<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 April 30, 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
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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 June 1, 1998.
Common Stock 8,945,767 Shares
<PAGE> 2
VIRCO MFG. CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - April 30, 1998 and
January 31, 1998.
Condensed consolidated statements of income - Three months ended
April 30, 1998 and 1997.
Condensed consolidated statements of cash flows - Three months
ended April 30, 1998 and 1997.
Notes to condensed consolidated financial statements - April 30,
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.
Item 6. Exhibits & 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 4/30/98 1/31/98
------ --------- ---------
<S> <C> <C>
Current assets
Cash $ 966 $ 1,221
Accounts and notes receivable 24,354 26,942
Less allowance for doubtful accounts (237) (100)
--------- ---------
Net accounts and notes receivable 24,117 26,842
Inventories (note 2)
Finished goods 36,615 25,467
Work in process 9,942 8,739
Raw materials and supplies 10,071 9,656
--------- ---------
Total inventories 56,628 43,862
Prepaid expenses and deferred income tax 2,483 2,294
--------- ---------
Total current assets 84,194 74,219
Property, plant & equipment
Cost 78,728 75,754
Less accumulated depreciation (38,082) (36,385)
--------- ---------
Net property, plant & equipment 40,646 39,369
Other assets 9,242 8,427
--------- ---------
$ 134,082 $ 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 4/30/98 1/31/98
--------- ---------
<S> <C> <C>
Current liabilities
Checks released but not yet cleared bank $ 4,293 $ 3,200
Accounts payable 12,633 13,324
Income taxes payable 382 --
Current maturities on long-term debt 3,421 3,442
Other current liabilities 9,431 10,221
--------- ---------
Total current liabilities 30,160 30,187
Non-current liabilities
Long term debt (less current portion) 20,892 9,459
Other non-current liabilities 4,053 4,053
--------- ---------
Total non-current liabilities 24,945 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 10,000,000 shares, $.01 par value; 8,973,368 shares
issued at 4/30/98 and 8,909,183 shares issued at 1/31/98
90 89
Additional paid-in capital 50,593 50,301
Retained earnings 28,034 27,423
Less treasury stock at cost (31,213 Shares) (432) (172)
Loan to ESOP trust (299) (316)
--------- ---------
Total shareholders' equity 77,986 77,325
--------- ---------
$ 134,082 $ 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
------------------------------
4/30/98 4/30/97
---------- ----------
<S> <C> <C>
Net sales $ 44,938 $ 40,958
Cost of goods sold 30,263 27,757
---------- ----------
Gross profit 14,675 13,201
Shipping, selling, general and administrative expense 13,012 11,781
Provision for doubtful accounts 139 127
Interest expense 250 487
---------- ----------
13,401 12,395
---------- ----------
Income before income taxes 1,274 806
Income taxes 484 307
---------- ----------
Net income 790 $ 499
========== ==========
Earnings per share .09 .06
Earnings per share - assuming dilution .09 .06
Weighted average shares outstanding 8,928,932 8,859,444
Weighted average shares outstanding- assuming dilution 9,194,358 9,046,326
Dividend declared
Cash (per share) $ .02 $ .02
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE> 6
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
---------------------------
4/30/98 4/30/97
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 790 $ 499
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,697 1,690
Provision for doubtful accounts 139 120
(Gain)/loss on sales of fixed assets -- --
Change in assets and liabilities:
Accounts and notes receivable 2,586 3,909
Inventories (12,766) (16,555)
Prepaid expenses and deposits (189) (366)
Income taxes receivable/payable 382 101
Other assets (55) 300
Accounts payable and accrued expenses (388) (1,969)
-------- --------
Net cash used In operating activities (7,804) (12,271)
Cash flows from investing activities
Capital expenditures (2,974) (1,698)
Proceeds from sale of assets -- --
Net investment in life insurance (760) (699)
Restricted short term investments -- (5)
-------- --------
Net cash used in investing activities (3,734) (2,402)
Cash flows from financing activities
Issuance of long-term debt 11,597 15,398
Repayment of long-term debt (185) (123)
Payment of cash dividend (179) (148)
Issuance of common stocks 33 --
Loans to ESOP 17 138
-------- --------
Net cash provided by financing activities 11,283 15,265
Net change in cash (255) 592
Cash at beginning of quarter 1,221 722
-------- --------
Cash at end of quarter $ 966 $ 1,314
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
6
<PAGE> 7
VIRCO MFG. CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998 and April 30, 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 three-month period ended April 30, 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 April 30, 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 three month period ended April
30, 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.
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<TABLE>
<CAPTION>
3 MONTHS ENDED
4/30/98 4/30/97
------------------------------
<S> <C> <C>
Numerator:
Net Income $ 790,000 $ 499,000
Denominator:
Denominator for basic earnings
per share - weighted - average 8,928,932 8,859,444
shares
Dilutive potential common shares 265,426 186,882
------------------------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and assumed
conversions 9,194,358 9,046,326
------------------------------
Basic earnings per share $ 0.09 $ 0.06
==============================
Diluted earnings per share $ 0.09 $ 0.06
==============================
</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.
8
<PAGE> 9
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
9
<PAGE> 10
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 1998, the Company earned a net profit from continuing
operations of $790,000 on sales of $44,938,000 compared to a net profit from
continuing operations of $499,000 on sales of $40,958,000 in the same period
last year. Net income per share, assuming dilution, was $.09 for the first
quarter of 1998 and $.06 for the first quarter of 1997, a 50 percent increase
over 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 increased volume, improved product
mix and continued acceptance of our newer lines of furniture.
Marketing, general and administrative expense for the first quarter, as a
percent of sales, remains at 29% compared to the same period last year. Interest
expense decreased to $250,000 for the quarter compared to $487,000 in the same
period last year, primarily due to lower average debt.
In May 1998, the Company reached an agreement to sell the manufacturing facility
located in Southern Pines, NC. The sales price of the transaction is $1,000,000
with payment to be made at closing. In the first quarter, the Company made a
$120,000 accrual for the anticipated loss on disposition of this property. The
sale is closed in May 1998.
In addition to the above sale of Southern Pines, NC. manufacturing facility, 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.
The combined effect of the disposition of Southern Pines, NC. manufacturing
facility, GSA settlement and higher than normal training costs related to the
implementation of the new business information system netted so that there is no
first quarter earnings impact from these one time events.
Financial Condition:
As a result of seasonally low deliveries in the first quarter, accounts and
notes receivable decreased by approximately $2,586,000 compared to January 31,
1998. Inventory was increased by nearly $12,766,000 compared to January 31, 1998
in anticipation of strong summer deliveries. This increase in inventory was
financed through the credit facility with Wells Fargo Bank.
Capital spending for the first quarter 1998 was $2,974,000 compared to
$1,698,000 a year ago. As discussed in the Company's 1997 Annual Report, the
Company initiated two large capital projects, which will have significant cash
flow effects on the 1998 fiscal year. Budgeted capital expenditures for 1998
fiscal year include $25,000,000 for the Conway, AR expansion, $2,000,000 for the
SAP Enterprise Resource Planning System and
10
<PAGE> 11
$2,000,000 ongoing capital expenditures at the Torrance, CA facility. These
capital investments are being financed through credit facilities established
with Wells Fargo Bank and General Electric Capital Corporation.
Net cash flows used by operating activities totaled $7,804,000 compared to
$12,271,000 a year ago. The net improvement in cash flows used by operating
activities is primarily due to reduction in the amount of inventory accumulated
during the first quarter. Long term debt was $20,892,000 as of April 30, 1998
compared to $36,787,000 the same period last year. The $15,895,000 reduction in
long term debt is primarily due to the Company's improved profitability.
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. 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.
11
<PAGE> 12
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
12
<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-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<CASH> 966
<SECURITIES> 0
<RECEIVABLES> 24,354
<ALLOWANCES> (237)
<INVENTORY> 56,628
<CURRENT-ASSETS> 84,194
<PP&E> 78,728
<DEPRECIATION> (38,082)
<TOTAL-ASSETS> 134,082
<CURRENT-LIABILITIES> 30,160
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 77,896
<TOTAL-LIABILITY-AND-EQUITY> 134,082
<SALES> 44,938
<TOTAL-REVENUES> 44,938
<CGS> 30,263
<TOTAL-COSTS> 30,263
<OTHER-EXPENSES> 13,012
<LOSS-PROVISION> 139
<INTEREST-EXPENSE> 250
<INCOME-PRETAX> 1,274
<INCOME-TAX> 484
<INCOME-CONTINUING> 790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 790
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</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>
<RESTATED>
<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> 27,757
<OTHER-EXPENSES> 11,781
<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> .06
<EPS-DILUTED> .06
</TABLE>
