1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 FORM 10-Q For Quarter Ended July 31, 1996 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 (I.R.S. Employer incorporation or organization) Identification No.) 2027 Harpers Way, Torrance, CA 90501 Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 533-0474 No change 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 --- --- The number of shares outstanding of each of the issuer's classes of common stock, as of August 30, 1996. Common Stock 5,906,296 Shares* * Adjusted for Stock Dividend declared August 20, 1996, date of record September 18, 1996, payable October 16, 1996.
2 VIRCO MFG. CORPORATION AND SUBSIDIARIES INDEX Part I. Financial Information Item 1. Financial Statements (unaudited) Condensed consolidated balance sheets - July 31, 1996 and January 31, 1996. Condensed consolidated statements of income - Three months ended July 31, 1996 and 1995. Condensed consolidated statements of income - Six months ended July 31, 1996 and 1995. Condensed consolidated statements of cash flows - Three months ended July 31, 1996 and 1995. Condensed consolidated statements of cash flows - Six months ended July 31, 1996 and 1995. Notes to condensed consolidated financial statements - July 31, 1996. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information Item 4. Submission of matters to a vote of Security Holders. Item 6. Exhibits and Reports on Form 8-K Signatures 2
3 PART 1 Item 1. Financial Statements VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (Note 1) (Dollar Amounts in Thousands) <TABLE> <CAPTION> ASSETS 7/31/96 1/31/96 ------- ------- <S> <C> <C> Current Assets Cash $ 1,252 $ 661 Accounts and Notes Receivable 38,766 28,102 Less Allowance for Doubtful Accounts (376) (100) --------- -------- Net Accounts and Notes Receivable 38,390 28,002 Income Taxes Receivable 0 197 Inventories (Note 2) Finished Goods 25,609 22,585 Work in Process 7,136 6,949 Raw Materials and Supplies 11,512 13,486 ------- -------- Total Inventories 44,257 43,020 Prepaid Expenses and Deferred Income Tax 3,139 2,742 -------- -------- Total Current Assets 87,038 74,622 Restricted Short-term Investment 644 1,272 Property, Plant & Equipment Cost 77,397 73,693 Less Accumulated Depreciation (39,649) (36,738) -------- -------- Net Property, Plant & Equipment 37,748 36,955 Other Assets 6,925 6,376 -------- -------- $132,355 $119,225 ======== ======== </TABLE> The accompanying notes are an integral part of these condensed financial statements. 3
4 VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (Note 1) (Dollar Amounts in Thousands) <TABLE> <CAPTION> LIABILITIES AND SHAREHOLDERS' EQUITY 7/31/96 1/31/96 ------- ------- <S> <C> <C> Current Liabilities Checks Released But Not Yet Cleared Bank $ 1,535 $ 3,545 Accounts Payable 10,339 10,199 Income Taxes Payable 906 -- Current Maturities on Long-Term Debt 924 924 Other Current Liabilities 10,183 8,634 -------- -------- Total Current Liabilities 23,887 23,302 Non-current Liabilities Long Term Debt (Less Current Portion) 46,553 35,909 Other Non-Current Liabilities 3,991 3,991 -------- -------- Total Non-Current Liabilities 50,544 39,900 Deferred Income Taxes 562 562 Shareholders' Equity Preferred Stock: Authorized 3,000,000 Shares, $.01 Par Value; None Issued or Outstanding -- -- Common Stock: Authorized 10,000,000 Shares, $.01 Par Value; 5,928,685 Shares issued at 7/31/96 and 1/31/96 54 54 Additional Paid-In Capital 42,056 42,055 Retained Earnings 15,625 13,717 Less treasury stock at cost (22,389 Shares) (172) (172) Loan to ESOP Trust (201) (193) -------- -------- Total Shareholders' Equity 57,362 55,461 -------- -------- $132,355 $119,225 ======== ======== </TABLE> The accompanying notes are an integral part of these condensed financial statements. 4
5 VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited (Note 1) <TABLE> <CAPTION> (Dollar Amounts in Thousands) 3 Months Ended -------------- 7/31/96 7/31/95 ------- ------- <S> <C> <C> Net Sales $ 72,538 $ 66,197 Cost of Goods Sold 51,432 48,644 ---------- ---------- Gross Profit 21,106 17,553 Shipping, Selling, General and Administrative Expense 14,512 13,607 Provision for Doubtful Accounts 216 152 Interest Expense 889 985 ---------- ---------- 15,617 14,744 ---------- Income/(Loss) Before Taxes on Income 5,489 2,809 Taxes on Income/(Loss) (2,141) (1,096) ---------- ---------- Net Income $ 3,348 $ 1,713 ========== ========== Earnings (Loss) Per Share: Net Earnings/(Loss) Per Share: $ .56 $ .29 ========== ========== Weighted Average Shares Outstanding (Adjusted for 10% Stock Dividend Declared August 20, 1996.) 5,975,513 5,952,350 ========== ========== Dividend Declared Cash (Per Share) -- -- ========== ========== Stock -- -- ========== ========== </TABLE> The accompanying notes are an integral part of these condensed financial statements. 5
6 VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited (Note 1) <TABLE> <CAPTION> (Dollar Amounts in Thousands) 6 Months Ended -------------- 7/31/96 7/31/95 ------- ------- <S> <C> <C> Net Sales $ 109,283 $ 103,122 Cost of Goods Sold 78,798 76,112 ---------- ---------- Gross Profit 30,485 27,010 Shipping, Selling, General and Administrative Expense 25,400 24,662 Provision for Doubtful Accounts 326 262 Interest Expense 1,629 1,761 ---------- ---------- 27,355 26,685 ---------- ---------- Income (Loss) Before Taxes on Income 3,130 325 Taxes on Income (1,221) (127) ---------- ---------- Net Income $ 1,909 $ 198 ========== ========== Earnings (Loss) Per Share: Net Earnings (Loss) Per Share $ .32 $ .03 ========== ========== Weighted Average Shares Outstanding (Adjusted for 10% Stock Dividend Declared August 20, 1996.) 5,981,347 5,954,024 ========== ========== Dividend Declared Cash (Per Share) -- -- ========== ========== Stock -- -- ========== ========== </TABLE> The accompanying notes are an integral part of these condensed financial statements. 6
7 VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited (Note 1) <TABLE> <CAPTION> (Dollar Amounts in Thousands) 3 Months Ended -------------- 7/31/96 7/31/95 ------- ------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) $ 3,348 $ 1,713 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,462 1,245 Provision for doubtful accounts 152 61 (Gain) Loss on sales of fixed assets 0 61 Change in Assets and Liabilities: Accounts and Notes Receivable (15,555) (10,814) Inventories 4,311 179 Income Taxes Receivable/Payable 2,031 1,030 Prepaid Expenses and Deposits (184) 862 Other Assets 34 390 Accounts Payable and Accrued Expenses 3,218 3,964 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES (1,183) (1,309) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (1,728) (2,316) Proceeds from Sale of Assets -- -- Purchase of Life Insurance (20) (631) Restricted Short Term Investments 153 2,091 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (1,595) (856) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of Long-term Debt 3,946 4,473 Reduction of Long-term Debt (225) (270) Purchase of Treasury Stock -- -- Issuance/Reduction of ESOP Loan (1) (57) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 3,720 4,146 -------- -------- NET CHANGE IN CASH 942 1,981 CASH AT BEGINNING OF QUARTER 310 161 -------- -------- CASH AT END OF QUARTER $ 1,252 $ 2,142 ======== ======== </TABLE> The accompanying notes are an integral part of these condensed financial statements. 7
8 VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited (Note 1) <TABLE> <CAPTION> (Dollar Amounts in Thousands) 6 Months Ended -------------- 7/31/96 7/31/95 ------- ------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) $ 1,909 $ 198 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,930 2,289 Provision for doubtful accounts 262 161 (Gain) Loss on sales of fixed assets 0 61 Change in Assets and Liabilities: Accounts and Notes Receivable (10,650) (6,733) Inventories (1,237) (11,576) Income Taxes Receivable/Payable 1,103 (1,613) Prepaid Expenses and Deposits (397) (642) Other Assets 51 1,272 Accounts Payable and Accrued Expenses (321) 4,099 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES (6,350) (12,484) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (3,723) (5,570) Proceeds from Sale of Assets -- -- Purchase of Life Insurance (600) (610) Restricted Short Term Investments 628 7,339 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (3,695) 1,159 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of Long-term Debt 11,094 13,209 Reduction of Long-term Debt (450) (380) Purchase of Treasury Stock -- -- Issuance/Reduction of ESOP Loan (8) 53 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 10,636 12,882 -------- -------- NET CHANGE IN CASH 591 1,557 CASH AT BEGINNING OF QUARTER 661 585 -------- -------- CASH AT END OF QUARTER $ 1,252 $ 2,142 ======== ======== </TABLE> The accompanying notes are an integral part of these condensed financial statements. 8
9 VIRCO MFG. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 1996 and July 31, 1995 Note 1: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended July 31, 1996 are not necessarily indicative of the results that may be expected for the year ended January 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the year ended January 31, 1996. Note 2. Inventory Year end financial statements reflect inventories verified by physical counts with the material content valued by the LIFO method. At this interim date, there has been no physical verification of inventory quantities. Cost of sales is recorded at current cost. The effect of penetrating LIFO layers is not recorded at interim dates unless the reduction in inventory is expected to be permanent. No such adjustment has been made for the period ended July 31, 1996. Management continually monitors production costs, material costs and inventory levels to determine that interim inventories are fairly stated. Note 3. Income Taxes The Company adopted the provisions of SFAS No. 109. Income taxes for the three and six months periods ended July 31, 1996 were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. 9
10 VIRCO MFG. CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations: For the second quarter of 1996, the Company earned a net profit of $3,348,000 on sales of $72,538,000 compared to a net profit of $1,713,000 on sales of $66,197,000 in the same period last year. The second quarter results are consistent with Virco's seasonal business cycle which produces diminished first quarter sales followed by strong shipments of educational products in the second and third quarters. Sales backlog at July 31, 1996 is approximately $4,000,000 greater than the prior year. Second quarter results reflect an increase in selling prices combined with stable material costs and improvements in production efficiency. Results from the prior year reflected increasing material costs and lagging increases in selling prices. In addition, prior year results reflect production inefficiencies associated with the start up of our new Torrance manufacturing facility. This new facility was operating at anticipated levels of production and efficiency for the current year quarter. Financial Condition: As a result of seasonally high sales activity, accounts receivable increased by $10,664,000 compared to January 31, 1996. In anticipation of strong third quarter educational deliveries, inventory at July 31, 1996 increased by $1,237,000 compared to January 31, 1996. Increases in receivables and inventory were financed through increased borrowings under our revolving line of credit with Wells Fargo Bank. Proceeds from the issuance of an industrial revenue bond were held in trust and reflected as restricted short term investments on the July 31, 1996 and January 31, 1996 balance sheets. The Company withdrew $651,000 from the trust during the first six months of 1996 to fund capital improvements made at the new Torrance facility during the fourth quarter of 1995 and the first two quarters of 1996. 10
11 PART II VIRCO MFG. CORPORATION SUBSIDIARIES Other Information Item 4. Submission of matters to a vote of Security Holders The following is a description of matters submitted to a vote of registrant's stockholders at the Annual Meeting of Stockholders held June 18, 1996: Election of three directors whose term expire in 1999. Votes For --------- James R. Wilburn 4,582,628 Hugh D. Tyler 4,584,418 Donald S. Friesz 4,584,438 Item 6. Exhibits and Reports on Form 8-K. None 11
12 VIRCO MFG. CORPORATION AND SUBSIDIARIES Exhibit (11) - Statement Re: Computation of Earnings Per Share <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------ ----------------- July 31 July 31 ------- ------- 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> Primary: Average Shares Outstanding 5,906,296 5,896,616 5,906,296 5,896,616 Net effect of dilutive stock options - based on the treasury stock method using average market price 69,217 55,734 75,051 57,408 --------- --------- --------- --------- Totals 5,975,513 5,952,350 5,981,347 5,954,024 ========= ========= ========= ========= Net Income 3,348,000 1,713,000 1,909,000 198,000 ========= ========= ========= ========= Per Share Amount .56 .29 .32 .03 ========= ========= ========= ========= </TABLE> Weighted average shares outstanding are adjusted for 10% stock dividend declared August 20, 1996. 12
13 VIRCO MFG. CORPORATION SIGNATURES 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. VIRCO MFG. CORPORATION Date: September 12, 1996 By: /s/ James R. Braam --------------------- -------------------------------- James R. Braam Vice President - Finance Date: September 12, 1996 By: /s/ Robert E. Dose --------------------- -------------------------------- Robert E. Dose Corporate Controller 13