<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, 1996
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.
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(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
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(Address of Principal Executive Offices)
(Zip Code)
(310) 225-4500
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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 NOVEMBER 6, 1996
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Common Stock 83,539,591
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 28,
1996 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,693 $ 11,693
Short-term investments 38,348 33,068
Accounts receivable, net 135,258 121,061
Merchandise inventories 89,575 81,753
Prepaid catalog costs 17,364 17,831
Prepaid expenses and other current assets 2,972 3,430
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Total current assets 298,210 268,836
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Property and equipment, net 107,712 95,231
Other assets:
Deposits and other assets 6,704 6,590
Intangible assets, net 28,759 28,984
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Total other assets 35,463 35,574
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Total assets $441,385 $399,641
============= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $104,756 $91,975
Sales and value added taxes payable 8,639 3,956
Income taxes payable 31,237 26,149
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Total current liabilities 144,632 122,080
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Deferred income taxes 2,532 2,532
Stockholders' equity:
Common stock 100,447 98,567
Unamortized value of long-term incentive stock grant (4,623) (4,346)
Retained earnings 197,954 181,722
Cumulative foreign currency translation adjustment 443 (914)
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Total stockholders' equity 294,221 275,029
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Total liabilities and stockholders' equity $441,385 $399,641
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</TABLE>
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VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------
1996 1995
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<S> <C> <C>
Revenues $290,532 $230,010
Cost of goods sold, including delivery 188,002 149,999
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Gross profit 102,530 80,011
Selling, general & administrative expenses 80,035 61,315
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Operating income 22,495 18,696
Other income 2,126 2,024
Interest expense 26 71
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Income before income taxes 24,595 20,649
Income taxes 8,363 7,347
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Net income $16,232 $13,302
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Net income per common and common
equivalent share $0.19 $0.15
======== ========
Weighted average number of common
and common equivalent shares 87,500 85,940
======== ========
</TABLE>
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VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 273,439 $ 212,272
Cash paid to suppliers and employees (248,301) (200,159)
Interest received 908 541
Interest paid (25) (71)
Income taxes paid (3,546) (10)
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Net cash provided by operating activities 22,475 12,573
Cash flows from investing activities:
Capital expenditures (16,080) (9,840)
Short-term investments (5,280) 637
Proceeds from sale of property and equipment 65 39
Issuance of notes receivable and other (104) (2,757)
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Net cash used in investing activities (21,399) (11,921)
Cash flows from financing activities:
Proceeds from issuance of common stock 1,879 1,596
-------- --------
Net cash provided by financing activities 1,879 1,596
Effect of exchange rate changes on cash 45 154
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Net increase (decrease) in cash and cash equivalents 3,000 2,402
Cash and cash equivalents, beginning of period 11,693 11,065
-------- --------
Cash and cash equivalents, end of period $ 14,693 $ 13,467
======== ========
Reconciliation of net income to net cash provided by
operating activities:
Net income $ 16,232 $ 13,302
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,236 2,790
Loss on sale of property and equipment (47) 87
Provision for doubtful accounts and customer returns 3,166 2,739
Increase in accounts receivable (16,282) (17,615)
Increase in merchandise inventories (7,289) (12,045)
Decrease in prepaid expenses and other assets 1,060 4,553
Increase in accounts payable and accrued expenses 11,222 14,972
Increase in other liabilities 10,177 3,790
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Total adjustments 6,243 (729)
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Net cash provided by (used in) operating activities $ 22,475 $ 12,573
======== ========
</TABLE>
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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 28, 1996.
The June 28, 1996 condensed consolidated Balance Sheet was derived from the
audited consolidated balance sheet at June 28, 1996, which was incorporated by
reference in the Company's annual report on Form 10-K.
In October 1995, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which is effective for the Company beginning July 1, 1996. SFAS
No. 123 requires expanded disclosure of stock-based compensation arrangements
with employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded. Companies are
permitted, however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB Opinion No. 25 to its stock based
compensation awards to employees and will disclose the required pro forma effect
on net income and earnings per share.
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>
Three Months Ended Percentage
September 30, Increase
------------------ -------------
1996 1995 1996 vs. 1995
------ ------ -------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 26.3%
Cost of goods sold, including delivery 64.7% 65.2% 25.3%
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Gross profit 35.3% 34.8% 28.1%
Selling, general & administrative expenses 27.5% 26.7% 30.5%
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Operating income 7.8% 8.1% 20.3%
Other income 0.7% 0.9% 5.0%
Interest expense 0.0% 0.0% NA
----- -----
Income before income taxes 8.5% 9.0% 19.1%
Income taxes 2.9% 3.2% 13.8%
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Net income 5.6% 5.8% 22.0%
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</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
- ------------------------------------------------------------------------
SEPTEMBER 30, 1995.
- -------------------
Revenues for the three months ended September 30, 1996 were $290.5 million,
an increase of $60.5 million, or 26.3%, over the comparable period of the prior
year. European revenues were $165.8 million, an increase of 42.1% over the prior
year. European operations included the United Kingdom, The Republic of Ireland,
France, Belgium, Luxembourg, The Netherlands and, since opening in November of
1995, Germany. Revenues generated by the new German business were $28.7 million
for the three months ended September 30, 1996. In Australia, revenues were $15.4
million, increasing 26.9% over last year. International operations accounted for
more than 62% of the first quarter revenues. United States revenues were $109.3
million, an increase of 8.0% versus the same period last year. This slower
growth rate was due primarily to lower selling prices of paper products versus
last year. On a company-wide basis, during the three months ended September 30,
1996, the number of catalogs mailed increased 19.0%, the number of customers who
purchased products increased 25.8% and the average revenue per customer
increased by 0.4% compared to the comparable period of the prior year.
Gross profit for the three months ended September 30, 1996 increased by
$22.5 million, or 28.1% over last year. As a percentage of revenues, gross
profit increased from 34.8% in the three months ended September 30, 1995 to
35.3% in the current quarter. The increase in gross profit is primarily
attributable to decreases in the costs of paper products and higher gross profit
in the newer markets in Australia and Europe, excluding Germany.
6
<PAGE>
Selling, general and administrative expenses for the three months ended
September 30, 1996 increased by $18.7 million, or 30.5% over the comparable
period of the prior year. As a percentage of revenues, these expenses increased
from 26.7% in the three months ended September 30, 1995 to 27.5% in the three
months ended September 30, 1996. This percentage increase was primarily due to
operating expenses in Germany, as well as start up and early operating expenses
for two new distribution centers in Europe and one in the United States.
Other income for the three months ended September 30, 1996 increased by
$102,000, or 5.0% over the comparable period of the prior year. The three
months ended September 30, 1996 included more cash discounts received on higher
inventory purchases.
Income taxes for the three months ended September 30, 1996 increased by
$1,016,000 due to higher pretax earnings. The effective tax rate decreased from
35.6% for the three months ended September 30, 1995 to 34.0% for the current
period. This decrease was primarily attributable to the use of foreign losses
to offset domestic taxable income.
Consolidated net income for the quarter ended September 30, 1996 was $16.2
million, an increase of 22.0% over the prior year quarter. Consolidated
earnings per share were $.19 compared to $.15 last 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 requirements for the
foreseeable future. At September 30, 1996, the Company had working capital of
$153.6 million compared to $146.8 million at June 28, 1996. The improved working
capital position primarily reflects increased net income, net of investing
activities, which consisted primarily of capital expenditures. 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 $16.1 million for first nine months of
fiscal 1997 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. Capital expenditures
related to expansion 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 1997 are expected to
be between $50 million and $60 million.
Viking has a revolving credit agreement which provides for an unsecured
revolving credit facility up to $60 million through June 2001. Advances under
this credit facility bear interest at the bank's base rate or, at the option of
Viking, the LIBOR rate plus a percentage spread based upon certain defined
ratios. In addition, Viking is required to pay a commitment fee of 1/8% on the
total amount of the revolving credit facility. The availability of the line of
credit is subject to Viking's maintenance of certain financial ratios. At
September 30, 1996, no amounts were outstanding under this credit facility and
the entire $60 million was available for borrowing.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING EXHIBIT IS FILED AS PART OF THIS REPORT:
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
There were no reports filed on Form 8-K during the three months ended
September 30, 1996.
8
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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: November 8, 1996 BY: /s/ Frank R. Jarc
-------------------
Executive Vice President,
Chief Financial Officer
BY: /s/ Keith Bjelajac
---------------------
Corporate Controller
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-END> SEP-30-1996
<CASH> 14,693
<SECURITIES> 38,348
<RECEIVABLES> 145,668
<ALLOWANCES> 10,410
<INVENTORY> 89,575
<CURRENT-ASSETS> 298,210
<PP&E> 140,038
<DEPRECIATION> 32,326
<TOTAL-ASSETS> 441,385
<CURRENT-LIABILITIES> 144,632
<BONDS> 0
0
0
<COMMON> 100,447
<OTHER-SE> 193,774
<TOTAL-LIABILITY-AND-EQUITY> 441,385
<SALES> 290,532
<TOTAL-REVENUES> 290,532
<CGS> 188,002
<TOTAL-COSTS> 188,002
<OTHER-EXPENSES> 77,102
<LOSS-PROVISION> 2,933
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 24,595
<INCOME-TAX> 8,363
<INCOME-CONTINUING> 16,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,232
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
