<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
FORM 10-Q
For Quarter Ended July 31, 2000 Commission File Number 1-8777
--------------- --------------
VIRCO MFG. CORPORATION
-------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-1613718
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2027 Harpers Way, Torrance, CA 90501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 533-0474
--------------------
No change
--------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
----- ----
The number of shares outstanding of each of the issuer's classes of common
stock, as of September 1, 2000.
Common Stock 11,338,578 Shares*
* Adjusted for 10% stock dividend declared August 15, 2000, date of record
September 7, 2000, payable September 29, 2000.
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VIRCO MFG. CORPORATION
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - July 31, 2000 and January
31, 2000
Condensed consolidated statements of income - Three months ended
July 31, 2000 and 1999.
Condensed consolidated statements of income - Six months ended
July 31, 2000 and 1999.
Condensed consolidated statements of cash flows - Six months
ended July 31, 2000 and 1999.
Notes to condensed consolidated financial statements - July 31,
2000
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II. Other Information
Item 4. Submission of matters to a vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
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PART I
Item 1. Financial Statements
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS 7/31/2000 1/31/2000
------ --------- ---------
<S> <C> <C>
Current assets
Cash $ 751 $ 1,072
Accounts and notes receivable 58,412 27,584
Less allowance for doubtful accounts (472) (200)
--------- ---------
Net accounts and notes receivable 57,940 27,384
Inventories (Note 2)
Finished goods 44,445 35,795
Work in process 11,354 9,260
Raw materials and supplies 13,805 12,003
--------- ---------
Total inventories 69,604 57,058
Income taxes receivable -- 1,753
Prepaid expenses and deferred income tax 2,251 2,659
--------- ---------
Total current assets 130,546 89,926
Property, plant & equipment
Cost 145,327 136,315
Less accumulated depreciation (52,685) (48,378)
--------- ---------
Net property, plant & equipment 92,642 87,937
Other assets 13,021 13,000
--------- ---------
Total assets $ 236,209 $ 190,863
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 7/31/2000 1/31/2000
------------------------------------ --------- ---------
<S> <C> <C>
Current liabilities
Checks released but not yet cleared bank $ 6,231 $ 4,786
Accounts payable 21,446 19,749
Accrued compensation and employee benefits 9,073 10,333
Current maturities on long-term debt 2,049 1,998
Other current liabilities 5,250 1,637
--------- ---------
Total current liabilities 44,049 38,503
Non-current liabilities
Long term debt (less current portion) 77,845 46,027
Other non-current liabilities 9,354 7,968
--------- ---------
Total non-current liabilities 87,199 53,995
Deferred income taxes 4,531 4,531
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; 10,957,770 issued at
7/31/2000 and 10,952,350 shares issued at 1/31/2000 110 110
Additional paid-in capital 84,637 84,635
Retained earnings 27,193 20,242
Less treasury stock at cost (649,972 shares at 7/31/2000
and 621,874 shares at 1/31/2000) (10,975) (10,692)
Less unearned ESOP shares (115) (41)
Less accumulated comprehensive loss (420) (420)
--------- ---------
Total stockholders' equity 100,430 93,834
--------- ---------
Total liabilities and stockholders' equity $ 236,209 $ 190,863
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
7/31/2000 7/30/1999
--------- ---------
<S> <C> <C>
Net sales $98,917 $88,224
Cost of goods sold 66,773 57,756
------- -------
Gross profit 32,144 30,468
Selling, general and administrative and other 22,588 18,605
Provision for doubtful accounts 144 266
Interest expense 1,614 898
------- -------
24,346 19,769
Income before income taxes 7,798 10,699
Income taxes 3,041 4,172
------- -------
Net income $ 4,757 $ 6,527
======= =======
Earnings per share $ .42 $ .57
Earnings per share - assuming dilution $ .41 $ .56
Weighted average share outstanding (a) 11,358 11,485
Weighted average share outstanding - assuming dilution (a) 11,501 11,700
Dividend per share
Cash (a) $ .02 $ .02
</TABLE>
(a) Adjusted for 10% stock dividend declared August 15, 2000.
See notes to condensed consolidated financial statements.
5
<PAGE> 6
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
7/31/2000 7/30/1999
--------- ---------
<S> <C> <C>
Net sales $ 145,175 $ 125,703
Cost of goods sold 98,925 83,874
--------- ---------
Gross profit 46,250 41,829
Selling, general and administrative and other 39,088 32,658
Provision for doubtful accounts 269 384
Interest expense 2,766 1,309
Gain on sale of real estate (7,945) --
--------- ---------
34,178 34,351
Income before income taxes 12,072 7,478
Income taxes 4,708 2,916
--------- ---------
Net income $ 7,364 $ 4,562
========= =========
Earnings per share $ .65 $ .39
Earnings per share - assuming dilution $ .64 $ .39
Weighted average share outstanding (a) 11,361 11,595
Weighted average share outstanding - assuming dilution (a) 11,500 11,810
Dividend per share
Cash (a) $ .04 $ .03
</TABLE>
(a) Adjusted for 10% stock dividend declared August 15, 2000.
See notes to condensed consolidated financial statements.
6
<PAGE> 7
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (Note 1)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
7/31/2000 7/31/1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 7,364 $ 4,562
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation 6,320 4,705
Provision for doubtful accounts 269 384
(Gain)Loss on sales of fixed asset (7,948) 18
Change in assets and liabilities:
Accounts and notes receivable (30,825) (27,492)
Inventories (12,546) (8,318)
Prepaid expenses and deposits 408 202
Income taxes receivable/payable 1,743 1,798
Accounts payable and accrued expenses 6,891 3,574
-------- --------
Net cash used in operating activities (28,324) (20,567)
Cash flows from investing activities
Capital expenditures (12,466) (15,462)
Proceeds from sale of assets 9,389 41
Net investment in life insurance (21) (1,004)
-------- --------
Net cash used in investing activities (3,098) (16,425)
Cash flows from financing activities
Issuance of long-term debt 32,810 41,132
Repayment of long-term debt (941) (1,282)
Payment of cash dividend (413) (386)
Purchase of treasury stock (283) (3,051)
Issuance of common stock 2 31
Loans to ESOP (74) 149
-------- --------
Net cash provided by financing activities 31,101 36,593
Net change in cash (321) (399)
Cash at beginning of period 1,072 1,086
-------- --------
Cash at end of period $ 751 $ 687
======== ========
</TABLE>
See notes to condensed consolidated financial statements
7
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VIRCO MFG. CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2000 and July 31, 1999
Note 1. The accompanying unaudited condensed consolidated financial statements
------- have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended July
31, 2000 are not necessarily indicative of the results that may be
expected for the year ended January 31, 2001. The balance sheet at
January 31, 2000 has been derived from the audited financial
statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended January
31, 2000.
Note 2. Inventory
-------
Year end financial statements reflect inventories verified by physical
counts with the material content valued by the LIFO method. At this
interim date, there has been no physical verification of inventory
quantities. Cost of sales is recorded at current cost. The effect of
penetrating LIFO layers is not recorded at interim dates unless the
reduction in inventory is expected to be permanent. No such adjustment
has been made for the period ended July 31, 2000. Management
continually monitors production costs, material costs and inventory
levels to determine that interim inventories are fairly stated.
Note 3. Income Taxes
------
Income taxes for the six months ended July 31, 2000 were computed
using the effective tax rate estimated to be applicable for the full
fiscal year, which is subject to ongoing review and evaluation by
management.
Note 4. Significant Accounting Policies
------
The weighted average number of shares used in the computation of
diluted net income per share were 11,501,000 and 11,700,000 for the
quarter ended July 31, 2000 and July 31, 1999, respectively. The
weighted average number of shares used in the computation of diluted
net income per share were 11,500,000 and 11,810,000 for the six months
ended July 31, 2000 and July 31, 1999, respectively. Per share and
weighted-average share amounts for the second quarter and six months
ended July 31, 1999 have been restated to reflect a 10% stock dividend
payable on September 29, 2000 to stockholders of record as of
September 7, 2000.
8
<PAGE> 9
Comprehensive income includes net income and minimum pension liability
adjustments. Comprehensive income was $4,757,000 and $6,527,000 for
the quarter ended July 31, 2000 and July 31, 1999, respectively.
Comprehensive income was $7,364,000 and $4,562,000 for the six months
ended July 31, 2000 and July 31, 1999, respectively.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and for Hedging Activities." SFAS 133 requires derivatives
to be recorded on the balance sheet at fair value and establishes
special accounting for the following three types of hedges: hedges of
changes in the fair value of assets, liabilities or firm commitments
(referred to as fair value hedges); hedges of the variable cash flows
of forecasted transactions (cash flow hedges); and hedges of foreign
currency exposures of net investments in foreign operations. The
accounting treatment and criteria for each of the three types of
hedges is unique. Changes in fair value of derivatives that do not
meet the criteria of one of these three categories of hedges would be
included in income. SFAS 133 was amended by SFAS 137, which delayed
its effective date. The Company does not believe that adopting this
standard will have a material effect on its financial position,
results of operations and cash flows. Currently, the Company does not
anticipate adopting this standard before February 1, 2001.
Note 5. Gain on Sale of Real Estate
-------
On April 25, 2000, the Company finalized the sale of its Torrance,
California, warehouse. The Company received $9,385,000 in cash and
recorded $7,945,000 pre-tax gain on disposition during the quarter
ended April 30, 2000.
Note 6. Amendment to Credit Facility
-------
Beginning July 1, 2000, the credit facility with Wells Fargo Bank is
expanded to $90,000,000 from $80,000,000. The maximum principal amount
available under this note shall be reduced automatically on September
30, 2000, and on each January 1, commencing January 1, 2001, by the
amount of $10,000,000.
9
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VIRCO MFG. CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS:
For the second quarter of 2000, the Company had a net income of $4,757,000 on
sales of $98,917,000 compared to a net income of $6,527,000 on sales of
$88,224,000 in the same period last year. Earnings were $.41 per share compared
to $.56 per share in the same period last year, after giving effect to the 10%
stock dividend declared August 15, 2000. For the six months ended July 31, 2000,
the Company earned net income of $7,364,000 on sales of $145,175,000 compared to
net income of $4,562,000 on sales of $125,703,000 in the same period last year.
Earnings were $.64 per share compared to $.39 per share in the same period last
year, after giving effect to the 10% stock dividend declared August 15, 2000.
The second quarter and year to date results are consistent with Virco's seasonal
business cycle, which produces diminished first quarter sales followed by strong
second and third quarter deliveries of educational furniture. The seasonal
nature of Virco's sales has intensified due to strategic marketing decisions and
changes in the buying pattern of educational customers. Sales for the second
quarter increased $10,693,000 compared to the same period last year. Backlog at
July 31, 2000 was slightly lower compared to the same time last year.
Approximately 75% of the increase in sales for the first six months were from
educational sales and the balance from commercial sales. The increase in
Education sales was attributable to the Company pursuing an aggressive pricing
policy, combined with a strong market for education products. The increase in
Commercial sales was consistent with prior year's growth in our private school,
hospitality, convention center and church markets. In the prior year, the growth
in these markets was offset by declines in sales to mass merchants. In the
current quarter, there was no such reduction in mass merchant sales.
Gross profit for the second quarter, as a percentage of sales, decreased by 2%
compared to the same period last year. During the six months ended July 31,
2000, the Company incurred pressure on margins relating to aggressive pricing to
stimulate sales, cost increases for raw materials and higher labor rates. These
pressures were slightly offset by improved efficiency in the manufacturing
facilities. Although factory spending increased compared to the prior year,
production increased by a greater percentage than did factory spending.
Selling, general and administrative expense and other for the quarter ended July
31, 2000 is approximately $3,983,000 more than the same period last year.
Freight and selling expenses increased as a result of the increased sales volume
and increased shipping and warehousing costs. In addition to reduced margins as
discussed above, the Company invested in additional inventory, customer service
representatives, and installation staff to provide enhanced levels of customer
service and on-time delivery. Administrative expenses increased in large part
due to information technology expenses relating to the SAP Enterprise Resource
Planning System. This system, which went live in March of 1999, has been
enhanced throughout the last year. Some of the enhancements, including sales
force automation and a business to business Website, were not activated until
February 2000.
Interest expense increased by $716,000 due to a higher average borrowing balance
and higher interest rates for the quarter ended July 31, 2000 compared to the
same period last year. The increase in borrowings was attributable to capital
spending on the Conway, Arkansas facility expansion and an increase in cash used
in building inventory in anticipation of strong summer delivery activities.
10
<PAGE> 11
FINANCIAL CONDITION:
As a result of seasonally high shipments in the second quarter, accounts
receivable increased by approximately $30,825,000 compared to year-end. In
anticipation of strong third quarter deliveries, inventory increased by
$12,546,000 compared to year-end. This increase in accounts receivable and
inventory was financed through the credit facility with Wells Fargo Bank.
Capital spending for the quarter ended July 31, 2000 was $12,466,000 compared to
$15,462,000 for the same period last year. For the quarter ended July 31, 2000,
capital investments included machinery and equipment and construction of the
second 400,000 sq. ft. segment of the 800,000 sq. ft. warehouse and distribution
facility in Conway, Arkansas. As discussed in the Company's 1999 annual report,
construction on the first 400,000 sq. ft. segment began in March 1999 and was
completed and fully operational in December 1999. The second 400,000 sq. ft.
segment is in operation as of July 31, 2000. Higher capital spending for the
same period in last year was primarily related to the Conway, Arkansas facility
expansion and SAP project. The Company believes that its investments in
infrastructure and information systems will ultimately deliver improved
operating efficiency. For further discussions on these two projects, please
refer to the Company's 1999 annual report. These capital investments and the
ongoing capital expenditures are being financed through credit facilities
established with Wells Fargo Bank, the sale of real estate, and operating cash
flow. Beginning July 1, 2000, the credit facility with Wells Fargo Bank is
expanded to $90,000,000 from $80,000,000. The maximum principal amount available
under this note shall be reduced automatically on September 30, 2000, and on
each January 1, commencing January 1, 2001, by the amount of $10,000,000. At
July 31, 2000, the Company has approximately $13,733,000 available under its
credit facility with Wells Fargo Bank.
Net cash used in operating activities for the six months ended July 31, 2000 was
$28,324,000 compared to $20,567,000 for the same period last year. The increase
in cash used in operating activities was primarily due to the increase in
inventory and trade receivables partly offset by cash received from the sale of
the Torrance warehouse during the first quarter ended April 30, 2000. Long term
debt was $77,845,000 as of July 31, 2000 compared to $46,027,000 as of January
31, 2000.
In April 1998, the Board of Directors approved a stock buyback program giving
authorization to buy back up to $5,000,000 of common stock. The amount
authorized was subsequently increased to $14,000,000. As of July 31, 2000, the
Company has repurchased approximately 617,000 shares at a cost of approximately
$10,509,000 since the inception of this program in April 1998. The Company
intends to continue buying back shares of common stock as long as the Company
believes the shares are undervalued and operating cash flows and borrowing
capacity under the Wells Fargo line allow.
On August 15, 2000, the Company's Board of Directors authorized a 10% stock
dividend payable on September 29, 2000 to stockholders on record as of September
7, 2000. In the same meeting, the Board also authorized a $0.02 per share cash
dividend payable on October 31, 2000 to stockholders on record as of October 13,
2000. For the six months ended July 31, 2000, the Company paid $413,000 in cash
dividends.
The Company believes that cash flows from operations, together with the
Company's unused borrowing capacity with Wells Fargo Bank will be sufficient to
fund the Company's debt service requirements, capital expenditures and working
capital needs.
YEAR 2000 COMPLIANCE
As of the date of this report, the Company has experienced no significant
problems related to the Year 2000 issue. After extensive system verification and
testing, all computerized information and process control systems
11
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are operating normally. The performance of critical customers and suppliers
continues without notable change. Production and business activities are normal
at all locations. The Company continues to monitor the status of its operations,
suppliers and distribution channels to ensure no significant interruptions.
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, availability
and cost of labor, demand for the Company's products, and competitive conditions
affecting selling prices and margins, capital costs and general economic
conditions. Such risks and uncertainties are discussed in more detail in the
Company's Annual Report on Form 10-K for the year ended January 31, 2000.
The Company's forward-looking statements represent its judgment only on the
dates such statements were made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed or unanticipated
events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
On February 22, 2000, the Company entered into an interest rate swap agreement
with Wells Fargo Bank. The initial notional swap amount is $30,000,000 for the
period February 22, 2000 through February 29, 2001. The notional swap amount
then decreases to $20,000,000 until the end of the swap agreement, March 3,
2003. The swap agreement is in consideration for a fixed rate at 7.23% plus a
fluctuating margin of 1.25% to 1.50%.
As of July 31, 2000, the Company has borrowed $71,548,000 under its Wells Fargo
credit facility, of which $30,000,000 is subject to the interest rate swap
agreement as described above and the remaining contain variable interest rates.
Accordingly, a 100 basis point upward fluctuation in the lender's base rate
would cause the Company to incur additional interest charges of approximately
$148,000 per fiscal quarter and $270,000 for the six months ended July 31, 2000.
The Company would benefit from a similar interest savings if the base rate were
to fluctuate downward by a like amount.
12
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PART II
VIRCO MFG. CORPORATION
Other Information
Item 4. Submission of matters to a vote of Security Holders
The following is a description of matters submitted to a vote of
registrant's stockholders at the Annual Meeting of Stockholders held
June 20, 2000.
Election of three directors whose term expire in 2003.
<TABLE>
<CAPTION>
Votes For
---------
<S> <C>
Robert A. Virtue 8,768,150
Donald A. Patrick 8,880,854
Robert K. Montgomery 8,868,823
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
Exhibit (11) - Statement re: Computation of Earnings Per Share
13
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VIRCO MFG. CORPORATION
Exhibit (11) - Statement re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31 July 31
--------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Diluted earnings per share
Average shares outstanding 11,358,000 11,485,000 11,361,000 11,595,000
Net effect of dilutive stock options - based on the
treasury stock method using average market price 143,000 215,000 139,000 215,000
----------- ------------ ------------ -----------
Totals 11,501,000 11,700,000 11,500,000 11,810,000
=========== ============ ============ ===========
Net income $ 4,757,000 $ 6,527,000 $ 7,364,000 $ 4,562,000
=========== ============ ============ ===========
Per share amount $ .41 $ .56 $ .64 $ .39
===== ====== ====== =====
</TABLE>
Weighted average shares outstanding for the three months and six months ended
July 31, 1999 were adjusted for 10% stock dividend declared August 15, 2000.
14
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VIRCO MFG. CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIRCO MFG. CORPORATION
Date: September 12, 2000 By: /s/ Robert E. Dose
----------------------- ------------------------------
Robert E. Dose
Vice President - Finance
Date: September 12, 2000 By: /s/ Bassey Yau
----------------------- ------------------------------
Bassey Yau
Corporate Controller
15
