<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 December 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 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
----------------------------------------------------
(Registrant's Telephone Number, including area code)
----------------------------------------------------
(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 FEBRUARY 5, 1996
------------ --------------------------------
[S] [C]
Common Stock 41,265,477
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
VIKING OFFICE PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995
------------------ -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................... $ 5,957 $ 11,080
Short-term investments...................... 28,167 36,383
Accounts receivable, net.................... 114,178 96,000
Merchandise inventories..................... 93,372 64,670
Prepaid catalog costs....................... 11,009 16,292
Prepaid expenses and other current assets... 4,255 2,587
-------- --------
Total current assets................... 256,938 227,012
-------- --------
Property and equipment, net................... 72,520 49,083
Other assets:
Deposits and other assets................... 6,479 2,364
Intangible assets, net...................... 29,435 29,885
-------- --------
Total other assets..................... 35,914 32,249
-------- --------
Total assets........................... $365,372 $308,344
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...... $ 96,419 $ 76,312
Sales and value added taxes payable........ 3,769 6,184
Income taxes payable....................... 28,975 16,936
-------- --------
Total current liabilities............. 129,163 99,432
-------- --------
Deferred income taxes........................ 386 386
Stockholders' equity:
Common stock............................... 94,492 92,036
Retained earnings.......................... 147,361 121,251
Unamortized value of long-term incentive
stock grants............................ (7,445) (7,768)
Cumulative foreign currency translation
adjustment.............................. 1,415 3,007
-------- --------
Total stockholders' equity............ 235,823 208,526
-------- --------
Total liabilities and stockholders'
equity................................ $365,372 $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 Six Months Ended
December 31, December 31,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues................................ $250,437 $189,160 $480,447 $371,552
Cost of goods sold, including delivery.. 164,991 126,098 314,990 245,816
-------- -------- -------- --------
Gross profit............................ 85,446 63,062 165,457 125,736
Selling, general and administrative
expenses.............................. 68,221 50,090 129,536 97,712
-------- -------- -------- --------
Operating income........................ 17,225 12,972 35,921 28,024
Other income............................ 2,171 1,794 4,195 3,393
Interest expense........................ 37 59 108 81
-------- -------- -------- --------
Income before income taxes.............. 19,359 14,707 40,008 31,336
Provision for income taxes.............. 6,549 5,467 13,896 11,779
-------- -------- -------- --------
Net income.............................. $ 12,810 $ 9,240 $ 26,112 $ 19,557
======== ======== ======== ========
Net income per share.................... $ .30 $ .22 $ .61 $ .46
======== ======== ======== ========
Weighted average of common and common
equivalent shares outstanding......... 43,400 42,705 43,100 42,590
======== ======== ======== ========
</TABLE>
3
<PAGE>
VIKING OFFICE PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers.......... $ 457,152 $ 354,431
Cash paid to suppliers and employees.. (437,678) (338,383)
Interest received..................... 1,116 1,002
Interest paid......................... (109) (76)
Income taxes paid..................... (1,155) (4,158)
--------- ---------
Net cash provided by operating
activities...................... 19,326 12,816
--------- ---------
Cash flows from investing activities:
Capital expenditures.................. (30,292) (14,634)
Short-term investments................ 8,216 (8,200)
Proceeds from sale of property and
equipment............................ 196 --
Issuance of notes receivable and other (4,140) (229)
--------- ---------
Net cash used in investing
activities...................... (26,020) (23,063)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,456 3,220
--------- ---------
Net cash provided by financing
activities...................... 2,456 3,220
Effect of exchange rate changes on cash. (885) 530
--------- ---------
Net decrease in cash and cash
equivalents............................ (5,123) (6,497)
Cash and cash equivalents, beginning of
period................................. 11,080 25,609
--------- ---------
Cash and cash equivalents, end of period $ 5,957 $ 19,112
========= =========
Reconciliation of net income to net
cash provided by operating activities:
Net income............................ $ 26,112 $ 19,557
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization....... 6,240 3,488
Loss on sale of fixed assets........ 111 30
Provision for doubtful accounts and
customer returns................... 4,886 5,102
Increase in accounts receivable..... (23,458) (18,046)
Increase in inventories............. (29,438) (12,249)
Decrease in prepaid expenses and
other current assets............... 4,292 3,119
Increase in accounts payable and
accrued expenses................... 30,581 11,815
--------- ---------
Total adjustments................ (6,786) (6,741)
--------- ---------
Net cash provided by operating
activities............................. $ 19,326 $ 12,816
========= =========
</TABLE>
4
<PAGE>
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 whether it will adopt the recognition provisions of SFAS No. 123 and,
if adopted, the effect of those provisions.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
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 Six Months Ended 3 Months 6 Months
December 31, December 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% 32.4% 29.3%
Cost of goods sold,
including delivery.... 65.9 66.7 65.6 66.2 30.8 28.1
----- ----- ----- -----
Gross profit........... 34.1 33.3 34.4 33.8 35.5 31.6
Selling, general and
administrative
expenses.............. 27.2 26.4 26.9 26.3 36.2 32.6
----- ----- ----- -----
Operating Income....... 6.9 6.9 7.5 7.5 32.8 28.2
Other Income........... 0.8 0.9 0.8 0.9 21.0 23.6
Interest Expense....... 0.0 0.0 0.0 0.0 -- --
----- ----- ----- -----
Income before taxes
on income............. 7.7 7.8 8.3 8.4 31.6 27.7
Taxes on income........ 2.6 2.9 2.9 3.2 19.8 18.0
----- ----- ----- -----
Net Income............. 5.1% 4.9% 5.4% 5.2% 38.6 33.5
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THE THREE MONTHS ENDED DECEMBER
- --------------------------------------------------------------------------------
31, 1994.
- ---------
Revenues for the three months ended December 31, 1995, increased by $61.3
million, or 32.4%, over the comparable period of the prior year. Of this
increase, $22.0 million was attributable to United States operations, $36.4
million European operations and $2.9 million to the Australian division. The
European operations include cross-border sales into Belgium beginning in May
1994, Luxembourg and the Republic of Ireland beginning in September 1994, the
Netherlands beginning in November 1994, and since opening in early November
1995, Germany. Revenues generated by the new German business were $7.7 million
during the first two months of operation. On a company-wide basis, during the
three months ended December 31, 1995, the number of catalogs mailed increased
5.3%, the number of customers who purchased products increased 17.5% and the
average revenue per customer increased by 12.7% compared to the comparable
period of the prior year.
Gross profit for the three months ended December 31, 1995 increased by
$22.4 million, or 35.5% over the comparable period of the prior year. As a
percentage of revenues, gross profit increased from 33.3% in the three months
ended December 31, 1994 to 34.1% in the three months ended December 31, 1995.
The increase in gross profit is primarily attributable to sale price 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
December 31, 1995, increased by $18.1 million, or 36.2% over the comparable
period of the prior year. As a percentage of revenues, these expenses increased
from 26.4% in the three months ended December 31, 1994 to 27.2% in the three
months ended December 31, 1995. This percentage increase was primarily due to
start-up and early operating expenses in The Netherlands and Germany.
6
<PAGE>
Other income for the three months ended December 31, 1995 increased by
$377,000, or 21.0% over the comparable period of the prior year. The increase
was attributable to cash discounts received on higher inventory purchases.
Income taxes for the three months ended December 31, 1995 increased by $1.1
million due to higher pretax earnings. The estimated effective tax rate
decreased from 37.2% for the three months ended December 31, 1994 to 33.8% for
the current period. This decrease was primarily attributable to the utilization
of available French operating loss carryforwards, and the use of foreign losses
to offset domestic taxable income.
SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1994
- ----
Revenues for the six months ended December 31, 1995, increased by $108.9
million, or 29.3% over the comparable period of the prior year. Of this
increase, $35.3 million was attributable to United States operations, $68.5
million related to European operations and $5.1 million was attributable to
Viking's Australian division. On a company-wide basis, during the six months
ended December 31, 1995, the number of catalogs mailed increased 8.2%, the
number of customers who purchased products increased 19.2% and the average
revenue per customer increased 8.5% versus the comparable period of the prior
year.
Gross profit for the six months ended December 31, 1995 increased by $39.7
million or 31.6% over the comparable period of the prior year. As a percentage
of revenues, gross profit increased from 33.8% in the six months ended December
31, 1994 to 34.4% in the six months ended December 31, 1995. The increase in
gross profit is primarily attributable to sales price 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 six months ended
December 31, 1995, increased by $31.8 million, or 32.6% over the comparable
period of the prior year. As a percentage of revenues, these expenses increased
from 26.3% in the six months ended December 31, 1994 to 26.9% in the six months
ended December 31, 1995. This percentage increase was primarily due to start-up
and early operating expenses in The Netherlands and Germany.
Other income for the six months ended December 31, 1995 increased by
$802,000 or 23.6% over the comparable period of the prior year. The increase
was attributable to cash discounts received on higher inventory purchases.
Taxes on income for the six months ended December 31, 1995 increased by $2.1
million due to higher pretax earnings. The estimated effective tax rate
decreased from 37.6% for the six months ended December 31, 1994 to 34.7% for the
current period. This decrease was primarily attributable to the utilization of
available French operating loss carryforwards, and the use of foreign losses to
offset domestic taxable income.
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 December 31, 1995, the
Company had working capital of $127.8 million compared to $107.5 million at
December 31, 1994. 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.
7
<PAGE>
Capital expenditures amounted to $30.3 million for first six 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 current
quarter, the company opened its German division, as well as a satellite
distribution centers in Dublin, Ireland and Baltimore, Maryland. Another
distribution center will open in Melbourne, Australia in January. 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 between $50 and $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 December 31, 1995, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders for Viking Office Products, Inc.
was held on November 16, 1995. At the meeting, the shareholders elected a Board
of Directors pursuant to management's nomination in the proxy statement dated
October 11, 1995.
At the meeting, the shareholders also voted to approve an amendment to
the 1992 Directors' Stock Option Plan, to approve an amendment to the Chief
Executive Officer Performance Based Bonus Plan and to ratify the selection of
Deloitte & Touche as independent auditors. The shareholders did not approve by
the requisite majority an amendment to the Amended and Restated Bylaws to
classify the Board of Directors for purposes of election and other related
changes.
The vote on the proposal to amend the 1992 Directors' Stock Option
Plan was as follows:
<TABLE>
<CAPTION>
VOTES FOR AGAINST ABSTENTIONS
--------- ------- -----------
<S> <C> <C>
24,033,582 8,787,149 121,342
</TABLE>
The vote on the proposal to amend the Chief Executive Officer
Performance Based Bonus Plan was as follows:
<TABLE>
<CAPTION>
VOTES FOR AGAINST ABSTENTIONS
--------- ------- -----------
<S> <C> <C>
30,795,106 1,682,217 269,794
</TABLE>
The vote on the proposal to ratify the selection of auditors was as
follows:
<TABLE>
<CAPTION>
VOTES FOR AGAINST ABSTENTIONS
--------- ------- -----------
<S> <C> <C>
34,804,171 28,767 7,951
</TABLE>
The vote on the proposal to amend Viking's Amended and Restated Bylaws
to classify the Board of Directors for purposes of election and to make other
related changes was as follows:
<TABLE>
<CAPTION>
VOTES FOR AGAINST ABSTENTIONS
---------- ------- -----------
<S> <C> <C>
18,827,534 13,719,923 34,216
</TABLE>
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
December 31, 1995.
9
<PAGE>
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: February 6, 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> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-28-1996
<PERIOD-END> DEC-31-1995
<CASH> 5,957
<SECURITIES> 28,167
<RECEIVABLES> 122,812
<ALLOWANCES> 8,634
<INVENTORY> 93,372
<CURRENT-ASSETS> 256,938
<PP&E> 94,098
<DEPRECIATION> 21,578
<TOTAL-ASSETS> 365,372
<CURRENT-LIABILITIES> 129,163
<BONDS> 0
0
0
<COMMON> 94,492
<OTHER-SE> 141,331
<TOTAL-LIABILITY-AND-EQUITY> 365,372
<SALES> 480,447
<TOTAL-REVENUES> 480,447
<CGS> 314,990
<TOTAL-COSTS> 314,990
<OTHER-EXPENSES> 124,650
<LOSS-PROVISION> 4,886
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 40,008
<INCOME-TAX> 13,896
<INCOME-CONTINUING> 26,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,112
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
</TABLE>
