<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
FORM 10-Q
For Quarter Ended October 31, 1997 Commission File Number 1-8777
-------------------------- --------------
VIRCO MFG. CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-1613718
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2027 Harpers Way, Torrance, CA 90501
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 533-0474
--------------
No change
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
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 (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]
------- -------
The number of shares outstanding of each of the issuer's classes of
common stock, as of November 24, 1997.
Common Stock 8,882,694 Shares*
* Adjusted for Stock Split declared August 19, 1997, date of record
September 5, 1997, payable September 30, 1997.
<PAGE> 2
VIRCO MFG. CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - October 31, 1997
and January 31, 1997.
Condensed consolidated statements of income - Three months
ended October 31, 1997 and 1996.
Consdensed consolidated statements of income - Nine months
ended October 31, 1997 and 1996.
Condensed consolidated statements of cash flows - Three
months ended October 31, 1997 and 1996.
Condensed consolidated statements of cash flows - Nine months
ended October 31, 1997 and 1996.
Notes to condensed consolidated financial statements -
October 31, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
Item 4. Submission of matters to a vote of Security Holders.
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE> 3
PART 1
Item 1. Financial Statements
VIRCO MFG. CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
(Dollar amounts in thousands)
ASSETS 10/31/97 1/31/97
--------- ---------
Current assets
Cash $ 1,467 $ 722
Accounts and notes receivable 36,559 25,610
Less allowance for doubtful accounts (763) (100)
--------- ---------
Net accounts and notes receivable 35,796 25,510
Income taxes receivable -- --
Inventories (note 2)
Finished goods 19,973 26,902
Work in process 8,071 6,402
Raw materials and supplies 10,422 10,340
--------- ---------
Total inventories 38,466 43,644
Prepaid expenses and deferred income tax 3,828 2,812
--------- ---------
Total current assets 79,557 72,688
Restricted short-term investment 442 660
Property, plant & equipment
Cost 73,122 79,666
Less accumulated depreciation (36,146) (42,188)
--------- ---------
Net property, plant & equipment 36,976 37,478
Other assets 7,877 7,194
--------- ---------
$ 124,852 $ 118,020
========= =========
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE> 4
VIRCO MFG. CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 10/31/97 1/31/97
--------- ---------
<S> <C> <C>
Current liabilities
Checks released but not yet cleared bank $ 4,118 $ 4,790
Accounts payable 12,209 11,029
Income taxes payable 3,230 317
Current maturities on long-term debt 2,475 980
Other current liabilities 13,196 10,429
--------- ---------
Total current liabilities 35,228 27,545
Non-current liabilities
Long term debt (less current portion) 9,732 21,513
Other non-current liabilities 3,883 3,883
--------- ---------
Total non-current liabilities 13,615 25,396
Deferred income taxes 1,114 1,114
Shareholders' equity
Preferred stock:
Authorized 3,000,000 shares, $.01 par value; none issued or outstanding -- --
Common stock:
Authorized 10,000,000 shares, $.01 par value; 8,879,694 shares issued at 10/31/97 and
8,859,444 shares issued at 1/31/97 89 59
Additional paid-in capital 50,258 50,104
Retained earnings 25,240 14,251
Less treasury stock at cost (22,389 Shares) (172) (172)
Loan to ESOP trust (520) (277)
--------- ---------
Total shareholders' equity 74,895 63,965
--------- ---------
$ 124,852 $ 118,020
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE> 5
VIRCO MFG. CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
3 Months Ended
--------------
10/31/97 10/31/96
---------- ----------
<S> <C> <C>
Net sales $ 87,239 $ 79,834
Cost of goods sold 58,806 54,802
---------- ----------
Gross profit 28,433 25,032
---------- ----------
Shipping, selling, general and administrative expenses 16,711 16,085
Provision for doubtful accounts 286 241
Provision for plant shut down -- --
Interest expense 407 626
---------- ----------
17,404 16,952
---------- ----------
Income before income taxes 11,029 8,080
Income taxes 4,264 2,983
---------- ----------
Net income $ 6,765 $ 5,097
========== ==========
Earnings per share $ .74 $ .57
Weighted average shares outstanding (a) 9,184,300 9,019,313
Dividend declared (a)
Cash (per share) $ .02 $ .07
Stock 3 for 2 split 10%
</TABLE>
(a) Adjusted for three for two stock split declared August 19, 1997.
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE> 6
VIRCO MFG. CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
9 Months Ended
--------------
10/31/97 10/31/96
---------- ----------
<S> <C> <C>
Net sales $ 212,006 $ 189,117
Cost of goods sold 143,380 133,600
---------- ----------
Gross profit 68,626 55,517
---------- ----------
Shipping, selling, general and administrative expenses 45,065 41,485
Provision for doubtful accounts 653 567
Provision for plant shut down 2,600 --
Interest expense 1,654 2,255
---------- ----------
49,972 44,307
---------- ----------
Income before income taxes 18,654 11,210
Income taxes 7,162 4,204
---------- ----------
Net income $ 11,492 $ 7,006
========== ==========
Earnings per share $ 1.26 $ .78
Weighted average shares outstanding (a) 9,131,493 8,992,091
Dividend declared (a)
Cash (per share) $ .05 .07
Stock 3 for 2 split 10%
</TABLE>
(a) Adjusted for three for two stock split declared August 19, 1997.
The accompanying notes are an integral part of these condensed financial
statements.
6
<PAGE> 7
VIRCO MFG. CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (note 1)
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data) 3 Months Ended
--------------
10/31/97 10/31/96
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 6,765 $ 5,097
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,948 2,123
Provision for doubtful accounts 333 305
Gain on sales of fixed assets (604) --
Change in assets and liabilities:
Accounts and notes receivable 5,072 3,448
Inventories 15,017 10,856
Prepaid expenses and deposits (462) 53
Income taxes payable 946 1,376
Other assets (209) 2
Accounts payable and accrued expenses 2,301 5,303
-------- --------
Net cash provided by operating activities 31,107 28,563
Cash flows from investing activities
Capital expenditures (3,531) (1,968)
Proceeds from sale of assets 2,259 --
Net investment in life insurance (63) (65)
Restricted short term investments (6) (8)
-------- --------
Net cash used in investing activities (1,341) (2,041)
Cash flows from financing activities
Repayment of long-term debt (29,887) (26,855)
Issuance of common stock 100 --
Payment of cash dividend (177) (591)
Loans to ESOP (48) (285)
-------- --------
Net cash used in financing activities (30,012) (27,731)
Net change in cash (246) (1,209)
Cash at beginning of quarter 1,713 1,252
-------- --------
Cash at end of quarter $ 1,467 $ 43
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
7
<PAGE> 8
VIRCO MFG. CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (note 1)
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data) 9 Months Ended
--------------
10/31/97 10/31/96
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 11,492 $ 7,006
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 5,337 5,053
Provision for doubtful accounts 667 567
Gain on sales of fixed assets (561) --
Change in assets and liabilities:
Accounts and notes receivable (10,953) (7,202)
Inventories 5,178 9,619
Prepaid expenses and deposits (1,016) (344)
Income taxes payable 2,913 2,479
Other assets 90 53
Accounts payable and accrued expenses 3,275 4,982
-------- --------
Net cash provided by operating activities 16,422 22,213
Cash flows from investing activities
Capital expenditures (6,533) (5,691)
Proceeds from sale of assets 2,259 --
Net investment in life insurance (773) (665)
Restricted short term investments 218 620
-------- --------
Net cash used in investing activities (4,829) (5,736)
Cash flows from financing activities
Repayment of long-term debt (10,286) (16,211)
Issuance of common stock 154 --
Payment of cash dividend (473) (591)
Loans to ESOP (243) (293)
-------- --------
Net cash used in financing activities (10,848) (17,095)
Net change in cash 745 (618)
Cash at beginning of quarter 722 661
-------- --------
Cash at end of quarter $ 1,467 $ 43
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
8
<PAGE> 9
VIRCO MFG. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1997 and October 31, 1996
Note 1: The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results for the three month period ended October 31, 1997 are not
necessarily indicative of the results that may be expected for the
year ended January 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the Registrant Company and Subsidiaries' annual report on Form 10-K
for the year ended January 31, 1997.
Note 2. Inventory
Year end financial statements reflect inventories verified by
physical counts with the material content valued by the LIFO method.
At this interim date, there has been no physical verification of
inventory quantities. Cost of sales is recorded at current cost. The
effect of penetrating LIFO layers is not recorded at interim dates
unless the reduction in inventory is expected to be permanent. No
such adjustment has been made for the period ended October 31, 1997.
Management continually monitors production costs, material costs and
inventory levels to determine that interim inventories are fairly
stated.
Note 3. Income Taxes
The Company adopted Statement of Financial Accounting Standards
(SFAS) No 109. Income taxes for the nine-month period ended October
31, 1997 were computed using the effective tax rate estimated to be
applicable for the full fiscal year, which is subject to ongoing
review and evaluation by management.
Note 4. Significant Accounting Policies
Net Income/Loss Per Common Share. The per share data for the three
and nine month periods ended October 31, 1997 are based on the
weighted average number of common and common share equivalents
outstanding during the period. Stock options are considered common
share equivalents if dilutive.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, Earnings Per Share, which is effective for
annual and interim financial statements issued for periods ending
after December 15, 1997 and early adoption is not permitted. When
adopted, the statement will require restatement of prior years;
earnings per share ("EPS"), SFAS 128 was issued to simplify the
standards for calculating EPS previously found in APB No. 15,
Earnings Per Share, SFAS 128 replaces the presentation of primary
EPS with a presentation of basic EPS. The new rules also require
dual presentation of basic and diluted EPS on the face of the
statement of operations for companies
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with a complex capital structure. For the Company, basic EPS will
exclude the dilutive effects of stock options and warrants. Diluted
EPS for the Company will reflect all potential dilutive securities.
Under the provisions of SFAS 128, basic and dilutive EPS would have
been as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
10/31/97 10/31/96 10/31/97 10/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EPS-Basic Shares O/S 0.76 0.58 1.30 0.79
EPS-Fully Diluted Shares O/S 0.74 0.56 1.25 0.78
</TABLE>
On August 19, 1997, the Company's Board of Directors authorized a
three for two stock split effected in the form of a 50% stock
dividend payable on September 30, 1997 to stockholders of record
September 5, 1997. This resulted in the issuance of 2,959,898
additional shares of common stock as of September 3, 1997. All per
share and weighted average share amounts have been restated to
reflect this stock split.
Note 5. On May 28, 1997, the Company announced that the Virsan Mexico
manufacturing facility would be shut down, and the related property,
plant, equipment, and inventory would either be sold or transferred
to other Virco manufacturing facilities. As more fully discussed in
the Management's Discussion and Analysis, the Company recorded a
$2,600,000 pre-tax charge in the second quarter related to this
plant closure.
10
<PAGE> 11
VIRCO MFG. CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations:
For the third quarter of 1997, the Company earned a net profit of $6,765,000 on
sales of $87,239,000 compared to a net income of $5,097,000 on sales of
$79,834,000 in the same period last year. Earnings were $.74 share compared to
$.57 per share in the same period last year. For the nine month period ended
October 31, 1997, the Company earned a net profit of $11,492,000 on sales of
$212,006,000 compared to a net profit of $7,006,000 on sales of $189,117,000 in
the same period prior year. Earnings were $1.26 per share compared to $0.78 per
share in the same period last year.
The third quarter and year to date results are consistent with Virco's seasonal
business cycle which produces diminished first quarter sales followed by strong
second and third quarter deliveries of educational furniture. The increase in
sales compared to the prior year is attributable to increases in volume combined
with selected price increases. The significant improvement in profitability is
attributable to an improvement in gross margin from 29.4% for the first nine
months of 1996 to 32.4% for the same period of 1997. The increase in gross
margin is attributable to stable material costs and improvements in production
efficiency. Sales backlog at October 31, 1997 is approximately $600,000 greater
than the prior year.
In May 1997, the Company decided to discontinue operations at the Mexico
manufacturing facility. Subsequently, the Company sold the assets of the Mexican
facility on October 8, of this year. The facility ceased operations on October
20, 1997. The production requirements from this facility were transferred to the
Torrance, CA and Conway, AR manufacturing plants. As of October 31, 1997, 530 of
550 employees were terminated. Included in the second quarter results, the
Company recorded a plant closing reserve of $2,600,000, and $2,515,000 were
charged against this reserve during the second and third quarters. The primary
component of this reserve is related to severance benefits which were paid to
the employees in accordance with Mexican law. Other components include voluntary
severance payments to U.S. employees who work at this facility and other
miscellaneous costs associated with the shutdown.
At the August 19, 1997 Board meeting, the Board of Directors authorized an
expansion and reconfiguration of the Conway, Arkansas facility. It is
anticipated that this expansion will incorporate cell-based manufacturing
concepts which have been extremely successful at the Torrance, CA manufacturing
plant. It is expected that the expansion and re-configuration will cost between
$15 to $20 million, and occur over a 20 month period starting October 1, 1997.
At the same meeting, the Board of Directors authorized the Company to install a
new business information system to replace existing mainframe applications. The
business information system is expected to cost approximately $5,000,000. Phase
one of this implementation is scheduled to occur between October 1, 1997 and May
1, 1998.
Financial Condition:
As a result of seasonally high sales activity, accounts receivable increased by
$10,286,000 compared to January 31, 1997. Inventory decreased by $5,178,000 from
January 31, 1997 due to seasonally high third quarter sales. Cash flow is strong
with $16,422,000 of cash generated from operations in the nine months ended
October 31, 1997. The strong cash flow coupled with a modest level of capital
expenditures enabled us to pay down
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<PAGE> 12
$10,286,000 of debt in the nine month period ended October 31, 1997. Long term
debt was $12,207,000 as of October 31, 1997 compared to $22,493,000 as of
January 31, 1997.
The expansion of the Conway, AR manufacturing facility and the installation of
the new business information system will be financed through our revolving line
of credit with Wells Fargo, lease financing through GE Capital, and internally
generated funds. At October 31, 1997, the Company had approximately $43,000,000
available under its credit facility with Wells Fargo.
12
<PAGE> 13
PART II
VIRCO MFG. CORPORATION SUBSIDIARIES
Other Information
Item 4. Submission of matters to a vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
None
13
<PAGE> 14
VIRCO MFG. CORPORATION
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.
VIRCO MFG. CORPORATION
Date: By:
-------------------------- --------------------------
James R. Braam
Vice President - Finance
Date: By:
-------------------------- --------------------------
Robert E. Dose
Corporate Controller
14
<PAGE> 1
EXHIBIT 11.1
VIRCO MFG. CORPORATION AND SUBSIDIARIES
Exhibit (11) - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
10/31/97 10/31/96 10/31/97 10/31/96
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary:
Average Shares Outstanding 8,859,444 8,859,444 8,859,444 8,859,444
Net effect of dilutive stock options - based
on the treasury stock method using average
market price
324,856 159,869 232,499 132,647
----------- ----------- ----------- -----------
Totals 9,184,300 9,019,313 9,091,943 8,992,091
=========== =========== =========== ===========
Net Income $ 6,765,000 $ 5,097,000 $11,492,000 $ 7,006,000
=========== =========== =========== ===========
Per Share Amount $ .74 $ .57 $ 1.26 $ .78
=========== =========== =========== ===========
</TABLE>
Weighted average shares outstanding are adjusted for three for two stock split
declared August 19, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 1,467
<SECURITIES> 0
<RECEIVABLES> 36,559
<ALLOWANCES> (763)
<INVENTORY> 38,466
<CURRENT-ASSETS> 79,557
<PP&E> 73,122
<DEPRECIATION> (36,146)
<TOTAL-ASSETS> 124,852
<CURRENT-LIABILITIES> 35,228
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 74,895
<TOTAL-LIABILITY-AND-EQUITY> 124,852
<SALES> 87,239
<TOTAL-REVENUES> 87,239
<CGS> 58,806
<TOTAL-COSTS> 58,806
<OTHER-EXPENSES> 17,404
<LOSS-PROVISION> 286
<INTEREST-EXPENSE> 407
<INCOME-PRETAX> 11,029
<INCOME-TAX> 4,264
<INCOME-CONTINUING> 6,765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,765
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
