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, 2000April 30, 2001 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 December 1, 2000.June 12, 2001.
Common Stock 11,344,694 Shares*
* Adjusted for 10% stock dividend declared August 15, 2000, date of record
September 7, 2000, payable September 29, 2000.11,224,680 Shares
2
VIRCO MFG. CORPORATION
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - October 31, 2000April 30, 2001 and
January 31, 20002001
Condensed consolidated statements of incomeoperations - Three months
ended October 31,April 30, 2001 and 2000 and 1999
Condensed consolidated statements of income - Nine months
ended October 31, 2000 and 1999
Condensed consolidated statements of cash flows - NineThree months
ended October 31,April 30, 2001 and 2000 and 1999
Notes to condensed consolidated financial statements - October 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
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit (11) - Statement re: Computation of Earnings Per Share
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 10/31/20004/30/2001 1/31/20002001
------ ------------------- ---------
Current assets
Cash $ 359485 $ 1,072351
Accounts and notes receivable 45,238 27,58419,000 25,345
Less allowance for doubtful accounts (429)(318) (200)
--------- ---------
Net accounts and notes receivable 44,809 27,38418,682 25,145
Inventories (Note 2)
Finished goods 27,546 35,79531,455 27,009
Work in process 10,706 9,26022,320 14,442
Raw materials and supplies 12,911 12,00318,051 16,588
--------- ---------
Total inventories 51,163 57,05871,826 58,039
Income taxes receivable -- 1,7534,895 2,508
Prepaid expenses and deferred income tax 2,050 2,6592,654 2,930
--------- ---------
Total current assets 98,381 89,92698,542 88,973
Property, plant & equipment
Cost 149,784 136,315154,425 153,504
Less accumulated depreciation (55,534) (48,378)(62,139) (58,859)
--------- ---------
Net property, plant & equipment 94,250 87,93792,286 94,645
Other assets 13,025 13,00015,934 15,931
--------- ---------
Total assets $ 205,656206,762 $ 190,863199,549
========= =========
See notes to condensed consolidated financial statements.
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4
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 10/31/20004/30/2001 1/31/20002001
------------------------------------ ------------------- ---------
Current liabilities
Checks released but not yet cleared bank $ 4,7982,503 $ 4,7862,216
Accounts payable 11,152 19,74916,184 13,930
Accrued compensation and employee benefits 8,784 10,3339,799 10,775
Current maturities on long-term debt 2,049 1,998
Income tax payable 2,283 --12,101 12,101
Other current liabilities 4,836 1,6376,152 6,778
--------- ---------
Total current liabilities 33,902 38,50346,739 45,800
Non-current liabilities
Long term debt (less current portion) 54,711 46,02754,510 43,741
Other non-current liabilities 8,306 7,96812,002 11,334
--------- ---------
Total non-current liabilities 63,017 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; 11,992,24412,032,233 issued at
10/31/20004/30/2001 and 10,952,350 shares issued at 1/31/20002001 120 110120
Additional paid-in capital 97,416 84,63597,654 97,656
Retained earnings 18,459 20,2426,654 10,645
Less treasury stock at cost (660,786(808,551 shares at 10/31/20004/30/2001 and 621,874749,246
shares at 1/31/2000) (11,125) (10,692)2001) (12,607) (12,009)
Less unearned ESOP shares (244) (41)(696) (696)
Less accumulated comprehensive loss (420) (420)(2,147) (1,575)
--------- ---------
Total stockholders' equity 104,206 93,83488,978 94,141
--------- ---------
Total liabilities and stockholders' equity $ 205,656206,762 $ 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
--------------------------
10/31/-------------------------
4/30/2001 4/30/2000
10/31/1999
---------- ------------------- ---------
Restated (Note 1)
Net sales $ 95,86642,457 $ 93,89546,432
Cost of goods sold 67,550 60,21230,974 31,951
-------- --------
Gross profit 28,316 33,68311,483 14,481
Operating expense and other:
Selling, general and administrative and other 23,978 22,661
Provision for doubtful accounts (52) --expense 16,572 16,990
Interest expense 1,491 506
Other income (4,052) --1,107 1,152
Gain on sale of real estate (24) (7,945)
-------- --------
21,365 23,16717,655 10,197
(Loss) Income before income taxes 6,951 10,516and cumulative effect of change in accounting (6,172) 4,284
principle
Income taxes 2,711 4,102(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 $ 4,240(3,765) $ 6,4142,320
======== ========
Earnings per shareAMOUNTS PER COMMON SHARE - BASIC AND ASSUMING DILUTION (a)
(Loss) Income before cumulative effect of change in accounting principle $ .37(.33) $ .56
Earnings per share - assuming dilution.23
Cumulative effect of change in accounting principle -- (.03)
-------- --------
Net (loss) income $ .37(.33) $ .55
Weighted average shares outstanding.20
======== ========
DIVIDEND PER COMMON SHARE (a)
11,335 11,446
Weighted average shares outstanding - assuming dilution (a) 11,487 11,658
Dividend per share
Cash (a) $ .02 $ .02
Stock 10% 10%
(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 INCOMECASH FLOWS
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)thousands)
Nine3 Months Ended
---------------------------
10/31/--------------------------
4/30/2001 4/30/2000
10/31/1999
---------- ------------------- ---------
Restated (Note 1)
Operating activities
Net sales $ 241,041 $ 219,598
Cost of goods sold 166,475 144,086
--------- ---------
Gross profit 74,566 75,512
Selling, general and administrative and other 63,066 55,322
Provision for doubtful accounts 217 381
Interest expense 4,257 1,815
Gain on sale of real estate (7,945) --
Other income (4,052) --
--------- ---------
55,543 57,518
Income before income taxes 19,023 17,994
Income taxes 7,419 7,018
--------- ---------
Net(loss) income $ 11,604(3,765) $ 10,976
========= =========
Earnings per share $ 1.02 $ .95
Earnings per share - assuming dilution $ 1.01 $ .94
Weighted average shares outstanding (a) 11,360 11,523
Weighted average shares outstanding - assuming dilution (a) 11,501 11,738
Dividend per share
Cash (a) $ .06 $ .05
Stock 10% 10%
(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) Nine Months Ended
-------------------------
10/31/2000 10/31/1999
---------- ----------
Cash flows from operating activities
Net income $ 11,604 $ 10,9762,320
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Cumulative effect of accounting change -- 297
Depreciation 9,838 7,1983,711 3,044
Gain on sale of fixed asets (24) (7,945)
Provision for doubtful accounts 217 381
(Gain)Loss on sales of fixed assets (7,950) 175
Change105 125
Changes in assets and liabilities:
Accounts and notes receivable (17,642) (18,762)6,358 5,790
Inventories 5,895 3,631(13,787) (24,579)
Prepaid expenses and deposits 609 253other current assets 657 302
Income taxes receivable/payable 4,036 2,371(2,387) 1,460
Other assets (384) (297)
Accounts payable and accrued expenses (6,608) 3,9521,606 1,372
-------- --------
Net cash used in operating activities (7,910) (18,111)
Investing activities
Capital expenditures (1,833) (6,139)
Proceeds from sale of fixed assets 505 9,385
Net investment in life insurance -- (6)
-------- --------
Net cash (used in) provided by operating activities (1) 10,175
Cash flows from investing activities Capital expenditures (18,331) (26,343)
Proceeds from sale of fixed assets 10,130 41
Net investment in life insurance (14) (1,046)
-------- --------
Net cash used in investing activities (8,215) (27,348)
Cash flows from financing(1,328) 3,240
Financing activities
Issuance of long-term debt 10,252 24,56310,823 15,778
Repayment of long-term debt (1,517) (1,690)(628) (489)
Purchase of treasury stock (597) (18)
Payment of cash dividend (608) (592)
Purchase of treasury stock (433) (3,741)(226) (207)
Issuance of common stock 12 31
Loans-- 2
(Borrowings) loans to ESOP (203) 54-- (74)
-------- --------
Net cash provided by financing activities 7,503 18,6259,372 14,992
Net change in cash (713) 1,452134 121
Cash at beginning of periodquarter 351 1,072 1,086
-------- --------
Cash at end of periodquarter $ 359485 $ 2,5381,193
======== ========
See notes to condensed consolidated financial statements.statements
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VIRCO MFG. CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31,April 30, 2001 and April 30, 2000 and October 31, 1999
Note 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 October 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 October 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 nine monthsthree month period ended October 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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8
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 was 11,487,000were 11,362,000
and 11,658,00011,499,000 for the quarter ended October 31,April 30, 2000, and October 31, 1999, respectively. The
weighted average number of shares used in the computation of diluted
net income per share was 11,501,000 and 11,738,000 for the nine months
ended October 31, 2000 and October 31, 1999, respectively. Per
share and weighted-average share amounts for the three months and nine
monthsquarter ended October 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.
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
$4,240,000($4,337,000) and $6,414,000$2,320,000 for the quarterquarters ended October 31,April 30, 2001, and
April 30, 2000, and October 31, 1999, respectively.
Comprehensive income was $11,604,000 and $10,976,000 forIn June 1998, the nine
months ended October 31, 2000 and October 31, 1999, respectively.
8
9
The Financial Accounting Standards Board has issued
Statement of
Financial Accounting Standards (SFAS)No. 133 "Accounting for Derivative Instruments and for Hedging
Activities," (SFAS 133, as amended by SFAS No. 138
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities-an Amendment of FASB Statement 133." SFAS 133, as amended,
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 meet the criteria of one of these three categories of
hedges would be includedis immediately recognized in income.earnings.
The Company does not believe that
adopting this standard will have a material effect onenters into interest rate swap contracts to reduce its
financial
position, results of operations and cash flows. Currently,exposure to fluctuations in interest rates. At April 30, 2001, the
Company does not anticipate adopting this standard beforehad one 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 $552,000, net of an applicable income tax benefit of
$368,000 at February 1, 2001,
the required effective date.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements, which summarizes the SEC Staff's views on applying certain
generally accepted accounting principles2001. There is no impact to revenue recognition in
financial statements. Additionally, the Company is considering the
effect of Emerging Issues Task Force (EITF) No. 00-10, Accounting for
Shipping and Handling Fees and Costs, which addresses in a sale
transaction for goods, how the seller should classify amounts billed
and incurred for shipping and handling in the income statement and the
composition or types of costs that would be requiredcurrent earnings
due to be classified
as costs of goods sold. The Company does not believe that these
pronouncements will have a material effect on its revenue recognition
policies or on net income. The Company plans to make any required
reclassifications of amounts billed and incurred for shipping and
handling in the fourth quarter of the fiscal year ending January 31,
2001.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 a $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
On July 1, 2000,enter into interest rate swap contracts
only to the credit facility with Wells Fargo Bank was
expandedextent necessary to $90,000,000 from $80,000,000.reduce exposure to fluctuations in
interest rates. The maximumCompany 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 amount
available under this note was reduced by $10,000,000amounts (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 limited to the
interest rate differential on September 30,
2000 and shall be reduced automatically on January 1, 2001 and
January 1, 2002,the notional amount. The 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.
Note 7. Other Income
In October 2000,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
entered into a confidential settlementrecorded an additional loss amount of a dispute involving past services related to the installation$20,000 net of non-manufacturing equipment for which it received a final cash payment
in November 2000. This payment is a non-recurring amount unrelated to
the Company's ongoing operations. In the third quarter October 31,
2000, the Company recognized $4,052,000an applicable
income tax benefit of $13,000, in other income from this
settlement.
Note 8. Subsequent Eventcomprehensive 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.
9
10
SubsequentVIRCO MFG. CORPORATION
OTHER INFORMATION
Item 4. Submission of matters to the quarter ended October 31, 2000, the Company embarkeda vote of Security Holders
None
Item 6. Exhibits and Reports on a program to consolidate many of the functions currently performed
by its Conway and Torrance divisions. Beginning in the fourth quarter
of 2000 and continuing through 2001, the Company will be consolidating
the staffs and activities of its division accounting, engineering,
purchasing, customer service, and human resources departments. At the
same time, the Company will be converting the Torrance and Conway
divisions to cost centers instead of profit centers. The consolidation
involves the immediate layoff of approximately 140 employees at both
divisions. The cost of severance packages associated with the layoff,
which will be recorded in the fourth quarter of this year ending
January 31, 2001, is expected to be approximately $750,000 to
$1,000,000.Form 8-K
None
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11
VIRCO MFG. CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations:
For the thirdfirst quarter ended October 31, 2000,of 2001, the Company earnedhad a net loss of $3,765,000 on sales
of $42,457,000 compared to a net income of $4,240,000$2,320,000 on sales of $95,866,000 compared to net income of $6,414,000 on sales
of $93,895,000$46,432,000 in
the same period last year.
Earnings were $.37 per share
compared to $.55 per share in the same period last year, after giving effect to
the 10% stock dividend declared August 15, 2000. For the nine months ended
October 31, 2000, the Company earned net income of $11,604,000 on sales of
$241,041,000 compared to net income of $10,976,000 on sales of $219,598,000 in
the same period last year. Earnings were $1.01 per share compared to $.94 per
share in the same period last year, after giving effect to the 10% stock
dividend declared August 15, 2000.
Sales for the third quarter and year to date 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. Sales
for the third quarter increased slightlydecreased $3,975,000 compared to the same period
last year. Backlog at October 31, 2000quarter end was slightly lower$2,600,000 higher compared to the same time lastprior
year. Approximately 94% of the increaseThe decrease in sales for the three months ended
October 31, 2000 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 during the bidding season of late 1999/early 2000date incoming orders for publicly funded schools are
running approximately even with the intention of filling up our new factory capacity. Revenues for the year
have increased 9.8%, but unit prices in 17 of our top 20 product lines, which
together represent over 87% of our total sales, actually registered lower
average prices than in 1999.prior year.
Gross profit for the thirdfirst quarter, ended October 31, 2000, as a percentage of sales, decreased by 6.3%4%
compared to the same period last year. Gross profit forThe decline in margin is attributable to
a significant reduction in manufacturing hours during the nine months ended October 31, 2000, as a percentage of sales, decreased by
3.5%first quarter compared
to the same period last year. In additionthe 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 selling prices described above,summer
hiring. The reduction in production hours resulted in unfavorable production
variances compared to the prior year, but has allowed the Company incurred increases in material
prices for steel, key plastic resins and packaging. Finally, whento
substantially reduce inventories compared to the rate of
growth in sales slowed down during the third quarter, the Companyprior year despite reduced
levels of production insales. In addition to reducing total inventory, the factories, incurring unfavorableCompany has more
fully implemented a manufacturing variances.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 is taking immediate action to correct boththen assembles the pricingfinished product as
customer orders determine production quanities and cost
issues, but given the seasonal naturecolor combinations. The
Company believes that it can support a greater volume and variety of our business, we expect the fourth
quarter to continue the current negative trend.customer
orders with a smaller investment in inventory utilizing this strategy.
Selling, general and administrative expense for the third quarter ended October
31, 2000 increased by $1,265,000 asApril 30, 2001
declined modestly compared to the same period last year.
For
the nine months ended October 31, 2000, selling, general and administrative
expense increased by $7,580,000 as compared to the same period last year. The
increase for the third quarter and for the nine months ended October 31, 2000
was attributable to increased shipping and warehousing costs, increased
depreciation expense, increased retirement expense and offset slightly by
decreased product liability costs and decreased professional and contract
services. The Company also incurred additional costs such as increased customer
service representatives and installation staff in order to provide enhanced
levels of customer service and on-time delivery.
Interest expense increased by $985,000 for the quarter ended October 31, 2000 as
compared toApril 30, 2001 is approximately the same
period last year. For the nine months ended October 31,
2000, interest expense increased by $2,442,000 as compared to the same period 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 interest expenseborrowings was
attributable to a higher average
borrowing balance as a result of increased capital spending on the Conway, Arkansas facility increased capital investmentexpansion 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 and recorded $7,945,000
pre-tax gain on disposition during the SAP Enterprise Resource
Planning System and increased cash used to build inventory for summer delivery.quarter ended April 30, 2000.
11
12
Other income increased by $4,052,000 for quarter and the nine months ended
October 31, 2000 as compared to the same period last year. The increase was
attributable to the Company entered into a confidential settlement of a dispute
involving past services related to the installation of non-manufacturing
equipment for which the Company received a final cash payment in November 2000.
This payment is a non-recurring amount unrelated to the Company's ongoing
operations.
Financial Condition:
As a result of seasonally high shipmentslow deliveries in the first quarter and a settlementimprovement in
days of a dispute discussed
above,sales outstanding, accounts and notes receivable increaseddecreased by
approximately $17,642,000 and
inventory decreased by $5,895,000$6,463,000 compared to year-end. The Company traditionally builds
large quantities of inventory during the first quarter in anticipation of strong
summer shipments. For the current quarter, the Company increased inventory by
nearly $13,787,000 compared to year-end. In the prior year first quarter, the
Company increased inventory by approximately $24,579,000. This increase in
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 nine monthsquarter ended October 31, 2000April 30, 2001 was $18,331,000$1,833,000 compared to
$26,343,000$6,139,000 for the same period last year. For the nine months ended
October 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. On July 1, 2000, the credit facility with Wells Fargo
Bank was expanded to $90,000,000 from $80,000,000. The maximum principal amount
available under this note was reduced by $10,000,000 on September 30, 2000 and
shall be reduced automatically on January 1, 2001 and January 1, 2002, by the
amount of $10,000,000. At October 31, 2000, the Company has approximately
$28,407,000 available under its credit facility with Wells Fargo Bank.
The Company has reached the end of its current cycle of heavy capital
investments. For the next three to five years, depending on sales volume and
market conditions, we expect capital investments to be no greater than
depreciation expense. Next year this figure will be even lower, probably in the
range of $6,000,000 to $8,000,000. This will free cash flow from operations
which will be used to pay down debt associated with our new Conway facility.
The Company is also pursuing the sale of three other facilities no longer
necessary for operations: our original factory in Los Angeles, California,
which has been held as a rental property, and our former woodshop and
compression molding plants in Conway, Arkansas, which have been used as
warehouses. The combined appraised value of these properties is approximately
$9,000,000. Proceeds from these sales will be used to pay down long-term debt.
Net cash (used in) provided by operating activities for the nine months ended
October 31, 2000 was ($1,000) compared to $10,175,000 for the same period last
year. The decrease of $10,176,000 in cash provided by operating activities was
primarily due to increases in inventory levels, as well as the reduction of
accounts payable and accrued expenses partly offset by increased tax payable
primarily due to the gain from the sale of the Torrance warehouse during the
first quarter ended April 30, 2000.
Issuance of long term debt was $10,252,000 for the nine months ended October 31,
2000 as compared to $24,563,000 for the same period last year. The reduction of
$14,311,000 is primarily attributable to the cash proceeds received as a result
of sale of Torrance warehouse, reduction in capital expenditures and reduction
of treasury stock purchase activities offset by a reduction in cash provided by
operating activities. Long term debt was $63,017,000 as of October 31, 2000
compared to $53,995,000 as of January 31, 2000.
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13
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 October 31, 2000,April 30, 2001, the
Company has repurchased approximately 630,000777,000 shares at a cost of approximately
$11,000,000$12,100,000 since the inception of this program in April 1998. For
the nine months ended October 31, 2000, the Company repurchased approximately
$433,000 of treasury stock as compared to $3,741,000 for the same period last
year. The Company
intends to continue buying back shares of common stock as long as the Company
believes the shares are undervalued and operating cash flowscashflows and borrowing
capacity under the Wells Fargo line allow.
On August 15, 2000,February 13, 2001, the Company's Board of Directors authorized a 10% stock$.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 nine monthsquarter ended October 31, 2000,April 30, 2001, the Company paid $608,000$226,000
in cash dividends as compared to $592,000 for the same period last year.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 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 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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13
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
13
14
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 October 31, 2000,April 30, 2001, the Company has borrowed $48,990,000$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
$117,000 per$127,000 for the fiscal quarter and $387,000 for the nine months ended October 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.
1413
15
PART II
VIRCO MFG. CORPORATION
Other Information
Item 4. Submission of matters to a vote of Security Holders
NONE
Item 6. Exhibits and Reports on Form 8-K
Exhibit (11) - Statement re: Computation of Earnings Per Share
15
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VIRCO MFG. CORPORATION
Exhibit (11) - Statement re: Computation of Earnings Per Share
Three Months Ended
Nine Months Ended
31-Oct 31-OctApril 30
----------------------------
-----------------------------2001 2000
1999 2000 1999
----------- ----------- ------------ --------------- ----
Diluted earningsEarnings per share
Weighted averageAverage shares outstanding 11,335,000 11,446,000 11,360,000 11,523,00011,266,031 11,361,971
Net effect of dilutive stock options - based
on the treasury stock method using average
market price 152,000 212,000 141,000 215,000
----------- ------------- 137,482
------------ -----------------------
Totals 11,487,000 11,658,000 11,501,000 11,738,000
=========== ===========11,266,031 11,499,453
============ =======================
Net (loss) income before cumulative effect of change in
accounting principle (a) $ 4,240,000(3,765,000) $ 6,414,000 $ 11,604,000 $10,976,000
=========== ===========2,617,000
============ =======================
Per share amount before cumulative effect of
change in accounting principle (a) $ 0.37(.33) $ 0.55 $ 1.01 $ 0.94
=========== ===========.23
============ =======================
Weighted average shares outstanding for the three months and nine months ended October 31, 1999 wereApril 30, 2000
are adjusted for 10% stock dividend declared August 15, 2000. 16For 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.
14
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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: December 8, 2000June 13, 2001 By: /s/ Robert E. Dose
-------------------- ------------------------------------------------------------------ ----------------------------
Robert E. Dose
Vice President - Finance
Date: December 8, 2000June 13, 2001 By: /s/ Bassey Yau
--------------------- ------------------------------------------------------------------ ----------------------------
Bassey Yau
Corporate Controller
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