<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 0-18237
----------------------
VIKING OFFICE PRODUCTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-2082946
- ---------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13809 South Figueroa Street
Los Angeles, California 90061
- ---------------------------------------- ---------------------------
(Address of Principal Executive Offices) (Zip Code)
(213) 321-4493
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(Registrant's Telephone Number, including area code)
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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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
CLASS OUTSTANDING AT MAY 2, 1995
----- --------------------------
Common Stock 40,693,134
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
VIKING OFFICE PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, 1995 June 24, 1994
-------------- -------------
(unaudited)
<S> <C> <C>
A S S E T S
Current assets:
Cash and cash equivalents..................... $ 22,603 $ 25,609
Short-term investments........................ 38,457 22,921
Accounts receivable, net...................... 96,155 65,079
Merchandise inventories....................... 56,136 45,298
Prepaid catalog costs......................... 9,290 10,929
Prepaid expenses and other current assets..... 2,492 2,068
-------- --------
Total current assets..................... 225,133 171,904
Property, plant, equipment and improvements,
net............................................ 40,682 23,172
Other assets:
Notes receivable, deposits and other.......... 2,256 1,350
Intangible assets, net........................ 30,111 30,794
-------- --------
Total other assets....................... 32,367 32,144
-------- --------
Total assets........................... $298,182 $227,220
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......... $ 85,618 $ 61,006
Sales and value added taxes payable........... 4,267 2,153
Taxes on income............................... 15,366 13,522
-------- --------
Total current liabilities................ 105,251 76,681
Deferred income taxes........................... 307 307
Stockholders' equity:
Common stock.................................. 88,690 84,706
Retained earnings............................. 109,387 75,145
Unamortized value of long-term incentive
stock grants............................... (7,930) (8,416)
Cumulative foreign currency translation
adjustment................................. 2,477 (1,203)
-------- --------
Total stockholders' equity............... 192,624 150,232
-------- --------
Total liabilities and stockholders'
equity............................... $298,182 $227,220
======== ========
</TABLE>
2
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VIKING OFFICE PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- ------------------
1995 1994 1995 1994
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues....................... $232,109 $162,596 $603,661 $425,550
Cost of goods sold, including
delivery...................... 154,001 105,517 399,817 276,778
-------- -------- -------- --------
Gross profit................... 78,108 57,079 203,844 148,772
Selling, general and
administrative expenses....... 58,269 41,340 156,062 112,938
-------- -------- -------- --------
Operating income............... 19,839 15,739 47,782 35,834
Other income................... 2,394 1,218 5,823 3,397
Interest expense............... 65 52 101 129
-------- -------- -------- --------
Income before income taxes..... 22,168 16,905 53,504 39,102
Provision for income taxes..... 7,483 6,111 19,262 15,349
-------- -------- -------- --------
Net income..................... $ 14,685 $ 10,794 $ 34,242 $ 23,753
======== ======== ======== ========
Net income per share........... $ .34 $ .26 $ .80 $ .57
======== ======== ======== ========
Common and common equivalent
shares outstanding............ 42,610 42,200 42,540 41,960
======== ======== ======== ========
</TABLE>
3
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VIKING OFFICE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers.................. $ 521,678 $ 403,118
Cash paid to suppliers and employees.......... (476,669) (380,824)
Interest received............................. 1,986 722
Interest paid................................. (140) (98)
Income taxes paid............................. (17,671) (6,868)
--------- ---------
Net cash provided by operating activities... 29,184 16,050
Cash flows from investing activities:
Capital expenditures.......................... (20,892) (7,061)
Short-term investments........................ (15,536) (13,575)
Proceeds from sale of fixed assets............ 41 70
Issuance of notes receivable and other........ (845) 46
--------- ---------
Net cash used in investing activities....... (37,232) (20,520)
Cash flows from financing activities:
Proceeds from issuance of stock............... 3,984 2,217
--------- ---------
Net cash provided by financing activities... 3,984 2,217
Effect of exchange rate changes on cash........ 1,058 (134)
--------- ---------
Net decrease in cash and cash equivalents...... (3,006) (2,387)
Cash and cash equivalents, beginning of period. 25,609 26,089
--------- ---------
Cash and cash equivalents, end of period....... $ 22,603 $ 23,702
========= =========
Reconciliation of net income to net cash
provided by operating activities:
Net income.................................... $ 34,242 $ 23,753
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 5,486 3,644
Loss on sale of fixed assets................ 51 431
Provision for doubtful accounts and
customer returns.......................... 8,485 6,755
Deferred taxes on income.................... -- 450
Increase in accounts receivable............. (36,326) (23,516)
Increase in inventories..................... (9,386) (8,116)
Increase in prepaid expenses and other
assets.................................... 1,392 56
Increase in accounts payable, accrued
expenses, and other liabilities........... 25,240 12,593
--------- ---------
Total adjustments....................... (5,058) (7,703)
--------- ---------
Net cash provided by operating activities...... $ 29,184 $ 16,050
========= =========
</TABLE>
4
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VIKING OFFICE PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(UNAUDITED)
1. FINANCIAL STATEMENTS:
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments, consisting
only of normal recurring adjustments, which, in the opinion of management,
are necessary for a fair presentation of the results of the interim periods
presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that disclosures are
adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report to Shareholders for the year ended June 24, 1994.
The June 24, 1994 condensed consolidated balance sheet was derived
from the audited consolidated balance sheet at June 24, 1994, which was
incorporated by reference in the Company's annual report on Form 10-K.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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The following table shows, for the periods indicated, the percentage
relationships to revenues of items included in the Condensed Consolidated
Statements of Income and the percentage changes in the dollar amounts of such
items from period to period.
<TABLE>
<CAPTION>
Percent Inc. (Dec.)
--------------------
Three Months Ended Nine Months Ended 3 Months 9 Months
March 31, March 31, --------- --------
------------------- ----------------- 1995 vs. 1995 vs.
1995 1994 1995 1994 1994 1994
-------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues............. 100.0% 100.0% 100.0% 100.0% 42.8% 41.9%
Cost of goods
sold, including
delivery........... 66.3 64.9 66.2 65.0 45.9 44.5
----- ----- ----- -----
Gross profit......... 33.7 35.1 33.8 35.0 36.8 37.0
Selling, general and
administrative
expenses............ 25.1 25.4 25.9 26.5 41.0 38.2
----- ----- ----- -----
Operating income..... 8.6 9.7 7.9 8.5 26.0 33.3
Other income......... 1.0 0.7 1.0 0.7 96.6 71.4
Interest expense..... 0.0 0.0 0.0 0.0 NA NA
----- ----- ----- -----
Income before
taxes on income.... 9.6 10.4 8.9 9.2 31.1 36.8
Taxes on income...... 3.3 3.8 3.2 3.6 22.5 25.5
----- ----- ----- -----
Net income........... 6.3% 6.6% 5.7% 5.6% 36.0 44.2
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO THE THREE MONTHS ENDED
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MARCH 31, 1994.
- --------------
Revenues for the three months ended March 31, 1995, increased by $69.5
million, or 42.8%, over the comparable period of the prior year. Of this
increase, $15.7 million was attributable to United States operations, $49.6
million was attributable to European operations and $4.2 million was
attributable to the Australian division, which began sales in November 1993.
This increase in revenues was favorably impacted by a 4.2% average increase
during the quarter in the value of the currencies of the foreign countries where
Viking was engaged in business relative to the U.S. Dollar. The European
operations include cross border sales into Belgium beginning May 1994,
Luxembourg and the Republic of Ireland beginning in September 1994, and sales
into the Netherlands beginning in November 1994. On a company-wide basis,
during the three months ended March 31, 1995, the number of catalogs mailed
increased 19.0%, the number of customers who purchased products increased 23.7%
and the average revenue per customer increased 15.4% compared to the comparable
period of the prior year.
Gross profit for the three months ended March 31, 1995 increased by $21.0
million or 36.8% over the comparable period of the prior year. As a percentage
of revenues, gross profit
6
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declined 1.4% to 33.7%. The decrease in gross profit is primarily attributable
to lower margins associated with the Company's entry into new markets as
indicated above and higher costs related to paper products. Gross margin was
also lower in the U.K. due to the promotion of the new same day delivery program
and the reduction of the minimum order required for free delivery from
(Pounds)50 to (Pounds)30.
Selling, general, and administrative expenses for the three months ended March
31, 1995, increased by $16.9 million, or 41.0% over the comparable period of the
prior year, slightly less than the percentage increase in revenue. As a
percentage of revenues, these expenses decreased from 25.4% in the
three months ended March 31, 1994 to 25.1% in the three months ended March 31,
1995. These expenses declined as a percentage of revenues primarily due to the
Company achieving certain economies of scale in its larger divisions and in
corporate general and adminstrative expenses.
Other income for the three months ended March 31, 1995 increased by $1,176,000
or 96.6% over the comparable period of the prior year. The increase was
attributable to cash discounts received on higher European inventory purchases
and to higher invested balances.
Taxes on income for the three months ended March 31, 1995 increased by $1.4
million due to higher pretax earnings. The estimated effective tax rate
decreased from 36.1% for the three months ended March 31, 1994 to 33.8% for the
current period. This decrease was primarily attributable to the utilization of
available operating loss carryforwards in France.
NINE MONTHS ENDED MARCH 31, 1995 COMPARED TO THE NINE MONTHS ENDED
- ------------------------------------------------------------------
MARCH 31, 1994.
- --------------
Revenues for the nine months ended March 31, 1995, increased by $178.1
million, or 41.9%, over the comparable period of the prior year. Of this
increase, $43.9 million was attributable to United States operations, $113.5
million was attributable to European operations and $20.7 million was
attributable to Viking's new Australian division. This increase in revenues was
favorably impacted by a 3.3% average increase during the quarter in the value of
the currencies of the foreign countries where Viking was engaged in business
relative to the U.S. Dollar. On a company-wide basis, during the nine months
ended March 31, 1995, the number of catalogs mailed increased 26.4%, the number
of customers who purchased products increased 24.8% and the average revenue per
customer increased by 13.7% versus the prior year.
Gross profit for the nine months ended March 31, 1995 increased by $55.1
million or 37.0% over the comparable period of the prior year. As a percentage
of revenues, gross profit decreased from 35.0% in the nine months ended March
31, 1994, to 33.8% in the nine months ended March 31, 1995. The decrease in
gross profit is primarily attributable to lower margins associated with the
Company's entry into new markets as indicated above and higher costs related to
paper products. Gross margin was also lower in the U.K. due to the promotion of
the new same day delivery program and the reduction of the minimum order
required for free delivery from (Pounds)50 to (Pounds)30.
Selling, general, and administrative expenses for the nine months ended March
31, 1995, increased by $43.1 million, or 38.2% over the comparable period of the
prior year. As a percentage of revenues, these expenses decreased from
26.5% in the nine months ended March 31, 1994 to 25.9% in the nine months
ended March 31, 1995. These expenses declined as a percentage of revenues
primarily due to the Company achieving certain economies of scale in its larger
divisions and in corporate general and adminstrative expenses.
7
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Other income for the nine months ended March 31, 1995 increased by $2.4
million or 71.4% over the comparable period of the prior year. The increase was
attributable to cash discounts received on higher European inventory purchases
and to higher invested balances.
Taxes on income for the nine months ended March 31, 1995 increased by $3.9
million due to higher pretax earnings. The estimated effective tax rate
decreased from 39.3% for the nine months ended March 31, 19 94 to 36.0% for the
current period. This decrease was primarily attributable to the utilization of
available operating loss carryforwards in France. In the nine months ended March
31, 1994, taxes on income also included a $450,000 one time charge for the
cumulative effect on prior years of adopting Statement of Financial Accounting
Standard No. 109 as of the beginning of the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Viking's primary source of liquidity has been cash flow from operations.
Viking believes that its existing cash and short-term investments, funds
generated from operations and available credit under its revolving credit
facility will be sufficient to finance its working capital and capital
expenditure requirements for the foreseeable future.
Viking believes there are substantial opportunities throughout Europe to
expand its business and is currently developing plans for entry into Germany
during the latter part of calendar 1995. Future capital expenditures related to
expansion plans in Germany and other European countries have not yet been
determined, however, management believes that capital requirements for such
expansion will be provided from existing cash and short term investments, and
cash flows from operations.
Viking has a revolving credit agreement with Citibank, N.A. which provides
for an unsecured revolving credit facility up to $30.0 million through June
1995. Advances under this credit facility bear interest at the bank's base rate
or at the bank's base rate less 1/4% depending on certain of Viking's financial
ratios. At the option of Viking, the rate of interest may be determined by
reference to LIBOR or domestic certificate of deposit rates. In addition,
Viking is required to pay a commitment fee varying from 1/4% to 1/2% on the
unused amount of the revolving credit facility. Such commitment fee rates are
dependent on certain of Viking's financial ratios. At March 31, 1995, no
amounts were outstanding under this credit facility and the entire $30.0 million
was available for borrowing.
8
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following Exhibits are included herein:
(27) Financial Data Schedule, Article 5
(b) REPORTS ON FORM 8-K.
There were no reports filed on Form 8-K during the three months ended
March 31, 1995.
9
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SIGNATURE
---------
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.
VIKING OFFICE PRODUCTS, INC.
DATE: May 10, 1995 By: /s/ Lisa Y. Billig
------------------------
Lisa Y. Billig
Vice President, Finance
Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 22,603
<SECURITIES> 38,457
<RECEIVABLES> 105,233
<ALLOWANCES> 9,078
<INVENTORY> 56,136
<CURRENT-ASSETS> 225,133
<PP&E> 55,346
<DEPRECIATION> 14,664
<TOTAL-ASSETS> 298,182
<CURRENT-LIABILITIES> 105,251
<BONDS> 0
<COMMON> 88,690
0
0
<OTHER-SE> 103,934
<TOTAL-LIABILITY-AND-EQUITY> 298,182
<SALES> 603,661
<TOTAL-REVENUES> 603,661
<CGS> 399,817
<TOTAL-COSTS> 399,817
<OTHER-EXPENSES> 147,577
<LOSS-PROVISION> 8,485
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 53,504
<INCOME-TAX> 19,262
<INCOME-CONTINUING> 34,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,242
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.80
</TABLE>
