Vallen Corporation Reports First Quarter Sales and Earnings

HOUSTON, Oct. 1 -- Vallen Corporation (Nasdaq: VALN) today announced sales and earnings for the quarter ended August 31, 1999.

Net sales for the first quarter totaled $70,679,000, down 3% from the $72,936,000 level in the first quarter of fiscal 1999. Net earnings decreased 43% to $1,074,000 or $.15 per share, diluted compared to $1,883,000 or $.26 per share recorded for the first quarter of 1999.

The first quarter for fiscal 2000 was one of contradicting trends for Vallen. Continuing the trend of the fourth quarter of the previous year, overall sales levels in our primary distribution business were below those of the comparable period of the prior year. However, overall gross profit margins in our distribution businesses improved, primarily due to our overall changing product/service mix. Certain geographic and industry sector markets, including the energy and process industries, covered by Vallen's core distribution business continued slow spending for safety and other MRO equipment during the quarter, and Department of Commerce figures indicate that the overall United States economy was in its slowest growth rate since mid- 1995. Our distribution business through the middle of the summer was significantly impacted by this overall slowdown. Our August distribution business sales levels noted the first significant increase since March, and we are cautiously optimistic going into the second quarter based upon anticipated seasonal turnaround business in some of our larger customers' process and manufacturing facilities.

We were active in acquisition expansion activity during the quarter. We announced the acquisition of GCRS of Houston, whose primary business is respiratory and audiometric fit testing. In integrating this business into our existing safety solution concept, we have already increased their backlog substantially with new business from Vallen's existing Gulf Coast customer base, and we have plans to expand their staff substantially to meet customer demand over the next few months. The Company also added Augusta, Georgia based Augusta Automatic Fire Systems to our steadily expanding fire safety services group. We continue to consider acquisitions of such service-based businesses to complement our existing core safety business in selected US markets.

Additionally, in early September, the Company launched its e-Commerce program over the Internet on a business to business basis, announcing initial contracts with a major government agency and two industry associations. Initial indications are that this will provide new options in reaching not only existing customer bases, but also markets that Vallen's traditional sales efforts do not ordinarily tap into.

Earnings for the quarter were impacted by the loss of a contract in early June for supplying apparel for the Air Force basic training facility in Texas, which was carried out through a partnership with Lion Apparel of Dayton, Ohio. Pre-tax earnings recorded by Vallen from this operation in the first quarter of FY 1999 were $162,000, whereas during the current quarter, earnings were negligible. Vallen, however, has recently announced that the Lion-Vallen partnership has entered into a new supply chain management contract with the Department of Defense, which will begin operations during the second quarter of the fiscal year. This project will gain operating leverage off Vallen's existing distribution infrastructure, particularly information support systems. The Company expects to mitigate the earnings shortfall from the expiring contract through operation of the new contract as the year progresses.

Equity earnings from our foreign affiliates for the quarter ended August 31 totaled $902,000, compared to $940,000 for the comparable period of the prior year. The Canadian affiliate's operating results continue to recover from the effects of a major downturn in its energy industry dominated markets that began in mid fiscal year 1999. The Mexican affiliate's operating growth continues to generate high levels of earnings for the Company.

Earnings from the Encon Safety Products manufacturing operations were slightly behind those of the comparable quarter of FY 1999 due to slower sales in several of the normally high turnover non-prescription eyewear lines and an under utilization of manufacturing capacity at its operating plant. This was related, in part, to the slowdown in sales of our distribution group, which distributes a significant portion of Encon's eyewear line output.

Vallen continues to move forward with its longer term strategy of a mixed services and products-based distribution process, expanding our ability to bring total safety solutions to our diverse customer base and cross-leveraging the various business lines in significant markets throughout North America. The Company sees this strategy as the centerpiece of its long term business plan and believes that as we become a more diversified distributor, we will become less market sector dependent and less subjected to individual market economic cycles in terms of our overall operating results.

The Company serves industrial, commercial and public sector customers. Its distribution businesses, including Vallen Safety Supply Company (U.S. and Canada), Proveedora de Seguridad Industrial del Golfo (Mexico) and Century Sales & Service, Ltd. (Canada), and Vallen-Acetogen Safety Chile S. A., operate from some 162 locations, including over 69 on-site/just in time locations throughout North America.

Vallen's manufacturing facilities produce a variety of safety products and other products for industrial and commercial application. Encon Safety Products, Inc. is the leading producer of emergency shower and eye wash fountains for industrial use, and produces a broad line of non-prescription safety eyewear. These lines are sold through industrial distributors, including Vallen Safety Supply Company, throughout North and South America.

SOURCE Vallen Corporation

/CONTACT: Leighton J. Stephenson, Vice President - Finance of Vallen
Corporation, 713-462-8700/

/Web site: http://www.vallen.com/

(VALN)

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