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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
FORM 10-Q
For Quarter Ended April 30, 2000 Commission File Number 1-8777
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VIRCO MFG. CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 95-1613718
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2027 Harpers Way, Torrance, CA 90501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 533-0474
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No change
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of
common stock, as of June 7, 2000.
Common Stock 10,307,798 Shares
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INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - April 30, 2000 and
January 31, 2000
Condensed consolidated statements of operations - Three months
ended April 30, 2000 and 1999
Condensed consolidated statements of cash flows - Three months
ended April 30, 2000 and 1999
Notes to condensed consolidated financial statements - April 30,
2000
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 4. Submission of matters to a vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
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PART 1
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 4/30/2000 1/31/2000
------ --------- ---------
<S> <C> <C>
Current assets
Cash $ 1,193 $ 1,072
Accounts and notes receivable 23,405 27,584
Less allowance for doubtful accounts (327) (200)
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Net accounts and notes receivable 23,078 27,384
Inventories (Note 2)
Finished goods 54,850 35,795
Work in process 11,516 9,260
Raw materials and supplies 14,135 12,003
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Total inventories 80,501 57,058
Income taxes receivable 107 1,753
Prepaid expenses and deferred income tax 2,357 2,659
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Total current assets 107,236 89,926
Property, plant & equipment
Cost 139,020 136,315
Less accumulated depreciation (49,428) (48,378)
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Net property, plant & equipment 89,592 87,937
Other assets 13,006 13,000
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Total assets $ 209,834 $ 190,863
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 4/30/2000 1/31/2000
------------------------------------ --------- ---------
<S> <C> <C>
Current liabilities
Checks released but not yet cleared bank $ 4,606 $ 4,786
Accounts payable 18,963 19,749
Accrued compensation and employee benefits 8,585 10,333
Current maturities on long-term debt 2,049 1,998
Other current liabilities 5,026 1,637
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Total current liabilities 39,229 38,503
Non-current liabilities
Long term debt (less current portion) 61,265 46,027
Other non-current liabilities 8,665 7,968
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Total non-current liabilities 69,930 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 4/30/2000 and
10,952,350 shares issued at 1/31/2000 110 110
Additional paid-in capital 84,637 84,635
Retained earnings 22,642 20,242
Less treasury stock at cost (624,691 shares at
4/30/2000 and 621,874 shares at 1/31/2000) (10,710) (10,692)
Less unearned ESOP shares (115) (41)
Less accumulated comprehensive loss (420) (420)
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Total stockholders' equity 96,144 93,834
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Total liabilities and stockholders' equity $ 209,834 $ 190,863
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited (Note 1)
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data)
3 Months Ended
------------------------
4/30/2000 4/30/1999
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<S> <C> <C>
Net sales $ 46,258 $ 37,479
Cost of goods sold 32,152 26,118
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Gross profit 14,106 11,361
Operating expenses and other
Selling, general and administrative expense 16,500 14,055
Provision for doubtful accounts 125 116
Interest expense 1,152 411
Gain on sale of real estate (7,945) --
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9,832 14,582
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Income (loss) before income taxes 4,274 (3,221)
Income taxes expense (benefit) 1,667 (1,256)
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Net income (loss) $ 2,607 $ (1,965)
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Net income (loss) per share - basic $ .25 $ (.19)
Net income (loss) per share - diluted $ .25 (.19)
Dividend declared
Cash (per share) $ .02 $ .02
</TABLE>
See notes to condensed consolidated financial statements.
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VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (Note 1)
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 3 Months Ended
------------------------
4/30/2000 4/30/1999
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<S> <C> <C>
Operating activities
Net income (loss) $ 2,607 $ (1,965)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 3,044 2,235
Gain on sale of real estate (7,945) --
Provision for doubtful accounts 125 116
Changes in assets and liabilities:
Accounts and notes receivable 4,181 9,193
Inventories (23,443) (16,811)
Prepaid expenses and other current assets 302 (6)
Income taxes receivable/payable 1,646 (2,065)
Other assets -- (55)
Accounts payable and accrued expenses 1,372 (5,044)
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Net cash used in operating activities (18,111) (14,402)
Investing activities
Capital expenditures (6,139) (7,957)
Proceeds from sale of real estate 9,385 --
Net investment in life insurance (6) (601)
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Net cash provided by (used in) investing activities 3,240 (8,558)
Financing activities
Issuance of long-term debt 15,778 25,933
Repayment of long-term debt (489) (317)
Purchase of treasury stock (18) (2,652)
Payment of cash dividend (207) (196)
Issuance of common stock 2 4
(Borrowings) loans to ESOP (74) 149
-------- --------
Net cash provided by financing activities 14,992 22,921
Net change in cash 121 (39)
Cash at beginning of quarter 1,072 1,086
-------- --------
Cash at end of quarter $ 1,193 $ 1,047
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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VIRCO MFG. CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000 and April 30, 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 April
30, 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 April 30, 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 three month period ended April 30, 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 basic
net income per share and diluted net income per share were 10,329,064
and 10,454,048 for the quarter ended April 30, 2000, respectively. The
weighted-average number of shares used in the computation of net loss
per share was 10,581,055 for the quarter ended April 30, 1999. Per
share and weighted-average share amounts for the quarter ended April
30, 1999 have been restated to reflect a 10% stock dividend payable on
September 30, 1999 to stockholders of record as of September 3, 1999.
Comprehensive income (loss) includes net income (loss) and minimum
pension liability adjustments. Comprehensive income (loss) was
$2,607,000 and ($1,965,000) for the quarter ended April 30, 2000, and
April 30, 1999, respectively.
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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.
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VIRCO MFG. CORPORATION
OTHER INFORMATION
Item 4. Submission of matters to a vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
None
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VIRCO MFG. CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations:
For the first quarter of 2000, the Company had a net income of $2,607,000 on
sales of $46,258,000 compared to a net loss of $1,965,000 on sales of
$37,479,000 in the same period last year.
Sales for the first quarter increased $8,779,000 compared to the same period
last year. Backlog at quarter end was comparable to the prior year. The increase
in sales was balanced between the Education and Commercial markets. 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 first quarter, as a percentage of sales, improved slightly
compared to the same period last year. During the first quarter, the Company
incurred pressure on margins relating to aggressive pricing to stimulate sales,
combined with cost increases for raw materials and higher labor rates. These
pressures were 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 for the quarter ended April 30, 2000
is approximately $2,445,000 more than the same period last year. Freight and
selling expenses increased primarily as a result of the increased sales volume.
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 active until February 2000.
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.
Interest expense increased by $741,000 due to a higher average borrowing balance
and higher interest rate for the quarter ended April 30, 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.
Financial Condition:
As a result of seasonally low deliveries in the first quarter and improvement in
days of sales outstanding, accounts and notes receivable decreased by
approximately $4,181,000 compared to year-end. In anticipation of strong summer
shipments, inventory increased by nearly $23,443,000 compared to year-end. This
increase in inventory was financed through the credit facility with Wells Fargo
Bank, and sale of real estate.
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Capital spending for the quarter ended April 30, 2000 was $6,139,000 compared
to $7,957,000 for the same period last year. For the quarter ended April 30,
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 projected to be in operation during the second
quarter ending 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 ongoing capital expenditures are
being financed through credit facilities established with Wells Fargo Bank, the
sale of real estate, and operating cash flow. At April 30, 2000, the Company has
approximately $19,853,000 available under its credit facility with Wells Fargo
Bank.
Net cash used in operating activities for the first quarter ended April 30, 2000
was $18,111,000 compared to $14,402,000 for the same period last year. The
increase in cash used in operating activities was primarily due to an increase
in inventory.
In April 1998, the Board of Directors approved a stock buyback program giving
authorization to buy back up to $5,000,000 common stock. The amount authorized
was subsequently increased to $14,000,000. As of April 30, 2000, the Company has
repurchased approximately 596,000 shares at a cost of approximately $10,295,000
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 cashflows and borrowing capacity under the
Wells Fargo line allow.
On February 23, 2000, the Company's Board of Directors authorized a $.02 per
share cash dividend, payable on April 30, 2000 to stockholders on record as of
March 31, 2000. For the quarter ended April 30, 2000, the Company paid $207,000
in cash dividends.
The Company believes that cashflows 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 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
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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.
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VIRCO MFG. CORPORATION
Exhibit (11) - Statement re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended
April 30
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2000 1999
------------ ------------
<S> <C> <C>
Diluted earnings per share
Average shares outstanding 10,329,064 10,581,055
Net effect of dilutive stock options - based
on the treasury stock method using average
market price 124,984 --
------------ ------------
Totals 10,454,048 10,581,055
============ ============
Net income (loss) $ 2,607,000 $ (1,965,000)
============ ============
Per share amount $ .25 $ (.19)
============ ============
</TABLE>
Weighted average shares outstanding for the three months ended April 30, 1999
are adjusted for 10% stock dividend declared August 17, 1999. For the quarter
ended April 30, 1999, 197,453 shares of common stock equivalents were not
included in the denominator to calculate earning per share since the Company had
a loss in this quarter and including these shares would have been anti-dilutive.
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VIRCO MFG. CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIRCO MFG. CORPORATION
Date: June 14, 2000 By: /s/ Robert E. Dose
-------------------------------- ----------------------------------
Robert E. Dose
Vice President - Finance
Date: June 14, 2000 By: /s/ Bassey Yau
-------------------------------- ----------------------------------
Bassey Yau
Corporate Controller
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