1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended January 31, 1998. [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from ________ to ________. Commission file number 1-8777 VIRCO MFG. CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-1613718 - -------------------------------- -------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2027 Harpers Way, Torrance, CA 90501 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (310) 533-0474 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered: Common Stock, $.01 Par Value American Stock Exchange ---------------------------- ----------------------- Securities pursuant to section 12(g) of the Act: None 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference or in Part III of this Form 10-K [X].
2 The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant on April 22, 1998, based on the closing price at which such stock was sold on the American Stock Exchange on that date was approximately $199,003,742. The number of shares of Common Stock outstanding at April 1, 1998, was 8,942,155 shares. Portions of registrant's definitive proxy statement, expected to be mailed to stockholders on May 18, 1998, are incorporated into Part III as set forth herein. Portions of registrant's Annual Report to Stockholders for the year ended January 31, 1998 are incorporated into Part I and Part II as set forth herein. 2
3 VIRCO MFG. CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K <TABLE> <CAPTION> Caption Page - ------- ---- PART I <S> <C> Item 1. Business..................................................................... 4 Item 2. Properties................................................................... 6 Item 3. Legal Proceedings............................................................ 7 Item 4. Submission of Matters to a Vote of Security Holders.......................... 8 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters......... 9 Item 6. Selected Financial Data...................................................... 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................ 9 Item 8. Financial Statements and Supplementary Data ................................. 9 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.................................................... 9 PART III Item 10. Directors and Executive Officers of the Registrant.............................10 Item 11. Executive Compensation....................................................... 11 Item 12. Security Ownership of Certain Beneficial Owners and Management............... 11 Item 13. Certain Relationships and Related Transactions............................... 11 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............ 12 </TABLE> 3
4 PART I Item 1. Business Introduction Virco Mfg. Corporation, a Delaware Corporation, is a leader in the design and production of quality furniture for the contract and education markets worldwide. Forty-eight years of manufacturing has resulted in a wide product range for both education and commercial markets. Major products include student desks, computer stations, chairs, and activity tables for the education markets; and upholstered stacking chairs, folding tables, folding chairs, and office tables and chairs for the commercial markets. One of the important elements of Virco's success is its manufacturing capabilities. The Company has developed competencies in several processes, which are important to the markets we serve. These processes include finishing systems, plastic molding, metal fabrication and woodworking. Virco's manufacturing facilities are located in California and Arkansas. Over one million square feet of manufacturing and support facilities are organized for the production of furniture. During the year ended January 31, 1995, Virco made a significant investment in a new manufacturing and distribution facility in Torrance, California to service the western region of the United States. The decision to maintain a significant presence in California was influenced by the quality of the existing workforce, an established vendor network, favorable lease terms for an excellent manufacturing facility, and financial support through an Industrial Revenue Bond issued by the city of Torrance, California. The Company consolidated all western region distribution facilities at this location in 1994 and transferred the former western region manufacturing plant to this facility in 1995. The Company has continued to make significant capital investments in the Conway, Arkansas manufacturing facility, which services the eastern region of the United States. This manufacturing plant was expanded in 1991 and again in 1993. Capital spending at this facility of nearly $6,900,000 in 1995, $5,700,000 in 1996 and $6,100,000 in 1997 was made to expand production of hard plastic components, which are a critical component of the Company's educational product line, as well as more fully automate this facility. In August 1997, the Board of Directors authorized an expansion and re-configuration of the Conway, Arkansas manufacturing facility. The additional manufacturing space will be used to develop manufacturing cells for new or redesigned products as well as new processes to support our product development efforts and improve manufacturing efficiency. In late 1997 and early 1998, the Company acquired approximately 100 acres of land in Conway and is planning to break ground on a 400,000 square foot manufacturing facility in mid-1998. The acreage acquired is large enough to support an additional 1,300,000 square feet of manufacturing, warehousing and distribution, and office facilities should Virco determine such a need in the future. Supporting the manufacturing facilities, the Company has nearly one million square feet of distribution and warehouse facilities. Substantial warehouse space is required to build adequate inventories to service the highly seasonal demand for educational sales. Approximately 48% of total sales are delivered in July, August, September, and October with an even higher portion of educational sales delivered in that period. The trend in educational sales is becoming increasingly seasonal. The ability to forecast, finance, manufacture, and warehouse furniture for this narrow delivery window is a significant competency, which gives the Company a competitive advantage in this market niche. 4
5 Principal Products The Company's primary furniture lines are constructed of tubular metal legs and frames, combined with wood and plastic tops, plastic seats and backs, upholstered seats and backs, and upholstered rigid polyethylene and polypropylene shells. The Company offers the broadest product line of educational furniture to the K-12 market of any Company in the United States. A variety of student and teacher desks, computer stations, folding and adjustable height tables, desks and auditorium chairs, mobile storage cabinets and mobile tables are sold through the Education sales division. A variety of folding chairs and tables, banquet chairs and tables, convention center seating, hospitality furniture and educational furniture products are sold through the Commercial sales division. Some of our major products are sold through both Education and Commercial sales divisions. The Company purchases steel, aluminum, plastic, polyurethane, polyethylene, polypropylene, plywood, particleboard, cartons and other raw materials in the manufacture of its principal products from many different sources and is not more vulnerable on sources and availability than other manufacturers. Marketing and Distribution The educational product line is marketed through what we believe to be the largest direct sales force in the educational furniture industry in addition to a variety of educational distributorships. During the fourth quarter of 1997, Virco terminated distribution arrangements with several major educational dealerships and increased the size of the direct sales force to cover these territories. Virco has historically increased both sales and margins in territories where our direct sales force has replaced educational dealerships. The sales force calls directly upon school business officials, who can include purchasing agents or individual school principals where site based management is practiced. Our direct sales force is considered to be an important competitive advantage over competitors who rely primarily upon dealer networks for distribution of their products. Significant portions of educational furniture are sold on a bid basis. Sales of commercial and contract furniture are made throughout the United States by distributorships and by Company sales representatives who service the distributorship network. Sales are made direct to convention centers, individual hospitality installations, and to mass merchants. Sales to this market include preschools, private schools, and office training facilities, which typically purchase furniture through commercial channels. Sales are made to thousands of customers, and no single customer represents a significant amount of the Company's business. Other Matters Foreign Operation Information Foreign operation information attributable to the Company's operations for the years ended January 31, 1998, 1997 and 1996, which appear in Note 10 of the consolidated financial statements included in Virco Mfg. Corporation's Annual Report to Stockholders for 1997, is incorporated by reference in this Form 10-K Annual Report. 5
6 Competition The Company has numerous competitors in each of its markets. In the educational furniture market, competitors include Artco-Bell Corporation, Royal, Smith Systems, Scholarcraft, Fleetwood, and Irwin Seating Co. Competitors in contract furniture vary depending upon the specific product line or sales market and include Falcon Products, Inc., Krueger Metal Products, Inc., Globe, Mecco, Mity Lite, and Shelby Williams Industries, Inc. Backlog Sales order backlog for continuing operations of the consolidated companies at January 31, 1998, totaled $11.8 million and approximates three weeks of sales, compared to $9.6 million at January 31, 1997, and $12.1 million at January 31, 1996. Patents and Trademarks Virco has a number of patents and trademarks for which the Company has not appraised or established a value. It is believed that the loss of any of the patents would not have a material effect on its manufacturing business. Employees Virco Mfg. Corporation and its Subsidiaries employ approximately 2,390 full-time employees at various locations. Of this number, approximately 2,060 are involved in manufacturing and distribution, 210 in sales and marketing and 120 in administrative. Environmental Compliance The Company and other furniture manufacturers are subject to federal, state and local laws and regulations relating to the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials. The Company has expended, and may be expected to expend significant amounts in the future for the investigation of environmental conditions, installation of environmental control equipment, or remediation of environmental contamination. Item 2. Properties Torrance, California The Company leases a 560,000 square foot office, manufacturing and warehousing facility located on 23.5 acres of land. This facility is occupied under a ten-year lease (with two five-year renewal options) expiring January 2005. This facility also includes the corporate headquarters, the West Coast showroom, and all West Coast distribution operations. In addition, the Company owns a 200,000 sq. ft. warehouse located on 8.5 acres of land in Torrance, CA. This warehouse is held as rental property and is leased under a five-year lease expiring January 2001. 6
7 Los Angeles, California The Company owns a 160,000 sq. ft. manufacturing facility located on 8 acres of land in Gardena, CA. This manufacturing facility is held as rental property and is leased under a 15-year lease expiring September 2010. Conway, Arkansas The Company owns three manufacturing facilities in Conway, Arkansas. The main plant was expanded in 1991 and now features 325,000 sq. ft. of factory space and is located on 17.5 acres of land. In 1993, the Company acquired 7 acres of land adjacent to the main plant and constructed a 155,000 sq. ft. manufacturing facility. The third manufacturing facility is located a short distance from the main plant and has 60,000 sq. ft. on 4.5 acres of land. There are four primary warehousing facilities located in Conway, Arkansas. The first consists of 250,000 sq. ft. of warehouse space located on 11 acres of land. This warehouse is occupied under a lease expiring in December 1998. The second warehouse has a 310,000 sq. ft. building, which is occupied under leases expiring from April 1998 to February 1999. The third warehouse facility is a 200,000 sq. ft. building currently occupied under a ten year lease expiring in March 2008. The fourth is an 87,000 sq. ft. facility consists of warehouse, showroom and a Company store. This facility is rented under a month to month lease. Subsequent to fiscal year end, the Company acquired approximately 100 acres of land in Conway and is planning to break ground on a 400,000 square foot manufacturing facility in mid-1998. The acreage acquired is large enough to support an additional 1,300,000 square feet of manufacturing, warehousing and distribution and office facilities should Virco determine such a need in the future. Newport, Tennessee The Company owns a 55,000 sq. ft. manufacturing facility located on 3.5 acres of land in Newport, Tennessee which was previously used to manufacture melamine plastic seats, backs and table tops for classroom furniture. This factory is currently used to warehouse finished goods inventory. Southern Pines, North Carolina The Company owns a 225,000 sq. ft. manufacturing facility located on 37 acres of land in Southern Pines, North Carolina. This property is used to warehouse finished goods inventory and is offered for sale. Subsequent to fiscal year end, the Company has reached an agreement to dispose of its North Carolina facility subject to certain terms and contingencies. The overall terms would have no material impact on the Company's earnings for 1998 or beyond. Item 3. Legal Proceedings Virco has various legal actions pending against it which in the opinion of Management are either not meritorious or are fully covered by insurance. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to these suits and claims, Virco believes the aggregate amount of such liabilities will not 7
8 be material to the results of operations, financial position, or cash flows of the Company. Item 4. Submission of Matters to a Vote of Security Holders. None 8
9 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters. Incorporated herein by reference is the information appearing under the caption "Supplemental Stockholders' Information" which appears in the registrant's Annual Report to Stockholders for the year ended January 31, 1998. As of April 17, 1998, there were approximately 378 Registered Stockholders according to transfer agent records. There were approximately 1,800 Beneficial Stockholders. Dividend Policy In December 1996, the Company's Board of Directors voted to initiate a quarterly cash dividend policy beginning with the payment of a $.017 per share dividend (adjusted for stock dividends) on January 31, 1997. In August 1997, the Board declared a 3 for 2 stock split in a form of stock dividend on the Company's common stock and a $.02 per share quarterly cash dividend. It is the Board of Directors' policy to periodically review the payment of cash and stock dividends in light of the Company's earnings and liquidity. Item 6. Selected Financial Data Incorporated herein by reference is the Selected Financial Data information, which appears in the registrant's Annual Report to Stockholders for the year ended January 31, 1998. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation This information is incorporated herein by reference to "Management's Discussion and Analysis and Results of Operations" included in the registrant's Annual Report to Stockholders for the year ended January 31, 1998. Item 8. Financial Statements and Supplementary Data The report of independent auditors and consolidated financial statements included in the Annual Report to Stockholders for the year ended January 31, 1998 are incorporated herein by reference. Unaudited quarterly results in Note 12 of the financial statements included in the Annual Report to Stockholders for the year ended January 31, 1998 are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None 9
10 PART III Item 10. Directors and Executive Officers of the Registrant <TABLE> <CAPTION> Age at Has Held January 31, Office Name Office 1998 Since (5) - ---- ------ -------- --------- <S> <C> <C> R. A. Virtue (1) President, Chairman of the Board 65 1990 and Chief Executive Officer J. R. Braam (2) Vice President - Finance, 64 1981 Secretary & Treasurer R. E. Dose (3) Corporate Controller 41 1995 Assistant Secretary & Assistant Treasurer R. J. Mills (4) General Manager - Torrance Division 39 1997 W. D. Nutter (5) Vice President - Commercial Sales Group 48 1995 D. R. Smith (6) Vice President - Corporate Marketing 49 1995 M. G. Tarnay (7) Vice President - Engineering 55 1993 H. D. Tyler (8) Vice President - General Manager 56 1988 Conway Division D. A. Virtue (9) Corporate Executive Vice President 39 1992 R. W. Virtue (10) Vice President - Purchasing 56 1988 L. O. Wonder (11) Vice President - Education Sales Group 46 1995 </TABLE> (1) Appointed Chairman in 1990; has been employed by the Company for 42 years. Has served as the President since 1982. (2) Appointed in 1981; has been employed by the Company for 16 years as the Vice President - Finance, Secretary and Treasurer. (3) Appointed in 1995; has been employed by the Company for 8 years as the Corporate Controller. 10
11 (4) Appointed in 1997; has been employed by the Company for 3 years as the Corporate Counsel, most recently as General Manager of Torrance division. (5) Appointed in 1995; has been employed by the company for 17 years in a variety of sales and marketing positions, most recently as a Division Vice President of Commercial Sales. (6) Appointed in 1995; has been employed by the Company for 13 years in a variety of sales and marketing positions, most recently as Corporate Marketing Manager. (7) Appointed in March 1993; has been employed by the Company for 5 years. Prior employment included 19 years at Price Pfister, most recently as Vice President - Engineering. (8) Appointed in June 1988; has been employed by the Company for 29 years and has served as Division Credit Manager, Accounting Manager and Division Controller and currently as General Manager of Conway division. (9) Appointed in April 1992; has been employed by the Company for 13 years and has served in Production Control, as Contract Administrator, as Manager of Marketing Services, as General Manager of Torrance Division, most recently as Corporate Executive Vice President. (10) Has been employed by the Company for 35 years and has served as President of the former Delkay subsidiary and currently as Vice President - Purchasing. (11) Appointed in 1995; has been employed by the Company for 20 years in a variety of sales and marketing positions, most recently as Division Vice President of Education Sales. (12) Company officers do not have employment contracts. The information required by this Item regarding Directors will be contained in the Company's Proxy Statement to be filed within 120 days after the end of the Company's most recent fiscal year and is incorporated herein by this reference. Item 11. Executive Compensation The information required by this Item will be contained in the Company's Proxy Statement to be filed within 120 days after the end of the Company's most recent fiscal year and is incorporated herein by this reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item will be contained in the Company's Proxy Statement to be filed within 120 days after the end of the Company's most recent fiscal year and is incorporated herein by this reference. Item 13. Certain Relationships and Related Transactions. 11
12 The information required by this Item will be contained in the Company's Proxy Statement to be filed within 120 days after the end of the Company's most recent fiscal year and is incorporated herein by this reference. PART IV Item 14. Financial Statements, Financial Statement Schedules, Exhibits, and Reports on Form 8-K. a) 1. The following consolidated financial statements of Virco Mfg. Corporation, included in the annual report of the registrant to its stockholders for the year ended January 31, 1998 are incorporated by reference in Item 8. Consolidated balance sheets - January 31, 1998 and 1997. Consolidated statements of income - Years ended January 31, 1998, 1997, and 1996. Consolidated statements of stockholders' equity - Years ended January 31, 1998, 1997, and 1996. Consolidated statements of cash flows - Years ended January 31, 1998, 1997, and 1996. Notes to consolidated financial statements - January 31, 1998. 2. The following consolidated financial statement schedule of Virco Mfg. Corporation is included in item 14(d): Schedule II Valuation and Qualifying Accounts and Reserves. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 3. Exhibits 13 Annual Report to Stockholders for the year ended January 31, 1998. 21 List of all subsidiaries of the registrant. 23 Consent of Ernst & Young LLP. 27 Financial Data Schedule. b) Reports on Form 8-K. None 12
13 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of Torrance, and State of California, on the 29th of April, 1998. VIRCO MFG. CORPORATION By -------------------------------------------- Robert A. Virtue, Chairman of the Board (Principle Executive Officer) By -------------------------------------------- James R. Braam, V. P.-Finance, Secretary & Treasurer (Principal Financial Officer) By ------------------------------------------- Robert E. Dose, Corporate Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. <TABLE> <CAPTION> Signature Title Date <S> <C> <C> Chairman of the Board, April 29, 1998 - -------------------------- Chief Executive Officer, Robert A. Virtue President and Director - -------------------------- Director April 29, 1998 Donald S. Friesz - -------------------------- Director April 29, 1998 George W. Ott - -------------------------- Director April 29, 1998 Donald A. Patrick </TABLE> 13
14 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of Torrance, and State of California, on the 29th of April, 1998. VIRCO MFG. CORPORATION By -------------------------------------------- Robert A. Virtue, Chairman of the Board (Principle Executive Officer) By -------------------------------------------- James R. Braam, V. P.-Finance, Secretary & Treasurer (Principal Financial Officer) By -------------------------------------------- Robert E. Dose, Corporate Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. <TABLE> <CAPTION> Signature Title Date <S> <C> <C> - ------------------------- Director April 29, 1998 John H. Stafford - ------------------------- Director April 29, 1998 Hugh D. Tyler - ------------------------- Director April 29, 1998 Douglas A. Virtue - ------------------------- Director April 29, 1998 Raymond W. Virtue - ------------------------- Director April 29, 1998 James R. Wilburn </TABLE> 14
15 VIRCO MFG CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED JANUARY 31, 1996, 1997 AND 1998 (in Thousands) <TABLE> <CAPTION> Col. A Col. B Col. C Col. D Col. E Col. F Additions Balance at Charged to Costs Charged to Other Deductions from Balance at Close of ---------- ---------------- ---------------- --------------- ------------------- Description Beginning of Period and Expenses Accounts Reserves Period - ----------- ------------------- ------------ -------- -------- ------ <S> <C> <C> <C> <C> <C> Allowance for Doubtful Accounts: Year Ended: January 31, 1996 $100 $ 67 $ 67(1) $100 January 31, 1997 $100 $202 $202(1) $100 January 31, 1998 $100 $112 $112(1) $100 </TABLE> (1) Uncollectible accounts written off, net of recoveries.