<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, 1997
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)
950 West 190th Street
Torrance, California 90502
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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 10, 1997
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Common Stock 84,313,121
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1997 1997
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $36,562 $29,856
Short-term investments 16,447 26,021
Accounts receivable, net 162,936 150,931
Merchandise inventories 97,945 89,279
Prepaid catalog costs 17,192 18,290
Prepaid expenses and other current assets 7,176 3,986
-------- --------
Total current assets 338,258 318,363
-------- --------
Property and equipment, net 135,872 121,800
Other assets:
Deposits and other assets 6,478 6,262
Intangible assets, net 27,858 28,083
-------- --------
Total other assets 34,336 34,345
-------- --------
Total assets $508,466 $474,508
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $127,087 $94,386
Sales and value added taxes payable 7,482 10,388
Income taxes payable 2,276 15,933
-------- --------
Total current liabilities 136,845 120,707
-------- --------
Deferred income taxes 1,163 1,163
Stockholders' equity:
Common stock 113,192 110,845
Retained earnings 269,848 251,842
Unamortized value of long-term incentive stock gra (3,820) (3,917)
Cumulative foreign currency translation adjustment (8,762) (6,132)
-------- --------
Total stockholders' equity 370,458 352,638
-------- --------
Total liabilities and stockholders' equity $508,466 $474,508
======== ========
</TABLE>
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VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues $340,274 $290,532
Cost of goods sold, including delivery 223,449 188,002
-------- --------
Gross profit 116,825 102,530
Selling, general & administrative expenses 93,407 80,035
-------- --------
Operating income 23,418 22,495
Other income, net of interest expense 2,675 2,100
-------- --------
Income before income taxes 26,093 24,595
Income taxes 8,087 8,363
-------- --------
Net income $ 18,006 $ 16,232
======== ========
Net income per common and common
equivalent share $0.21 $0.19
======== ========
Weighted average number of common
and common equivalent shares 87,000 87,500
======== ========
</TABLE>
3
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VIKING OFFICE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $18,006 $16,232
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,669 4,236
Provision for doubtful accounts and customer returns 3,460 3,166
Loss on sale of property and equipment (237) (47)
Increase in accounts receivable (18,098) (16,282)
Increase in merchandise inventories (9,956) (7,289)
(Increase) decrease in prepaid expenses and other assets (2,252) 1,060
Increase in accounts payable and accrued expenses 35,641 11,222
(Decrease) increase in other liabilities (17,024) 10,177
-------- -------
Net cash provided by operating activities $15,209 $22,475
Cash flows from investing activities:
Capital expenditures (20,940) (16,080)
Decrease (increase) in short-term investments 9,574 (5,280)
Proceeds from sale of property and equipment 13 65
Issuance of notes receivable and other (176) (104)
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Net cash used in investing activities (11,529) (21,399)
Cash flows from financing activities:
Proceeds from issuance of common stock 2,347 1,879
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Net cash provided by financing activities 2,347 1,879
Effect of exchange rate changes on cash 679 45
-------- -------
Net increase in cash and cash equivalents 6,706 3,000
Cash and cash equivalents, beginning of period 29,856 11,693
-------- -------
Cash and cash equivalents, end of period $36,562 $14,693
======== ========
Supplemental cash flow information:
Income taxes paid $25,004 $3,546
======== ========
</TABLE>
4
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VIKING OFFICE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Viking Office Products, Inc. ("Viking" or 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, 1997.
The June 30, 1997 Consolidated Balance Sheet was derived from the audited
Consolidated Balance Sheet at June 30, 1997, which was incorporated by reference
in the Company's annual report on Form 10-K.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share". This
statement simplifies the computation of earnings per share ("EPS") and makes
them comparable with the EPS standards in other countries. Had SFAS No. 128 been
effective during the quarters ended September 30, 1997 and 1996, both "Basic
Earnings per Share" and "Diluted Earnings per Share" would have been $.21 and
$.19, respectively.
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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Viking operates ten distribution centers in the United States, two in
Australia and eight in Europe. Operations in the foreign countries account for
an increasing percentage of the Company's consolidated revenues and expenses,
and an increasing amount of Viking's consolidated assets. The asset and
liability accounts of Viking's foreign subsidiaries are translated for
consolidated financial reporting purposes into United States Dollar amounts at
period end exchange rates. Revenue and expense accounts are translated at
weighted average exchange rates for the period. For the quarter ended September
30, 1997, foreign currency fluctuations significantly reduced revenue growth as
reported in US dollars. Excluding the foreign currency translation effect,
consolidated revenues grew at 22.4% versus the reported growth of 17.1%. Foreign
currency fluctuations did not materially impact net income for the quarter ended
September 30, 1997.
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>
Percentage
Three Months Ended Increase
September 30, (Decrease)
-------------------- -------------
1997 1996 1997 vs. 1996
------ ------- -------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 17.1%
Cost of goods sold, including delivery 65.7% 64.7% 18.9%
------ ------
Gross Profit 34.3% 35.3% 13.9%
Selling, general & administrative expenses 27.4% 27.5% 16.7%
------ ------
Operating income 6.9% 7.8% 4.1%
Other income 0.8% 0.7% 27.4%
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Income before income taxes 7.7% 8.5% 6.1%
Income taxes 2.4% 2.9% (3.3%)
------ ------
Net income 5.3% 5.6% 10.9%
====== ======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
- ------------------------------------------------------------------------
SEPTEMBER 30, 1996.
- -------------------
Revenues for the three months ended September 30, 1997 were $340.3 million, an
increase of $49.8 million, or 17.1%, over the comparable period of the prior
year. International revenues, which include Europe and Australia, were $215.6
million, an increase of 19.0% over the prior year. This growth was negatively
impacted by the stronger translated dollar. International operations accounted
for more than 63% of the first quarter revenues. United States revenues were
$124.7 million, an increase of 14.1% versus the same period last year. This
growth rate was negatively impacted by lower selling prices of paper products
versus last year, as well as the August 1997 UPS strike.
Gross profit for the three months ended September 30, 1997 increased by
$14.3 million, or 13.9% over last year. As a percentage of revenues, gross
profit decreased from 35.3% in the three months ended September 30, 1996 to
34.3% in the current quarter. The decrease in gross profit is primarily
attributable to lower margins on paper products.
6
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Selling, general and administrative expenses for the three months ended
September 30, 1997 increased by $13.4 million, or 16.7% over the comparable
period of the prior year. As a percentage of revenues, these expenses decreased
from 27.5% in the three months ended September 30, 1996 to 27.4% in the current
quarter. During this year's quarter, Viking incurred startup costs and early
operating expenses for a new distribution center in Manchester, UK (which opened
in August 1997), as well as startup and early operating expenses for Italy and
Austria. Additionally, Viking incurred expenses to relocate its US corporate
offices into a new location during September 1997. In last year's quarter,
Viking incurred high operating expenses in Germany due to its fast growth, as
well as startup and early operating expenses for two new distribution centers in
Europe and one in the United States.
Income taxes for the three months ended September 30, 1997 decreased by
$276,000. Higher pretax earnings were offset by a decrease in the effective tax
rate from 34.0% for the three months ended September 30, 1996 to 31.0% for the
current period. This decrease was primarily attributable to a statutory rate
reduction in the UK as well as the implementation of tax strategies in certain
European countries.
Consolidated net income for the quarter ended September 30, 1997 was $18.0
million, an increase of 10.9% over the prior year quarter. Consolidated
earnings per share were $.21 compared to $.19 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, 1997, the Company had working capital of
$201.4 million compared to $197.7 million at June 30, 1997. The improved working
capital position primarily reflects increased net income, net of investing
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 were $20.9 million for first three months of fiscal
1998 as Viking continued to invest in domestic and international operations.
During this quarter, Viking opened a third UK distribution center at Manchester
and completed Viking's new worldwide headquarters building in Torrance,
California. In early calendar 1998, the Company plans to begin operations in
Italy. Capital expenditures related to expansion have been funded by cash from
operations. In fiscal 1998, capital expenditures are expected to be between $60
million and $70 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, 1997, 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, 1997.
8
<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: November 13, 1997 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-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 36,562
<SECURITIES> 16,447
<RECEIVABLES> 172,096
<ALLOWANCES> 9,160
<INVENTORY> 97,945
<CURRENT-ASSETS> 338,258
<PP&E> 184,893
<DEPRECIATION> 49,021
<TOTAL-ASSETS> 508,466
<CURRENT-LIABILITIES> 136,845
<BONDS> 0
0
0
<COMMON> 113,192
<OTHER-SE> 257,266
<TOTAL-LIABILITY-AND-EQUITY> 508,466
<SALES> 340,274
<TOTAL-REVENUES> 340,274
<CGS> 223,449
<TOTAL-COSTS> 223,449
<OTHER-EXPENSES> 89,947
<LOSS-PROVISION> 3,460
<INTEREST-EXPENSE> (13)
<INCOME-PRETAX> 26,093
<INCOME-TAX> 8,087
<INCOME-CONTINUING> 18,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,006
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
