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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 April 30, 1997 Commission File Number 1-8777
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VIRCO MFG. CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 95-1613718
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(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
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No change
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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 May 22, 1997.
Common Stock 5,906,296 Shares*
* Adjusted for Stock Dividend declared August 20, 1996, date of record
September 18, 1996, payable October 16, 1996.
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VIRCO MFG. CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - April 30, 1997 and
January 31, 1997.
Condensed consolidated statements of income - Three months ended
April 30, 1997 and 1996.
Condensed consolidated statements of cash flows - Three months
ended April 30, 1997 and 1996.
Notes to condensed consolidated financial statements - April 30,
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
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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 4/30/97 1/31/97
--------- ---------
<S> <C> <C>
Current assets
Cash $ 1,314 $ 722
Accounts and notes receivable 21,686 25,610
Less allowance for doubtful accounts (205) (100)
--------- ---------
Net accounts and notes receivable 21,481 25,510
Income taxes receivable - -
Inventories (note 2)
Finished goods 39,029 26,902
Work in process 8,200 6,402
Raw materials and supplies 12,970 10,340
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Total inventories 60,199 43,644
Prepaid expenses and deferred income tax 3,178 2,812
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Total current assets 86,172 72,688
Restricted short-term investment 665 660
Property, plant & equipment
Cost 81,364 79,666
Less accumulated depreciation (43,878) (42,188)
--------- ---------
Net property, plant & equipment 37,486 37,478
Other assets 7,593 7,194
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$ 131,916 $ 118,020
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
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VIRCO MFG. CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY 4/30/97 1/31/97
--------- ---------
<S> <C> <C>
Current liabilities
Checks released but not yet cleared bank $ 2,785 $ 4,790
Accounts payable 12,262 11,029
Income taxes payable 418 317
Current maturities on long-term debt 980 980
Other current liabilities 9,232 10,429
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Total current liabilities 25,677 27,545
Non-current liabilities
Long term debt (less current portion) 36,787 21,513
Other non-current liabilities 3,883 3,883
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Total non-current liabilities 40,670 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, $.01 par value; 5,906,296 Shares
issued at 4/30/97 and 1/31/97 59 59
Additional paid-in capital 50,104 50,104
Retained earnings 14,602 14,251
Less treasury stock at cost (22,389 Shares) (172) (172)
Loan to ESOP trust (138) (277)
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Total shareholders' equity 64,455 63,965
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$ 131,916 $ 118,020
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
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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
----------------------------
4/30/97 4/30/96
----------- -----------
<S> <C> <C>
Net sales $ 40,958 $ 36,745
Cost of goods sold 27,757 27,366
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Gross profit 13,201 9,379
Shipping, selling, general and administrative expense 11,781 10,888
Provision for doubtful accounts 127 110
Interest expense 487 740
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12,395 11,738
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Income/(loss) before income taxes 806 (2,359)
Income taxes/(benefits) 307 (920)
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Net income/(loss) $ 499 $ (1,439)
=========== ===========
Earnings/(loss) per share .08 (.24)
Weighted average shares outstanding
(Adjusted for 10% stock dividends
Declared August 20, 1996.) 6,030,824 5,906,296
Dividend declared
Cash (per share) - -
Stock - -
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
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VIRCO MFG. CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (note 1)
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
3 Months Ended
--------------------
4/30/97 4/30/96
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 499 $ (1,439)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,690 1,468
Provision for doubtful accounts 120 110
(Gain)/loss on sales of fixed assets - -
Change in assets and liabilities:
Accounts and notes receivable 3,909 4,905
Inventories (16,555) (5,548)
Prepaid expenses and deposits (366) (213)
Income taxes receivable/payable 101 (928)
Other assets 300 17
Accounts payable and accrued expenses (1,969) (3,539)
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Net cash used In operating activities (12,271) (5,167)
Cash flows from investing activities
Capital expenditures (1,698) (1,995)
Proceeds from sale of assets - -
Net investment in life insurance (699) (580)
Restricted short term investments (5) 475
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Net cash used in investing activities (2,402) (2,100)
Cash flows from financing activities
Issuance of long-term debt 15,398 7,148
Repayment of long-term debt (123) (225)
Payment of cash dividend (148) -
Loans to ESOP 138 (7)
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Net cash provided by financing activities 15,265 6,916
Net change in cash 592 (351)
Cash at beginning of quarter 722 661
-------- --------
Cash at end of quarter $ 1,314 $ 310
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
6
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VIRCO MFG. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 30, 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 April 30, 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 April 30, 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 three month period ended
April 30, 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 month periods ended April 30, 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.
Recent Developments. 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
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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 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.
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 either sold or
transferred to other Virco manufacturing facilities. As more fully
discussed in the Management's Discussion and Analysis, the Company
expects to take a $3,000,000 pre-tax charge in the second quarter
related to this plant closure.
8
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VIRCO MFG. CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations:
For the first quarter of 1997, the Company earned a net profit from continuing
operations of $499,000 on sales of $40,958,000 compared to a net loss from
continuing operations of $1,439,000 on sales of $36,745,000 in the same period
last year.
The volume of first quarter sales 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 both increases in volume and to
increased selling prices. The significant improvement in profitability is
attributable to a marked improvement in gross margin from 25.5% in the first
quarter of 1996 to 32.2% in the first quarter of 1997. The current quarter
margin is a continuation of trends which began in the second quarter of 1996 and
continued through the last three quarters of 1996. During that period, the gross
margin averaged approximately 30.4%. For the first quarter of this year, the
increase in gross margin is attributable to increases in selling prices (as
mentioned above) combined with a reduction in manufacturing costs.
In late May the Company discontinued negotiations with a potential buyer of the
Company's Virsan manufacturing facility which is located in Mexico. On May 28,
1997, the Company announced its intent to discontinue operations at this
facility effective August 30, 1997. Property, plant, equipment, and inventory at
this location will be transferred to other Virco manufacturing facilities or
will be sold. 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 a
result of this decision, the Company expects to incur a one time $3,000,000
pre-tax charge to earnings in the second quarter of the current year. The
primary component of this charge is related to severance benefits which will be
paid to the employees in accordance with Mexican law. Other components of this
charge 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.
Financial Condition:
As a result of seasonally low deliveries in the first quarter, accounts and
notes receivable decreased by approximately $4,030,000. In anticipation of
strong summer deliveries, inventory was increased by nearly $16,550,000. The
increase in inventory during the first quarter of 1997 was significantly greater
than the increase in inventory in the comparable quarter last year. In the prior
year, the Company intentionally reduced the volume of lower margin business with
mass merchants, and reduced the inventories of related product lines. This
reduction in inventory for mass merchants partially offset the seasonal increase
of educational product. In the current year the Company accelerated this
seasonal build up of educational product and is targeting increased inventories
of certain product lines. This increase in inventory was financed through the
credit facility with Wells Fargo Bank.
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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
10
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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: June 3, 1997 By: /s/ JAMES R. BRAAM
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James R. Braam
Vice President - Finance
Date: June 3, 1997 By: /s/ ROBERT E. DOSE
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Robert E. Dose
Corporate Controller
11
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EXHIBIT 11
VIRCO MFG. CORPORATION AND SUBSIDIARIES
Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
1997 1996
---------- ----------
Three Months Ended
--------------------------
April 30
--------
<S> <C> <C>
Primary:
Average Shares Outstanding 5,906,296 5,906,296
Net effect of dilutive stock options - based on the treasury stock method using
average market price
124,528 -
---------- ----------
Totals 6,030,824 5,906,296
========== ==========
Net Income/(Loss) 499,000 (1,439,000)
========== ==========
Per Share Amount .08 (.24)
========== ==========
</TABLE>
Weighted average shares outstanding are adjusted for 10% stock dividend declared
August 20, 1996.
<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> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 1,314
<SECURITIES> 0
<RECEIVABLES> 21,686
<ALLOWANCES> (205)
<INVENTORY> 60,199
<CURRENT-ASSETS> 86,172
<PP&E> 81,364
<DEPRECIATION> (43,878)
<TOTAL-ASSETS> 131,916
<CURRENT-LIABILITIES> 25,677
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 64,396
<TOTAL-LIABILITY-AND-EQUITY> 131,916
<SALES> 40,958
<TOTAL-REVENUES> 40,958
<CGS> 27,757
<TOTAL-COSTS> 11,908
<OTHER-EXPENSES> 487
<LOSS-PROVISION> 127
<INTEREST-EXPENSE> 487
<INCOME-PRETAX> 806
<INCOME-TAX> 307
<INCOME-CONTINUING> 499
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 499
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
