-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PbQmMcf37D5Dl0OLavP1sCsuz0WNiuDP9Ihq93vxxQVG0SwoBPS9QxQpSxucJoL5 WpUhHgZxkd7zC1AT6Rm9+Q== 0000103071-97-000001.txt : 19970626 0000103071-97-000001.hdr.sgml : 19970626 ACCESSION NUMBER: 0000103071-97-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970503 FILED AS OF DATE: 19970616 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARLEN CORP CENTRAL INDEX KEY: 0000103071 STANDARD INDUSTRIAL CLASSIFICATION: 3714 IRS NUMBER: 132651100 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05374 FILM NUMBER: 97624479 BUSINESS ADDRESS: STREET 1: 55 SHUMAN BLVD STREET 2: P O BOX 3089 CITY: NAPERVILLE STATE: IL ZIP: 60566-7089 BUSINESS PHONE: 7084200400 MAIL ADDRESS: STREET 1: 55 SHUMAN BLVD STREET 2: P O BOX 3089 CITY: NAPERVILLE STATE: IL ZIP: 60566-7089 10-Q 1 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 quarterly period ended May 3, 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 0-5374 VARLEN CORPORATION (exact name of registrant as specified in its charter) DELAWARE 13-2651100 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 55 Shuman Boulevard, P.O. Box 3089 Naperville, Illinois 60566-7089 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (630) 420-0400 Indicate by check 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No At June 2, 1997, approximately 5,787,388 shares, par value $.10 per share, of common stock of the Registrant were outstanding. PART I. FINANCIAL STATEMENTS VARLEN CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (Thousands of Dollars) May 3, January 31, 1997 1997
Assets Cash and cash equivalents $ 2,139 $ 3,133 Accounts receivable, less allowance for doubtful accounts $1,401 and $1,455 67,818 62,088 Inventories: Raw materials 24,146 23,795 Work in process 17,107 17,285 Finished goods 11,136 12,551 52,389 53,631 Deferred and refundable income taxes 7,579 8,244 Other current assets 7,780 5,357 Total current assets 137,705 132,453 Property, plant, and equipment 202,872 200,439 Less: accumulated depreciation 79,838 75,859 123,034 124,580 Goodwill and other intangible assets, net 131,313 133,419 Investments and other assets 4,115 3,426 $ 396,167 $ 393,878 Liabilities and Stockholders' Equity Current maturities of long-term debt $ 2,210 $ 2,273 Accounts payable 28,376 26,623 Accrued expenses 28,936 32,366 Income taxes payable 4,786 1,730 Total current liabilities 64,308 62,992 Long-term debt: Convertible subordinated debentures 69,000 69,000 Other long-term debt 112,056 115,353 Total long-term debt 181,056 184,353 Deferred income taxes 16,089 16,252 Other liabilities 20,671 20,295 Common stock 579 576 Other stockholders' equity 113,464 109,410 $ 396,167 $ 393,878 See Notes to Condensed Consolidated Financial Statements
VARLEN CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Unaudited) (In Thousands, Except Per Share Amounts) Three Months Ended May 3, May 4, 1997 1996
Net sales $ 123,975 $ 91,975 Cost of sales 94,570 68,178 Gross profit 29,405 23,797 Selling, general and administrative expenses 17,198 14,254 Interest expense, net 3,182 1,053 Earnings before income taxes 9,025 8,490 Income taxes 4,016 3,668 Net earnings $ 5,009 $ 4,822 Earnings per share: Primary $ 0.84 $ 0.79 Fully diluted $ 0.63 $ 0.60 Weighted average number of shares outstanding - primary 5,959 6,095 Weighted average number of shares outstanding - fully diluted 9,048 9,159 Dividends per common share $ 0.09 $ 0.09 See Notes to Condensed Consolidated Financial Statements
VARLEN CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (Thousands of Dollars) Three Months Ended May 3, May 4, 1997 1996
Increase (Decrease) in Cash Cash flows from operating activities: Net earnings $ 5,009 $ 4,822 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 4,380 2,896 Amortization 1,492 576 Deferred income taxes (10) 17 Change in assets and liabilities net of effects from purchased and sold businesses: Accounts receivable, net (6,169) (3,262) Inventories 832 (1,151) Refundable income taxes 665 --- Other current assets (2,486) 485 Accounts payable 1,827 1,489 Accrued expenses (2,294) (4,300) Income taxes payable 2,987 3,066 Other noncurrent assets (1,052) (128) Other noncurrent liabilities 401 89 Total adjustments 573 (223) Net cash provided by operating activities 5,582 4,599 Cash flows from investing activities: Fixed asset expenditures (3,751) (4,983) Purchases of long-term investments (284) (478) Disposals and other changes in property, plant and equipment 405 (6) Net cash used in investing activities (3,630) (5,467) Cash flows from financing activities: Proceeds from debt 244 26 Payments of debt (3,314) (134) Issuance of common stock under option plans 140 32 Cash received on stock subscriptions 70 78 Purchase of treasury stock --- (1,666) Cash dividends paid --- (530) Net cash used in financing activities (2,860) (2,194) Effect of exchange rate changes on cash (86) (58) Net decrease in cash and cash equivalents (994) (3,120) Cash and cash equivalents at beginning of year 3,133 22,915 Cash and cash equivalents at end of period $ 2,139 $ 19,795 See Notes to Condensed Consolidated Financial Statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The unaudited condensed consolidated financial statements of Varlen Corporation (the "Company") included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, all adjustments which are considered necessary for a fair presentation of the results for the interim periods presented and the balance sheet at May 3, 1997 have been made. These financial statements, which are condensed and do not include all disclosures included in annual financial statements, should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K. 2. Long-term debt at period end is comprised of the following (in thousands):
May 3, January 31, 1997 1997 Term loan $105,500 $107,000 Revolving credit facility 2,200 4,000 6.5% convertible debentures due 2003 69,000 69,000 Industrial revenue bonds and other debt 6,566 6,626 183,266 186,626 Less current maturities (2,210) (2,273) Long-term debt $181,056 $184,353
On July 19, 1996, the Company entered into a $190 million term loan and revolving credit agreement (the "Agreement") which replaced its $80 million revolving credit facility. This Agreement was obtained to facilitate the Brenco, Incorporated acquisition as well as future acquisitions. As amended on October 15, 1996, the Agreement is in the form of two facilities. Facility "A" is a term-loan with a total capacity of $110 million and facility "B" is a revolving credit facility with an $80 million capacity. The term-loan comes due on July 19, 2002 and requires escalating quarterly principal payments which began in October 1996. The revolving credit facility requires no prepayments and comes due on July 19, 2002 with two optional one year extensions. The Agreement provides for interest at one of three market interest rates selected by the Company plus an applicable margin which is dependent upon the market interest rate chosen and the relationship of debt to cash flow. The highest interest rate under the Agreement was the prime rate with maximum commitment fees of 3/8 of 1% on the unused portion of the line of credit. The average interest rate on $40 million of this debt was fixed through interest rate swap agreements at approximately 7.0% which includes the current applicable margin. The interest rate swap agreements cover periods which can range from one to three years and were entered into in the third quarter of 1996. The average interest rate on all of the Company's long-term debt during the first quarter of 1997 was approximately 7.0%. 3. Supplemental Cash Flow Information (in thousands):
Quarter Ended May 3, May 4, 1997 1996 Cash paid during the year-to-date period for: Interest $ 2,007 $ 108 Income taxes (net) $ 111 $ 433
4. Business Segment Information (in thousands):
Quarter Ended May 3, May 4, 1997 1996 Net Sales: Transportation products $116,002 $ 77,589 Analytical instruments 7,973 14,386 $123,975 $ 91,975 Operating profits (1): Transportation products $ 13,001 $ 8,941 Analytical instruments 1,012 2,034 $ 14,013 $ 10,975 (1) Before interest and general corporate expenses.
5. Acquisition: On June 15, 1996, the Company, a wholly-owned subsidiary of the Company and Brenco, Incorporated ("Brenco"), a manufacturer and reconditioner of specialized tapered roller bearings for the railroad industry with headquarters in Virginia, entered into an acquisition agreement for the purchase of all of Brenco's outstanding common stock for $16.125 per share. As a result of the tender offer which expired on July 18, 1996, the Company owned approximately 96% of the outstanding common stock of Brenco. On August 23, 1996, the remaining non-tendered shares were canceled and converted into the right to receive $16.125 per share, making Brenco a wholly-owned subsidiary of the Company. The total purchase price for the common stock of Brenco was approximately $165 million in cash and was financed within a $190 million credit facility from the Company's existing bank group plus cash on hand. The consolidated results of operations on a pro forma basis as though Brenco had been acquired on February 1, 1996, are as follows (in thousands):
Quarter Ended May 3, May 4, 1997 1996 Net Sales $ 123,975 $ 122,297 Net earnings $ 5,009 $ 5,161 Net earnings per share - primary $.84 $.85 Net earnings per share - fully diluted $.63 $.64
6. Divestitures: On July 30, 1996, the Company sold the laboratory appliance division of its Precision Scientific, Inc. subsidiary, a manufacturer of research laboratory appliances for approximately $12.0 million net of selling costs. Net sales from this entity were $4.6 million for the first quarter of fiscal 1996. 7. Stock Purchase: On January 4, 1996, the Company's Board of Directors authorized the purchase of up to 500,000 shares of its Common Stock or the equivalent amount of its 6 1/2 percent convertible subordinated debentures by the Company. As of May 3, 1997, approximately 320,000 shares of Common Stock or its equivalent are available to be repurchased under this authorization. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MAY 3, 1997 Overview The Company designs, manufactures and markets a diverse range of products in its transportation products and analytical instruments business segments. These products are marketed to the railroad, heavy-duty truck and trailer, automotive, and petroleum industries. The demand for the Company's products by many of these industries is affected by domestic as well as international economic conditions. The Company's manufacturing operations have a significant fixed cost component. Accordingly, during periods of changing product demand, the profitability of many of the Company's operations may change proportionately more than revenues of such operations. Results of Operations The Company's sales in the three months ended May 3, 1997, were $124.0 million, up $32.0 million or 34.8% from sales of $92.0 million in the comparable 1996 period. Sales increased substantially in the transportation products segment and declined in the analytical instruments segment. Net earnings for the first three months of 1997 increased 3.9% to $5.0 million from $4.8 million in the first quarter of 1996. Earnings were $.63 per share on a fully diluted basis for the first quarter of 1997 compared to $.60 per share on a fully diluted basis in the first quarter of 1996. Operating profit changes corresponded to revenue changes with the transportation products segment having increased operating profit while analytical instruments' earnings declined. On a business segment basis, revenues in the transportation products segment for the three months ended May 3, 1997, were $116.0 million, compared to $77.6 million in the prior year equivalent period. Sales increased in all business areas within this segment. Operating profit at this segment in the first three months of 1997 increased 45.4% to $13.0 million (11.2% of segment sales) from $8.9 million (11.5% of segment sales) in the comparable 1996 period. Operating profit increased at all business areas following the revenue trend. Heavy-duty truck and trailer sales were higher in the 1997 period despite a decline in industry-wide sales vs. the comparable 1996 period. The increase in sales was due primarily to new products as well as greater penetration at existing customers. During the quarter, the Company's largest customer continued to increase the production of a new vehicle introduced in 1996. This truck has significantly higher product content than the model it is replacing. Heavy-duty truck and trailer earnings increased in the 1997 quarter as compared to the 1996 period, following the increase in revenue. Automotive industry sales were relatively level with the prior year's first quarter. However, sales at the Company's automotive components business increased as a result of favorable product mix, increased export revenues, and new program introductions. Despite a reduction of operating income of approximately $850,000 as a result of development and start-up costs for the new Mechanical Diode one- way clutch, earnings at this business improved in 1997 compared to the 1996 first quarter. Railroad industry demand, as measured by new railcar builds and new locomotive builds, decreased in the first quarter compared to the equivalent period in 1996, although production of both improved towards the end of the first quarter. Lower production resulted from weather problems and program deferrals at Eastern Class 1 railroads. Revenue ton-miles increased to record levels during the 1997 quarter. Despite industry conditions, sales increased significantly at the Company's railroad components business, principally as a result of two acquisitions in the second half of 1996. Correspondingly, operating profit followed the revenue trend and was up primarily as a result of the acquisitions. Sales in the analytical segment for the quarter ended May 3, 1997, decreased 44.6% to $8.0 million, compared to $14.4 million in the 1996 period. The bulk of the sales decrease resulted from the July 1996 sale of a business that generated $4.6 million of sales in the first quarter of 1996. However, sales in the remaining business in this segment were also lower as North American order patterns declined. Operating profit for the analytical instruments segment for the first three months of 1997 decreased to $1.0 million (12.7% of segment sales) compared to $2.0 million (14.1% of segment sales). Again, the greatest portion ($.6 million) of the decline resulted from the sale of the non-strategic business in July 1996. The remainder of the decline occurred in the petroleum instrumentation business. Consolidated gross margin declined to 23.7% in the first quarter of 1997 from 25.9% in 1996. The decline was due principally to the 1996 sale of a non-core business which had a gross margin percent significantly greater than the consolidated gross margin percent. On an individual segment basis, the transportation gross margin percent declined as a result of product mix at the heavy-duty truck business as well as costs related to the start-up of the Mechanical Diode one-way clutch at the automotive business. Gross margin increased at the analytical instruments segment solely as a result of the 1996 non- core disposition. Selling, general and administrative expenses of $17.2 million or 13.9% of sales in the first three months of 1997 compared to $14.3 million or 15.5% of sales in the prior year's comparable period. Most of the dollar increase in selling, general and administrative expenses resulted from two acquisitions, net of one divestiture. The decrease in selling, general and administrative expenses percentage also resulted from the two acquisitions and one disposition in the last half of 1996. The acquisitions had a lower percentage expense than the consolidated percent, and the disposition had a higher percent expense. Gross interest expense for the quarter ended May 3, 1997, was $3.2 million up from $1.3 million in the prior year's comparable period. The increase resulted from higher debt incurred for acquisitions. Interest income declined $.2 million in the first quarter of 1997 as a result of lower cash and investment balances. Income taxes were provided at an effective rate during the 1997 quarter of 44.5% compared to 43.2% in the comparable 1996 period. The higher than statutory federal rate reflects non- deductible goodwill amortization, higher taxes on foreign operations, and state income taxes. Capital Resources and Liquidity During the three-month period ended May 3, 1997, the Company generated $5.6 million of cash from operating activities. As of May 3, 1997, the Company's working capital was $73.4 million, its total assets were $396.2 million, its total debt was $183.3 million, and its stockholders' equity was $114.0 million. Investing activities during the three-month period ended May 3, 1997, included capital expenditures of $3.8 million. These capital expenditures were primarily for machinery and equipment to support new products and to improve operating efficiency. To support its investing activities, the Company has a $190.0 million term loan and revolving credit agreement which was entered into in 1996 and expires on July 19, 2002. The $110.0 million term loan portion of this facility was used to finance a large acquisition in 1996. The $80.0 million revolving credit facility will be used by the Company as the principal source of acquisition funding. At May 3, 1997, the Company had $105.5 million outstanding under the term loan portion of the facility and $2.2 million outstanding under the revolving credit portion of the facility. The percentage of debt to total capitalization at May 3, 1997, was 61.6%, down slightly from 62.9% at January 31, 1997. The Company believes that internally generated funds will be sufficient to satisfy its anticipated working capital needs, capital expenditures, and scheduled debt repayments. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders on May 29, 1997, the stockholders voted on one item. The item voted on and the results of the voting were as follows:
For Withheld 1. Elect a Board of Directors: Ernest H. Lorch 4,936,270 94,273 Richard L. Wellek 4,936,270 94,273 Rudolph Grua 5,029,227 1,316 L. William Miles 5,028,749 1,794 Joseph J. Ross 5,029,249 1,294 Greg A. Rosenbaum 4,935,770 94,773 Theodore A. Ruppert 5,026,726 3,817 Total number of shares eligible to be voted at the Annual Meeting of Stockholders. 5,780,822
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10 (l) - First Amendment to the Varlen Corporation 1993 Directors Incentive Stock Grant Plan. Exhibit 11 - Computation of Per Share Earnings. Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K None Safe Harbor Provision This Quarterly Report contains outlook and other forward-looking statements which are not historical facts. These forward-looking statements are based upon certain assumptions about a number of important factors. While the Company believes that its assumptions are reasonable, it cautions that there are inherent difficulties in predicting these factors, that they are subject to change at any time and that any such change could cause the Company's actual results to differ materially from those projected in its forward-looking statements. Among the factors that could cause actual results to differ materially are: expectations of market growth and size; the demand for the Company's products and other market acceptance risks; the presence in the market of competitors with greater financial resources, and the impact of competitive products and pricing: actual product purchases under existing purchase agreements and the loss of any significant customers; general market conditions; the ability of the Company to develop new products; capacity and supply constraints or difficulties; productivity and efficiency of operations; availability of resources; the results of the Company's financing efforts; the effect of the Company's accounting policies; and the effects of general economic, trade, legal, social and economic conditions. Other risk factors may be detailed from time to time in the Company's Securities and Exchange Commission filings. The Company assumes no obligation to update its forward-looking statements or advise of changes in the assumptions and factors on which they are based. 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. Varlen Corporation (Registrant) June 16, 1997 By: /s/ Richard A. Nunemaker Richard A. Nunemaker Vice President, Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) EXHIBIT INDEX Exhibit No. Page No. 10(l) First Amendment to the Varlen Corporation 1993 Directors Incentive Stock Grant Plan 15 11 Computation of Per Share Earnings 17 27 Financial Data Schedule 19 EX-10.(L) 2 FIRST AMENDMENT TO THE VARLEN CORPORATION 1993 DIRECTORS INCENTIVE STOCK GRANT PLAN The Varlen Corporation 1993 Director Incentive Stock Grant Plan (the "Director Stock Plan") shall be and hereby is amended, effective May 29, 1997, as follows: Section 7(1) of the Director Stock Plan shall be deleted and replaced with the following: 7. Grant of Awards (1) Terms of Awards. Each individual who becomes an eligible Director shall be granted an Award of Common Stock worth $12,000 based on the average of the high/ask price and the low/bid price for the Common Stock rounded down to the nearest whole share determined (i) on the date of the annual meeting of stockholders of the Company on which the Director is elected to office, and (ii) on the date of each annual meeting of stockholders of the Company thereafter so long as the Director continues to serve as an eligible Director following the close of such annual meeting. If an individual becomes an eligible Director on a date other than the date of an annual meeting of stockholders of the Company, the eligible Director shall be granted an Award on the date he takes the office for (i) shares worth $12,000 as determined above if the date he takes office is on or before six months anniversary of the previous annual meeting of stockholders of the Company, or (ii) shares worth $6,000 as determined above if the date he takes office is after the six month anniversary of the previous annual meeting of stockholders of the Company. Each Director's Award shall be conditioned on the Director (or the legal representative of his estate in the event of his death) accepting the Award by paying in cash the par value per share of Common Stock granted within 10 business days following the date the Award is granted. EX-11 3 Exhibit 11 VARLEN CORPORATION AND SUBSIDIARIES Computation of Per Share Earnings Unaudited (Thousands, Except Per Share Amounts)
Three Months Ended 5/3/97 5/4/96 Primary Earnings Per Share: Net earnings $ 5,009 $ 4,822 Computation of the Weighted Average Number of Shares Outstanding as Used in the Primary Earnings Per Share Computation: Weighted average number of shares outstanding 5,777 5,853 Shares assumed issued under the treasury stock method 182 242 Weighted average number of shares outstanding, as adjusted 5,959 6,095 Primary Earnings Per Share: $ 0.84 $ 0.79 Fully Diluted Earnings Per Share: Reconciliation of net earnings per the condensed consolidated financial statements to the amount used for the fully diluted computation: Net earnings $ 5,009 $ 4,822 Add interest on 6.5% convertible subordinated debentures, net of income tax effects 690 703 Net earnings, as adjusted $ 5,699 $ 5,525 Computation of the Weighted Average Number of Shares Outstanding as Used in the Fully Diluted Earnings Per Share Computation: Weighted average number of shares outstanding 5,777 5,853 Shares assumed issued under the treasury stock method 217 252 Shares issuable from assumed exercise of 6.5% convertible subordinated debentures 3,054 3,054 Weighted average number of shares outstanding, as adjusted 9,048 9,159 Fully Diluted Earnings Per Share: $ 0.63 $ 0.60
EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST QUARTER 1997 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q. 3-MOS JAN-31-1997 MAY-03-1997 2139 0 67818 0 52389 137705 202872 79838 396167 64308 181056 0 0 579 113464 396167 123975 123975 94570 94570 0 0 3219 9025 4016 5009 0 0 0 5009 .84 .63
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