<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 September 30, 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 Identification No.)
incorporation or organization)
879 West 190th Street
P. O. Box 61144
Los Angeles, California 90061
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(310) 225-4500
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(Registrant's Telephone Number, including area code)
13809 South Figueroa Street
Los Angeles, California 90061
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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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT NOVEMBER 9, 1995
- --------------- -------------------------------
<S> <C>
Common Stock 41,158,387
</TABLE>
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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VIKING OFFICE PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995
------------------- -------------
<S> <C> <C>
(unaudited)
Current assets:
Cash and cash equivalents................... $ 13,467 $ 11,080
Short-term investments...................... 35,746 36,383
Accounts receivable, net.................... 109,525 96,000
Merchandise inventories..................... 76,095 64,670
Prepaid catalog costs....................... 12,020 16,292
Prepaid expenses and other current assets... 2,988 2,587
-------- --------
Total current assets................... 249,841 227,012
-------- --------
Property and equipment, net................... 55,550 49,083
Other assets:
Deposits and other assets................... 5,126 2,364
Intangible assets, net...................... 29,660 29,885
-------- --------
Total other assets..................... 34,786 32,249
-------- --------
Total assets........................... $340,177 $308,344
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Accounts payable and accrued expenses...... $ 89,702 $ 76,312
Sales and value added taxes payable........ 3,103 6,184
Income taxes payable....................... 23,871 16,936
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Total current liabilities............. 116,676 99,432
-------- --------
Deferred income taxes........................ 386 386
Stockholders' equity:
Common stock............................... 93,632 92,036
Retained earnings.......................... 134,553 121,251
Unamortized value of long-term incentive
stock grants............................ (7,607) (7,768)
Cumulative foreign currency translation
adjustment.............................. 2,537 3,007
-------- --------
Total stockholders' equity............ 223,115 208,526
-------- --------
Total liabilities and stockholders'
equity................................ $340,177 $308,344
======== ========
</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
September 30,
--------------------
1995 1994
--------------------
<S> <C> <C>
Revenues................................ $230,010 $182,393
Cost of goods sold, including delivery.. 149,999 119,718
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Gross profit............................ 80,011 62,675
Selling, general and administrative
expenses.............................. 61,315 47,622
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Operating income........................ 18,696 15,053
Other income............................ 2,024 1,599
Interest expense........................ 71 23
-------- --------
Income before income taxes.............. 20,649 16,629
Provision for income taxes.............. 7,347 6,312
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Net income.............................. $ 13,302 $ 10,317
======== ========
Net income per share.................... $ .31 $ .24
======== ========
Weighted average of common and common
equivalent shares outstanding......... 42,970 42,335
======== ========
</TABLE>
3
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VIKING OFFICE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1995 1994
----------------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers............................. $ 212,272 $ 160,072
Cash paid to suppliers and employees..................... (200,159) (151,533)
Interest received........................................ 541 452
Interest paid............................................ (71) (23)
Income taxes paid........................................ (10) (50)
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Net cash provided by operating activities............. 12,573 8,918
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Cash flows from investing activities:
Capital expenditures..................................... (9,840) (3,113)
Short-term investments................................... 637 (5,602)
Proceeds from sale of property and equipment............. 39 --
Issuance of notes receivable and other................... (2,757) (448)
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Net cash used in investing activities................. (11,921) (9,163)
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Cash flows from financing activities:
Proceeds from issuance of common stock................... 1,596 1,912
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Net cash provided by financing activities............. 1,596 1,912
Effect of exchange rate changes on cash................... 154 671
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Net increase in cash and cash equivalents................. 2,402 2,338
Cash and cash equivalents, beginning of period............ 11,065 25,609
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Cash and cash equivalents, end of period.................. $ 13,467 $ 27,947
========= =========
Reconciliation of net income to net cash provided by
operating activities:
Net income............................................... $ 13,302 $ 10,317
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 2,790 1,613
Loss on sale of fixed assets.......................... 87 --
Provision for doubtful accounts and customer returns.. 2,739 2,502
Increase in accounts receivable....................... (17,615) (18,297)
(Increase) decrease in inventories.................... (12,045) 2,136
(Increase) decrease in prepaid expenses and
other assets....................................... 4,553 (1,657)
Increase in accounts payable, accrued expenses, and
other liabilities................................... 18,762 12,304
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Total adjustments.................................. (728) (1,399)
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Net cash provided by operating activities................. $ 12,573 $ 8,918
========= =========
</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 30, 1995.
The June 30, 1995 condensed consolidated Balance sheet was derived from the
audited consolidated balance sheet at June 30, 1995, 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 Three Months Ended
September 30, September 30,
---------------------- ----------------------
1995 1994 1995 vs. 1994
---------------------- ----------------------
<S> <C> <C> <C>
Revenues.............................. 100.0% 100.0% 26.1%
Cost of goods sold, including
delivery............................ 65.2 65.6 25.3
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Gross profit.......................... 34.8 34.4 27.7
Selling, general and administrative
expenses............................ 26.7 26.1 28.8
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Operating income...................... 8.1 8.3 24.2
Other income.......................... 0.9 0.9 26.6
Interest expense...................... 0.0 0.0 n/a
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Income before income taxes............ 9.0 9.2 24.2
Provision for income taxes............ 3.2 3.5 16.4
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Net income............................ 5.8% 5.7% 28.9%
===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE THREE MONTHS ENDED
- ------------------------------------------------------------------------
SEPTEMBER 30, 1994.
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Revenues for the three months ended September 30, 1995, increased by $47.6
million, or 26.1%, over the comparable period of the prior year. Of this
increase, $13.3 million was attributable to United States operations, $32.2
million was attributable to European operations and $2.1 million was
attributable to the Australian division. The revenue increase of 26.1% was
impacted negatively by five fewer billing days than the prior year's first
quarter. On a per day basis, consolidated revenue increased 35.1%. The growth
in revenue was due to increases in selling prices related to paper products, as
well as expanded revenue in Belgian, Ireland and Australia as those markets
begin to mature. 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 September 30, 1995, the number
of catalogs mailed increased 11.1%, the number of customers who purchased
products increased 14.4% and the average revenue per customer increased 10.2%
compared to the comparable period of the prior year.
Gross profit for the three months ended September 30, 1995 increased by
$17.3 million or 27.7% over the comparable period of the prior year. As a
percentage of revenues, gross profit rose from 34.4% to 34.8%. The increase in
gross profit is primarily attributable to pricing adjustments on paper products
that have offset earlier price increases, and higher gross profit in the newer
markets in Europe and Australia.
Selling, general, and administrative expenses for the three months ended
September 30, 1995, increased by $13.7 million, or 28.8% over the comparable
period of the prior year, slightly more than the percentage increase in revenue.
As a percentage of revenues, these expenses increased from 26.1% in the three
months ended September 30, 1994 to 26.7% in the three months ended September 30,
1995. Selling,
6
<PAGE>
general and administrative expenses rose due to start-up and early operating
expenses in Holland and Germany.
Other income for the three months ended September 30, 1995, consisting
primarily of cash discounts from suppliers and interest income, increased by
$425,000 or 26.6% over the comparable period of the prior year. The increase
was attributable to cash discounts received on higher inventory purchases and to
higher invested balances.
Income taxes for the three months ended September 30, 1995, increased by
$1.0 million due to higher pretax earnings. The estimated effective tax rate
decreased from 38.0% for the three months ended September 30, 1994 to 35.6% for
the current period. This decrease was primarily attributable to the utilization
of available operating loss carryforwards in France and Australia.
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. At September 30, 1995, the
Company had working capital of $133.2 million compared to $106.7 million last
year. The improved working capital position primarily reflects cash provided by
operating activities. Cash provided by operating and financing activities that
exceeded current working capital and capital expenditures requirements was
invested in short-term marketable securities.
Capital expenditures amounted to $9.8 million for first quarter of fiscal
1996 as Viking continued to invest in domestic and international operations,
particularly in Europe. Viking believes there are substantial opportunities
throughout Europe to expand its business and will open a division in Germany
during November 1995. Capital expenditures related to expansion plans in
Germany and other European countries have been funded by cash from operations.
Management believes that future expansion plans, and the capital requirements
for such expansion, will be provided from existing cash and short term
investments, and cash flows from operations. Capital expenditures in fiscal
1996 are expected to be between $50 and $60 million.
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
1996. 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 September 30, 1995, no
amounts were outstanding under this credit facility and the entire $30.0 million
was available for borrowing.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(B) REPORTS ON FORM 8-K.
There were no reports filed on Form 8-K during the three months ended
September 30, 1995.
8
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SIGNATURE
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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: November 9, 1995 BY: /s/ Lisa Y. Billig
-------------------------
Lisa Y. Billig
Vice President, Finance
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1996
<PERIOD-END> SEP-30-1995
<CASH> 13,467
<SECURITIES> 35,746
<RECEIVABLES> 118,372
<ALLOWANCES> 8,847
<INVENTORY> 76,095
<CURRENT-ASSETS> 249,841
<PP&E> 74,320
<DEPRECIATION> 18,770
<TOTAL-ASSETS> 340,177
<CURRENT-LIABILITIES> 116,676
<BONDS> 0
<COMMON> 93,632
0
0
<OTHER-SE> 129,483
<TOTAL-LIABILITY-AND-EQUITY> 340,177
<SALES> 230,010
<TOTAL-REVENUES> 230,010
<CGS> 149,999
<TOTAL-COSTS> 149,999
<OTHER-EXPENSES> 58,576
<LOSS-PROVISION> 2,739
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> 20,649
<INCOME-TAX> 7,347
<INCOME-CONTINUING> 13,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,302
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
