<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 JULY 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
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(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 September 3, 1997.
Common Stock 8,879,694 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 - July 31, 1997 and
January 31, 1997.
Condensed consolidated statements of income - Three months
ended July 31, 1997 and 1996.
Consdensed consolidated statements of income - Six months
ended July 31, 1997 and 1996.
Condensed consolidated statements of cash flows - Three months
ended July 31, 1997 and 1996.
Condensed consolidated statements of cash flows - Six months
ended July 31, 1997 and 1996.
Notes to condensed consolidated financial statements - July
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)
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
ASSETS 7/31/97 1/31/97
------ ------- --------
<S> <C> <C>
Current assets
Cash $ 1,713 $ 722
Accounts and notes receivable 41,623 25,610
Less allowance for doubtful accounts (422) (100)
--------- ---------
Net accounts and notes receivable 41,201 25,510
Income taxes receivable -- --
Inventories (note 2)
Finished goods 34,131 26,902
Work in process 8,546 6,402
Raw materials and supplies 10,806 10,340
--------- ---------
Total inventories 53,483 43,644
Prepaid expenses and deferred income tax 3,366 2,812
--------- ---------
Total current assets 99,763 72,688
Restricted short-term investment 436 660
Property, plant & equipment
Cost 82,612 79,666
Less accumulated depreciation (45,564) (42,188)
--------- ---------
Net property, plant & equipment 37,048 37,478
Other assets 7,605 7,194
--------- ---------
$ 144,852 $ 118,020
========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY 7/31/97 1/31/97
------------------------------------ ------- -------
<S> <C> <C>
Current liabilities
Checks released but not yet cleared bank $ 2,711 $ 4,790
Accounts payable 13,895 11,029
Income taxes payable 2,284 317
Current maturities on long-term debt 980 980
Other current liabilities 10,616 10,429
--------- ---------
Total current liabilities 30,486 27,545
Non-current liabilities
Long term debt (less current portion) 41,114 21,513
Other non-current liabilities 3,883 3,883
--------- ---------
Total non-current liabilities 44,997 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; 8,869,944 shares
issued at 7/31/97 and 8,859,444 shares issued at 1/31/97 59 59
Additional paid-in capital 50,158 50,104
Retained earnings 18,682 14,251
Less treasury stock at cost (22,389 Shares) (172) (172)
Loan to ESOP trust (472) (277)
--------- ---------
Total shareholders' equity 68,255 63,965
--------- ---------
$ 144,852 $ 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)
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data)
3 Months Ended
-------------------------
7/31/97 7/31/96
---------- ----------
<S> <C> <C>
Net sales $ 83,809 $ 72,538
Cost of goods sold 56,817 51,432
---------- ----------
Gross profit 26,992 21,106
Shipping, selling, general and administrative expense 16,573 14,512
Provision for doubtful accounts 240 216
Provision for plant shut down 2,600 --
Interest expense 760 889
---------- ----------
20,173 15,617
---------- ----------
Income before income taxes 6,819 5,489
Income taxes 2,591 2,141
---------- ----------
Net income $ 4,228 $ 3,348
========== ==========
Earnings per share .46 .37
Weighted average shares outstanding (a) 9,127,288 8,979,795
Dividend declared (a)
Cash (per share) $ .017 --
Stock -- --
</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)
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data)
6 Months Ended
-------------------------
7/31/97 7/31/96
---------- ----------
<S> <C> <C>
Net sales $ 124,767 $ 109,283
Cost of goods sold 84,574 78,798
---------- ----------
Gross profit 40,193 30,485
Shipping, selling, general and administrative expense 28,354 25,400
Provision for doubtful accounts 367 326
Provision for plant shut down 2,600 --
Interest expense 1,247 1,629
---------- ----------
32,568 27,355
---------- ----------
Income before income taxes 7,625 3,130
Income taxes 2,898 1,221
---------- ----------
Net income $ 4,727 $ 1,909
========== ==========
Earnings per share .52 .21
Weighted average shares outstanding (a) 9,091,943 8,972,021
Dividend declared (a)
Cash (per share) $ .033 --
Stock -- --
</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
<TABLE>
<CAPTION>
Unaudited (note 1)
(Dollar amounts in thousands, except per share data) 3 Months Ended
----------------------
7/31/97 7/31/96
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,228 $ 3,348
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,699 1,462
Provision for doubtful accounts 214 152
Loss on sales of fixed assets 43 --
Change in assets and liabilities:
Accounts and notes receivable (19,934) (15,555)
Inventories 6,716 4,311
Prepaid expenses and deposits (188) 2,031
Income taxes (receivable)/payable 1,866 (184)
Other assets -- 34
Accounts payable and accrued expenses 2,942 3,218
-------- --------
Net cash used in operating activities (2,414) (1,183)
Cash flows from investing activities
Capital expenditures (1,304) (1,728)
Proceeds from sale of assets -- --
Net investment in life insurance (11) (20)
Restricted short term investments 229 153
-------- --------
Net cash used in investing activities (1,086) (1,595)
Cash flows from financing activities
Issuance of long-term debt 4,514 3,946
Repayment of long-term debt (187) (225)
Issuance of common stock 54
Payment of cash dividend (148) --
Loans to ESOP (334) (1)
-------- --------
Net cash provided by financing activities 3,899 3,720
Net change in cash 399 942
Cash at beginning of quarter 1,314 310
-------- --------
Cash at end of quarter $ 1,713 $ 1,252
======== ========
</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
<TABLE>
<CAPTION>
Unaudited (note 1)
(Dollar amounts in thousands, except per share data) 6 Months Ended
-----------------------
7/31/97 7/31/96
-------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,727 $ 1,909
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 3,389 2,930
Provision for doubtful accounts 334 262
Loss on sales of fixed assets 43 --
Change in assets and liabilities:
Accounts and notes receivable (16,025) (10,650)
Inventories (9,839) (1,237)
Prepaid expenses and deposits (554) 1,103
Income taxes (receivable)/payable 1,967 (397)
Other assets 299 51
Accounts payable and accrued expenses 974 (321)
-------- --------
Net cash used in operating activities (14,685) (6,350)
Cash flows from investing activities
Capital expenditures (3,002) (3,723)
Proceeds from sale of assets -- --
Net investment in life insurance (710) (600)
Restricted short term investments 224 628
-------- --------
Net cash used in investing activities (3,488) (3,695)
Cash flows from financing activities
Issuance of long-term debt 19,911 11,094
Repayment of long-term debt (310) (450)
Issuance of common stock 54 --
Payment of cash dividend (296) --
Loans to ESOP (195) (8)
-------- --------
Net cash provided by financing activities 19,164 10,636
Net change in cash 991 591
Cash at beginning of quarter 722 661
-------- --------
Cash at end of quarter $ 1,713 $ 1,252
======== ========
</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
July 31, 1997 and July 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 July 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 July 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 six month period ended July
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 six month periods ended July 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 with a complex capital
structure. For the Company, basic EPS will exclude the dilutive
effects of
9
<PAGE> 10
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 substantially
the same as the reported amounts.
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 second quarter of 1997, the Company earned a net profit of $4,228,000 on
sales of $83,809,000 compared to a net income of $3,348,000 on sales of
$72,538,000 in the same period last year. Earnings were $.46 per share compared
to $.37 per share in the same period last year after giving effect to the stock
split. For the six month period ended July 31, 1997, the Company earned a net
profit of $4,727,000 on sales of $124,767,000 compared to a net profit of
$1,909,000 on sales of $109,283,000 in the same period prior year. Earnings were
$.52 per share compared to $.21 per share in the same period last year after
giving effect to the stock split.
The second 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 29.1% in the second quarter
of 1996 to 32.2% in the second quarter of 1997. The increase in gross margin is
attributable to increases in selling prices, stable material costs and
improvements in production efficiency. Sales backlog at July 31, 1997 is
approximately $1,700,000 greater than the prior year.
In May 1997, the Company decided to discontinue operations at the Mexico
manufacturing facility. Subsequently, the Company has reached an agreement for
the bulk sale of the assets of the Mexican facility on October 1 of this year,
subject to certain conditions. The facility will cease operations prior to
October 1, 1997. The production requirements from this facility will be
transferred to the Torrance, CA and Conway, AR manufacturing plants. It is
anticipated that all of the employees at this site (approximately 550) will be
terminated. As of July 31, 1997, 370 employees were terminated. Included in the
second quarter results, the Company recorded a plant closing reserve of
$2,600,000 and $1,224,000 were charged against this reserve during the quarter.
The primary component of this reserve is related to severance benefits which
will be paid to the employees in accordance with Mexican law. Other components
include voluntary severance payments to U.S. employees which work at this
facility, carrying costs incurred while liquidating the real estate and
production equipment and other miscellaneous costs associated with the shutdown.
The majority of such spending will occur prior to October 1, 1997.
At the August 19, 1997 Board meeting, the Board of Directors authorized an
expansion and re-configuration of the Conway, Arkansas facility. It is
anticipated that this expansion will support growth in sales volume for the next
several years. The re-configuration 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
approximately $15 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
$16,025,000 compared to January 31, 1997. In anticipation of strong third
quarter educational deliveries, inventory at July 31, 1997 increased by
$9,839,000 compared to January 31, 1997.
11
<PAGE> 12
Increases in receivable and inventory were financed through increased borrowings
under our revolving line of credit with Wells Fargo Bank.
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 available through GE Capital, and
internally generated funds. At July 31, 1997, the Company had approximately
$17,000,000 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
The following is a description of matters submitted to a vote of
registrant's stockholders at the Annual Meeting of Stockholders held
June 17, 1997:
Election of three directors whose term expire in 2000.
<TABLE>
<CAPTION>
Votes For
---------
<S> <C>
Donald A. Patrick 4,906,248
Raymond W. Virtue 4,906,744
Robert A. Virtue 4,907,966
Adoption of the Virco Mfg. corporation 1997 Stock Incentive Plan. 4,081,332
</TABLE>
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
VIRCO MFG. CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Exhibit (11) - Statement Re: Computation of Earnings Per Share
1997 1996 1997 1996
--------- --------- --------- ---------
Three Months Ended Six Months Ended
------------------ ----------------
July 31 July 31
------- -------
<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
267,844 120,351 232,499 112,577
--------- --------- --------- ---------
Totals 9,127,288 8,979,795 9,091,943 8,972,021
========= ========= ========= =========
Net Income (Loss) 4,228,000 3,348,000 4,727,000 1,909,000
========= ========= ========= =========
Per Share Amount .46 .37 .52 .21
========= ========= ========= =========
</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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 1,713
<SECURITIES> 0
<RECEIVABLES> 40,513
<ALLOWANCES> (422)
<INVENTORY> 53,483
<CURRENT-ASSETS> 99,763
<PP&E> 82,612
<DEPRECIATION> (45,564)
<TOTAL-ASSETS> 144,852
<CURRENT-LIABILITIES> 30,486
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 68,196
<TOTAL-LIABILITY-AND-EQUITY> 144,852
<SALES> 83,809
<TOTAL-REVENUES> 83,809
<CGS> 56,817
<TOTAL-COSTS> 56,817
<OTHER-EXPENSES> 19,173
<LOSS-PROVISION> 240
<INTEREST-EXPENSE> 760
<INCOME-PRETAX> 6,819
<INCOME-TAX> 2,591
<INCOME-CONTINUING> 4,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,228
<EPS-PRIMARY> .46
<EPS-DILUTED> 0
</TABLE>
