<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, 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.
-------------------------------
(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)
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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 6, 1996
----- ---------------------------
Common Stock 83,097,206*
*Reflects a 2-for-1 stock split which was effective May 1, 1996 and which
was distributed on May 15, 1996.
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
VIKING OFFICE PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................... $ 24,186 $ 11,080
Short-term investments...................... 18,494 36,383
Accounts receivable, net.................... 126,232 96,000
Merchandise inventories..................... 89,588 64,670
Prepaid catalog costs....................... 14,030 16,292
Prepaid expenses and other current assets... 4,068 2,587
-------- --------
Total current assets................... 276,598 227,012
-------- --------
Property and equipment, net................... 83,256 49,083
Other assets:
Deposits and other assets................... 6,326 2,364
Intangible assets, net...................... 29,210 29,885
-------- --------
Total other assets..................... 35,536 32,249
-------- --------
Total assets........................... $395,390 $308,344
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...... $ 96,167 $ 76,312
Sales and value added taxes payable........ 6,578 6,184
Income taxes payable....................... 37,217 16,936
-------- --------
Total current liabilities............. 139,962 99,432
-------- --------
Deferred income taxes........................ 386 386
Stockholders' equity:
Common stock............................... 96,587 92,036
Retained earnings.......................... 165,504 121,251
Unamortized value of long-term incentive
stock grants............................ (7,283) (7,768)
Cumulative foreign currency translation
adjustment.............................. 234 3,007
-------- --------
Total stockholders' equity............ 255,042 208,526
-------- --------
Total liabilities and stockholders'
equity................................ $395,390 $308,344
======== ========
</TABLE>
2
<PAGE>
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,
-----------------------------------------
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues................................ $306,828 $232,109 $787,275 $603,661
Cost of goods sold, including delivery.. 202,287 154,001 517,277 399,817
-------- -------- -------- --------
Gross profit............................ 104,541 78,108 269,998 203,844
Selling, general and administrative
expenses.............................. 80,218 58,269 209,754 156,062
-------- -------- -------- --------
Operating income........................ 24,323 19,839 60,244 47,782
Other income............................ 2,314 2,394 6,509 5,823
Interest expense........................ 157 65 265 101
-------- -------- -------- --------
Income before income taxes.............. 26,480 22,168 66,488 53,504
Provision for income taxes.............. 8,335 7,483 22,231 19,262
-------- -------- -------- --------
Net income.............................. $ 18,145 $ 14,685 $ 44,257 $ 34,242
======== ======== ======== ========
Net income per share (1)............... $ .21 $ .17 $ .51 $ .40
======== ======== ======== ========
Weighted average of common and common
equivalent shares outstanding (1).... 87,250 85,220 86,330 85,080
======== ======== ======== ========
</TABLE>
(1) Reflects a 2-for-1 stock split which was effective May 1, 1996 and which was
distributed on May 15, 1996.
3
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VIKING OFFICE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------
1996 1995
-------------------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers.......... $ 747,425 $ 521,678
Cash paid to suppliers and employees.. (707,247) (476,669)
Interest received..................... 1,564 1,986
Interest paid......................... (268) (140)
Income taxes paid..................... (1,070) (17,671)
--------- ---------
Net cash provided by operating 40,404 29,184
activities...................... --------- ---------
Cash flows from investing activities:
Capital expenditures.................. (44,693) (20,892)
Short-term investments................ 17,889 (15,536)
Proceeds from sale of property and 199 41
equipment............................
Issuance of notes receivable and other (3,997) (845)
--------- ---------
Net cash used in investing (30,602) (37,232)
activities...................... --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 4,551 3,984
--------- ---------
Net cash provided by financing
activities...................... 4,551 3,984
Effect of exchange rate changes on cash. (1,247) 1,058
--------- ---------
Net increase (decrease) in cash and
cash equivalents....................... 13,106 (3,006)
Cash and cash equivalents, beginning of
period................................. 11,080 25,609
--------- ---------
Cash and cash equivalents, end of period $ 24,186 $ 22,603
========= =========
Reconciliation of net income to net
cash provided by operating activities:
Net income............................ $ 44,257 $ 34,242
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization....... 9,869 5,486
Loss on sale of property and 111 51
equipment..........................
Provision for doubtful accounts and 8,290 8,485
customer returns...................
Increase in accounts receivable..... (40,950) (36,326)
Increase in inventories............. (25,942) (9,386)
Decrease in prepaid expenses and 1,329 1,392
other current assets...............
Increase in accounts payable and 43,440 25,240
accrued expenses................... --------- ---------
Total adjustments................ (3,853) (5,058)
--------- ---------
Net cash provided by operating $ 40,404 $ 29,184
activities............................. ========= =========
</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.
In October 1995, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 is effective for fiscal years beginning after
December 15, 1995, however early application is permitted. SFAS No. 123
encourages but does not require the adoption of a fair value method of
accounting for employee stock-based compensation. The Company has not yet
determined when or whether it will adopt the recognition provisions of SFAS No.
123 and, if adopted, the effect of those provisions.
Effective May 1, 1996, the Board of Directors approved a 2-for-1 stock
split. Accordingly, all amounts per share and the number of shares outstanding
for all periods presented have been retroactively adjusted to the stock split.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
-------------
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 Increase
Three Months Ended Nine Months Ended -----------------
3 Months 9 Months
March 31, March 31, -------- --------
------------------- ---------------- 1996 vs. 1996 vs.
1996 1995 1996 1995 1995 1995
------------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............... 100.0% 100.0% 100.0% 100.0% 32.2% 30.4%
Cost of goods sold,
including delivery.... 65.9 66.3 65.7 66.2 31.4 29.4
----- ----- ----- -----
Gross profit........... 34.1 33.7 34.3 33.8 33.8 32.5
Selling, general and
administrative
expenses.............. 26.2 25.1 26.6 25.9 37.7 34.4
----- ----- ----- -----
Operating Income....... 7.9 8.6 7.7 7.9 22.6 26.1
Other Income........... 0.7 1.0 0.7 1.0 (3.3) 11.8
Interest Expense....... 0.0 0.0 0.0 0.0 -- --
----- ----- ----- -----
Income before taxes
on income............. 8.6 9.6 8.4 8.9 19.5 24.3
Taxes on income........ 2.7 3.3 2.8 3.2 11.4 15.4
----- ----- ----- ----- ---- ----
Net Income............. 5.9% 6.3% 5.6% 5.7% 23.6 29.2
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995.
Revenues for the three months ended March 31, 1996, increased by $74.7
million, or 32.2%, over the comparable period of the prior year. Of this
increase, $19.8 million was attributable to United States operations, $50.9
million to European operations and $4.0 million to the Australian division.
European operations included the U.K., 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 $22.3 million for the three
months ended March 31, 1996. On a company-wide basis, during the three months
ended March 31, 1996, the number of catalogs mailed increased 17.0%, the number
of customers who purchased products increased 27.7% and the average revenue per
customer increased by 3.6% compared to the comparable period of the prior year.
Gross profit for the three months ended March 31, 1996 increased by $26.4
million, or 33.8% over the comparable period of the prior year. As a percentage
of revenues, gross profit increased from 33.7% in the three months ended March
31, 1995 to 34.1% in the three months ended March 31, 1996. 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 Europe, excluding
Germany.
Selling, general, and administrative expenses for the three months ended
March 31, 1996, increased by $21.9 million, or 37.7% over the comparable period
of the prior year. As a percentage of revenues, these expenses increased from
25.1% in the three months ended March 31, 1995 to 26.2% in the three months
ended March 31, 1996. This percentage increase was primarily due to start-up and
early operating expenses in Germany.
6
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Other income for the three months ended March 31, 1996 decreased by $80,000,
or 3.3% over the comparable period of the prior year. The three months ended
March 31, 1995 included more interest income from higher invested balances.
Income taxes for the three months ended March 31, 1996 increased by $852,000
due to higher pretax earnings. The effective tax rate decreased from 33.8% for
the three months ended March 31, 1995 to 31.5% for the current period. This
decrease was primarily attributable to the utilization of available operating
loss carryforwards, and the use of foreign losses to offset domestic taxable
income.
Consolidated net income for the quarter ended March 31, 1996 was $18.1
million, an increase of 23.6% over the prior year quarter. Consolidated
earnings per share were $.21 compared to $.17 last year.
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
- ----------------------------------------------------------------------------
1995
- ----
Revenues for the nine months ended March 31, 1996, increased by $183.6
million, or 30.4% over the comparable period of the prior year. Of this
increase, $55.1 million was attributable to United States operations, $119.4
million related to European operations and $9.1 million was attributable to
Viking's Australian division. On a company-wide basis, during the nine months
ended March 31, 1996, the number of catalogs mailed increased 11.3%, the number
of customers who purchased products increased 23.9% and the average revenue per
customer increased 5.3% versus the comparable period of the prior year.
Gross profit for the nine months ended March 31, 1996 increased by $66.2
million, or 32.5% over the comparable period of the prior year. As a percentage
of revenues, gross profit increased from 33.8% in the nine months ended March
31, 1995 to 34.3% in the nine months ended March 31, 1996. 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 Europe, excluding
Germany.
Selling, general, and administrative expenses for the nine months ended
March 31, 1996, increased by $53.7 million, or 34.4% over the comparable period
of the prior year. As a percentage of revenues, these expenses increased from
25.9% in the nine months ended March 31, 1995 to 26.6% in the nine months ended
March 31, 1996. This percentage increase was primarily due to start-up and
early operating expenses in Germany.
Other income for the nine months ended March 31, 1996 increased by $686,000
or 11.8% over the comparable period of the prior year. The increase was
attributable to cash discounts received on higher inventory purchases.
Income taxes for the nine months ended March 31, 1996 increased by $3.0
million due to higher pretax earnings. The effective tax rate decreased from
36.0% for the nine months ended March 31, 1995 to 33.4% for the current period.
This decrease was primarily attributable to the utilization of available
operating loss carryforwards, and the use of foreign losses to offset domestic
taxable income.
Consolidated net income for the nine months ended March 31, 1996 was $44.3
million, an increase of 29.2% over the comparable period of the prior year.
Consolidated earnings per share were $.51 compared to $.40 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 and capital
expenditure requirements for the foreseeable future. At March 31, 1996, the
Company had working capital of $136.6 million compared to $127.6 million at June
30, 1995. The improved working capital position primarily reflects increased
net income, net of financing activities. Cash provided by operating and
financing
7
<PAGE>
activities that exceeded current working capital and capital expenditures
requirements was invested in short-term marketable securities.
Capital expenditures amounted to $44.7 million for first nine months 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. During the first nine
months of fiscal 1996, the company opened its German division, as well as
satellite distribution centers in Dublin, Ireland, Baltimore, Maryland, and
Melbourne, Australia. 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 1996 are expected to be approximately $60
million.
Viking has a revolving credit agreement with Citibank, N.A. which provides
for an unsecured revolving credit facility of 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 March 31, 1996, no
amounts were outstanding under this credit facility and the entire $30.0 million
was available for borrowing.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On April 11, 1996, the Board of Directors approved a 2-for-1 split of the
Common Stock effective May 1, 1996 (the `record date'). Certificates
representing one additional share for each share held of record on the record
date will be distributed to shareholders on May 15, 1996. Effective May 1,
1996, the number of authorized shares of Common Stock was increased from
60,000,000 to 120,000,000 by action of the Board of Directors. No shareholder
vote was required.
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
March 31, 1996.
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 13, 1996 BY: /s/ Lisa Y. Billig
------------------------
Lisa Y. Billig
Vice President, Finance
Chief Financial Officer
BY: /s/ Keith Bjelajac
------------------------
Keith Bjelajac
Corporate Controller
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-28-1996
<PERIOD-END> MAR-31-1996
<CASH> 24,186
<SECURITIES> 18,494
<RECEIVABLES> 135,317
<ALLOWANCES> 9,085
<INVENTORY> 89,588
<CURRENT-ASSETS> 276,598
<PP&E> 107,995
<DEPRECIATION> 24,739
<TOTAL-ASSETS> 395,390
<CURRENT-LIABILITIES> 139,962
<BONDS> 0
0
0
<COMMON> 96,587
<OTHER-SE> 158,455
<TOTAL-LIABILITY-AND-EQUITY> 395,390
<SALES> 787,275
<TOTAL-REVENUES> 787,275
<CGS> 517,277
<TOTAL-COSTS> 517,277
<OTHER-EXPENSES> 201,464
<LOSS-PROVISION> 8,290
<INTEREST-EXPENSE> 265
<INCOME-PRETAX> 66,488
<INCOME-TAX> 22,231
<INCOME-CONTINUING> 44,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,257
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
