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, 2000April 30, 2001 Commission File Number 1-8777
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VIRCO MFG. CORPORATION
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(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
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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 September 1, 2000.June 12, 2001.
Common Stock 11,338,578 Shares*
* Adjusted for 10% stock dividend declared August 15, 2000, date of record
September 7, 2000, payable September 29, 2000.11,224,680 Shares
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VIRCO MFG. CORPORATION
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - July 31, 2000April 30, 2001 and
January 31, 20002001
Condensed consolidated statements of incomeoperations - Three months
ended July 31,April 30, 2001 and 2000 and 1999.
Condensed consolidated statements of income - Six months ended
July 31, 2000 and 1999.
Condensed consolidated statements of cash flows - SixThree months
ended July 31,April 30, 2001 and 2000 and 1999.
Notes to condensed consolidated financial statements - July 31,
2000April 30,
2001
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market RiskRisk.
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
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PART I1
Item 1. Financial Statements
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
ASSETS 7/31/20004/30/2001 1/31/20002001
------ --------- ---------
Current assets
Cash $ 751485 $ 1,072351
Accounts and notes receivable 58,412 27,58419,000 25,345
Less allowance for doubtful accounts (472)(318) (200)
--------- ---------
Net accounts and notes receivable 57,940 27,38418,682 25,145
Inventories (Note 2)
Finished goods 44,445 35,79531,455 27,009
Work in process 11,354 9,26022,320 14,442
Raw materials and supplies 13,805 12,00318,051 16,588
--------- ---------
Total inventories 69,604 57,05871,826 58,039
Income taxes receivable -- 1,7534,895 2,508
Prepaid expenses and deferred income tax 2,251 2,6592,654 2,930
--------- ---------
Total current assets 130,546 89,92698,542 88,973
Property, plant & equipment
Cost 145,327 136,315154,425 153,504
Less accumulated depreciation (52,685) (48,378)(62,139) (58,859)
--------- ---------
Net property, plant & equipment 92,642 87,93792,286 94,645
Other assets 13,021 13,00015,934 15,931
--------- ---------
Total assets $ 236,209206,762 $ 190,863199,549
========= =========
See notes to condensed consolidated financial statements.
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VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 7/31/20004/30/2001 1/31/20002001
------------------------------------ --------- ---------
Current liabilities
Checks released but not yet cleared bank $ 6,2312,503 $ 4,7862,216
Accounts payable 21,446 19,74916,184 13,930
Accrued compensation and employee benefits 9,073 10,3339,799 10,775
Current maturities on long-term debt 2,049 1,99812,101 12,101
Other current liabilities 5,250 1,6376,152 6,778
--------- ---------
Total current liabilities 44,049 38,50346,739 45,800
Non-current liabilities
Long term debt (less current portion) 77,845 46,02754,510 43,741
Other non-current liabilities 9,354 7,96812,002 11,334
--------- ---------
Total non-current liabilities 87,199 53,99566,512 55,075
Deferred income taxes 4,531 4,5314,533 4,533
Stockholders' equity
Preferred stock:
Authorized 3,000,000 shares, $.01 par value; none issued or outstanding - ---- --
Common stock:
Authorized 25,000,000 shares, $.01 par value; 10,957,77012,032,233 issued at
7/31/20004/30/2001 and 10,952,350 shares issued at 1/31/2000 110 1102001 120 120
Additional paid-in capital 84,637 84,63597,654 97,656
Retained earnings 27,193 20,2426,654 10,645
Less treasury stock at cost (649,972(808,551 shares at 7/31/20004/30/2001 and 621,874749,246
shares at 1/31/2000) (10,975) (10,692)2001) (12,607) (12,009)
Less unearned ESOP shares (115) (41)(696) (696)
Less accumulated comprehensive loss (420) (420)(2,147) (1,575)
--------- ---------
Total stockholders' equity 100,430 93,83488,978 94,141
--------- ---------
Total liabilities and stockholders' equity $ 236,209206,762 $ 190,863199,549
========= =========
See notes to condensed consolidated financial statements.
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VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
Three3 Months Ended
----------------------
7/31/-------------------------
4/30/2001 4/30/2000 7/30/1999
--------- ---------
Restated (Note 1)
Net sales $98,917 $88,224$ 42,457 $ 46,432
Cost of goods sold 66,773 57,756
------- -------30,974 31,951
-------- --------
Gross profit 32,144 30,46811,483 14,481
Operating expense and other:
Selling, general and administrative and other 22,588 18,605
Provision for doubtful accounts 144 266expense 16,572 16,990
Interest expense 1,614 898
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24,346 19,7691,107 1,152
Gain on sale of real estate (24) (7,945)
-------- --------
17,655 10,197
(Loss) Income before income taxes 7,798 10,699and cumulative effect of change in accounting (6,172) 4,284
principle
Income taxes 3,041 4,172
------- -------(benefit) expense (2,407) 1,667
-------- --------
Net (loss) income before cumulative effect of change in accounting principle (3,765) 2,617
Cumulative effect of change in accounting principle -- (297)
-------- --------
Net (loss) income $ 4,757(3,765) $ 6,527
======= =======
Earnings per share2,320
======== ========
AMOUNTS PER COMMON SHARE - BASIC AND ASSUMING DILUTION (a)
(Loss) Income before cumulative effect of change in accounting principle $ .42(.33) $ .57
Earnings per share - assuming dilution.23
Cumulative effect of change in accounting principle -- (.03)
-------- --------
Net (loss) income $ .41(.33) $ .56
Weighted average share outstanding.20
======== ========
DIVIDEND PER COMMON SHARE (a)
11,358 11,485
Weighted average share outstanding - assuming dilution (a) 11,501 11,700
Dividend per share
Cash (a) $ .02 $ .02
(a) Adjusted for 10% stock dividend declared August 15, 2000.2000
See notes to condensed consolidated financial statements.
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VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
Six Months Ended
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7/31/2000 7/30/1999
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Net sales $ 145,175 $ 125,703
Cost of goods sold 98,925 83,874
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Gross profit 46,250 41,829
Selling, general and administrative and other 39,088 32,658
Provision for doubtful accounts 269 384
Interest expense 2,766 1,309
Gain on sale of real estate (7,945) --
--------- ---------
34,178 34,351
Income before income taxes 12,072 7,478
Income taxes 4,708 2,916
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Net income $ 7,364 $ 4,562
========= =========
Earnings per share $ .65 $ .39
Earnings per share - assuming dilution $ .64 $ .39
Weighted average share outstanding (a) 11,361 11,595
Weighted average share outstanding - assuming dilution (a) 11,500 11,810
Dividend per share
Cash (a) $ .04 $ .03
(a) Adjusted for 10% stock dividend declared August 15, 2000.
See notes to condensed consolidated financial statements.
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VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (Note 1)
(Dollar amounts in thousands)
Six3 Months Ended
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7/31/--------------------------
4/30/2001 4/30/2000 7/31/1999
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Restated (Note 1)
Cash flows from operatingOperating activities
Net (loss) income $ 7,364(3,765) $ 4,5622,320
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Cumulative effect of accounting change -- 297
Depreciation 6,320 4,7053,711 3,044
Gain on sale of fixed asets (24) (7,945)
Provision for doubtful accounts 269 384
(Gain)Loss on sales of fixed asset (7,948) 18
Change105 125
Changes in assets and liabilities:
Accounts and notes receivable (30,825) (27,492)6,358 5,790
Inventories (12,546) (8,318)(13,787) (24,579)
Prepaid expenses and deposits 408 202other current assets 657 302
Income taxes receivable/payable 1,743 1,798(2,387) 1,460
Other assets (384) (297)
Accounts payable and accrued expenses 6,891 3,5741,606 1,372
-------- --------
Net cash used in operating activities (28,324) (20,567)
Cash flows from investing(7,910) (18,111)
Investing activities
Capital expenditures (12,466) (15,462)(1,833) (6,139)
Proceeds from sale of fixed assets 9,389 41505 9,385
Net investment in life insurance (21) (1,004)-- (6)
-------- --------
Net cash used in(used in) provided by investing activities (3,098) (16,425)
Cash flows from financing(1,328) 3,240
Financing activities
Issuance of long-term debt 32,810 41,13210,823 15,778
Repayment of long-term debt (941) (1,282)(628) (489)
Purchase of treasury stock (597) (18)
Payment of cash dividend (413) (386)
Purchase of treasury stock (283) (3,051)(226) (207)
Issuance of common stock -- 2
31
Loans(Borrowings) loans to ESOP -- (74) 149
-------- --------
Net cash provided by financing activities 31,101 36,5939,372 14,992
Net change in cash (321) (399)134 121
Cash at beginning of periodquarter 351 1,072 1,086
-------- --------
Cash at end of periodquarter $ 751485 $ 6871,193
======== ========
See notes to condensed consolidated financial statements
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VIRCO MFG. CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31,April 30, 2001 and April 30, 2000
and July 31, 1999
Note 1.1: The accompanying unaudited condensed consolidated financial statements
- ------- have been prepared in accordance with accounting principles generally
accepted accounting
principlesin the United States 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 July
31, 2000April 30, 2001 are not necessarily indicative
of the results that may be expected for the year ended January 31,
2001.2002. The balance sheet at January 31, 20002001 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K
for the year ended January 31, 2001.
During the fourth quarter of fiscal year 2000, the Company changed its
method of accounting for revenue recognition in accordance with Staff
Accounting Bulletin No. 101, "Revenue Recognition in the Financial
Statements." Pursuant to Financial Accounting Standards Board
Statement No. 3, "Reporting Accounting Changes in Interim Financial
Statements," effective February 1, 2000, the Company recorded the
cumulative effect of the accounting change and accordingly, the
quarterly information for the first quarter of 2000, which had
previously been reported, has been restated. Additionally, net sales
and gross profit have been adjusted to reflect reclassifications to
conform to the presentation required by EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs," which the Company also adopted
during the fourth quarter of fiscal year 2000.
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, 2000.April 30, 2001. Management
continually monitors production costs, material costs and inventory
levels to determine that interim inventories are fairly stated.
Note 3. Income Taxes
- ------
Income taxes for the six monthsthree month period ended July 31, 2000April 30, 2001 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
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The weighted-average number of shares used in the computation of net
loss per share was 11,266,000 for the quarter ended April 30, 2001.
The weighted average number of shares used in the computation of basic
net income per share and diluted net income per share were 11,501,00011,362,000
and 11,700,00011,499,000 for the quarter ended July 31,April 30, 2000, and July 31, 1999, respectively. The
weighted average number of shares used in the computation of diluted
net income per share were 11,500,000 and 11,810,000 for the six months
ended July 31, 2000 and July 31, 1999, respectively. Per
share and weighted-average share amounts for the second quarter and six months
ended July 31, 1999April
30, 2000 have been restated to reflect a 10% stock dividend payable on
September 29, 2000 to stockholders of record as of September 7, 2000.
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Comprehensive income (loss) includes net income and(loss), minimum
pension liability adjustments.adjustments and adjustments to account for
derivative financial instruments. Comprehensive (loss) income was
$4,757,000($4,337,000) and $6,527,000$2,320,000 for the quarterquarters ended July 31,April 30, 2001, and
April 30, 2000, and July 31, 1999, respectively.
Comprehensive income was $7,364,000 and $4,562,000 forIn June 1998, the six months
ended July 31, 2000 and July 31, 1999, respectively.
The Financial Accounting Standards Board has issued
Statement of
Financial Accounting Standards (SFAS)No. 133 "Accounting for Derivative Instruments and for Hedging
Activities.Activities," (SFAS 133, as amended by SFAS 133 requires derivatives138), which is required to
be recordedadopted in years beginning after June 15, 2000. The Company has
adopted the new Statement effective February 1, 2001. the Statement
requires the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to
fair value and establishes
special accounting forreflected as income or expense. If the following three typesderivative is a
hedge, depending on the nature of hedges: hedges ofthe hedge, changes in the fair value
of assets, liabilitiesderivatives are either offset against commitments through earnings
or firm commitments
(referred to as fair value hedges); hedgesrecognized in other comprehensive income until the hedge item is
recognized in earnings. The ineffective portion of the variable cash flows
of forecasted transactions (cash flow hedges); and hedges of foreign
currency exposures of net investments in foreign operations. The
accounting treatment and criteria for each of the three types of
hedges is unique. Changesa derivative's
change in fair value of derivatives that do not
meetis immediately recognized in earnings.
The Company enters into interest rate swap contracts to reduce its
exposure to fluctuations in interest rates. At April 30, 2001, the
criteria ofCompany had one of these three categories of hedges would be
included in income.interest rate swap contract which was accounted for as
a cash flow hedge. The transition adjustment to implement SFAS 133
resulted in recording a liability and an offset to Other Comprehensive
Loss which was amended by SFAS 137, which delayed
its effective date. The Company does not believe that adopting this
standard will have a material effect on its financial position,
results$552,000, net of operations and cash flows. Currently, the Company does not
anticipate adopting this standard beforean applicable income tax benefit of
$368,000 at February 1, 2001. There is no impact to current earnings
due to hedge ineffectiveness.
Note 5. Gain on Sale of Real Estate
- -------
On April 25, 2000, the Company finalized the sale of its Torrance,
California, warehouse. The Company received $9,385,000 in cash and
recorded $7,945,000 pre-tax gain on disposition during the quarter
ended April 30, 2000.
Note 6. AmendmentInterest Rate Swap Contract
It is the Company's policy to Credit Facility
- -------
Beginning July 1, 2000,enter into interest rate swap contracts
only to the credit facility with Wells Fargo Bankextent necessary to reduce exposure to fluctuations in
interest rates. The Company does not enter into interest rate swap
contracts for speculative purposes. Interest rate swaps are
contractual agreements between the Company and third parties to
exchange fixed and floating interest payments periodically without the
exchange of the underlying principal amounts (notional amounts). In
the unlikely event that a counterparty fails to meet the terms of an
interest rate swap contract, the Company's exposure is expandedlimited to $90,000,000 from $80,000,000.the
interest rate differential on the notional amount. The maximum principal amount
available under this note shall be reduced automatically on September
30, 2000, and on each January 1, commencing January 1, 2001,Company does
not anticipate non-performance by the counterparty. The Company only
entered into one interest rate swap contract, which matures on March
3, 2002. At April 30, 2001, the notional amount of $10,000,000.the swap was
$20,000,000 with an affixed payment rate of 7.23% and a fluctuating
receiving rate based upon LIBOR.
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At April 30, 2001 the carrying value approximated the fair value of
$953,000. During the quarter ended April 30, 2001, the Company
recorded an additional loss amount of $20,000 net of an applicable
income tax benefit of $13,000, in other comprehensive loss in order to
account for the change in fair value. The fair value of the swap is
estimated on pricing models using current assumptions.
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VIRCO MFG. CORPORATION
ITEMOTHER INFORMATION
Item 4. Submission of matters to a vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
None
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VIRCO MFG. CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS:Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations:
For the secondfirst quarter of 2000,2001, the Company had a net incomeloss of $4,757,000$3,765,000 on sales
of $98,917,000$42,457,000 compared to a net income of $6,527,000$2,320,000 on sales of $88,224,000$46,432,000 in
the same period last year.
Earnings were $.41 per share compared
to $.56 per share in the same period last year, after giving effect to the 10%
stock dividend declared August 15, 2000. For the six months ended July 31, 2000,
the Company earned net income of $7,364,000 on sales of $145,175,000 compared to
net income of $4,562,000 on sales of $125,703,000 in the same period last year.
Earnings were $.64 per share compared to $.39 per share in the same period last
year, after giving effect to the 10% stock dividend declared August 15, 2000.
The second 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. The seasonal
nature of Virco's sales has intensified due to strategic marketing decisions and
changes in the buying pattern of educational customers. Sales for the secondfirst quarter increased $10,693,000decreased $3,975,000 compared to the same period
last year. Backlog at July 31, 2000quarter end was slightly lower$2,600,000 higher compared to the same time lastprior
year. Approximately 75% of the increaseThe decrease in sales for the first six months were from
educational sales and the balance fromwas primarily attributable to a reduction in
commercial sales. The increase in
Education sales was attributableYear to the Company pursuing an aggressive pricing
policy, combineddate incoming orders for publicly funded schools are
running approximately even with a strong market for education products. The increase in
Commercial sales was consistent with prior year's growth in our private school,
hospitality, convention center and church markets. In the prior year, the growth
in these markets was offset by declines in sales to mass merchants. In the
current quarter, there was no such reduction in mass merchant sales.year.
Gross profit for the secondfirst quarter, as a percentage of sales, decreased by 2%4%
compared to the same period last year. During the six months ended July 31,
2000, the Company incurred pressure on margins relating to aggressive pricing to
stimulate sales, cost increases for raw materials and higher labor rates. These
pressures were slightly offset by improved efficiencyThe decline in the manufacturing
facilities. Although factory spending increased compared to the prior year,
production increased by a greater percentage than did factory spending.
Selling, general and administrative expense and other for the quarter ended July
31, 2000margin is approximately $3,983,000 more than the same period last year.
Freight and selling expenses increased as a result of the increased sales volume
and increased shipping and warehousing costs. In addition to reduced margins as
discussed above, the Company invested in additional inventory, customer service
representatives, and installation staff to provide enhanced levels of customer
service and on-time delivery. Administrative expenses increased in large part
due to information technology expenses relating to the SAP Enterprise Resource
Planning System. This system, which went live in March of 1999, has been
enhanced throughout the last year. Some of the enhancements, including sales
force automation and a business to business Website, were not activated until
February 2000.
Interest expense increased by $716,000 dueattributable to
a higher average borrowing balance
and higher interest rates forsignificant reduction in manufacturing hours during the first quarter ended July 31, 2000 compared
to the same period last year. In the prior year, the Company built a large
quantity of finished goods inventory to stock during the first quarter in
anticipation of large deliveries of furniture in the second and third quarters
of 2000. The prior year sales were less than expected, resulting in
disappointing third and fourth quarter results as the Company cut production and
incurred severance costs to reduce its workforce. For the current year, the
Company has maintained a reduced cost structure, employing approximately 400
(15%) fewer employees during the first quarter 2001 compared to the prior year.
At June 1, 2001, the Company is employing approximately 524 (19%) fewer
employees than at the same date last year, reflecting a reduction in summer
hiring. The reduction in production hours resulted in unfavorable production
variances compared to the prior year, but has allowed the Company to
substantially reduce inventories compared to the prior year despite reduced
levels of sales. In addition to reducing total inventory, the Company has more
fully implemented a manufacturing strategy it refers to as "Assemble to Ship".
Under this strategy, the Company builds components to stock instead of building
finished goods to stock. The Company then assembles the finished product as
customer orders determine production quanities and color combinations. The
Company believes that it can support a greater volume and variety of customer
orders with a smaller investment in inventory utilizing this strategy.
Selling, general and administrative expense for the quarter ended April 30, 2001
declined modestly compared to the same period last year.
Interest expense for the quarter ended April 30, 2001 is approximately the same
as last year. The increased borrowings since January 31, 2001 were used to build
inventory in anticipation of seasonally strong summer deliveries offset by a
modest reduction in receivables. In prior year, the increase in borrowings was
attributable to capital spending on the Conway, Arkansas facility expansion and
an increase in inventory.
On April 25, 2000, the Company finalized the sale of its Torrance, California,
warehouse. The Company received $9,385,000 in cash usedand recorded $7,945,000
pre-tax gain on disposition during the quarter ended April 30, 2000.
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Financial Condition:
As a result of seasonally low deliveries in buildingthe first quarter and improvement in
days of sales outstanding, accounts and notes receivable decreased by
approximately $6,463,000 compared to year-end. The Company traditionally builds
large quantities of inventory during the first quarter in anticipation of strong
summer delivery activities.
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FINANCIAL CONDITION:
As a result of seasonally high shipments inshipments. For the secondcurrent quarter, accounts
receivablethe Company increased inventory by
approximately $30,825,000nearly $13,787,000 compared to year-end. In anticipation of strong thirdthe prior year first quarter, deliveries,the
Company increased inventory increased by $12,546,000 compared to year-end.approximately $24,579,000. This increase in accounts receivable and
inventory was financed through the credit facility with Wells Fargo Bank.
In the prior year, the Company completed a significant investment cycle at the
Conway, Arkansas manufacturing faclity. With the completion of this investment,
the Company intends to significantly curtail capital spending. The Company has
established a goal of limiting capital spending to approximately $7,000,000 for
2001, which is approximately one-half of anticipated depreciation expense.
Capital spending for the quarter ended July 31, 2000April 30, 2001 was $12,466,000$1,833,000 compared to
$15,462,000$6,139,000 for the same period last year. For the quarter ended July 31, 2000,
capital investments included machinery and equipment and construction of the
second 400,000 sq. ft. segment of the 800,000 sq. ft. warehouse and distribution
facility in Conway, Arkansas. As discussed in the Company's 1999 annual report,
construction on the first 400,000 sq. ft. segment began in March 1999 and was
completed and fully operational in December 1999. The second 400,000 sq. ft.
segment is in operation as of July 31, 2000. Higher capital spending for the
same period in last year was primarily related to the Conway, Arkansas facility
expansion and SAP project. The Company believes that its investments in
infrastructure and information systems will ultimately deliver improved
operating efficiency. For further discussions on these two projects, please
refer to the Company's 1999 annual report. These capital investments and the
ongoing capitalCapital expenditures are being
financed through credit facilities established with Wells Fargo Bank the sale of real estate, and
operating cash flow. Beginning July 1, 2000, the credit facility with Wells Fargo Bank is
expanded to $90,000,000 from $80,000,000. The maximum principal amount available
under this note shall be reduced automatically on September 30, 2000, and on
each January 1, commencing January 1, 2001, by the amount of $10,000,000. At
July 31, 2000, the Company has approximately $13,733,000 available under its
credit facility with Wells Fargo Bank.
Net cash used in operating activities for the six months ended July 31, 2000 was
$28,324,000 compared to $20,567,000 for the same period last year. The increase
in cash used in operating activities was primarily due to the increase in
inventory and trade receivables partly offset by cash received from the sale of
the Torrance warehouse during the first quarter ended April 30, 2000. Long term
debt was $77,845,000 as of July 31, 2000 compared to $46,027,000 as of January
31, 2000.
In April 1998, the Board of Directors approved a stock buyback program giving
authorization to buy back up to $5,000,000 of common stock. The amount
authorized was subsequently increased to $14,000,000. As of July 31, 2000,April 30, 2001, the
Company has repurchased approximately 617,000777,000 shares at a cost of approximately
$10,509,000$12,100,000 since the inception of this program in April 1998. The Company
intends to continue buying back shares of common stock as long as the Company
believes the shares are undervalued and operating cash flowscashflows and borrowing
capacity under the Wells Fargo line allow.
On August 15, 2000,February 13, 2001, the Company's Board of Directors authorized a 10% stock$.02 per
share cash dividend, payable on September 29, 2000April 30, 2001 to stockholders on record as of
September
7, 2000. In the same meeting, the Board also authorized a $0.02 per share cash
dividend payable on October 31, 2000 to stockholders on record as of October 13,
2000.March 30, 2001. For the six monthsquarter ended July 31, 2000,April 30, 2001, the Company paid $413,000$226,000
in cash dividends.
The Company believes that cash flowscashflows from operations, together with the Company's
unused borrowing capacity with Wells Fargo Bank will be sufficient to fund the
Company's debt service requirements, capital expenditures and working capital
needs.
YEAR 2000 COMPLIANCE
As of the date of this report, the Company has experienced no significant
problems related to the Year 2000 issue. After extensive system verification and
testing, all computerized information and process control systems
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are operating normally. The performance of critical customers and suppliers
continues without notable change. Production and business activities are normal
at all locations. The Company continues to monitor the status of its operations,
suppliers and distribution channels to ensure no significant interruptions.
FORWARD-LOOKING STATEMENTSForward-Looking Statements
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing, including those contained
herein. Such forward-looking statements may be included in, without limitation,
reports to stockholders, press releases; oral statements made with the approval
of an authorized executive officer of the Company and filings with the
Securities and Exchange Commission. The words or phrases "anticipates,"
"expects,`expects," "will continue," "estimates," "projects," or similar expressions are
intended to identify "forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The results contemplated by
the Company's forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to vary materially from
anticipated results, including without limitation, material costs, availability
and cost of labor, demand for the Company's products, and competitive conditions
affecting selling prices and margins, capital costs and general economic
conditions.
Such risks and uncertainties are discussed in more detail in the Company's
Annual Report on Form 10-K for the year ended January 31, 2000.2001.
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The Company's forward-looking statements represent its judgment only on the
dates such statements were made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed or unanticipated
events or circumstances.
ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Quantitative and Qualitative Disclosures about Market Risk.
On February 22, 2000, the Company entered into an interest rate swap agreement
with Wells Fargo Bank. The initial notional swap amount is $30,000,000 for the
period February 22, 2000 through February 29,28, 2001. The notional swap amount
then decreases to $20,000,000 until the end of the swap agreement, March 3,
2003. The swap agreement is in consideration for a fixed rate at 7.23% plus a
fluctuating margin of 1.25% to 1.50%.
As of July 31, 2000,April 30, 2001, the Company has borrowed $71,548,000$59,000,000 under its Wells Fargo
credit facility, of which $30,000,000$20,000,000 is subject to the interest rate swap
agreement as described above and the remaining contain variable interest rates.
Accordingly, a 100 basis point upward fluctuation in the lender's base rate
would cause the Company to incur additional interest charges of approximately
$148,000 per$127,000 for the fiscal quarter and $270,000 for the six months ended July 31, 2000.April 30, 2001. The Company would benefit
from a similar interest savings if the base rate were to fluctuate downward by a
like amount.
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PART II
VIRCO MFG. CORPORATION
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 20, 2000.
Election of three directors whose term expire in 2003.
Votes For
---------
Robert A. Virtue 8,768,150
Donald A. Patrick 8,880,854
Robert K. Montgomery 8,868,823
Item 6. Exhibits and Reports on Form 8-K
Exhibit (11) - Statement re: Computation of Earnings Per Share
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VIRCO MFG. CORPORATION
Exhibit (11) - Statement re: Computation of Earnings Per Share
Three Months Ended
Six Months Ended
July 31 July 31
--------------------- ----------------------April 30
----------------------------
2001 2000 1999 2000 1999
---- ----
---- ----
Diluted earningsEarnings per share
Average shares outstanding 11,358,000 11,485,000 11,361,000 11,595,00011,266,031 11,361,971
Net effect of dilutive stock options - based
on the treasury stock method using average
market price 143,000 215,000 139,000 215,000
------------- 137,482
------------ ------------
-----------
Totals 11,501,000 11,700,000 11,500,000 11,810,000
===========11,266,031 11,499,453
============ ============
===========
Net (loss) income before cumulative effect of change in
accounting principle (a) $ 4,757,000(3,765,000) $ 6,527,000 $ 7,364,000 $ 4,562,000
===========2,617,000
============ ============ ===========
Per share amount before cumulative effect of
change in accounting principle (a) $ .41(.33) $ .56 $ .64 $ .39
===== ====== ====== =====.23
============ ============
Weighted average shares outstanding for the three months and six months ended July 31, 1999 wereApril 30, 2000
are adjusted for 10% stock dividend declared August 15, 2000. For the quarter
ended April 30, 2001, 116,742 shares of common stock equivalents were not
included in the denominator to calculate earning per share since the Company had
a loss in this quarter and including these shares would have been anti-dilutive.
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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, 2000June 13, 2001 By: /s/ Robert E. Dose
----------------------- ------------------------------------------------------------- ----------------------------
Robert E. Dose
Vice President - Finance
Date: September 12, 2000June 13, 2001 By: /s/ Bassey Yau
----------------------- ------------------------------------------------------------- ----------------------------
Bassey Yau
Corporate Controller
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