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 October 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 November 22, 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 - October 31, 1996 and January 31, 1996. Condensed consolidated statements of income - Three months ended October 31, 1996 and 1995. Condensed consolidated statements of income - Nine months ended October 31, 1996 and 1995. Condensed consolidated statements of cash flows - Three months ended October 31, 1996 and 1995. Condensed consolidated statements of cash flows - Nine months ended October 31, 1996 and 1995. Notes to condensed consolidated financial statements - October 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
3 PART 1 <TABLE> <CAPTION> Item 1. Financial Statements VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (Note 1) (Dollar Amounts in Thousands) ASSETS 10/31/96 1/31/96 ------ -------- ------- <S> <C> <C> Current Assets Cash $ 43 $ 661 Accounts and Notes Receivable 35,489 28,102 Less Allowance for Doubtful Accounts (678) (100) --------- --------- Net Accounts and Notes Receivable 34,811 28,002 Income Taxes Receivable - 197 Inventories (Note 2) Finished Goods 17,724 22,585 Work in Process 6,340 6,949 Raw Materials and Supplies 9,337 13,486 --------- --------- Total Inventories 33,401 43,020 Prepaid Expenses and Deferred Income Tax 3,086 2,742 --------- --------- Total Current Assets 71,341 74,622 Restricted Short-term Investment 652 1,272 Property, Plant & Equipment Cost 78,741 73,693 Less Accumulated Depreciation (41,322) (36,738) --------- --------- Net Property, Plant & Equipment 37,419 36,955 Other Assets 6,988 6,376 --------- --------- $ 116,400 $ 119,225 ========= ========= </TABLE> The accompanying notes are an integral part of these condensed financial statements.
4 VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (Note 1) <TABLE> <CAPTION> (Dollar Amounts in Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY 10/31/96 1/31/96 ------------------------------------ -------- ------- <S> <C> <C> Current Liabilities Checks Released But Not Yet Cleared Bank $ 3,447 $ 3,545 Accounts Payable 10,912 10,199 Income Taxes Payable 2,282 - Current Maturities on Long Term Debt 924 924 Other Current Liabilities 13,001 8,634 --------- --------- Total Current Liabilities 30,566 23,302 Non-Current Liabilities Long Term Debt (Less Current Portion) 19,698 35,909 Other Non-Current Liabilities 3,991 3,991 --------- --------- Total Non-Current Liabilities 23,689 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 10/31/96 and 1/31/96 59 54 Additional Paid-In Capital 50,104 42,055 Retained Earnings 12,078 13,717 Less Treasury Stock at cost (22,389 Shares) (172) (172) Unearned ESOP Shares (486) (193) --------- --------- Total Shareholders' Equity 61,583 55,461 --------- --------- $ 116,400 $ 119,225 ========= ========= </TABLE> The accompanying notes are an integral part of these condensed financial statements.
5 VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited (Note 1) <TABLE> <CAPTION> (Dollar Amounts in Thousands) 3 Months Ended -------------- 10/31/96 10/31/95 -------- -------- <S> <C> <C> Net Sales $ 79,834 $ 74,613 Cost of Goods Sold 54,802 55,433 --------- --------- Gross Profit 25,032 19,180 Shipping, Selling, General and Administrative Expense 16,085 13,505 Interest Expense 626 903 Provision for Doubtful Accounts 241 267 --------- --------- 16,952 14,675 --------- --------- Income Before Taxes on Income 8,080 4,505 Taxes on Income (2,983) (1,757) --------- --------- Net Income $ 5,097 $ 2,748 ========= ========= Earnings Per Share: Net Earnings Per Share $ 0.85 $ 0.46 ========= ========= Weighted Average Shares Outstanding (Adjusted for 10% Stock Dividends Declared August 20, 1996. 6,012,875 5,981,582 ========= ========= Dividend Declared .10 .04 ========= ========= Cash (Per Share) .10% 10% ========= ========= Stock </TABLE> The accompanying notes are an integral part of these condensed financial statements.
6 VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Unaudited (Note 1) <TABLE> <CAPTION> (Dollar Amounts in Thousands) 9 Months Ended -------------- 10/31/96 10/31/95 -------- -------- <S> <C> <C> Net Sales $ 189,117 $ 177,735 Cost of Goods Sold 133,600 131,545 --------- --------- Gross Profit 55,517 46,190 Shipping, Selling, General and Administrative Expense 41,485 38,167 Provision for Doubtful Accounts 567 529 Interest Expense 2,255 2,664 --------- --------- 44,307 41,360 --------- --------- Income before Taxes on Income 11,210 4,830 Taxes on Income (4,204) (1,884) --------- --------- Net Income $ 7,006 $ 2,946 ========= ========= Earnings Per Share: Net Earnings Per Share: $ 1.17 $ 0.49 ========= ========= Weighted Average Shares Outstanding (Adjusted for 10% Stock Dividend Declared August 20, 1996.) 5,994,727 5,970,368 ========= ========= Dividend Declared Cash (Per Share) .10 .04 ========= ========= Stock 10% 10% ========= ========= </TABLE> The accompanying notes are an integral part of these condensed financial statements.
7 VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited (Note 1) <TABLE> <CAPTION> (Dollar Amounts in Thousands) 3 Months Ended -------------- 10/31/96 10/31/95 -------- -------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 5,097 $ 2,748 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,123 1,666 Provision for Doubtful Accounts 305 276 Loss on Sale of Fixed Assets 0 5 Change in Assets and Liabilities: Accounts and Notes Receivable 3,448 (861) Inventories 10,856 14,917 Income Taxes Receivable/Payable 1,376 1,611 Prepaid Expenses and Deposits 53 (20) Other Assets 2 (595) Accounts Payable and Accrued Expenses 5,303 (6,664) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 28,563 13,083 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (1,968) (2,282) Purchase of Life Insurance (65) (1,096) Restricted Short Term Investments (8) (14) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (2,041) (3,392) CASH FLOWS FROM FINANCING ACTIVITIES Reduction of Long-term Debt (26,855) (11,193) Sale of Treasury Stock 0 66 Issuance of ESOP Loan (285) (47) Cash Dividend (591) (215) --------- --------- NET CASH USED IN FINANCING ACTIVITIES (27,731) (11,389) --------- --------- NET CHANGE IN CASH (1,209) (1,698) CASH AT BEGINNING OF QUARTER 1,252 2,142 --------- --------- CASH AT END OF QUARTER $ 43 $ 444 ========= ========= </TABLE> The accompanying notes are an integral part of these condensed financial statements.
8 VIRCO MFG. CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited (Note 1) <TABLE> <CAPTION> (Dollar Amounts in Thousands) 9 Months Ended -------------- 10/31/96 10/31/95 -------- -------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 7,006 $ 2,946 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 5,053 3,955 Provision for Doubtful Accounts 567 437 Loss on Sale of Fixed Assets 0 66 Change in Assets and Liabilities: Accounts and Notes Receivable (7,202) (7,594) Inventories 9,619 3,341 Income Taxes Receivable/Payable 2,479 (2) Prepaid Expenses and Deposits (344) (662) Other Assets 53 677 Accounts Payable and Accrued Expenses 4,982 (2,565) ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 22,213 599 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (5,691) (7,852) Purchase of Life Insurance (665) (1,706) Restricted Short Term Investments 620 7,325 ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES (5,736) (2,233) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of Long-term Debt 0 2,297 Reduction of Long-term Debt (16,211) (661) Sale of Treasury Stock 0 66 (Issuance) Reduction of ESOP Loan (293) 6 Cash Dividend (591) (215) ---------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (17,095) 1,493 ---------- ---------- NET CHANGE IN CASH (618) (141) CASH AT BEGINNING OF YEAR 661 585 ---------- ---------- CASH AT END OF QUARTER $ 43 $ 444 ========== ========== </TABLE> The accompanying notes are an integral part of these condensed financial statements.
9 VIRCO MFG. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS October 31, 1996 and October 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 nine month periods ended October 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 October 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 effective February 1, 1993. Income taxes for the three and nine months periods ended October 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.
10 VIRCO MFG. CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (a) Results of Operations: For the third quarter of 1996, the Company earned a net profit of $5,097,000 on sales of $79,834,000 compared to a net profit of $2,748,000 on sales of $74,613,000 in the same period last year. For the nine months ended October 31, 1996, the Company earned a net profit of $7,006,000 on sales of $189,117,000 compared to a net profit of $2,946,000 on sales of $177,735,000 in the prior year. The third quarter and year to date results are consistent with Virco's seasonal business cycle, which produces diminished first quarter sales followed by strong second and third quarter deliveries of educational furniture. Third quarter results reflected primarily the same positive factors as those which contributed to the record second quarter. The improved earnings reflect more stable raw material prices, continued improvement in production efficiencies, and continued focus on products offering greater profit potential. Prior year third quarter and year to date results were characterized by increasing material costs accompanied by lagging increases in selling prices. Prior year to date results also reflect production costs associated with the start up of the new Torrance manufacturing facility in the second quarter of 1995. Sales backlog at the end of the third quarter is slightly below the level at same date last year. The Company has signed a letter of intent to dispose of its Virsan manufacturing facility in San Luis Rio Colorado, Sonora, Mexico to a U.S. based company pending conclusion of a definitive agreement by the two parties. The overall terms would have no material impact on the Company's earnings for 1996 or beyond. Earlier negotiations with Crown 2000 to sell this facility were discontinued due to lack of progress in developing a definitive purchase agreement. (b) Financial Condition: Our credit agreement with Wells Fargo Bank expires on October 1, 1997. Virco has received a written commitment from Wells Fargo to amend this agreement to extend the expiration date to October 1, 1999. The amended line of credit will continue to provide loans at the Wells Fargo prime interest rate as well as allow the Company the option to borrow under 30, 60, and 90 day fixed term rates at LIBOR plus 1.75%. The amended line will continue to provide the Company with a $49,500,000 line of credit with a letter of credit subfeature. The primary change in the new line is that Wells Fargo will extend their commitment for a three year period instead of a two year period under the prior agreement. The new agreement also includes modifications to the loan covenants, none of which will impact our operations or ability to pay dividends. As of October 31, 1996, we had $35,866,000 available under the terms of the line of credit. Finally, we have arranged with General Electric Capital Corporation to lease up to $3,000,000 of equipment under operating leases. These leases will be used as necessary to obtain capital equipment at our Torrance manufacturing facility, where capital improvements are restricted under the terms of the Industrial Revenue Bond through the fall of 1997. As a result of seasonally high third quarter deliveries, receivables increased by $7,000,000 compared to January 31, 1996. Inventory decreased by more than $9,000,000 from January 31, 1996 due to seasonally high third quarter sales. With the completion of the Torrance manufacturing facility in 1995, capital expenditures have returned to a more normal level. Borrowings have decreased significantly compared to January 31, 1996 due to the $7,000,000 of profits, the reduction in inventory, increase in accrued liabilities.
11 PART II VIRCO MFG. CORPORATION SUBSIDIARIES Other Information Item 4. Submission of matters to a vote of Security Holders None Item 6. Exhibits and Reports on Form 8-K. None
12 VIRCO MFG. CORPORATION AND SUBSIDIARIES Exhibit (11) - Statement Re: Computation of Earnings Per Share <TABLE> <CAPTION> Three Months Ended Nine Months Ended ------------------ ----------------- October 31 October 31 ---------- ---------- 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> Primary: Average Shares Outstanding 5,906,296 5,906,296 5,906,296 5,906,296 Net effect of dilutive stock options - based on the treasury stock method using average market price. 106,579 75,286 88,431 64,072 --------- --------- --------- --------- Totals 6,012,875 5,981,582 5,994,727 5,970,368 ========= ========= ========= ========= Net Income 5,097,000 2,748,000 7,006,000 2,946,000 ========= ========= ========= ========= Per Share Amount .85 .46 1.17 .49 ========= ========= ========= ========= </TABLE> Weighted average shares outstanding are adjusted for 10% stock dividend declared August 20, 1996.
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: By: ------------------- ------------------------------------ James R. Braam Vice President - Finance Date: By: ------------------- ------------------------------------ Robert E. Dose Corporate Controller