staff to complete upgrades and modifications and related testing in 1998. Page 7 of 9 PART II OTHER INFORMATION Item 1. Legal proceedings - None Item 2. Changes in securities - None Item 3. Defaults upon senior securities - None Item 4. (a) Annual stockholder meeting was held on October 14, 1997. (b) Directors elected were Leonard J. Bruce, James W. Thompson, Darvin M. Winick, and Kirby Attwell. (c) First item for vote was Proposal no. 1, Election of Directors. This matter of vote for Leonard J. Bruce, Darvin M. Winick, and Kirby Attwell was approved by 5,971,077 shares voted in favor, and 25,387 shares withheld from voting. Last item for vote was Proposal no. 2, Selection of independent auditors. This matter of vote approved by 5,990,379 shares in favor, 3,593 shares against and 2,492 shares abstained. Item 5. Other information - None Item 6. (a) Exhibits - 27 - Financial Data Schedule (b) Form 8-K - None Page 8 of 9 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 15, 1998 /s/ JAMES W. THOMPSON - ------------------------- ---------------------------------- Date James W. Thompson President and Chief Executive Officer January 15, 1998 /s/ LEIGHTON J. STEPHENSON - ------------------------- ---------------------------------- Date Leighton J. Stephenson Vice President - Finance, Secretary and Treasurer Page 9 of 9