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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended January 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from ________ to ________.
Commission file number 1-8777
VIRCO MFG. CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-1613718
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(State or other jurisdiction of (IRS 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
Common Stock, $.01 Par Value American Stock Exchange
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Securities pursuant to section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference or in Part III of this Form 10-K [X].
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The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on April 20, 1999, based on the closing price
at which such stock was sold on the American Stock Exchange on that date was
approximately $171,231,588.
The number of shares of Common Stock outstanding at April 20, 1999, was
9,512,866 shares.
Portions of registrant's definitive proxy statement, expected to be mailed to
stockholders on May 14, 1999, are incorporated into Part III as set forth
herein. Portions of registrant's Annual Report to Stockholders for the year
ended January 31, 1999 are incorporated into Part I and Part II as set forth
herein.
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VIRCO MFG. CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
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Caption Page
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PART I
Item 1. Business..................................................................................4
Item 2. Properties................................................................................6
Item 3. Legal Proceedings.........................................................................7
Item 4. Submission of Matters to a Vote of Security Holders.......................................8
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters......................9
Item 6. Selected Financial Data...................................................................9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....9
Item 8. Financial Statements and Supplementary Data...............................................9
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.....9
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................10
Item 11 Executive Compensation...................................................................11
Item 12. Security Ownership of Certain Beneficial Owners and Management...........................11
Item 13. Certain Relationships and Related Transactions...........................................11
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K ........................12
</TABLE>
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PART I
Item 1. Business
Introduction
Virco Mfg. Corporation, a Delaware Corporation, is a leader in the
design, production, and distribution of quality furniture for the
contract and education markets worldwide. Forty-nine years of
manufacturing has resulted in a wide product line targeted for both
education and commercial markets. Over these years, Virco has developed
several core competencies that position the Company to service its
selected markets. Included in these competencies is what we believe to
be the largest direct sales force in the education market, where our
primary competitors rely upon distributorships.
The trend in educational sales is becoming increasingly seasonal. The
ability to forecast, finance, manufacture, and warehouse furniture for
this narrow delivery window is a significant competency, which gives the
Company a competitive advantage in this market niche. The Company has
approximately one million square feet of distribution and warehouse
facilities. Substantial warehouse space is required to build adequate
inventories to service the highly seasonal demand for educational sales.
Approximately 47% of total sales are delivered in July, August,
September, and October with an even higher portion of educational sales
delivered in that period.
One of the important elements of Virco's success is its manufacturing
capabilities. The Company has developed competencies in several
processes, which are important to the markets we serve. These processes
include finishing systems, plastic molding, metal fabrication and
woodworking. Virco's manufacturing facilities are located in California
and Arkansas. Over one million square feet of manufacturing and support
facilities are organized for the production of furniture. During the
year ended January 31, 1995, Virco made a significant investment in a
new manufacturing and distribution facility in Torrance, California to
service the western region of the United States. The Company
consolidated all western region distribution facilities at this location
in 1994 and transferred the former western region manufacturing plant to
this facility in 1995.
The Company has continued to make significant capital investments in the
Conway, Arkansas manufacturing facility, which services the eastern
region of the United States. The main manufacturing plant was expanded
in 1991 and again in 1993. Capital spending at this facility of nearly
$5,700,000 in 1996, $6,100,000 in 1997 and $8,700,000 in 1998.
In late 1997 and early 1998, the Company acquired approximately 100
acres of land in Conway, Arkansas, which will support up to 1,700,000
square feet of manufacturing, warehousing, office, and showroom
facilities. For a more detailed discussion on this expansion project,
please refer to the MD&A section of the Company's 1998 annual report and
the Property section of the Form 10-K.
Principal Products
The Company offers the broadest line of furniture for the K-12 market of
any Company in the United States. The Company also provides a variety of
products for the preschool markets and has recently
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developed products that are targeted for college, university, and
corporate learning center environments. These products include a variety
of student and teacher desks, chairs, computer stations, folding and
adjustable height tables, mobile tables, mobile cabinets, and folding
and stacking chairs for cafeteria and auditorium seating. The Company
also produces a variety of tables, chairs, and storage equipment
designed primarily for the hospitality market, convention centers,
churches, and corporate and government facilities.
The Company's primary furniture lines are constructed of tubular metal
legs and frames, combined with wood and plastic tops, plastic seats and
backs, upholstered seats and backs, and upholstered rigid polyethylene
and polypropylene shells. The Company purchases steel, aluminum,
plastic, polyurethane, polyethylene, polypropylene, plywood,
particleboard, cartons and other raw materials in the manufacture of its
principal products from many different sources and is not more
vulnerable on sources and availability than other manufacturers.
Marketing and Distribution
The educational product line is marketed through what we believe to be
the largest direct sales force in the educational furniture industry.
During the fourth quarter of 1997, Virco terminated distribution
arrangements with several major educational dealerships and increased
the size of the direct sales force to cover these territories. Virco has
historically increased both sales and margins in territories where our
direct sales force has replaced educational dealerships. The sales force
calls directly upon school business officials, who can include
purchasing agents or individual school principals where site based
management is practiced. During the fourth quarter of 1998, the Company
hired several education sales representatives dedicated to the college
and university markets. Our direct sales force is considered to be an
important competitive advantage over competitors who rely primarily upon
dealer networks for distribution of their products. Significant portions
of educational furniture are sold on a bid basis.
Sales of commercial and contract furniture are made throughout the
United States by distributorships and by Company sales representatives
who service the distributorship network. Company representatives call
directly upon convention centers, individual hospitality installations,
and to mass merchants. Sales to this market include preschools, private
schools, and office training facilities, which typically purchase
furniture through commercial channels.
Sales are made to thousands of customers, and no single customer
represents a significant amount of the Company's business.
Other Matters
Foreign Operation Information
Foreign operation information attributable to the Company's operations
for the years ended January 31, 1999, 1998 and 1997, which appear in
Note 9 of the consolidated financial statements included in Virco Mfg.
Corporation's Annual Report to Stockholders for 1998, is incorporated by
reference in this Form 10-K Annual Report.
Competition
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The Company has numerous competitors in each of its markets. In the
educational furniture market, competitors include Artco-Bell
Corporation, Royal, Smith Systems, Scholarcraft, Fleetwood, and Irwin
Seating Co. Competitors in contract furniture vary depending upon the
specific product line or sales market and include Falcon Products, Inc.,
Krueger Metal Products, Inc., Globe, MTS, Mity Lite, and Shelby Williams
Industries, Inc.
Backlog
Sales order backlog for continuing operations of the consolidated
companies at January 31, 1999, totaled $12.0 million and approximates
three weeks of sales, compared to $11.8 million at January 31, 1998, and
$9.6 million at January 31, 1997.
Patents and Trademarks
Virco has a number of patents and trademarks for which the Company has
not appraised or established a value. It is believed that the loss of
any of the patents would not have a material effect on its manufacturing
business.
Employees
Virco Mfg. Corporation and its Subsidiaries employ approximately 2,373
full-time employees at various locations. Of this number, approximately
2,100 are involved in manufacturing and distribution, 201 in sales and
marketing and 72 in administrative.
Environmental Compliance
The Company and other furniture manufacturers are subject to federal,
state and local laws and regulations relating to the discharge of
materials into the environment and the generation, handling, storage,
transportation and disposal of waste and hazardous materials. The
Company has expended, and may be expected to expend significant amounts
in the future for the investigation of environmental conditions,
installation of environmental control equipment, or remediation of
environmental contamination.
Item 2. Properties
Torrance, California
The Company leases a 560,000 square feet office, manufacturing and
warehousing facility located on 23.5 acres of land. This facility is
occupied under a ten-year lease (with two five-year renewal options)
expiring January 2005. This facility also includes the Corporate
headquarters, the West Coast showroom, and all West Coast distribution
operations. In addition, the Company owns a 200,000 square feet
warehouse located on 8.5 acres of land in Torrance, California. This
warehouse is held as rental property and is leased under a five-year
lease expiring January 2001.
Los Angeles, California
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The Company owns a 160,000 square feet manufacturing facility located on
8 acres of land in Gardena, California. This manufacturing facility is
held as rental property and is leased under a 15-year lease expiring
September 2010.
Conway, Arkansas
The Company is currently expanding manufacturing operations and
consolidating distribution facilities in Conway, Arkansas. During 1997
and 1998, the Company acquired approximately 100 acres of land. A
long-term master plan was developed for this site, which will allow up
to 1,700,000 square feet of manufacturing, warehousing, and office
space. During 1998, the Company constructed a 400,000 square feet
manufacturing facility, which initiated production in March 1999. In
addition to the production facility, the Company initiated development
of an 800,000 square feet distribution facility. This facility will be
constructed in two 400,000 square feet segments, and is anticipated to
be completed in fall 1999 and spring 2000 respectively.
During 1998 the Company operated three manufacturing facilities, two of
which were owned and one leased. The main plant features approximately
350,000 square feet of building located on nearly 18 acres of land. A
second facility consists of 155,000 square feet of building located on
approximately 7 acres of land. Subsequent to year-end, the production
equipment from this location was moved to the new facility described
above, and this building was converted to a warehouse. A third 200,000
square feet facility, used for the production and storage of plastic
components, is occupied under a ten-year lease expiring in March of
2008.
In addition to the production facilities described above, the Company
leases three finished goods warehouses. The first consists of 250,000
square feet of warehouse space located on 11 acres of land. This
warehouse is occupied under a lease expiring in December 1999. A second
warehouse has a 310,000 square feet building, which is occupied under
leases expiring from September 1999 to December 1999. A third facility
is an 87,000 square feet facility, which is leased on a month to month
basis. A fourth facility, owned by the Company, consists of 60,000
square feet of building on 4.5 aces of land. All of these warehousing
facilities will be consolidated in the 800,000 square feet warehouse
currently under construction.
Newport, Tennessee
The Company owns a 55,000 square feet manufacturing facility located on
3.5 acres of land in Newport, Tennessee which was previously used to
manufacture melamine plastic seats, backs and table tops for classroom
furniture. This factory is currently used to warehouse finished goods
inventory.
Item 3. Legal Proceedings
Virco has various legal actions pending against it which in the opinion
of Management are either not meritorious or are fully covered by
insurance. While it is impossible to estimate with certainty the
ultimate legal and financial liability with respect to these suits and
claims, Virco believes the aggregate amount of such liabilities will not
be material to the results of operations, financial position, or cash
flows of the Company.
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Item 4. Submission of Matters to a Vote of Security Holders.
None
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
Incorporated herein by reference is the information appearing under the
caption "Supplemental Stockholders' Information" which appears in the
registrant's Annual Report to Stockholders for the year ended January
31, 1999. As of April 17, 1999, there were approximately 372 Registered
Stockholders according to transfer agent records. There were
approximately 3,000 Beneficial Stockholders.
Dividend Policy
It is the Board of Directors' policy to periodically review the payment
of cash and stock dividends in light of the Company's earnings and
liquidity. In 1998, the Company declared $.076 per share (adjusted for
stock dividends) cash dividend and a 10% stock dividend.
Item 6. Selected Financial Data
Incorporated herein by reference is the Selected Financial Data
information, which appears in the registrant's Annual Report to
Stockholders for the year ended January 31, 1999.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
This information is incorporated herein by reference to "Management's
Discussion and Analysis and Results of Operations" included in the
registrant's Annual Report to Stockholders for the year ended January
31, 1999.
Item 8. Financial Statements and Supplementary Data
The report of independent auditors and consolidated financial statements
included in the Annual Report to Stockholders for the year ended January
31, 1999 are incorporated herein by reference.
Unaudited quarterly results in Note 10 of the financial statements
included in the Annual Report to Stockholders for the year ended January
31, 1999 are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
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PART III
Item 10. Directors and Executive Officers of the Registrant
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Age at Has Held
January 31, Office
Name Office 1999 Since(5)
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R. A. Virtue(1) President, Chairman of the Board 66 1990
and Chief Executive Officer
R. E. Dose(2) Vice President - Finance, 42 1995
Secretary & Treasurer
R. J. Mills(3) Vice President - General Manager 40 1997
Torrance Division
W. D. Nutter(4) Vice President - Commercial Sales Group 49 1995
D. R. Smith(5) Vice President - Corporate Marketing 50 1995
L. L. Swafford(6) Vice President - Legal Affairs 34 1998
H. D. Tyler(7) Vice President - General Manager 57 1988
Conway Division
D. A. Virtue(8) Corporate Executive Vice President 40 1992
L. O. Wonder(9) Vice President - Education Sales Group 47 1995
</TABLE>
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(1) Appointed Chairman in 1990; has been employed by the Company for 43
years. Has served as the President since 1982.
(2) Appointed in 1995; has been employed by the Company for 9 years and has
served as the Corporate Controller, and currently as Vice President-
Finance, Secretary and Treasurer.
(3) Appointed in 1997; has been employed by the Company for 4 years and has
served as the Corporate Counsel, currently as Vice President and General
Manager of Torrance division.
(4) Appointed in 1995; has been employed by the Company for 18 years in a
variety of sales and marketing positions, currently as a Corporate Vice
President of the Commercial Sales Group.
(5) Appointed in 1995; has been employed by the Company for 14 years in a
variety of sales and marketing positions, currently as Corporate Vice
President Marketing.
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(6) Appointed in 1998; has been employed by the Company for 4 years and has
served as Associate Corporate Counsel, and currently as Vice President
of Legal Affairs.
(7) Appointed in 1988; has been employed by the Company for 30 years
and has served as Division Credit Manager, Accounting Manager, Division
Controller and currently as Vice President and General Manager of the
Conway division.
(8) Appointed in 1992; has been employed by the Company for 14 years
and has served in Production Control, as Contract Administrator, as
Manager of Marketing Services, as General Manager of Torrance Division,
and currently as Corporate Executive Vice President.
(9) Appointed in 1995; has been employed by the Company for 21 years in a
variety of sales and marketing positions, currently as Corporate Vice
President of the Education Sales Group.
(10) Company officers do not have employment contracts.
The information required by this Item regarding Directors will be
contained in the Company's Proxy Statement to be filed within 120 days
after the end of the Company's most recent fiscal year and is
incorporated herein by this reference.
Item 11. Executive Compensation
The information required by this Item will be contained in the Company's
Proxy Statement to be filed within 120 days after the end of the
Company's most recent fiscal year and is incorporated herein by this
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item will be contained in the Company's
Proxy Statement to be filed within 120 days after the end of the
Company's most recent fiscal year and is incorporated herein by this
reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item will be contained in the Company's
Proxy Statement to be filed within 120 days after the end of the
Company's most recent fiscal year and is incorporated herein by this
reference.
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PART IV
Item 14. Financial Statements, Financial Statement Schedules, Exhibits, and
Reports on Form 8-K.
a) 1. The following consolidated financial statements of Virco Mfg.
Corporation, included in the annual report of the registrant to
its stockholders for the year ended January 31, 1999 are
incorporated by reference in Item 8.
Consolidated balance sheets - January 31, 1999 and 1998.
Consolidated statements of income - Years ended January 31,
1999, 1998, and 1997.
Consolidated statements of stockholders' equity - Years ended
January 31, 1999, 1998, and 1997.
Consolidated statements of cash flows - Years ended January 31,
1999, 1998, and 1997.
Notes to consolidated financial statements - January 31, 1999.
2. The following consolidated financial statement schedule of Virco
Mfg. Corporation is included in item 14(d):
Schedule II Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and therefore have been omitted.
3. Exhibits
13 Annual Report to Stockholders for the year ended January 31,
1999.
21 List of all subsidiaries of the registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
b) Reports on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Torrance, and State of California, on the 29th of April, 1999.
VIRCO MFG. CORPORATION
By /s/ ROBERT A. VIRTUE
----------------------------------------
Robert A. Virtue, Chairman of the Board
(Principle Executive Officer)
By /s/ ROBERT E. DOSE
----------------------------------------
Robert E. Dose, Vice President - Finance
& Secretary & Treasurer (Principal
Financial Officer)
By /s/ BASSEY YAU
----------------------------------------
Bassey Yau, Corporate Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
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/s/ ROBERT A. VIRTUE Chairman of the Board, April 29, 1999
- --------------------------------- Chief Executive Officer,
Robert A. Virtue President and Director
/s/ DOUGLAS A. VIRTUE Director April 29, 1999
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Douglas A. Virtue
/s/ DONALD S. FRIESZ Director April 29, 1999
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Donald S. Friesz
/s/ JOHN H. STAFFORD Director April 29, 1999
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John H. Stafford
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Torrance,
and State of California, on the 29th of April, 1999.
VIRCO MFG. CORPORATION
By /s/ ROBERT A. VIRTUE
----------------------------------------
Robert A. Virtue, Chairman of the Board
(Principle Executive Officer)
By /s/ ROBERT E. DOSE
----------------------------------------
Robert E. Dose, VP.- Finance, &
Secretary & Treasurer
(Principal Financial Officer)
By /s/ BASSEY YAU
----------------------------------------
Bassey Yau, Corporate Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
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Signature Title Date
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/s/ GEORGE W. OTT Director April 29, 1999
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George W. Ott
/s/ JAMES R. WILBURN Director April 29, 1999
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James R. Wilburn
/s/ HUGH D. TYLER Director April 29, 1999
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Hugh D. Tyler
/s/ DONALD A. PATRICK Director April 29, 1999
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Donald A. Patrick
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VIRCO MFG. CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED JANUARY 31, 1997, 1998 AND 1999
(In Thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
Additions
Balance at Charged to Costs Charged to Deductions from Balance at Close
Description Beginning of Period and Expenses Other Accounts Reserves of Period
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Allowance for
Doubtful Accounts:
Year Ended:
January 31, 1997 $ 100 $ 202 $ 202(1) $ 100
January 31, 1998 $ 100 $ 112 $ 112(1) $ 100
January 31, 1999 $ 100 $ 530 $ 430(1) $ 200
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(1) Uncollectible accounts written off, net of recoveries.
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FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
January 31,
--------------------------------------------------------
in thousands, except per share data 1998 1997 1996 1995 1994
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Summary of Operations
Net sales - continuing operations $273,620 $258,194 $236,277 $224,349 $215,659
Net income
Continuing operations 17,630 13,852 9,326 5,209 5,001
Discontinued operations -- -- -- -- --
Change in accounting methods -- -- -- -- --
-------- -------- -------- -------- --------
17,630 13,852 9,326 5,209 5,001
======== ======== ======== ======== ========
Net income per share* $ 1.76 $ 1.38 $ 0.94 $ 0.53 $ 0.51
Stockholder's equity 88,923 77,077 63,921 55,386 50,466
Stockholder's equity per share** 9.22 7.88 6.56 5.68 5.19
</TABLE>
<TABLE>
<CAPTION>
January 31,
-----------------------------------------------------------------
in thousands, except per share data 1993 1992 1991 1990 1989
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<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales - continuing operations $ 205,629 $ 191,324 $ 187,384 $ 189,393 $ 182,789
Net income
Continuing operations 4,302 3,827 3,453 2,536 1,472
Discontinued operations -- (668) (347) (337) (2,180)
Change in accounting methods (275) -- -- -- 895
--------- --------- --------- --------- ---------
4,027 3,159 3,106 2,199 187
========= ========= ========= ========= =========
Net income per share* $ 0.41 $ 0.32 $ 0.32 $ 0.22 $ 0.02
Stockholder's equity 45,637 41,937 39,164 36,206 34,141
Stockholder's equity per share** 4.69 4.31 4.03 3.72 3.51
</TABLE>
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* Based on average number of shares outstanding each year after giving
retroactive effect for stock dividends and 3 for 2 stock split.
** Based on number of shares outstanding at year-end giving effect for
stock dividends and 3 for 2 stock split.
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MANAGEMENT'S STATEMENT
The financial statements of Virco Mfg. Corporation were prepared by management,
which is responsible for the integrity and objectivity of the data presented,
including amounts that must necessarily be based on judgments and estimates. The
statements were prepared in conformity with generally accepted accounting
principles, and in situations where acceptable alternative accounting principles
exist, management selected the method that was most appropriate in the
circumstances.
Virco depends upon the Corporation's system of internal controls in meeting its
responsibilities for reliable financial statements. This system is designed to
provide reasonable assurance that assets are safeguarded and that transactions
are properly recorded and executed in accordance with management's
authorization. Judgments are required to assess and balance the relative cost
and expected benefits of these controls.
The financial statements have been audited by our independent auditors, Ernst &
Young LLP. The independent auditors provide an objective, independent review as
to management's discharge of its responsibilities insofar as they relate to the
fairness of reported operating results and financial condition. They obtain and
maintain an understanding of Virco's accounting and financial controls, and
conduct such tests and procedures as they deem necessary to arrive at an opinion
on the fairness of the financial statements.
The Audit Committee of the Board of Directors, which is composed solely of
Directors from outside the Company, maintains an ongoing appraisal of the
effectiveness of audits and the independence of the auditors. The Committee
meets periodically with the auditors and management. The independent auditors
have free access to the Committee, without management present, to discuss the
results of their audit work and their opinions on the adequacy of internal
financial controls and the quality of financial reporting.
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
REVENUE AND INCOME
1998 vs. 1997
Net sales from operations increased to $273,600,000 for fiscal 1998, compared to
$258,200,000 for fiscal 1997. Roughly two thirds of this increase was
attributable to volume and one third attributable to price. This modest increase
in sales was attained by a continuation of practices, which have been followed
for the last several years. The Company continues to be more selective and more
disciplined in what business it pursues in terms of product mix, customer mix,
and pricing in order to emphasize profitable business rather than pursue sheer
sales volume. As the Company has grown in certain more profitable markets and
products, we have reduced our business in certain commodity type products which
generate lower profit margins and customers which sell these products. The
results of the 1998 fiscal year reflect these efforts.
Virco sells primarily to facility managers. Examples of these facilities served
by the Company include public and private schools, colleges and universities,
convention centers, federal and state institutions, churches, and other
businesses. We also sell to wholesalers, distributors, retailers and catalog
retailers.
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Virco has one product line and one catalog, which is used to promote sales of
product to all sales channels. A core marketing group, which reports to the
President and is composed of representatives from sales, product development,
corporate marketing, and customer service prepare annual plans which allocate
resources for product development, marketing and selling expense for all sales
channels, customer service, and the product stocking plan (quick ship program).
Virco maintains two interdependent manufacturing and distribution facilities,
one in Torrance, California and one in Conway, Arkansas. Customer service
departments are located at each of these locations. Much of our product line can
be produced at either location, but many products or components are produced at
only one factory due to space, cost, or process requirements. Sales support and
order fulfillment is typically provided by the factory/distribution center
nearest to the end user.
In order to divide workload into manageable amounts, Virco has divided the sales
force into two groups, Education and Commercial. In 1997 the former Special
Markets Sales Group was folded into these two groups. Similar adjustments of
sales responsibility occur from time to time in response to changing markets or
the introduction of new products.
Education sales, which are composed of sales to publicly funded K-12 schools
represents 61% of corporate revenues increased by $12,700,000 to $168,200,000
from $155,500,000. Sales of our newer computer furniture, our line of
core-a-gator lightweight tables, mobile cabinets, and mobile tables improved,
offset by reductions in some of our older product lines. The gross margin in the
newer product lines are typically greater than sales of the older lines, which
explains a portion of our improvement in gross margin as a percentage of sales.
In the fourth quarter of 1998, the Company hired several sales representatives
to call directly upon the college and university markets. The impact of these
representatives was a slight increase in selling expenses in the fourth quarter,
with no significant impact on sales volume. During the fourth quarter of 1997,
the Company terminated relationships with several major educational dealers,
which represented nearly 15% of educational sales, and hired additional direct
sales representatives to cover the affected territories. The net impact of this
change in 1998 was that sales in the affected territories were approximately
level, with the Company realizing larger margins on these sales offset in large
part by increases in selling expenses. While the impact in the first year of
this change was largely neutral, the Company has historically improved market
penetration and profitability in territories where it has gone direct. A result
of terminating several dealer relationships, combined with an overall trend in
the nations schools where school districts are closing their warehouses and
requiring delivery direct to the school site, is that sales are becoming even
more seasonal, with sales becoming more concentrated in July, August, and
September.
Commercial sales, which include private schools, pre-schools, churches and
church affiliated schools, convention centers, federal and county and city
agencies, furniture distributors, retailers, and catalog retailers represents
39% of corporate revenues and increased by $2,700,000 to $105,400,000 from
$102,700,000 in the prior year. Commercial sales have been affected more
significantly by our efforts to improve margins. As the Company has increased
sales of more profitable product, we have reduced our business with mass
merchants and smaller distributors. Sales of our core-a-gator lightweight table,
the breadth of our product line for target niche markets, and the continuing
success of our quick ship stocking program favorably affected sales for the
other commercial sales channels.
2
<PAGE> 19
The $15,400,000 increase in sales provided an additional $9,735,000 of gross
margin. As discussed above, the increase in sales of higher margin newer
products, combined with increased discipline in our pricing to support improved
margins contributed to the increase in gross margin. In addition, material costs
were stable and for some items slightly reduced in 1998 compared to 1997.
Selling, general, and administrative expenses increased over the prior year, and
as a percentage of sales, increased slightly.
1997 vs. 1996
Net sales from operations increased to $258,200,000 for fiscal 1997, compared to
$236,300,000 in fiscal 1996. The increase in sales was attained by selected
increases in selling prices, a change in product mix to higher priced products,
and increased volumes.
Educational sales represented 58% of corporate revenues and increased by
$17,200,000 from $138,300,000 to $155,500,000. The growth in educational sales
reflected strong acceptance of our newer line of computer furniture as well as
continued growth of our mobile cabinet and mobile table product lines. These
newer product lines typically command higher prices and margins than our more
mature products. Sales of some of our more mature product lines showed slower
rates of growth and in selected cases declines in sales volume, as the Company
elected to maintain margins at the expense of volume growth. In addition,
finished goods inventories of educational products going into the summer
shipping season were higher than the prior year. This increased level of
inventory allowed for increased sales volume during the summer as well as
contributed to improve on time delivery during this peak season. During the
fourth quarter, as part of our effort to improve penetration and service levels
in the public education market, Virco terminated distribution arrangements with
several major educational dealerships and increased the size of the direct sales
force to cover these territories. Sales in the fourth quarter, which are
traditionally very low compared to the second and third quarters, were adversely
affected during this transition.
Commercial sales represented 42% of corporate revenues and increased by
$4,700,000 from $98,000,000 to $102,700,000. Sales in this market include
private schools, pre-schools, churches, banquet and meeting halls, and
cafeterias. Continued improvement in our marketing techniques to these niche
markets drove the increase in sales volume. Sales increases in these markets
were offset slightly by decreases in sales of high volume, low margin products
to mass merchants.
The $21,900,000 increase in sales provided an additional $13,300,000 of gross
margin. As discussed above, the increase in sales of higher margin newer
products, combined with increased discipline in our pricing to support improved
margins contributed to the increase in gross margin. In addition, material costs
were stable in 1997 compared to 1996. Continued investment in factory automation
and efficiencies in distribution contributed to the improved performance.
Selling, general, and administrative expenses increased over the prior year, but
as a percentage of sales, declined slightly. Interest expenses decreased by
$700,000 reflecting lower levels of borrowing. Fiscal year 1997 earnings were
affected by a $2,970,000 provision for the shutdown of our manufacturing
subsidiary in San Luis, Mexico.
3
<PAGE> 20
OTHER OPERATING ACTIVITIES
In August 1997, the Board of Directors authorized an expansion and
re-configuration of the Conway, Arkansas manufacturing facility. In late 1997
and early 1998, the Company acquired approximately 100 acres of land in Conway,
which will support up to 1,700,000 square feet of manufacturing, warehousing,
office, and showroom facilities. Phase one of the project consisted of a 400,000
square feet manufacturing plant. This plant will replace an existing 150,000
square feet manufacturing facility, providing an additional 250,000 square feet
which is earmarked for new manufacturing processes to support our product
development efforts as well as support future growth in sales. This plant will
utilize the cell manufacturing concepts, which have proven successful in our
Torrance, California manufacturing facility. Finally, the plant will contain new
manufacturing equipment, which is selected to improve manufacturing efficiency
and flexibility as well as improve product quality. This new factory initiated
production in March of 1999, when substantially all of the production equipment
from the existing 150,000 square feet facility had been transferred to the new
plant. New processes and equipment are being brought on line as capacity and
process requirement demand. The abandoned 150,000 square feet facility, which is
adjacent to the main factory in Conway, has been converted to a finished goods
warehouse.
Phase two of our Conway project consists of an 800,000 square feet distribution
facility, which will be constructed in two 400,000 square feet segments.
Construction on the first segment began in March of 1999, and was projected to
be completed in the summer of 1999. On April 15, 1999 a severe windstorm caused
significant damage to the skeletal frame of the construction in process. While
the loss related to the damage is insured, there will be some delay to the
project as a result of this damage. The extent of the delay is not yet
determined, but could be as great as six months. The second segment is projected
to be complete by February 2000. This new distribution facility will replace
several leased facilities, which are scattered throughout the Conway vicinity.
While the total amount of square footage dedicated to warehousing is projected
to remain the same, we anticipate that we will benefit from operational
efficiencies as well as more effectively support growth in sales with this
consolidated operation.
In April 1994, the Company entered into a ten-year lease for a 560,000 square
feet manufacturing and warehousing facility in Torrance, California. This
facility has enabled the Company to combine both manufacturing and warehousing
operations for the Western Region under one roof, reducing materials handling
and distribution expenses. In connection with the move, the factory was
redesigned to implement a "manufacturing cell" concept. This cell concept
required a substantial investment in capital equipment, but reduced labor costs
as well as throughput time for production of the Company's significant product
lines. In addition, the new equipment broadened the Company's manufacturing
capabilities to facilitate expansion into targeted markets and product lines.
This facility supported new product development from 1994 to date, but is
currently operating near capacity.
In 1994, the Board of Directors authorized the Company to investigate the
possible sale of our Virsan, Mexico manufacturing facility. This action was
taken in connection with our program of moving manufacturing operations into
more automated facilities which are closer to our primary markets. In addition,
this decision was consistent with the Company's efforts to reduce emphasis on
the sale of high volume, low margin products to mass merchants, many of which
were produced at this factory. In May 1997 the Company announced plans to close
this facility. Later in 1997, the Company reached an agreement for the
4
<PAGE> 21
bulk sale of the assets. The Company recorded a provision for $2,970,000 during
1997. The provision is primarily composed of mandatory severance payments in
accordance with Mexico law. Other components of the reserve include
environmental remediation and other miscellaneous costs. The Company did not
incur any significant costs related to the liquidation of this subsidiary in
1998.
At the end of the third quarter 1998, the Company announced the intent to close
two of its distribution facilities effective January 31, 1999. This follows
decisions in 1993 and 1994 when nine distribution facilities were eliminated.
This leaves the Company with its main distribution facilities at the Torrance
and Conway factories, and one satellite facility in Pennsylvania.
IMPACT OF THE YEAR 2000
The year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date sensitive software of embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things a temporary inability
to process transactions, manufacture product, or engage in similar normal
business activities.
The Company completed an assessment of its primary information systems in early
1997. The Company's legacy mainframe system would require modifications to be
year 2000 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 Year 2000 compliant and improve our 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 a SAP
Enterprise Resource Planning System. This implementation was started in October
1997 and Virco contracted with Hewlett Packard and SAP to provide hardware,
software, and consulting services related to this implementation. The hardware,
software, and operating systems selected were determined to be year 2000
compliant prior to beginning the implementation. Subsequent to year-end, on
March 1, 1999 the Company went live on the SAP system for all required modules
except for payroll, which was converted in April 1999. As of January 31, 1999
the Company has expended approximately $7,500,000 on the implementation in
addition to dedicating considerable management time and effort to this project.
Local area networks, which were installed as part of the SAP project, are
approximately 90% complete. Remediation is approximately 70% complete, while
testing and implementation are approximately 15% complete.
The Company's primary information systems do not have any significant interfaces
with third party vendors. The Company does have remote access with financial
institutions, credit institutions, and other parties. The Company has queried
the financial institutions and is not aware of any related Year 2000 issue,
which would materially affect the Company.
5
<PAGE> 22
In addition to the primary information systems, the Company is dependent on
computer controlled production and manufacturing equipment. Assessment of the
equipment is approximately 95% complete. Remediation is approximately 80%
complete, while testing and implementation are approximately 50% complete. The
Company expects to complete these efforts by the fall of 1999.
The Company has queried significant suppliers and vendors that do not share
information systems with the Company (external agents). To date, the Company is
not aware of any external agent with a Year 2000 issue that would materially
impact the Company's results of operations, liquidity, of capital resources.
However, the Company has no means of ensuring that external agents will be Year
2000 ready. The inability of external agents to complete their Year 2000
resolution process in a timely fashion could materially impact the Company. The
effect of non-compliance by external agents is not determinable.
The Company has not queried customers to determine whether they are Year 2000
ready. The Company does not have any one significant customer upon which it is
dependent.
With regard to the Company's product line, the Company manufactures furniture,
including furniture designed for computers. There is no software or hardware
imbedded in the furniture. Accordingly, the Company believes that there is no
year 2000 exposure for any products it has sold.
The Company will utilize both internal and external resources to reprogram,
replace, test, and implement the software and operating equipment for the Year
2000. The total cost of the Year 2000 project is estimated at $8,000,000. This
includes cost to implement the SAP Enterprise Resource Planning System, which is
expected to significantly enhance the Company's operating capabilities. This
expenditure is being financed with lease financing through GE Capital and
operating cash flows. The projected costs and the date on which the Company
believes it will complete the year 2000 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 and the need to modify or replace hardware, software, communication
or manufacturing equipment.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. In the event
that the Company does not complete any additional phases, the Company could be
unable to manufacture certain products, which are dependent upon automated
production equipment. The Company sells a significant amount of furniture to
publicly funded facilities. While no one customer is significant to the Company,
if a large government agency which funds educational institutions were to have
Year 2000 issues which affected school funding, the Company could incur a
material loss of sales and cash flow. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely affect
the Company. The Company could be subject to litigation related to computer
systems failure. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time. The Company does not have a contingency plan
in the event it does not complete all phases of the Year 2000 Program. The
Company plans to continually evaluate the status of completion of the program
and prepare a contingency plan if it becomes apparent that the program will not
be completed on a timely basis.
6
<PAGE> 23
ENVIRONMENTAL AND CONTINGENT LIABILITIES
The Company and other furniture manufacturers are subject to federal, state, and
local laws and regulations relating to the discharge of materials into the
environment and the generation, handling, storage, transportation, and disposal
of waste and hazardous materials. The Company has expended, and can be expected
to expend, significant amounts in the future for the investigation of
environmental conditions, installation of environmental control equipment, and
remediation of environmental contamination.
Currently, the Company is self-insured for Product Liability losses up to
$100,000 per occurrence. In prior years the Company has been self-insured for
Workers Compensation, Automobile, Product, and General Liability losses. The
Company has purchased insurance to cover losses in excess of $100,000 up to a
limit of $30,000,000. In 1993, the Company initiated a program to reduce product
liability losses and to more aggressively litigate product liability cases. This
program has continued through 1998 and has resulted in reductions in litigated
product liability cases. Management does not anticipate that any related
settlement, after consideration of the existing reserves for claims and
potential insurance recovery, would have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
INFLATION AND FUTURE CHANGE IN PRICES
Inflation rates in the U.S. did not have a significant impact on the Company's
operating results for the fiscal year just ended. Material costs were stable and
for some components reduced in 1998. If current trends continue, we anticipate
that total material costs for 1999, as a percentage of sales, could be
comparable to or slightly higher than in 1998. However, no assurance can be
given that the Company will experience stable or modestly increasing prices in
1999. The Company is working to control and reduce costs by improving production
methodologies, investigating new packaging and shipping materials, and searching
for new sources of purchased components.
The Company uses the LIFO method of accounting for inventory. Under this method,
the cost of products sold as reported in the financial statements approximates
current cost, and reduces the distortion in reported income due to increasing
costs. Depreciation expense represents an allocation of historic acquisition
costs and is less than if based on the current cost of productive capacity
consumed. The Company has made significant fixed asset acquisitions during the
last three fiscal years. The assets acquired will result in higher depreciation
charges, but due to technological advances should result in operating cost
savings. In addition, some depreciation charges will be offset by a reduction is
lease expense. Anticipated fixed asset additions in 1999 will be significant,
with budgeted expenditures for the Conway, Arkansas expansion of approximately
$17,000,000; budgeted additional expenditures for the SAP Enterprise Resource
Planning System of approximately $2,000,000; and ongoing capital expenditures at
the Torrance, California facility of approximately $2,000,000.
LIQUIDITY
7
<PAGE> 24
In October 1998, the Company renewed its loan facility with Wells Fargo Bank,
extending the agreement to a three-year commitment. The line was increased to
$50,000,000 with a feature, which increases the line to $60,000,000 during the
period between May 1, 1999 to October 31, 1999. The terms of the facility are
described in Note 3 of the notes to the consolidated financial statements. Major
provisions of the agreement include that the line is uncollateralized and the
interest rate is at prime. This new facility allows the Company the option to
borrow under 30, 60,and 90 day fixed term rates at LIBOR plus 1.25%. Under this
agreement, there is letter of credit sub feature where the Company issues
commercial and standby letters of credit. This loan facility is intentionally
large enough to finance more production in the early part of the year to have
adequate inventories available for the summer / fall educational delivery
season.
In April 1998, the Board of Directors approved a stock buyback program giving
authorization to buy back up to $5,000,000 of Company Stock. In January 1999 the
Board increased the authorization to $7,000,000 and subsequent to year-end the
authorization was increased to $14,000,000. As of January 31, 1999 the Company
had repurchased approximately 268,000 shares at a cost of approximately
$5,344,000. The Company intends to continue buying back shares of Virco stock as
long as the Company feels the shares are undervalued and operating cash flow and
borrowing capacity under the Wells Fargo line allow.
In 1997, the Company initiated two large capital projects, which will have
significant cash flow effects on the 1998 fiscal year. The first project is the
implementation of the SAP Enterprise Resource Planning system, initiated in
October 1997. General Electric Capital Corporation (GECC) agreed to finance this
project under a lease arrangement, which will be treated as a capital lease for
book purposes and an operating lease for tax purposes. This allowed the Company
to initiate the project in 1997 without violating the limitations on capital
investment at the Torrance, CA facility imposed by the Industrial Revenue Bond.
Capital and training costs, which are not funded by the lease, will be financed
by cash flow from operations.
The second project is the expansion and re-configuration of the Conway, Arkansas
manufacturing and distribution facility. During the fourth quarter of 1997 the
Company expended approximately $1,200,000 to acquire roughly 70 acres of land
for the expansion. The Company budgeted approximately $25,000,000 during 1998 to
buy an additional 30 acres of land, construct a 400,000 square feet
manufacturing facility, and purchase production equipment for the new plant.
Approximately $10,000,000 worth of equipment will be leased from General
Electric Capital Corporation (GECC) under operating leases. The balance of the
cash required was provided by the loan facility with Wells Fargo Bank and by
operating cash flow. For the year ended January 31, 1999 the Company had
incurred approximately $18,000,000 on this project. The second phase of this
project, which was approved in 1998 and initiated in March of 1999, includes an
800,000 square feet distribution facility, which is expected to be completed by
fiscal year ended January 31, 2000. This facility is expected to cost
approximately $17,000,000. In addition to these authorized expenditures, it is
likely that the Company will identify additional production equipment needs in
the new manufacturing facility. These capital expenditures will be financed out
of operating cash flow and by the expanded line of credit with Wells Fargo Bank.
Capital investments for land, machinery and equipment installed at the Conway,
Arkansas facility totaled $8,700,000 in 1998. These capital investments were
financed by operating cash flow and from the loan facility with Wells Fargo
Bank.
8
<PAGE> 25
During 1994, the Company issued an $8,900,000 Industrial Revenue Bond through
the City of Torrance, California. The Bond was privately placed with General
Electric Capital Corporation (GECC). This Industrial Revenue Bond provides
capital funds which are limited to the acquisition of machinery, equipment, and
leasehold improvements in the Torrance, California facility. Under the terms of
the Bond, capital spending at the Torrance facility was be limited to $8,900,000
over a three-year period. The Company has drawn down $8,900,000 to cover capital
expenditures and bond issuance costs. To supplement the Bond proceeds, the
Company has entered into true tax leases with GECC for approximately $1,090,000
and $60,000 worth of machinery and equipment in fiscal years 1997 and 1996.
Capital assets obtained through these true tax leases were not be applied toward
the $8,900,000 three year limit on capital spending in Torrance, California.
As a result of the sale of the Mexico manufacturing facility, the Company
reduced the levels of raw material and work in process inventory at this
location. Inventory levels (at FIFO) at this facility were $0, $0, and
$3,100,000 at January 31, 1999, 1998, and 1997, respectively. In 1997, the sale
of production equipment and real property at this facility generated an
additional $2,210,000 of cash, offset by closing costs incurred related to the
shutdown.
In the second quarter of 1998, the Company sold the manufacturing facility in
Southern Pines, North Carolina. This sale generated approximately $945,000 in
cash and resulted in a $128,000 loss on disposition.
In December 1996, the Company's Board of Directors voted to initiate a quarterly
cash dividend effective January 31, 1997. A quarterly dividend of $.02 per share
was paid in 1998. The amount of quarterly dividend will be reviewed each quarter
in the light of the Company's earnings and liquidity.
Management believes cash raised from the previously described sources will be
adequate to meet its capital requirements in the short term.
FINANCIAL STRATEGY
Virco's financial strategy is to continue to increase levels of profitability by
targeting specific profitable market segments for future growth, accelerating
new product development for those target markets, acquisition of automated
production equipment and new production technologies, and continual reassessment
of the manufacturing and distribution capacity needed to meet future demand.
This continual assessment of production capacity led to a significant expansion
of our Conway, Arkansas production facility in 1997, the 1994 move from the Los
Angeles, California plant to a larger, more automated facility in Torrance, CA
and the shutdown of the manufacturing subsidiary in Mexico in 1997. We have
almost completed our effort to eliminate or lease underutilized real estate.
The Company has not provided an allowance against the deferred tax assets
recorded in the financial statements. The Company has a net deferred tax
liability at January 31, 1999. The gross deferred tax asset represents
approximately 4% of current pre-tax earnings. Management believes that it is
more likely than not that future earnings will be sufficient to recover deferred
tax assets.
9
<PAGE> 26
The Company discounts the pension obligations under the Virco Employees
Retirement Plan and the Virco Important Performers Plan (VIP) utilizing an 8%
discount rate. Although the Company does not anticipate any change in this rate
in the coming year, any such change would not have a significant effect on the
Company's financial position, results of operations, or cash flows.
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.
ACCOUNTING PRONOUNCEMENTS
During the year ending January 31, 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information," and Statement of Financial Accounting
Standards No. 132, "Employer's Disclosures about Pensions and Other
Postretirement Benefits", which became effective during that year. During the
year ending January 31, 2000, the Company will adopt AICPA SOP 98-1 "Accounting
For the Costs of Computer Software Developed for or Obtained for Internal-Use".
During the year ended January 31, 2002 the Company will adopt Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The adoption of these new accounting standards is not
expected to have a material impact on the Company.
10
<PAGE> 27
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
January 31
----------------------------------------------------------------------------
in thousands except per share data 1998 1997 1996 1995 1994
- ---------------------------------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATION
Net sales - continuing operations $ 273,620 $ 258,194 $ 236,277 $ 224,349 $ 215,659
Net income
Continuing operations $ 17,630 $ 13,852 $ 9,326 $ 5,209 $ 5,001
Net income per share*
Continuing operations $ 1.76 $ 1.38 $ 0.94 $ 0.53 $ 0.51
Average number of shares outstanding 10,044,078 10,044,913 9,907,978 9,858,320 9,816,788
Dividends declared per share
adjusted for 10% stock dividend
Cash $ 0.08 $ 0.07 $ 0.07 $ 0.03 $ 0.03
OTHER FINANCIAL DATA
Total assets $ 151,380 $ 122,015 $ 118,020 $ 119,225 $ 115,008
Working capital 47,405 43,784 45,099 51,320 42,780
Current ratio 2.4/1 2.5/1 2.6/1 3.2/1 2.6/1
Total long-term obligations 25,690 13,512 25,396 39,900 37,428
Stockholders' equity 88,923 77,077 63,921 55,386 50,466
Shares outstanding at year-end *** 9,643,927 9,775,473 9,745,388 9,745,388 9,729,416
Stockholders' equity per share ** 9.22 7.88 6.56 5.68 5.19
</TABLE>
- ----------
* Based on average number of shares outstanding each year after giving
retroactive effect for stock dividends and 3 for 2 stock split.
** Based on number of shares outstanding at year-end giving effect for
stock dividends and 3 for 2 stock split.
*** Adjusted for stock dividends and 3 for 2 stock split.
<PAGE> 28
Report of Independent Auditors
The Board of Directors and Stockholders
Virco Mfg. Corporation
We have audited the accompanying consolidated balance sheets of Virco Mfg.
Corporation as of January 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended January 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Virco Mfg.
Corporation at January 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1999, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Long Beach, California
March 19, 1999
1
<PAGE> 29
Virco Mfg. Corporation
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
JANUARY 31
--------------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,086 $ 1,221
Trade accounts receivable (less allowance for doubtful
accounts: $200 in 1999 and $100 in 1998) 30,465 25,703
Other receivables 308 1,139
Inventories:
Finished goods 32,211 25,467
Work in process 6,713 8,739
Raw materials and supplies 9,544 9,656
-------- --------
48,468 43,862
Prepaid expenses and other current assets 942 1,308
Deferred income taxes 1,239 986
-------- --------
Total current assets 82,508 74,219
Property, plant and equipment:
Land and land improvements 4,633 4,618
Buildings 22,229 12,906
Machinery and equipment 72,296 57,417
Leasehold improvements 877 813
-------- --------
100,035 75,754
Less accumulated depreciation and amortization 40,715 36,385
-------- --------
Net property, plant and equipment 59,320 39,369
Other assets 9,552 8,427
-------- --------
Total assets $151,380 $122,015
======== ========
</TABLE>
2
<PAGE> 30
<TABLE>
<CAPTION>
JANUARY 31
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks released but not yet cleared bank $ 4,670 $ 3,200
Accounts payable 14,398 13,324
Accrued compensation and employee benefits 9,156 7,627
Current portion of long-term debt 2,354 3,442
Other accrued liabilities 4,525 2,842
--------- ---------
Total current liabilities 35,103 30,435
Noncurrent liabilities:
Accrued self-insurance retention 1,329 1,277
Accrued pension expenses 3,017 2,776
Long-term debt, less current portion 21,344 9,459
--------- ---------
Total noncurrent liabilities 25,690 13,512
Deferred income taxes 1,664 991
Stockholders' 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; issued
9,945,014 shares in 1999 and 8,909,183 shares in 1998 100 89
Additional paid-in capital 68,361 50,301
Retained earnings 26,928 27,423
Less treasury stock at cost (301,087 shares in 1999 and
22,389 shares in 1998) (5,814) (172)
Less unearned ESOP shares (246) (316)
Less accumulated comprehensive loss (406) (248)
--------- ---------
Total stockholders' equity 88,923 77,077
--------- ---------
Total liabilities and stockholders' equity $ 151,380 $ 122,015
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 31
Virco Mfg. Corporation
Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
--------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales $273,620 $258,194 $236,277
Costs of goods sold 180,554 174,863 166,293
-------- -------- --------
Gross profit 93,066 83,331 69,984
Selling, general and administrative expenses 62,363 55,366 51,574
Provision for doubtful accounts 530 119 202
Provision for plant shutdown -- 2,970 --
Interest expense, net 1,111 1,794 2,507
Other expense 160 478 647
-------- -------- --------
Income before income taxes 28,902 22,604 15,054
Provision for income taxes 11,272 8,752 5,728
-------- -------- --------
Net income $ 17,630 $ 13,852 $ 9,326
======== ======== ========
Net income per share $ 1.79 $ 1.42 $ .96
======== ======== ========
Net income per share - assuming dilution $ 1.76 $ 1.38 $ .94
======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 32
Virco Mfg. Corporation
Consolidated Statements of Stockholders' Equity
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1996 5,369,360 $ 54 $42,055 $ 13,717
Net income -- -- -- 9,326 $ 9,326
Minimum pension liability,
net of tax -- -- -- -- 31
--------
Comprehensive income $ 9,357
========
Unearned ESOP shares -- -- -- -- --
Stock dividend (10%) 536,936 5 8,049 (8,054) --
Cash dividend -- -- -- (738) --
--------- ------ ------- -------- --------
Balance at January 31, 1997 5,906,296 59 50,104 14,251
Net income -- -- -- 13,852 $ 13,852
Minimum pension liability,
net of tax -- -- -- -- (204)
--------
Comprehensive income $ 13,648
========
Unearned ESOP shares -- -- -- --
Stock issued under option plans 20,600 -- 197 --
Stock split (3 for 2) 2,959,898 30 -- (30)
Cash dividends -- -- -- (650)
--------- ------ ------- -------- --------
Balance at January 31, 1998 8,886,794 89 50,301 27,423
Net income -- -- -- 17,630 $ 17,630
Minimum pension liability,
net of tax -- -- -- -- (158)
--------
Comprehensive income $ 17,472
========
Unearned ESOP shares -- -- -- --
Stock issued under option plans 134,180 2 690 --
Stock dividend (10%) 891,213 9 17,370 (17,379)
Cash dividends -- -- -- (746)
Purchase of treasury stock (268,260) -- -- --
--------- ------ ------- -------- --------
Balance at January 31, 1999 9,643,927 $ 100 $68,361 $ 26,928
========= ====== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Treasury ESOP Comprehensive
Stock Trust Income (Loss) Total
-------- ------- -------------- --------
<S> <C> <C> <C> <C>
Balance at January 31, 1996 $ (172) $ (193) $ (75) $ 55,386
Net income -- -- -- 9,326
Minimum pension liability,
net of tax -- -- 31 31
Comprehensive income
Unearned ESOP shares -- (84) -- (84)
Stock dividend (10%) -- -- --
Cash dividend -- -- -- (738)
------- ------- ------- --------
Balance at January 31, 1997 (172) (277) (44) 63,921
Net income -- -- -- 13,852
Minimum pension liability,
net of tax -- -- (204) (204)
Comprehensive income
Unearned ESOP shares -- (39) -- (39)
Stock issued under option plans -- -- -- 197
Stock split (3 for 2) -- -- -- --
Cash dividends -- -- -- (650)
------- ------- ------- --------
Balance at January 31, 1998 (172) (316) (248) 77,077
Net income -- -- -- 17,630
Minimum pension liability,
net of tax -- -- (158) (158)
Comprehensive income
Unearned ESOP shares -- 70 -- 70
Stock issued under option plans (298) -- -- 394
Stock dividend (10%) -- -- -- --
Cash dividends -- -- -- (746)
Purchase of treasury stock (5,344) -- -- (5,344)
------- ------- ------- --------
Balance at January 31, 1999 $(5,814) $ (246) $ (406) $ 88,923
======= ======= ======= ========
</TABLE>
See accompanying notes.
5
<PAGE> 33
Virco Mfg. Corporation
Consolidated Statements of Cash Flows
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,630 $ 13,852 $ 9,326
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,132 7,110 6,541
Provision for doubtful accounts 530 119 202
Loss (gain) on sale of property, plant and
equipment 113 (575) 49
Deferred income taxes 420 225 77
Changes in assets and liabilities:
Trade accounts receivable (5,292) (1,182) 1,082
Other receivables 831 (269) 1,208
Inventories (4,606) (218) (624)
Prepaid expenses and other current assets 311 225 405
Accounts payable and accrued liabilities 5,493 667 3,762
Other 353 (845) 346
-------- -------- --------
Net cash provided by operating activities 22,915 19,109 22,374
INVESTING ACTIVITIES
Capital expenditures (28,142) (10,701) (7,125)
Proceeds from sale of property, plant and equipment 945 2,275 12
Net investment in life insurance (1,024) (760) (650)
Restricted short-term investments -- 660 612
-------- -------- --------
Net cash used in investing activities (28,221) (8,526) (7,151)
</TABLE>
6
<PAGE> 34
Virco Mfg. Corporation
Consolidated Statements of Cash Flows (continued)
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Dividends paid $ (746) $ (650) $ (738)
Issuance of long-term debt 13,109 3,067 --
Repayment of long-term debt (2,312) (12,659) (14,340)
Issuance of common stock 394 197 --
Purchase of treasury stock (5,344) -- --
ESOP loan 70 (39) (84)
-------- -------- --------
Net cash provided by (used in) financing activities 5,171 (10,084) (15,162)
-------- -------- --------
Net (decrease) increase in cash (135) 499 61
Cash at beginning of year 1,221 722 661
-------- -------- --------
Cash at end of year $ 1,086 $ 1,221 $ 722
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net of amounts capitalized $ 2,069 $ 1,911 $ 2,606
Income taxes 10,106 9,021 5,322
</TABLE>
See accompanying notes.
7
<PAGE> 35
Virco Mfg. Corporation
Notes to Consolidated Financial Statements
January 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Virco Mfg. Corporation, which operates in one business segment, is engaged in
the design, production and distribution of quality furniture for the commercial
and education markets. Forty-nine years of manufacturing has resulted in a wide
product range. Major products include student desks, computer stations, chairs,
activity tables, folding chairs and folding tables. The Company manufactures its
products in Torrance, California, and in Conway, Arkansas, for sale primarily in
the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Virco Mfg.
Corporation and its wholly owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the 1997 and 1996 information to conform to
the 1998 presentation.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of accounts receivable. The Company performs
ongoing credit evaluations of its customers and maintains allowances for
potential credit losses. The Company purchases insurance on receivables from
commercial sales to minimize the Company's credit risk. No customers exceeded
10% of the Company's sales for each of the three years in the period ended
January 31, 1999. Foreign sales were less than 5% for each of the three years in
the period ended January 31, 1999.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method of valuation for the material content of
inventories and the first-in, first-out (FIFO) method for labor and overhead.
8
<PAGE> 36
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation.
Depreciation and amortization is computed on the straight-line method for
financial reporting purposes based upon the following estimated useful lives:
<TABLE>
<S> <C>
Land improvements 5 to 25 years
Buildings (including improvements) 5 to 40 years
Machinery and equipment 3 to 10 years
Leasehold improvements Life of lease
</TABLE>
Certain assets are depreciated under accelerated methods for income tax
purposes.
Interest costs, amounting to $375,000, $120,000 and $122,000 for the years ended
January 31, 1999, 1998 and 1997, respectively, have been capitalized as part of
the acquisition cost of property, plant and equipment.
The Company capitalizes costs associated with software developed for its own
use. Such costs are amortized over three years from the date the software
becomes operational. The Company capitalized $0, $129,000 and $359,000 and
recorded depreciation expense of $224,000, $353,000 and $376,000 in fiscal years
ended January 31, 1999, 1998 and 1997, respectively. The net book value of
capitalized software for its legacy system was $98,000 and $322,000 at January
31, 1999 and 1998, respectively.
In March 1999, the Company completed development of a new business information
system. At January 31, 1999, the Company had capitalized $7,435,000, including
labor costs of $2,143,000, related to its development. Such costs will be
amortized over the estimated useful life of three to seven years.
IMPAIRMENT OF LONG-LIVED ASSETS
An impairment loss is recognized in the event facts and circumstances indicate
the carrying amount of an asset may not be recoverable, and an estimate of
future undiscounted cash flows is less than the carrying amount of the asset.
Impairment is recorded based on the excess of the carrying amount of the
impaired asset over the fair value. Generally, fair value represents the
Company's expected future cash flows from the use of an asset or group of
assets, discounted at a rate commensurate with the risks involved.
9
<PAGE> 37
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 dilution effect of convertible securities.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income $17,630,000 $13,852,000 $ 9,326,000
=========== =========== ===========
Denominator:
Denominator for basic earnings
per share - weighted-average shares 9,837,735 9,775,473 9,745,388
Dilutive potential common shares 206,343 269,440 162,590
----------- ----------- -----------
Denominator for diluted earnings per share
- adjusted weighted-average shares and
assumed conversions 10,044,078 10,044,913 9,907,978
=========== =========== ===========
</TABLE>
10
<PAGE> 38
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE (CONTINUED)
On August 11, 1998, the Company's board of directors authorized a 10% stock
dividend payable on September 30, 1998, to stockholders of record as of
September 4, 1998. This resulted in the issuance of 891,213 additional shares of
common stock. All per share and weighted-average share amounts have been
restated to reflect this stock dividend and any splits or dividends previously
declared.
FOREIGN CURRENCY TRANSLATION
As is described more fully in Note 9, the Company discontinued its Mexican
subsidiary operations. The "functional currency" for the financial statements of
the Mexican subsidiary was the U.S. dollar. In accordance with SFAS No. 52, all
nonmonetary balance sheet accounts were remeasured using historical rates.
Income statement amounts were remeasured using the average exchange rate in
effect during the year. All remeasurement gains and losses were included in the
consolidated statements of income. The effect on the statements of income of
gains and losses was insignificant.
INTANGIBLE ASSETS
Intangible assets, which consist principally of deferred pension assets and
which are included in other noncurrent assets, are recorded at cost and are
amortized over their estimated useful lives using the straight-line method.
ENVIRONMENTAL COSTS
Costs incurred to investigate and remediate environmental waste are expensed as
incurred, unless the remediation extends the useful life of the assets employed
at the site. Remediation costs, which extend the useful life of assets are
capitalized and amortized over the useful life of the assets.
ADVERTISING COSTS
Advertising costs are expensed in the period in which they occur. Selling,
general and administrative expenses include advertising costs of $3,535,000 in
1998, $3,007,000 in 1997 and $3,024,000 in 1996.
11
<PAGE> 39
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SELF-INSURANCE
The Company has a self-insured retention for general and product liability
claims. Consulting actuaries assist the Company in determining its liability for
the self-insured component of claims, which have been discounted to their net
present value.
STOCK-BASED COMPENSATION PLANS
Stock-based compensation is recognized using the intrinsic-value method. For
disclosure purposes, pro forma net income and earnings per share impacts are
provided as if the fair-value method had been applied.
NEW ACCOUNTING PRONOUNCEMENTS
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 is made up of minimum pension
liability adjustments. The amount of comprehensive income recorded, net of tax
was $17,472,000, $13,648,000 and $9,357,000 in 1998, 1997 and 1996,
respectively.
The Company also adopted SFAS No. 132, "Employers' Disclosures About Pensions
and Other Postretirement Benefits." This statement does not change the
measurement or recognition of assets or liabilities; however, it does revise and
require more extensive disclosures about pension and other postretirement
benefits. The adoption of SFAS No. 132 did not affect the Company's pension
liabilities.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
12
<PAGE> 40
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment of merchandise.
FISCAL YEAR END
Fiscal years 1998, 1997 and 1996, refer to the years ended January 31, 1999,
1998 and 1997, respectively.
FUTURE ACCOUNTING REQUIREMENTS
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.
2. INVENTORIES
The current material cost for inventories exceeded LIFO cost by $2,809,000 and
$3,930,000 at January 31, 1999 and 1998, respectively. Liquidation of prior year
LIFO layers due to a reduction in certain inventories increased (decreased)
income by $8,000, $29,000 and ($90,000) in the years ended January 31, 1999,
1998 and 1997, respectively.
13
<PAGE> 41
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
2. INVENTORIES (CONTINUED)
Details of inventory amounts, including the material portion of inventory, which
is valued at LIFO, at January 31, 1999 and 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, 1999
------------------------------------------------------
MATERIAL LABOR,
CONTENT AT LIFO OVERHEAD
FIFO RESERVE AND OTHER TOTAL
---------- ------- --------- -------
<S> <C> <C> <C> <C>
Finished goods $20,751 $(1,800) $13,260 $32,211
Work in process 4,257 (393) 2,849 6,713
Raw materials and supplies 10,159 (615) -- 9,544
------- ------- ------- -------
Total $35,167 $(2,808) $16,109 $48,468
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1998
------------------------------------------------------
MATERIAL LABOR,
CONTENT AT LIFO OVERHEAD
FIFO RESERVE AND OTHER TOTAL
---------- ------- --------- -------
<S> <C> <C> <C> <C>
Finished goods $17,080 $(2,149) $10,536 $25,467
Work in process 5,605 (786) 3,920 8,739
Raw materials and supplies 10,651 (995) -- 9,656
------- ------- ------- -------
Total $33,336 $(3,930) $14,456 $43,862
======= ======= ======= =======
</TABLE>
14
<PAGE> 42
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
3. NOTES PAYABLE
Outstanding balances (in thousands) for the Company's long-term debt were as
follows:
<TABLE>
<CAPTION>
JANUARY 31
----------------------
1999 1998
------- -------
<S> <C> <C>
Revolving credit line with Wells Fargo Bank (a) $11,944 $ 1,318
IRB with the City of Torrance (b) 5,892 6,698
Equipment credit line with GECC(c) 3,932 2,493
Other 1,930 2,392
------- -------
23,698 12,901
Less current portion 2,354 3,442
======= =======
$21,344 $ 9,459
======= =======
Outstanding stand-by letters of credit $ 3,952 $ 4,936
======= =======
</TABLE>
(a) A credit facility with Wells Fargo Bank effective October 1998, provides
an unsecured revolving line of credit of up to $50,000,000 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. This is a three-year non-amortizing line
with interest payable monthly at a fluctuating rate equal to the Bank's
prime rate (7.75% at January 31, 1999). The line also allows the Company
the option to borrow under 30- 60- and 90-day fixed term rates at LIBOR
plus 1.25%. Approximately $34,104,000 was available for borrowing as of
January 31, 1999.
(b) Ten-year $8,900,000 IRB issued through the City of Torrance. This 5.994%
fixed interest rate bond is payable in monthly installments of $99,000,
including interest, through December 2004.
(c) In October 1998, the Company finalized a credit agreement with General
Electric Capital Corporation (GECC) to finance the new business
information system. This is a four-year amortizing capital lease with
principal and interest (approximately 7.5%) payable of $87,500 monthly.
The Company has the option of buying out the lease three years into the
lease period.
15
<PAGE> 43
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
3. NOTES PAYABLE (CONTINUED)
Long-term debt repayments for the next five years and thereafter are
approximately as follows (in thousands):
<TABLE>
<CAPTION>
Year ending January 31
- ----------------------
<S> <C>
2000 $ 2,354
2001 2,116
2002 14,120*
2003 1,972
2004 992
Thereafter 2,144
-------
$23,698
=======
</TABLE>
* The $11,944,000 due under Wells Fargo Bank's line of credit will be
payable in fiscal year ended January 31, 2002, if the agreement is not
renewed. The Company has the intention to renew prior to the due date.
The Company believes that the carrying value of debt under the Wells Fargo
credit facility approximates fair value at January 31, 1999 and 1998, as the
debt bears interest at variable rates or is fixed for periods equal to or less
than 90 days. The carrying value of other debt instruments approximates their
fair value given the Company's incremental borrowing rate for similar types of
financing arrangements.
The Company guarantees a $1,500,000 line of credit from Wells Fargo Bank to the
Virco Employee Stock Ownership Plan (ESOP). At January 31, 1999 and 1998,
$246,000 and $316,000, respectively, was outstanding under the line.
4. RETIREMENT PLANS
The Company and its subsidiaries cover all employees under a noncontributory
defined benefit retirement plan, the Virco Employees' Retirement Plan (the
Plan). Benefits under the Plan are based on years of service and career average
earnings. The Company's general funding policy is to contribute amounts
deductible for federal income tax purposes. Assets of the Plan are invested in
common trust funds.
16
<PAGE> 44
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
The following table sets forth (in thousands) the funded status of the Plan at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
PENSION BENEFITS
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 10,151 $ 9,430
Service cost 794 740
Interest cost 765 693
Actuarial loss 17 696
Benefit paid (1,124) (1,408)
-------- --------
Benefit obligation at end of year $ 10,603 $ 10,151
======== ========
Change in plan assets:
Fair value at beginning of year $ 8,312 $ 7,480
Actual return on plan assets 1,334 1,126
Company contributions 1,321 1,114
Benefits paid (1,124) (1,408)
-------- --------
Fair value at end of year $ 9,843 $ 8,312
======== ========
Funded status of plan $ (760) $ (1,839)
Unrecognized net transition amount (351) (393)
Unrecognized net actuarial loss 1,724 2,358
-------- --------
Prepaid benefit cost $ 613 $ 126
======== ========
Statements of financial position:
Prepaid benefit cost $ 613 $ 126
-------- --------
Net amount recognized $ 613 $ 126
======== ========
</TABLE>
17
<PAGE> 45
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Weighted average assumptions:
Discount rate 8.00% 8.00%
Expected return on plan assets 9.75% 9.75%
Rate of compensation increase 5.00% 5.00%
</TABLE>
The total pension expense for the Plan (in thousands) included the following
components:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Components of net cost:
Service cost $ 794 $ 740 $ 670
Interest cost 765 693 645
Expected return on plan assets (818) (698) (661)
Amortization of transition amount (42) (42) (42)
Recognized net actuarial loss 134 140 98
----- ----- -----
Benefit cost $ 833 $ 833 $ 710
===== ===== =====
</TABLE>
The Company also provides a supplementary retirement plan for certain key
employees, the VIP Retirement Plan (VIP Plan). The VIP Plan provides a benefit
up to 50% of average compensation for the last five years in the VIP Plan,
offset by benefits earned under the Virco Employees' Retirement Plan. The VIP
Plan is funded by a life insurance program. The cash surrender values of the
policies funding the VIP Plan were $2,901,000 and $2,393,000 at January 31, 1999
and 1998, respectively. These cash surrender values are included in other assets
in the consolidated balance sheets.
18
<PAGE> 46
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
The following table sets forth (in thousands) the funded status of the VIP Plan
at January 31, 1999 and 1998:
<TABLE>
<CAPTION>
NONQUALIFIED PENSION
-----------------------
1998 1997
------- -------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 4,976 $ 4,284
Service cost 212 332
Interest cost 426 333
Amendments -- 21
Actuarial loss 489 228
Benefit paid (309) (222)
------- -------
Benefit obligation at end of year $ 5,794 $ 4,976
======= =======
Change in plan assets:
Company contributions $ 309 $ 222
Benefits paid (309) (222)
------- -------
Fair value at end of year $ -- $ --
======= =======
Funded status of plan $(5,794) $(4,976)
Unrecognized net transition amount 12 16
Unrecognized prior service cost 241 353
Unrecognized net actuarial loss 1,410 985
Accrual of minimum liability (997) (856)
------- -------
Accrued benefit cost $(5,128) $(4,478)
======= =======
Statements of financial position:
Accrued benefit liability $(5,128) $(4,478)
Intangible asset 253 369
Accumulated other comprehensive income 406 248
------- -------
Net amount recognized $(4,469) $(3,861)
======= =======
</TABLE>
19
<PAGE> 47
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Weighted average assumptions:
Discount rate 8.00% 8.00%
Expected return on plan assets 9.75% 9.75%
Rate of compensation increase 5.00% 5.00%
</TABLE>
The total plan expense for the VIP retirement plan included the following
components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Components of net cost:
Service cost $212 $332 $332
Interest cost 426 333 314
Amortization of transition amount 4 4 4
Amortization of prior service cost 111 118 118
Recognized net actuarial loss 65 45 86
---- ---- ----
Benefit cost $818 $832 $854
==== ==== ====
</TABLE>
The Company's Employee Stock Ownership Plan, which covers all U.S. employees,
allows participants to defer from 1% to 15% of their eligible compensation
through a 401(k) retirement program. One of the four investment options is the
Virco Stock Fund. Shares owned by the ESOP are held by the Plan Trustee, U.S.
Trust Company of California. At January 31, 1999, the Plan held 453,252 shares
of Virco Stock including 444,596 shares allocated to participants' accounts.
Using the January 31, 1999, closing price of $17.75, the unallocated account has
8,656 shares valued at $153,644. At January 31, 1999, the Plan had borrowed
$246,000 directly from Wells Fargo Bank. This loan is secured by the unallocated
shares and guaranteed by Virco. Allocated shares held by the Trust are included
in shares outstanding and the related dividends are charged to retained
earnings. For the fiscal years ended January 31, 1999 and 1998, there was no
employer match and therefore no compensation cost to the Company.
The Company provides current and post-retirement life insurance to certain
salaried employees with split dollar life insurance policies under the Dual
Option Life Insurance Plan. Cash surrender values of these policies, which are
included in other assets in the consolidated balance sheets, were $3,182,000 and
$2,681,000 at January 31, 1999 and 1998, respectively.
20
<PAGE> 48
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
The Company established, effective January 1, 1997, a Deferred Compensation
Plan, which allows certain key employees to defer up to a maximum of 90% of
their base annual salary and/or up to 90% of their annual bonus on a pretax
basis. The total participant deferrals were $608,000 and $231,000 for the years
ended January 31, 1999 and 1998, respectively.
The Company maintains a Rabbi Trust to hold assets related to the VIP Retirement
Plan, the Dual Option Life Insurance Plan, and the Deferred Compensation Plan.
Substantially all assets funding these Plans are held in the Rabbi Trust.
5. STOCK OPTIONS AND STOCKHOLDERS' RIGHTS
The Company's two stock plans are the 1997 Employee Incentive Plan (the 1997
Plan) and the 1993 Employee Incentive Stock Plan (the 1993 Plan). Under these
stock plans, the Company may grant an aggregate of 978,153 shares (as adjusted
for the stock split and stock dividends) to its employees in the form of stock
options. Nonemployee directors automatically receive a grant for options to
purchase 500 shares of common stock on the first business day following each
annual meeting of the Company's stockholders. As of January 31, 1999, 330,553
shares remain available for future grant. Options granted under the plans have
an exercise price equal to the market price at the date of grant, have a maximum
term of 10 years and generally become exercisable ratably over a five-year
period. During fiscal year 1998, certain optionees elected to satisfy the
exercise price of their options by exchanging matured shares already owned. As a
result, the Company recorded 10,438 shares as treasury stock.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair-value method of SFAS No. 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following ranges of weighted-average assumptions:
risk-free interest rates of 5.00% to 6.26%; dividend yield of 0.31% to 0.98%;
volatility factor of the expected market price of the Company's common stock of
0.26 to 0.39; and a weighted-average expected life of the option of five years.
21
<PAGE> 49
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS AND STOCKHOLDERS' RIGHTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The pro forma impact
only takes into account options granted since January 1, 1993, and is likely to
increase in future years as additional options are granted and amortized ratably
over the vesting period. The Company's pro forma information follows (in
thousands except for net income per share information):
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
---------------------------------------
1999 1998 1997
------- ------- ---------
<S> <C> <C> <C>
Pro forma net income $17,401 $13,549 $ 9,316
Pro forma net income per share -
assuming dilution $ 1.74 $ 1.35 $ .94
</TABLE>
A summary of the Company's stock option activity, and related information for
the years ended January 31 follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
-------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 554,765 8.58 354,537 4.17 276,657 2.77
Granted 62,750 18.72 230,313 15.08 77,880 9.15
Exercised (152,679) 4.63 (30,085) 6.18 -- --
Forfeited -- -- -- -- --
------- ------- -------
Outstanding at end of year 464,836 11.27 554,765 8.58 354,537 4.17
======= ======== ========
Exercisable at end of year 351,029 10.24 386,000 7.45 163,738 2.75
Weighted-average fair value of options
granted during the year $ 7.69 $ 5.38 $ 3.15
</TABLE>
22
<PAGE> 50
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS AND STOCKHOLDERS' RIGHTS (CONTINUED)
The data included in the above table has been retroactively adjusted, if
applicable, for stock dividends and the stock split.
Information regarding stock options outstanding as of January 31, 1999, is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number of Contractual Exercise Number of Exercise
Price Range Shares Life Price Shares Price
----------- --------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 2.74 to $ 9.32 297,119 4 years $ 5.97 248,702 $ 5.40
14.85 to 18.50 63,300 9 18.31 660 14.85
22.05 to 23.52 104,417 8 22.09 101,667 22.05
------- -------
464,836 5 11.27 351,029 10.24
======= =======
</TABLE>
On October 15, 1996, the board of directors declared a dividend of one preferred
stock purchase right (a Right) for each outstanding share of the Company's
common stock. Each Right entitles a stockholder to purchase for an exercise
price of $50.00 ($30.30, as adjusted for the stock split and stock dividend),
subject to adjustment, one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock of the Company, or under certain
circumstances, shares of common stock of the Company or a successor company with
a market value equal to two times the exercise price. The Rights are not
exercisable, and would only become exercisable for all other persons when any
person has acquired or commences to acquire a beneficial interest of at least
20% of the Company's outstanding common stock. The Rights expire on October 25,
2006, have no voting privileges, and may be redeemed by the board of directors
at a price of $.001 per Right at any time prior to the acquisition of a
beneficial ownership of 20% of the outstanding common shares. There are 200,000
shares (330,000 shares as adjusted by the stock split and stock dividend) of
Series A. Junior Participating Cumulative Preferred Stock reserved for issuance
upon exercise of the Rights.
23
<PAGE> 51
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
6. PROVISION FOR INCOME TAXES
The Company utilizes the liability method to determine the provision for income
taxes. Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The provisions for the last three years are reconciled to the statutory federal
income tax rate using the liability method as follows:
<TABLE>
<CAPTION>
JANUARY 31
------------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Statutory 35.0% 35.0% 34.0%
State taxes (net of federal tax 3.2 2.9 2.4
Nondeductible expenses .8 .8 1.6
------ ------ ------
39.0% 38.7% 38.0%
====== ====== ======
</TABLE>
Significant components of the provision for income taxes (in thousands) are as
follows:
<TABLE>
<CAPTION>
JANUARY 31
-------------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 9,425 $ 7,336 $ 4,910
State 1,427 1,191 741
------- ------- -------
10,852 8,527 5,651
Deferred:
Federal 376 222 65
State 44 3 12
------- ------- -------
420 225 77
------- ------- -------
$11,272 $ 8,752 $ 5,728
======= ======= =======
</TABLE>
24
<PAGE> 52
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
6. PROVISION FOR INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities (in
thousands) are as follows:
<TABLE>
<CAPTION>
JANUARY 31
-----------------------
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 78 $ 41
Accrued vacation and sick leave 867 630
Retirement plans 1,498 1,656
Insurance reserves 795 418
Inventory 292 204
Other 248 105
------- -------
3,778 3,054
Deferred tax liabilities:
Tax in excess of book depreciation 3,418 2,929
Capitalized software development costs 785 130
------- -------
4,203 3,059
------- -------
Net deferred tax liability $ (425) $ (5)
======= =======
</TABLE>
7. COMMITMENTS
The Company has long-term leases on real property and equipment, which expire at
various dates. Certain of the leases contain renewal, purchase options and
require payment for property taxes and insurance.
25
<PAGE> 53
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS (CONTINUED)
Minimum future lease payments (in thousands) for operating leases in effect as
of January 31, 1999, are as follows:
<TABLE>
<CAPTION>
Year ending January 31
- ----------------------
<S> <C>
2000 $ 7,199
2001 5,449
2002 4,655
2003 4,398
2004 4,126
Thereafter 3,960
-------
$29,787
=======
</TABLE>
Rent expense relating to operating leases was as follows (in thousands):
<TABLE>
<CAPTION>
Year ending January 31
- ----------------------
<S> <C>
1999 $ 9,438
1998 8,255
1997 7,849
</TABLE>
The Company leases machinery and equipment from GECC under a 10-year operating
lease arrangement. The total amount of machinery and equipment leased for 1997
and 1996, was $1,090,000 and $60,000, respectively. The Company has the option
of buying out the leases three to five years into the lease period. In addition,
the Company has obtained a commitment from GECC for $10 million worth of
additional machinery and equipment to be leased under operating leases.
26
<PAGE> 54
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS (CONTINUED)
Minimum future lease-receipts (in thousands) for leases relating to properties
owned or subleased as of January 31, 1999, are as follows:
<TABLE>
<CAPTION>
Year ending January 31
- ----------------------
<S> <C>
2000 $ 1,153
2001 378
2002 378
2003 378
2004 378
Thereafter 2,552
-------
$ 5,217
=======
</TABLE>
8. CONTINGENCIES
The Company and other furniture manufacturers are subject to federal, state and
local laws and regulations relating to the discharge of materials into the
environment and the generation, handling, storage, transportation and disposal
of waste and hazardous materials. The Company has expended, and may be expected
to expend significant amounts for the investigation of environmental conditions,
installation of environmental control equipment and remediation of environmental
contamination.
The Company is subject to contingencies pursuant to environmental laws and
regulations that in the future may require the Company to take action to correct
the effects on the environment of prior disposal practices or releases of
chemical or petroleum substances by the Company or other parties. At January 31,
1999 and 1998, there are no required reserves for such environmental
contingencies.
The Company has a self-insured retention for product and general liability
losses up to $100,000 per occurrence. The Company has purchased insurance to
cover losses in excess of $100,000 up to a limit of $30,000,000. The Company has
obtained an actuarial estimate of, and recorded the net present value of its
total expected future losses for liability claims of $2.7 million at January 31,
1999, based upon the Company's estimated payout period of four years using a 10%
discount rate.
27
<PAGE> 55
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
8. CONTINGENCIES (CONTINUED)
Workers' compensation, automobile, general and product liability claims may be
asserted in the future for events not currently known by management. Management
does not anticipate that any related settlement, after consideration of the
existing reserve for claims incurred and potential insurance recovery would have
a material adverse effect on the Company's financial position, results of
operations or cash flows.
The Company and its subsidiaries are defendants in various legal proceedings
resulting from operations in the normal course of business. It is the opinion of
management that the ultimate outcome of all such matters will not materially
affect the Company's financial position, results of operations or cash flows.
9. FOREIGN OPERATION
In May 1997, the Company decided to shut down its Mexican manufacturing
facility. Subsequently, the Company sold a majority of the assets of the Mexican
facility on October 8, 1997. The facility ceased operations on October 20, 1997.
Total revenues of this operation, consisting primarily of transfers between
geographic areas of the Company, were $5,389,000 and $11,735,000 for the years
ended January 31, 1998 and 1997, respectively. The production requirements from
this facility were transferred to the Torrance, California, and Conway,
Arkansas, manufacturing plants. For fiscal year 1997, the Company incurred
$2,970,000 in connection with the shutdown of the facility. The primary
component of this amount related to severance benefits paid to the employees in
accordance with Mexican law.
28
<PAGE> 56
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
10. QUARTERLY RESULTS (UNAUDITED)
The Company's quarterly results for the years ended January 31, 1999 and 1998,
are summarized as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended January 31, 1999:
Net sales $44,938 $87,539 $92,691 $48,452
Gross profit 14,675 28,655 32,376 17,360
Net income 790 6,368 7,304 3,168
Net income per share - basic .08 .65 .75 .33
Net income per share - diluted .08 .63 .73 .32
Year ended January 31, 1998:
Net sales $40,958 $83,809 $87,239 $46,188
Gross profit 13,201 26,992 28,433 14,705
Net income 499 4,228 6,765 2,360
Net income per share - basic .05 .43 .69 .24
Net income per share - diluted .05 .42 .67 .24
</TABLE>
Net income per share has been adjusted to reflect the 10% stock dividend
declared in August 1998, and the 3 for 2 stock split declared in August 1997.
29
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES
Virtue of California, Inc. (INACTIVE)
2027 Harpers Way
Torrance, CA 90501
Delkay Plastics (INACTIVE)
2027 Harpers Way
Torrance, CA 90501
Virco Inc.
2027 Harpers Way
Torrance, CA 90501
Virco Mgmt. Corporation
2027 Harpers Way
Torrance, CA 90501
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Virco Mfg. Corporation of our report dated March 19, 1999, included in the
1998 Annual Report to Stockholders of Virco Mfg. Corporation.
Our audits also included the financial statement schedule of Virco Mfg.
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-65096, Form S-8 No. 333-32539 and Form S-8 No. 333-51717)
pertaining to the Virco Mfg. Corporation 1993 Stock Incentive Plan, the Virco
Mfg. Corporation 1997 Stock Incentive Plan, and the Virco Mfg. Corporation
Employee Stock Ownership Plan, respectively, of our report dated March 19, 1999,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
Virco Mfg. Corporation.
/s/ Ernst & Young LLP
Long Beach, California
April 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
COMPANY'S CONSOLIDATED STATEMENTS IF EARNINGS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENT.
(A) Identify specific financial statements.
(B) Identify filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 1,086
<SECURITIES> 0
<RECEIVABLES> 30,973
<ALLOWANCES> (200)
<INVENTORY> 48,468
<CURRENT-ASSETS> 82,508
<PP&E> 100,035
<DEPRECIATION> (40,715)
<TOTAL-ASSETS> 151,380
<CURRENT-LIABILITIES> 35,103
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 88,823
<TOTAL-LIABILITY-AND-EQUITY> 151,380
<SALES> 273,620
<TOTAL-REVENUES> 273,620
<CGS> 180,554
<TOTAL-COSTS> 243,447
<OTHER-EXPENSES> 1,271
<LOSS-PROVISION> 530
<INTEREST-EXPENSE> 1,111
<INCOME-PRETAX> 28,902
<INCOME-TAX> 11,272
<INCOME-CONTINUING> 17,630
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,630<F1>
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.76
<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
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> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 1,221
<SECURITIES> 0
<RECEIVABLES> 25,803
<ALLOWANCES> (100)
<INVENTORY> 43,862
<CURRENT-ASSETS> 74,219
<PP&E> 75,754
<DEPRECIATION> (36,385)
<TOTAL-ASSETS> 39,369
<CURRENT-LIABILITIES> 30,435
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 76,988
<TOTAL-LIABILITY-AND-EQUITY> 122,015
<SALES> 258,194
<TOTAL-REVENUES> 258,194
<CGS> 174,863
<TOTAL-COSTS> 233,318
<OTHER-EXPENSES> 2,272
<LOSS-PROVISION> 119
<INTEREST-EXPENSE> 1,794
<INCOME-PRETAX> 22,604
<INCOME-TAX> 8,752
<INCOME-CONTINUING> 13,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,852
<EPS-PRIMARY> 1.42<F1>
<EPS-DILUTED> 1.38
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
