<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, 1998 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 30, 1998.
Common Stock 9,898,855 Shares *
* Adjusted for 10% stock dividend declared August 11, 1998, date of record
September 4, 1998, payable September 30, 1998.
<PAGE> 2
VIRCO MFG. CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - October 31, 1998 and
January 31, 1998.
Condensed consolidated statements of income - Three months ended
October 31, 1998 and 1997.
Condensed consolidated statements of income - Nine months ended
October 31, 1998 and 1997.
Condensed consolidated statements of cash flows - Three months
ended October 31, 1998 and 1997.
Condensed consolidated statements of cash flows - Nine months
ended October 31, 1998 and 1997.
Notes to condensed consolidated financial statements - October
31, 1998.
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.
None
Item 6. Exhibits & Reports on Form 8-K.
None
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 10/31/98 1/31/98
------ --------- ----------
<S> <C> <C>
Current assets
Cash $ 1,451 $ 1,221
Accounts and notes receivable 41,125 26,942
Less allowance for doubtful accounts (751) (100)
--------- ---------
Net accounts and notes receivable 40,374 26,842
Inventories (note 2)
Finished goods 21,785 25,467
Work in process 6,331 8,739
Raw materials and supplies 8,378 9,656
--------- ---------
Total inventories 36,494 43,862
Prepaid expenses and deferred income tax 4,541 2,294
--------- ---------
Total current assets 82,860 74,219
Property, plant & equipment
Cost 89,208 75,754
Less accumulated depreciation (39,329) (36,385)
--------- ---------
Net property, plant & equipment 49,879 39,369
Other assets 9,818 8,427
--------- ---------
$ 142,557 $ 122,015
========= =========
</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 10/31/98 1/31/98
----------------------------------- ------- -------
<S> <C> <C>
Current liabilities
Checks released but not yet cleared bank $ 6,454 $ 3,200
Accounts payable 11,105 13,324
Income taxes payable 3,211 --
Current maturities on long-term debt 1,904 3,442
Other current liabilities 14,240 10,221
--------- ---------
Total current liabilities 36,914 30,187
Non-current liabilities
Long term debt (less current portion) 11,184 9,459
Other non-current liabilities 4,053 4,053
--------- ---------
Total non-current liabilities 15,237 13,512
Deferred income taxes 991 991
Shareholders' equity
Preferred stock:
Authorized 3,000,000 shares, $.01 par value; none issued
or outstanding -- --
Common stock:
Authorized 25,000,000 shares, $.01 par value; 9,889,415 shares issued
at 10/31/98 and 8,909,183 shares issued at
1/31/98 99 89
Additional paid-in capital 50,937 50,301
Retained earnings 41,128 27,423
Less treasury stock at cost (119,801 Shares) (2,466) (172)
Loan to ESOP trust (283) (316)
--------- ---------
Total shareholders' equity 89,415 77,325
--------- ---------
$ 142,557 $ 122,015
========= =========
</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
--------------
10/31/98 10/31/97
----------- ------------
<S> <C> <C>
Net sales $ 92,691 $ 87,239
Cost of goods sold 60,315 58,806
----------- -----------
Gross profit 32,376 28,433
Shipping, selling, general and administrative expense 19,860 16,711
Provision for doubtful accounts 217 286
Provision for plant shut down -- --
Interest expense 423 407
----------- -----------
20,500 17,404
Income before income taxes 11,876 11,029
Income taxes 4,572 4,264
----------- -----------
Net income $ 7,304 $ 6,765
=========== ===========
Earnings per share (a) $ .75 $ .69
Earnings per share - assuming dilution (a) $ .73 $ .67
Weighted average shares outstanding (a) 9,791,424 9,745,388
Weighted average shares outstanding- assuming dilution (a) 10,043,984 10,102,730
Dividend per share
Cash (a) $ .02 $ .02
Stock 10% 2 for 3 split
</TABLE>
(a) Adjusted for 10% stock dividend declared August 11, 1998.
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)
9 Months Ended
---------------
10/31/98 10/31/97
----------- ------------
<S> <C> <C>
Net sales $ 225,168 $ 212,006
Cost of goods sold 149,462 143,380
----------- -----------
Gross profit 75,706 68,626
Shipping, selling, general and administrative expense 50,384 45,065
Provision for doubtful accounts 604 653
Provision for plant shut down -- 2,600
Interest expense 1,203 1,654
----------- -----------
52,191 49,972
Income before income taxes 23,515 18,654
Income taxes 9,053 7,162
----------- -----------
Net income $ 14,462 $ 11,492
=========== ===========
Earnings per share (a) $ 1.48 $ 1.18
Earnings per share - assuming dilution (a) $ 1.44 $ 1.14
Weighted average shares outstanding (a) 9,774,687 9,745,388
Weighted average shares outstanding- assuming dilution (a) 10,048,982 10,044,642
Dividend per share
Cash (a) $ .06 $ .05
Stock 10% 2 for 3 split
</TABLE>
(b) Adjusted for 10% stock dividend declared August 11, 1998
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
--------------
10/31/98 10/31/97
--------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 7,304 $ 6,765
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 2,328 1,948
Provision for doubtful accounts 217 333
Gain on sales of fixed assets -- (604)
Change in assets and liabilities:
Accounts and notes receivable 3,996 5,072
Inventories 16,162 15,017
Prepaid expenses and deposits (1,303) (462)
Income taxes receivable/payable 42 946
Other assets (33) (209)
Accounts payable and accrued expenses 2,648 2,301
-------- --------
Net cash provided by operating activities 31,361 31,107
Cash flows from investing activities
Capital expenditures (9,348) (3,531)
Proceeds from sale of assets -- 2,259
Net investment in life insurance (45) (63)
Restricted short term investments -- (6)
-------- --------
Net cash used in investing activities (9,393) (1,341)
Cash flows from financing activities
Repayment of long-term debt (24,191) (29,887)
Payment of cash dividend (195) (177)
Purchase of treasury stock (1,047) --
Issuance of common stocks 69 100
Loans to ESOP (71) (48)
-------- --------
Net cash used in financing activities (25,435) (30,012)
Net change in cash (3,467) (246)
Cash at beginning of quarter 4,918 1,713
-------- --------
Cash at end of quarter $ 1,451 $ 1,467
======== ========
</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
--------------
10/31/98 10/31/97
-------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 14,462 $ 11,492
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 5,721 5,337
Provision for doubtful accounts 604 667
(Gain)/loss on sales of fixed assets 129 (561)
Change in assets and liabilities:
Accounts and notes receivable (14,136) (10,953)
Inventories 7,368 5,178
Prepaid expenses and deposits (2,247) (1,016)
Income taxes receivable/payable 3,211 2,913
Other assets (356) 90
Accounts payable and accrued expenses 5,054 3,275
-------- --------
Net cash provided by operating activities 19,810 16,422
Cash flows from investing activities
Capital expenditures (17,290) (6,533)
Proceeds from sale of assets 930 2,259
Net investment in life insurance (1,035) (773)
Restricted short term investments -- 218
-------- --------
Net cash used in investing activities (17,395) (4,829)
Cash flows from financing activities
Issuance of long-term debt 2,825 --
Repayment of long-term debt (2,638) (10,286)
Payment of cash dividend (553) (473)
Purchase of treasury stock (1,997) --
Issuance of common stocks 145 154
Loans to ESOP 33 (243)
-------- --------
Net cash used in financing activities (2,185) (10,848)
Net change in cash 230 745
Cash at beginning of period 1,221 722
-------- --------
Cash at end of period $ 1,451 $ 1,467
======== ========
</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, 1998 and October 31, 1997
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
nine-month period ended October 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended
January 31, 1999. 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, 1998.
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, 1998.
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, 1998 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
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." SFAS
No. 128, which replaced the calculation of primary and fully diluted
net income per share with basic and diluted net income per share.
Basic net income per share is calculated by dividing net income by
the weighted average number of common shares outstanding. Diluted net
income per share is calculated by dividing net income by the weighted
average number of common shares outstanding plus the dilutive effect
of convertible securities. All prior year net income per share data
has been restated in accordance with the new standard.
9
<PAGE> 10
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
-------------- --------------
10/31/98 10/31/97 10/31/98 10/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net Income $7,304,000 $6,765,000 $14,462,000 $11,492,000
Denominator:
Denominator for basic earnings
per share - 9,791,424 9,745,388 9,774,687 9,745,388
weighted - average shares
Dilutive potential common shares
252,560 357,342 274,295 299,254
---------- ----------- ---------- ----------
Denominator for diluted earnings
per share - adjusted 10,043,984 10,102,730 10,048,982 10,044,642
weighted-average shares and
assumed conversions
Basic earnings per share $ 0.75 $ 0.69 $ 1.48 $ 1.18
Diluted earnings per share $ 0.73 $ 0.67 $ 1.44 $ 1.14
</TABLE>
In 1998, the Company adopted SFAS No, 130, "Reporting Comprehensive Income." The
Statement established standards for the reporting and display of comprehensive
income, which comprises certain specific items previously reported directly in
stockholders' equity. Other comprehensive income comprises items such as
unrealized gains and losses on debt and equity securities classified as
available-for-sale securities, minimum pension liability adjustments, and
foreign currency translation adjustments. The Company does not believe adoption
of this SOP will have a material impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information: SFAS 131 provides accounting guidance
for reporting and requires such enterprises to report selected information about
operating segments in interim financial reports. The statement uses a
"management approach" to identify operating segments and provides specific
criteria for operating segments. SFAS 131 is effective for the year ended
January 31, 1999 and will be required for interim periods in 1999. The adoption
of this SFAS has no impact on the way the Company reports or has reported its
financial statements.
In March 1998, the AICPA issued SOP 98-1, Accounting For the Costs of Computer
Software Developed For or Obtained for Internal-Use. The SOP is effective for
the Company beginning on February 1, 1999. The SOP will require the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal-use. The Company
currently capitalizes costs associated with software developed for its own use.
The Company does not believe adoption of this SOP will have a material impact on
the Company's future earnings or financial position.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, " Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. SFAS 133 is
effective for the Company for all fiscal quarters of fiscal years beginning
February 1, 2001. The adoption of this SFAS has no impact on the way the Company
reports or has reported its financial statements.
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 1998, the Company earned a net profit of $7,304,000 on
sales of $92,691,000 compared to a net income of $6,765,000 on sales of
$87,239,000 in the same period last year. Earnings were $.73 per share compared
to $.67 per share in the same period last year, after giving effect to the 10%
stock dividend declared August 11, 1998. For the nine-month period ended October
31, 1998, the Company earned a net profit of $14,462,000 on sales of
$225,168,000 compared to a net profit of $11,492,000 on sales of $212,006,000 in
the same period prior year. Earnings were $1.44 per share compared to $1.14 per
share in the same period prior year, after giving effect to the 10% stock
dividend declared August 11, 1998. Included in the nine-month period ended
October 31, 1998 results were a pre-tax charge of $300,000, recorded in the
third quarter, to cover severance and other costs related to the Company's
decision to close two distribution centers and a $120,000 pre-tax charge,
recorded in the first quarter, for the anticipated loss on disposition of the
So. Pines, NC property. The year-to-date results of last year included a pre-tax
charge of $2.6 million, recorded in the second quarter, to cover severance and
other costs related to the shutdown of the Company's manufacturing facility in
Mexico.
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. In recent years,
the educational markets are experiencing an increase in seasonality, as more
school customers require deliveries closer to the beginning of the school year,
which falls in the Company's third quarter. The increase in sales for the third
quarter and for the year compared to the prior year is attributable to increases
in volume combined with selected price increases. It also reflects stronger
acceptance of our newer lines of product. For the nine-month period ended
October 31, 1998, incoming orders have increased by 7%, and at October 31, 1998,
sales backlog was 18% greater than at the same time last year.
Gross profits for the third quarter and year-to-date, as a percent of sales,
improved by 2% compared to the same periods last year. The improvement in gross
profit is attributable to both stable material costs and increased sales of
newer product lines, which typically generate higher margin. In addition, in the
fourth quarter of last year, the Company terminated relationships with several
education dealers and hired direct sales representatives for the territories
affected. This contributed to higher margins to sales in these territories
offset by increased selling costs.
Marketing, general and administrative expense for the third quarter and
year-to-date, as a percent of sales, were at 22% and 23%, respectively, compared
to 20% and 22% the same periods last year. The increase in S, G & A was due to
additional selling costs and Information Technology expenses relating to the Y2K
project.
Interest expense for the third quarter was about the same compared to the same
period last year and decreased by $451,000 for the nine-month period ended
October 31, 1998 compared to the same period last year, primarily due to lower
average debt balances.
During the first quarter ended April 30, 1998, the Company had resolved a
long-standing dispute over pricing on deliveries made to the GSA at a cost of
$200,000. The Company had previously established a reserve of $500,000 on this
matter in recognition of the original GSA demand, which exceeded $1,000,000.
This resolution will enable the Company to again participate in GSA contract
business, as the Company had chosen not to participate in GSA contract business
while the dispute was pending.
11
<PAGE> 12
In November 1998, the Company announced the shutdown of two distribution
centers. As previously stated, the third quarter results included a $300,000
pre-tax charge to cover severance and other costs related to the shutdowns.
Despite the short-term costs related to these closings, experience has shown
that the consolidation and expansion of inventories in fewer facilities has
provided many longer-term benefits for the Company, including improved customer
service, increased efficiencies and reduced operating expenses. Since 1993,
Virco has closed nine other regional facilities throughout the nation. Our
remaining facilities are strategically positioned to deliver optimum service on
a more consistently economical basis. These shutdowns are scheduled to be
finalized before February of next year.
The Conway Division's expansion and reconfiguration project continues to
progress on schedule. We anticipate that limited production in the new
manufacturing facility will begin during the first quarter of 1999. While the
new factory's initial operation at lower output levels could have an unfavorable
effect on 1999 earnings, its increased manufacturing capacity and improved
operational efficiencies are key aspects of our ongoing efforts to enhance
long-term profitability. The new factory is intended to emphasize production of
our newer furniture lines, another important element of our strategy.
In November 1998, the Company decided to discontinue approximately $5 million in
annual volume sold to a large mass merchant. This is a continuation of our
successful strategy to raise margins by focusing on the development of more
profitable business.
Financial Condition:
Our credit agreement with Wells Fargo Bank, which expires on October 1,1998, was
amended to extend the expiration date to October 1, 2001. The amended line of
credit will continue to provide loans at the Wells Fargo prime interest rate,
but also allows the Company the option to borrow under 30, 60 and 90 days fixed
term rate at LIBOR plus 1.25%. The terms and conditions are substantially
unchanged with a $50,000,000 line of credit from October 1, 1998 through and
including April 30, 1999, not to exceed at any time the aggregate principal
amount of $60,000,000 from May 1, 1999 through and including October 31, 1999,
and not to exceed at any time the aggregate principal amount of $50,000,000 from
November 1, 1999 through and including October 1, 2001. At October 31, 1998, the
Company had approximately $41,939,000 available under its credit facility with
Wells Fargo Bank.
As a result of seasonally high sales activity, accounts receivable increased by
$14,183,000 compared to January 31, 1998. Inventory at October 31, 1998
decreased by $7,368,000 compared to January 31, 1998 due to seasonally high
third quarter shipments.
Capital spending for the nine-month period ended October 31, 1998 was
$17,290,000 compared to $6,533,000 for the same period last year. The
$10,757,000 increase in capital spending is due to two large capital projects in
progress, which have significant cashflow requirements on the 1998 fiscal year.
As discussed in the Company's 1997 Annual Report, planned capital expenditures
for 1998 fiscal year include the Conway, AR expansion and the implementation of
the SAP Enterprise Resource Planning System. These capital investments and the
ongoing capital expenditures are being financed through credit facilities
established with Wells Fargo Bank, General Electric Capital Corporation and
internally generated funds. At October 31, 1998, the Company had approximately
$41,939,000 available under its credit facility with Wells Fargo Bank and
$7,729,000 available under its equipment credit facility with General Electric
Capital Corporation.
12
<PAGE> 13
Net cash flows provided by operating activities for the third quarter and for
the nine-month period ended October 31, 1998 totaled $31,361,000 and
$19,810,000, respectively, compared to $31,107,000 and $16,422,000,
respectively, for the same periods last year. The net $3,388,000 improvement in
cash flows provided by operating activities for the nine-month period ended
October 31, 1998 compared to the same period prior year, is primarily due to the
Company's improved profits and increased account payables offset by increased
account receivables. Long term debt was $11,184,000 as of October 31, 1998
compared to $9,732,000 for the same period last year.
At the April 21, 1998 Board of Directors' meeting, the Board authorized a stock
re-purchase program under which the Company may re-purchase shares of its
outstanding common stock for an aggregate purchase price of up to $5,000,000.
The stock re-purchase may be made from time to time at prevailing prices over
the subsequent twelve months, by purchases on the market or in private
transactions. Any shares re-purchased will be available for re-issuance in
connection with the Company's stock option plans or for other corporate
purposes. For the nine-month period ended October 31, 1998, the Company
purchased 91,750 shares of its common stock for $1,997,000 at an average
re-purchase price of $21.77 per share, after giving effect to the 10% stock
dividends declared on August 11, 1998.
On August 11, 1998, the Company's Board of Directors authorized a 10% stock
dividend, payable on September 30, 1998 to stockholders of record September 4,
1998. This resulted in the issuance of 891,213 additional shares of common stock
as of September 4, 1998. All per share and weighted average share amounts have
been restated to reflect this stock dividend. At the same meeting, the Board
also authorized a $.02 per share cash dividend, payable on October 30, 1998 to
shareholders on record October 9, 1998. For the nine-month period ended October
31, 1998, the Company paid $553,000 in cash dividends.
The Company believes that cash flow from operations, together with the Company's
unused borrowing capacity with Wells Fargo Bank and General Electric Capital
Corporation, will be sufficient to fund the Company's debt service requirements,
capital expenditures and working capital needs.
Year 2000 Compliance:
The Company completed an assessment of its information systems in early 1997.
The Company's legacy mainframe system would require modifications to be Y2K
compliant. The cost of these modifications was estimated to be approximately
$200,000. As part of this assessment, the Company reviewed various software
packages that would be Y2K compliant and improve the Company's information
system capabilities. After extended review, the Company determined that the
benefits attainable by implementing an enterprise resource planning system
justified the additional cost of acquiring and implementing such a system.
In August 1997, the Board of Directors approved the implementation of an SAP
Enterprise Resources Planning System. This implementation was started in October
1997 and is projected to be completed by the first half of fiscal year 1999. The
Company believes that by implementing the SAP system and any required equipment
modifications, the Y2K issue will not pose significant operational problems for
the Company. The Company believes it has completed approximately 70% of the
necessary internal software and hardware implementation required to be Y2K
compliant and a contingency plan is being developed. If the Company's critical
systems are not Y2K compliant by mid-1999, the contingency plan will be
initiated. The total gross cost of the Y2K project is estimated at $7 million.
Approximately 85% of the total gross costs relate to hardware, software and
other fixed assets, which will be capitalized, with the training costs being
expensed as incurred. For the nine-month period ended October 31, 1998, the
Company had incurred approximately $403,000 in training costs.
The Company initiated formal communications with significant production
suppliers and service providers in mid-1998. As of October 31, 1998, the Company
has received responses from most suppliers and service providers, predominantly
with favorable self-assessment ratings. The Company has not and does not expect
to communicate with customers as the Company has numerous customers upon which
no one customer is material to the Company's business.
13
<PAGE> 14
The primary risk to the Company is that federal and state government agencies,
which provide significant funding to public school systems, will not be Y2K
compliant, and that funding is not passed on to local publicly funded school
districts. In the third quarter of 1999, the Company initiated, but has not yet
completed a review of production and other equipment. The review is expected to
be completed by the end of the first fiscal quarter in 1999.
To the extent that the Company, its major vendors fail to complete Y2K work in a
timely manner, could adversely affect the Company's operations, such as, but not
limited to, delays in manufacture and shipment of products or delivery of
services leading to lost revenues, increased operating costs, loss of customers
or suppliers, or other business interruptions of a material nature, as well as
claims of mismanagement, misrepresentation, or breach of contract. It is
difficult for the Company to assess the impact if any of these entities fail to
be Y2K complaint. The project costs and the date on which the Company believes
it will complete the Y2K issues are based on management's best estimates. There
can be no guarantee that these estimates will be achieved and actual results
could differ from those anticipated. Specific factors that might cause such
differences include but are not limited to, the availability and cost of
personnel, the amount of custom modifications and number of modules implemented
in the SAP, and the need to modify or replace communication or manufacturing
equipment.
Forward-Looking Statements:
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases; oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
`expects," "will continue," "estimates," "projects," or similar expressions are
intended to identify "forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The results contemplated by
the Company's forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to vary materially from
anticipated results, including without limitation, material costs, demand for
the Company's products, and competitive conditions affecting selling prices and
margins, capital costs and general economic conditions. Such risks and
uncertainties are discussed in more detail in the Company's Annual Report on
Form 10-K for the year ended January 31, 1998.
The Company's forward-looking statements represent its judgment only on the
dates such statements were made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed or unanticipated
events or circumstances.
14
<PAGE> 15
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:
---------------------------- -------------------------------
Robert E. Dose
Vice President - Finance
Date: By:
---------------------------- -------------------------------
Bassey Yau
Corporate Controller
15
<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-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 1,451
<SECURITIES> 0
<RECEIVABLES> 41,125
<ALLOWANCES> (751)
<INVENTORY> 36,494
<CURRENT-ASSETS> 82,860
<PP&E> 89,208
<DEPRECIATION> (39,329)
<TOTAL-ASSETS> 142,557
<CURRENT-LIABILITIES> 36,914
<BONDS> 0
0
0
<COMMON> 99
<OTHER-SE> 142,458
<TOTAL-LIABILITY-AND-EQUITY> 142,557
<SALES> 92,691
<TOTAL-REVENUES> 92,691
<CGS> 60,315
<TOTAL-COSTS> 60,315
<OTHER-EXPENSES> 19,860
<LOSS-PROVISION> 217
<INTEREST-EXPENSE> 423
<INCOME-PRETAX> 11,876
<INCOME-TAX> 4,572
<INCOME-CONTINUING> 7,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,304
<EPS-PRIMARY> .75<F1>
<EPS-DILUTED> .73
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT PRIMARY MEANS BASIC.
</FN>
</TABLE>
<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> 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> 74,806
<TOTAL-LIABILITY-AND-EQUITY> 124,852
<SALES> 87,239
<TOTAL-REVENUES> 87,239
<CGS> 58,806
<TOTAL-COSTS> 58,806
<OTHER-EXPENSES> 16,711
<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> .69<F1>
<EPS-DILUTED> .67
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
