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 MARCH 31, 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 March 31, 1997 3-4
Consolidated Statements of Operations -
Three months ended March 31, 1996 and 1997 5
Consolidated Statement of Stockholder's Equity -
Three months ended March 31, 1997 6
Consolidated Statements of Cash Flows -
Three months ended March 31, 1996 and 1997 7-8
Notes to Consolidated Financial Statements 9-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 17-20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 21
VALCOR, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS DECEMBER MARCH 31,
31, 1997
1996
Current assets:
Cash and cash equivalents $136,054 $139,846
Accounts receivable 15,535 16,868
Receivable from affiliates 178 99
Inventories 18,222 14,266
Prepaid expenses 2,667 1,827
Deferred income taxes 5,160 4,960
Total current assets 177,816 177,866
Other assets:
Intangible assets 16,272 15,782
Other 7,006 6,457
Total other assets 23,278 22,239
Property and equipment:
Land 19,537 17,728
Buildings 38,572 34,904
Equipment 103,005 78,622
Construction in progress 2,492 1,378
163,606 132,632
Less accumulated depreciation 75,684 60,879
Net property and equipment 87,922 71,753
$289,016 $271,858
VALCOR, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDER'S EQUITY DECEMBER MARCH 31,
31, 1997
1996
Current liabilities:
Current maturities of long-term debt $ 1,224 $ 28,539
Accounts payable 14,248 8,519
Accrued liabilities 25,566 24,565
Payable to affiliates 30,967 7,357
Income taxes 1,070 509
Total current liabilities 73,075 69,489
Noncurrent liabilities:
Long-term debt 108,458 73,573
Deferred income taxes 8,717 10,708
Other 4,376 4,407
Total noncurrent liabilities 121,551 88,688
Stockholder's equity:
Common stock 1 1
Additional paid-in capital 520 520
Retained earnings 96,524 115,881
Adjustments:
Pension liabilities (2,533) (2,533)
Currency translation (122) (188)
Total stockholder's equity 94,390 113,681
$289,016 $271,858
Commitments and contingencies (Note 1)
VALCOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS)
1996* 1997
Revenues and other income:
Net sales $ 21,211 $25,829
Other, net 406 2,077
21,617 27,906
Costs and expenses:
Cost of sales 14,532 17,023
Selling, general and administrative 2,452 2,937
Interest 2,515 2,518
19,499 22,478
Income before income taxes 2,118 5,428
Provision for income taxes 988 2,132
Income from continuing operations 1,130 3,296
Discontinued operations (14,298) 16,061
Net income (loss) $(13,168) $19,357
*Reclassified for discontinued operations.
VALCOR, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
Balance at December 31, 1996 $1 $520 $ 96,524
Net income - - 19,357
Adjustments, net - - -
Balance at March 31, 1997 $1 $520 $115,881
ADJUSTMENTS
CURRENCY TOTAL
PENSION TRANSLATIONSTOCKHOLDER'S
LIABILITIES ADJUSTMENT EQUITY
Balance at December 31, 1996 $(2,533) $(122) $ 94,390
Net income - - 19,357
Adjustments, net - (66) (66)
Balance at March 31, 1997 $(2,533) $(188) $113,681
VALCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS)
1996* 1997
Cash flows from operating activities:
Net income (loss) $(13,168) $ 19,357
Depreciation, depletion and amortization 719 772
Deferred income taxes 64 89
Discontinued operations 14,298 (16,061)
Other, net 154 228
2,067 4,385
Medite, net 5,065 (36,456)
Sybra, net 2,518 (78)
Change in assets and liabilities:
Accounts receivable 247 (1,839)
Inventories (418) 87
Accounts payable and accrued liabilities 1,748 2,595
Accounts with affiliates 109 6,186
Other, net (169) (624)
Net cash provided (used) by operating
activities
11,167 (25,744)
Cash flows from investing activities:
Capital expenditures (742) (558)
Medite, net (2,851) 34,686
Sybra, net (1,351) (688)
Other, net 185 -
Net cash provided (used) by investing
activities
(4,759) 33,440
Cash flows from financing activities:
Repayments of indebtedness (12) (3,837)
Dividends (383) -
Medite, net (1,742) (9)
Sybra, net (488) 4
Net cash used by financing activities (2,625) (3,842)
Net increase $ 3,783 $ 3,854
VALCOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS)
1996* 1997
Cash and cash equivalents:
Net changes from operating, investing
and financing activities $ 3,783 $ 3,854
Currency translation (22) (62)
3,761 3,792
Balance at beginning of period 17,618 136,054
Balance at end of period $21,379 $139,846
Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized
Continuing operations $ 2 $ 92
Discontinued operations 2,723 459
Eliminations (203) (225)
$ 2,522 $ 326
Income taxes, net:
Continuing operations $ 986 $ 2,289
Discontinued operations 492 30,622
$ 1,478 $ 32,911
*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 March 31, 1997 and the consolidated statements of
operations, cash flows and stockholder's equity for the interim periods ended
March 31, 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 8.
Commitments and contingencies are discussed in Note 8, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" 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
MARCH 31,
1996 1997
(IN MILLIONS)
Net sales $21.2 $25.8
Operating income $ 4.4 $ 6.3
General corporate items:
Interest income .3 1.9
Expenses (.1) (.3)
Interest expense (2.5) (2.5)
Income before income taxes $ 2.1 $ 5.4
NOTE 3 - INVENTORIES:
DECEMBER MARCH 31,
31, 1997
1996
(IN THOUSANDS)
Raw materials:
Component products $ 2,556 $ 2,499
Building products 4,306 1,813
Fast food 1,406 1,323
8,268 5,635
In process products:
Component products 4,974 4,935
Building products 83 -
5,057 4,935
Finished products:
Component products 3,300 3,309
Building products 1,096 215
4,396 3,524
Supplies 501 172
$18,222 $14,266
NOTE 4 - INTANGIBLE AND OTHER NONCURRENT ASSETS:
DECEMBER MARCH 31,
31, 1997
1996
(IN THOUSANDS)
Intangible assets:
Goodwill $ 4,996 $ 4,953
Franchise fees 4,872 4,657
Other 6,404 6,172
$16,272 $15,782
Other assets:
Property held for sale $ 4,638 $ 4,208
Deferred financing costs 2,317 2,145
Other 51 104
$ 7,006 $ 6,457
NOTE 5 - ACCRUED AND OTHER LIABILITIES:
DECEMBER MARCH 31,
31, 1997
1996
(IN THOUSANDS)
Current accrued liabilities:
Employee benefits $ 7,880 $ 6,405
Plant closure costs 7,669 6,881
Interest 1,648 3,891
Insurance claims and expenses 3,037 2,484
Other 5,332 4,904
$25,566 $24,565
Payable to affiliates:
Income taxes payable to Valhi $30,760 $ 7,107
Other, net 207 250
$30,967 $ 7,357
Other noncurrent liabilities:
Accrued pension and OPEB costs $ 1,510 $ 1,510
Environmental costs 1,000 1,000
Insurance claims and expenses 445 444
Other 1,421 1,453
$ 4,376 $ 4,407
NOTE 6 - PROVISION FOR INCOME TAXES ATTRIBUTABLE TO CONTINUING OPERATIONS:
THREE MONTHS ENDED
MARCH 31,
1996 1997
(IN MILLIONS)
Expected tax expense $ .7 $1.9
Non-U.S. tax rates .1 .1
Incremental tax on non-U.S. earnings .1 .1
State income taxes and other, net .1 -
$1.0 $2.1
NOTE 7 - LONG-TERM DEBT:
DECEMBER MARCH 31,
31, 1997
1996
(IN THOUSANDS)
Valcor - 9 5/8% Senior Notes Due 2003 $100,000 $96,200
Medite:
Term loan 3,727 -
Other 168 159
3,895 159
Other:
Sybra bank credit agreements 1,081 1,315
Sybra capital leases 4,540 4,314
Other 166 124
5,787 5,753
109,682 102,112
Less current maturities 1,224 28,539
$108,458 $73,573
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 8.
The after-tax proceeds from the disposition of Medite, net of repayments of
Medite's 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 8. Also under the terms of the Indenture, Valcor is
required to tender for a portion of the Valcor 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, both as defined 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, on March 20, 1997, Valcor initiated a tender offer whereby
Valcor would purchase up to $86.7 million principal amount of Valcor Notes on a
pro-rata basis, at par value, in satisfaction of the covenant contained in the
Indenture. Pursuant to its terms, the tender offer expired on April 24, 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.
Accordingly, $27.6 million of the Senior Notes are classified as a current
liability at March 31, 1997. 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. Subsequent to the tender offer,
$68.6 million of Senior Notes are outstanding. The net proceeds from the
disposition of the Company's fast food operations, net of repayment of Sybra's
bank indebtedness, will similarly be available for Valcor's general corporate
purposes. If none of those net proceeds are so used as provided by the
Indenture, a portion of the remaining Senior Notes will be subject to a future
tender offer.
NOTE 8 - DISCONTINUED OPERATIONS:
The components of discontinued operations are presented in the following
table.
THREE MONTHS ENDED
MARCH 31,
1996 1997
(IN THOUSANDS)
Medite Corporation $(14,884)$15,538
Sybra, Inc. 586 523
$(14,298)$16,061
Medite. In September 1996, Medite Corporation signed three separate
letters of intent involving the sale of substantially all of its assets. The
first transaction, involving the sale of Medite's timber and timberlands, closed
in October 1996. The second transaction, involving the sale of Medite's Irish
medium density fiberboard ("MDF") subsidiary, closed in November 1996. The
third transaction, involving the sale of Medite's Oregon MDF facility, closed in
February 1997 for approximately $36 million cash consideration (before fees and
expenses) plus the assumption of approximately $3.7 million of Medite
indebtedness. Medite's stud lumber facility was closed in December 1996, and the
building and equipment were sold at an auction in March 1997 and are currently
being dismantled by the purchasers. Medite continues to operate the veneer
facility on a short-term basis and expects to either sell or close this facility
in 1997. 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
$3 million had been paid at both March 31, 1997 and 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 sale of the
Oregon MDF facility. Interest expense represents interest on indebtedness of
Medite and its subsidiaries.
THREE MONTHS ENDED
MARCH 31,
1996 1997
(IN MILLIONS)
Operations of Medite:
Net sales $ 46.5 $12.9
Operating income (loss) $(22.5) 1.7
Interest expense and other, net (1.9) (.1)
Pre-tax income (loss) (24.4) 1.6
Income tax expense (benefit) (9.5) .6
(14.9) 1.0
Net gain on disposal:
Pre-tax gain - 22.5
Income tax expense - 8.0
- 14.5
$(14.9) $15.5
Condensed balance sheets for Medite, included in the Company's consolidated
balance sheets, are presented below.
DECEMBER MARCH 31,
31,
1996 1997
(IN MILLIONS)
Current assets $21.2 $14.0
Property and equipment, net 18.2 3.7
Other assets 4.8 3.5
$44.2 $21.2
Current liabilities $17.6 $10.4
Long-term debt 3.7 .1
Deferred income taxes 1.6 3.6
Other liabilities 3.0 3.1
Stockholder's equity (*) 18.3 4.0
$44.2 $21.2
* Eliminated in consolidation.
Condensed cash flow
data for Medite (excluding
dividends paid to and
intercompany loans with
Valcor) is presented below.
THREE MONTHS ENDED
MARCH
31,
1996 1997
(IN MILLIONS)
Cash flows from operating activities $ 5.1 $(36.5)
Cash flows from investing activities:
Capital expenditures (2.9) (.4)
Proceeds from disposal of assets - 35.1
(2.9) 34.7
Cash flows from financing activities -
Indebtedness, net (1.7) -
$ .5 $ (1.8)
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 is presented below. Interest
expense represents interest on indebtedness of Sybra. The Company will report a
pre-tax gain on disposal of its fast food operations in excess of $24 million in
the second quarter of 1997.
THREE MONTHS ENDED
MARCH
31,
1996 1997
(IN MILLIONS)
Net sales $27.6 $27.8
Operating income $ 1.6 $ 1.4
Interest expense and other, net (.7) (.6)
Pre-tax income .9 .8
Income tax expense .3 .3
Net income $ .6 $ .5
Condensed balance
sheets for Sybra, included
in the Company's
consolidated balance sheets,
are presented below.
DECEMBER 31,MARCH 31,
1996 1997
(IN MILLIONS)
Current assets $ 6.0 $ 4.9
Intangible assets 16.0 15.5
Property and equipment, net 53.6 52.2
Other assets - .2
$75.6 $72.8
Current liabilities $14.4 $11.9
Long-term debt 4.7 4.7
Loan payable to Valcor (*) 20.0 20.0
Other liabilities 1.4 1.4
Stockholder's equity (*) 35.1 34.8
$75.6 $72.8
(*) Eliminated in consolidation
Condensed cash flow
data for Sybra (excluding
dividends paid to and
intercompany loans with
Valcor) is presented below
THREE MONTHS
ENDED MARCH
31,
1996 1997
(IN MILLIONS)
Cash flows from operating activities $ 2.5 $ (.1)
Cash flows from investing activities:
Capital expenditures (1.4) (1.1)
Other, net - .4
(1.4) (.7)
Cash flows from financing activities -
Indebtedness, net
(.5) -
$ .6 $ (.8)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
OVERVIEW
The Company reported income from continuing operations of $3.3 million in
the first quarter of 1997 compared to $1.1 million in the first quarter of 1996.
Discontinued operations include both the results of operations of Medite
Corporation and Sybra, Inc., and in 1997 include an after-tax gain on disposal
of $14.5 million ($22.5 million pre-tax) related to the sale of Medite's Oregon
MDF facility. The Company completed the disposition of Sybra's fast food
operations in April 1997, and will report a pre-tax gain on disposal of such
operations in excess of $24 million in the second quarter of 1997. See Note 8
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 %
MARCH 31,
1996 1997 CHANGE
(IN MILLIONS)
Net sales $21.2 $25.8 +22%
Operating income 4.4 6.3 +43%
Sales, operating income and margins increased in the first quarter of 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 first quarter 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). The
Company's component products operating income margins were higher in the second,
third and fourth quarters of 1996 as compared to the 1996 first quarter, due in
part to relative changes in product mix, and the Company does not expect year-
to-date operating income comparisons for calendar 1997 to be as favorable as
first quarter 1997 comparisons.
OTHER
General corporate interest income increased in the first quarter of 1997
due principally to a higher level of funds available for investment resulting
from the funds generated from Medite's 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 tender offer
discussed below.
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 6 to the Consolidated
Financial Statements.
Discontinued operations include both the results of operations of Medite
and Sybra. See Note 8 to the Consolidated Financial Statements.
The Company will report a pre-tax extraordinary loss of $.6 million in the
second quarter of 1997 ($.4 million net-of-tax) resulting from the pro-rata
write-off of deferred financing costs related to the Valcor Senior Notes
purchased in April 1997 pursuant to the Company's tender offer. See Note 7 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 $2.1 million in the first quarter of 1996 and $4.4 million in the first
quarter of 1997. Changes in assets and liabilities generated cash in both
periods and 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 the first quarter of 1997 consists of
$3.8 million principal amount of Valcor Senior Notes purchased in open market
transactions. At March 31, 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 8 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 the first quarter of 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 1996. Similarly, cash income taxes related to Medite's February
1997 sale of the Oregon MDF facility are not required to be paid until later in
1997.
Other. At March 31, 1997, assets held for sale, recorded at estimated net
realizable value, consist principally of land from Medite's 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 March 31,
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 disposition of Medite, net of repayments of
Medite's 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 8 to the Consolidated Financial Statements. Also under the
terms of the Indenture, Valcor is required to tender for a portion of the Valcor
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, both as defined 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, on March 20, 1997, Valcor
initiated a tender offer whereby Valcor would purchase up to $86.7 million
principal amount of Valcor Notes on a pro-rata basis, at par value, in
satisfaction of the covenant contained in the Indenture. Pursuant to its terms,
the tender offer expired on April 24, 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. Subsequent to
the tender offer, $68.6 million of Senior Notes are outstanding. The net
proceeds from the disposition of the Company's fast food operations, net of
repayment of Sybra's bank indebtedness, will similarly be available for Valcor's
general corporate purposes. If none of those net proceeds are so used as
provided by the Indenture, a portion of the remaining Senior Notes will be
subject to a future tender offer.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 - First Amendment to the Stock Purchase Agreement by and between
Valcor, Inc. and I.C.H. Corporation dated April 18, 1997.
10.2 - First Amendment to the Asset Purchase Agreement by and between
Sybra, Inc., Valcor, Inc. and U.S. Restaurant Properties Master
L.P. dated April 18, 1997.
27.1 -Financial Data Schedule for the three-month period ended March
31, 1997.
27.2 -Reclassified Financial Data Schedule for the (i) three-month
period ended March 31, 1996, (ii) six-month period ended June 30,
1996, (iii) nine-month period ended September 30, 1996 and (iv)
year ended December 31, 1996.
27.3 -Reclassified Financial Data Schedule for the (i) three-month
period ended March 31, 1995, (ii) six-month period ended June 30,
1995, (iii) nine-month period ended September 30, 1995 and (iv)
year ended December 31, 1995.
27.4 -Reclassified Financial Data Schedule for the year ended December
31, 1994.
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended March 31, 1997.
February 3, 1997 - Reported Items 5 and 7.
February 13, 1997 - Reported Items 5 and 7.
February 13, 1997 - Reported Items 5 and 7.
February 28, 1997 - Reported Items 5 and 7
March 20, 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 May 12, 1997 By /s/ Bobby D. O'Brien
Bobby D. O'Brien
(Vice President,
Principal Financial Officer)
Date May 12, 1997 By /s/ Gregory M. Swalwell
Gregory M. Swalwell
(Controller,
Principal Accounting Officer)