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 April 30, 1997 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 May 22, 1997. 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 - April 30, 1997 and January 31, 1997. Condensed consolidated statements of income - Three months ended April 30, 1997 and 1996. Condensed consolidated statements of cash flows - Three months ended April 30, 1997 and 1996. Notes to condensed consolidated financial statements - April 30, 1997. 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) <TABLE> <CAPTION> (Dollar amounts in thousands) ASSETS 4/30/97 1/31/97 --------- --------- <S> <C> <C> Current assets Cash $ 1,314 $ 722 Accounts and notes receivable 21,686 25,610 Less allowance for doubtful accounts (205) (100) --------- --------- Net accounts and notes receivable 21,481 25,510 Income taxes receivable - - Inventories (note 2) Finished goods 39,029 26,902 Work in process 8,200 6,402 Raw materials and supplies 12,970 10,340 --------- --------- Total inventories 60,199 43,644 Prepaid expenses and deferred income tax 3,178 2,812 --------- --------- Total current assets 86,172 72,688 Restricted short-term investment 665 660 Property, plant & equipment Cost 81,364 79,666 Less accumulated depreciation (43,878) (42,188) --------- --------- Net property, plant & equipment 37,486 37,478 Other assets 7,593 7,194 --------- --------- $ 131,916 $ 118,020 ========= ========= </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) <TABLE> <CAPTION> (Dollar amounts in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY 4/30/97 1/31/97 --------- --------- <S> <C> <C> Current liabilities Checks released but not yet cleared bank $ 2,785 $ 4,790 Accounts payable 12,262 11,029 Income taxes payable 418 317 Current maturities on long-term debt 980 980 Other current liabilities 9,232 10,429 --------- --------- Total current liabilities 25,677 27,545 Non-current liabilities Long term debt (less current portion) 36,787 21,513 Other non-current liabilities 3,883 3,883 --------- --------- Total non-current liabilities 40,670 25,396 Deferred income taxes 1,114 1,114 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; 5,906,296 Shares issued at 4/30/97 and 1/31/97 59 59 Additional paid-in capital 50,104 50,104 Retained earnings 14,602 14,251 Less treasury stock at cost (22,389 Shares) (172) (172) Loan to ESOP trust (138) (277) --------- --------- Total shareholders' equity 64,455 63,965 --------- --------- $ 131,916 $ 118,020 ========= ========= </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, except per share data) 3 Months Ended ---------------------------- 4/30/97 4/30/96 ----------- ----------- <S> <C> <C> Net sales $ 40,958 $ 36,745 Cost of goods sold 27,757 27,366 ----------- ----------- Gross profit 13,201 9,379 Shipping, selling, general and administrative expense 11,781 10,888 Provision for doubtful accounts 127 110 Interest expense 487 740 ----------- ----------- 12,395 11,738 ----------- ----------- Income/(loss) before income taxes 806 (2,359) Income taxes/(benefits) 307 (920) ----------- ----------- Net income/(loss) $ 499 $ (1,439) =========== =========== Earnings/(loss) per share .08 (.24) Weighted average shares outstanding (Adjusted for 10% stock dividends Declared August 20, 1996.) 6,030,824 5,906,296 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 CASH FLOWS Unaudited (note 1) <TABLE> <CAPTION> (Dollar amounts in thousands) 3 Months Ended -------------------- 4/30/97 4/30/96 -------- -------- <S> <C> <C> Cash flows from operating activities Net income (loss) $ 499 $ (1,439) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,690 1,468 Provision for doubtful accounts 120 110 (Gain)/loss on sales of fixed assets - - Change in assets and liabilities: Accounts and notes receivable 3,909 4,905 Inventories (16,555) (5,548) Prepaid expenses and deposits (366) (213) Income taxes receivable/payable 101 (928) Other assets 300 17 Accounts payable and accrued expenses (1,969) (3,539) -------- -------- Net cash used In operating activities (12,271) (5,167) Cash flows from investing activities Capital expenditures (1,698) (1,995) Proceeds from sale of assets - - Net investment in life insurance (699) (580) Restricted short term investments (5) 475 -------- -------- Net cash used in investing activities (2,402) (2,100) Cash flows from financing activities Issuance of long-term debt 15,398 7,148 Repayment of long-term debt (123) (225) Payment of cash dividend (148) - Loans to ESOP 138 (7) -------- -------- Net cash provided by financing activities 15,265 6,916 Net change in cash 592 (351) Cash at beginning of quarter 722 661 -------- -------- Cash at end of quarter $ 1,314 $ 310 ======== ======== </TABLE> The accompanying notes are an integral part of these condensed financial statements. 6
7 VIRCO MFG. CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1997 and April 30, 1996 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 month period ended April 30, 1997 are not necessarily indicative of the results that may be expected for the year ended January 31, 1998. 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, 1997. 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 April 30, 1997. 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 Statement of Financial Accounting Standards (SFAS) No 109. Income taxes for the three month period ended April 30, 1997 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. Note 4. Significant Accounting Policies Net Income/Loss Per Common Share. The per share data for the three month periods ended April 30, 1997 are based on the weighted average number of common and common share equivalents outstanding during the period. Stock options are considered common share equivalents if dilutive. Recent Developments. In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, Earnings Per Share, which is effective for annual and interim financial statements issued for periods ending after December 15, 1997 and early adoption is not permitted. When adopted, the statement will require restatement of prior years; earnings per share ("EPS"), SFAS 128 was issued to simplify the standards for calculating EPS previously found in APB No. 15, Earnings Per Share, SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS. The new rules also require dual 7
8 presentation of basic and diluted EPS on the face of the statement of operations for companies with a complex capital structure. For the Company, basic EPS will exclude the dilutive effects of stock options and warrants. Diluted EPS for the Company will reflect all potential dilutive securities. Under the provisions of SFAS 128, basic and dilutive EPS would have been substantially the same as the reported amounts. Note 5. On May 28, 1997, the Company announced that the Virsan Mexico manufacturing facility would be shut down, and the related property, plant, equipment, and inventory either sold or transferred to other Virco manufacturing facilities. As more fully discussed in the Management's Discussion and Analysis, the Company expects to take a $3,000,000 pre-tax charge in the second quarter related to this plant closure. 8
9 VIRCO MFG. CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations: For the first quarter of 1997, the Company earned a net profit from continuing operations of $499,000 on sales of $40,958,000 compared to a net loss from continuing operations of $1,439,000 on sales of $36,745,000 in the same period last year. The volume of first quarter sales 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. The increase in sales compared to the prior year is attributable to both increases in volume and to increased selling prices. The significant improvement in profitability is attributable to a marked improvement in gross margin from 25.5% in the first quarter of 1996 to 32.2% in the first quarter of 1997. The current quarter margin is a continuation of trends which began in the second quarter of 1996 and continued through the last three quarters of 1996. During that period, the gross margin averaged approximately 30.4%. For the first quarter of this year, the increase in gross margin is attributable to increases in selling prices (as mentioned above) combined with a reduction in manufacturing costs. In late May the Company discontinued negotiations with a potential buyer of the Company's Virsan manufacturing facility which is located in Mexico. On May 28, 1997, the Company announced its intent to discontinue operations at this facility effective August 30, 1997. Property, plant, equipment, and inventory at this location will be transferred to other Virco manufacturing facilities or will be sold. The production requirements from this facility will be transferred to the Torrance, CA and Conway, AR manufacturing plants. It is anticipated that all of the employees at this site (approximately 550) will be terminated. As a result of this decision, the Company expects to incur a one time $3,000,000 pre-tax charge to earnings in the second quarter of the current year. The primary component of this charge is related to severance benefits which will be paid to the employees in accordance with Mexican law. Other components of this charge include voluntary severance payments to U.S. employees which work at this facility, carrying costs incurred while liquidating the real estate and production equipment, and other miscellaneous costs associated with the shutdown. Financial Condition: As a result of seasonally low deliveries in the first quarter, accounts and notes receivable decreased by approximately $4,030,000. In anticipation of strong summer deliveries, inventory was increased by nearly $16,550,000. The increase in inventory during the first quarter of 1997 was significantly greater than the increase in inventory in the comparable quarter last year. In the prior year, the Company intentionally reduced the volume of lower margin business with mass merchants, and reduced the inventories of related product lines. This reduction in inventory for mass merchants partially offset the seasonal increase of educational product. In the current year the Company accelerated this seasonal build up of educational product and is targeting increased inventories of certain product lines. This increase in inventory was financed through the credit facility with Wells Fargo Bank. 9
10 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 10
11 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: June 3, 1997 By: /s/ JAMES R. BRAAM ----------------- --------------------------------------- James R. Braam Vice President - Finance Date: June 3, 1997 By: /s/ ROBERT E. DOSE ----------------- --------------------------------------- Robert E. Dose Corporate Controller 11