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EXHIBIT 13
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
in thousands except per share data 2000 1999 1998 1997 1996
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SUMMARY OF OPERATIONS
Net sales (4,5) $ 287,342 $ 268,079 $ 275,096 $ 259,586 $237,551
Net income before cumulative effect
of change in accounting principle $ 4,313 $ 10,166 $ 17,630 $ 13,852 $ 9,326
Cumulative effect of change in
accounting principle, net of $191 tax benefit(5) (297) - - - -
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Net income $ 4,016 $ 10,166 $ 17,630 $ 13,852 $ 9,326
Per share data:
Income before cumulative effect of change
in accounting principle(1)
Basic $ 0.38 $ 0.89 $ 1.48 $ 1.17 $ 0.79
Assuming dilution 0.38 0.87 1.45 1.14 0.78
Cumulative effect of change in accounting
principle(1)
Basic (0.03) - - - -
Assuming dilution (0.03) - - - -
Net income(1)
Basic 0.35 0.89 1.48 1.17 0.79
Assuming dilution 0.35 0.87 1.45 1.14 0.78
Pro forma amounts assuming the
accounting change is applied retroactively
Net income(5) $ 4,313 $ 10,186 $ 17,663 $ 13,963 $ 9,310
Per share data:
Net income
Basic 0.38 0.89 1.48 1.18 0.79
Assuming dilution 0.38 0.87 1.45 1.15 0.78
Dividends declared per share, adjusted for
10% stock dividend
Cash dividends $ 0.08 $ 0.07 $ 0.06 $ 0.06 $ 0.05
OTHER FINANCIAL DATA
Total assets $ 199,549 $190,863 $151,380 $122,015 $118,020
Working capital 43,173 51,423 47,405 43,784 45,099
Current ratio 1.9/1 2.3/1 2.4/1 2.5/1 2.6/1
Total long-term obligations 55,075 53,995 25,690 13,512 25,396
Stockholders' equity 94,141 93,834 88,923 77,077 63,921
Shares outstanding at year-end(3) 11,283 11,364 11,669 11,828 11,792
Stockholders' equity per share(2) 8.34 8.26 7.62 6.52 5.42
(1) Based on average number of shares outstanding each year after giving
retroactive effect for stock dividends and 3 for 2 stock split.
(2) Based on number of shares outstanding at year-end after giving effect
for stock dividends and 3 for 2 stock split.
(3) Adjusted for stock dividends and 3 for 2 stock split.
(4) The prior period statements of operations contain certain
reclassifications to conform to the presentation required by EITF
No. 00-10, "Accounting for Shipping and Handling Fees and Costs,"
which the Company adopted during the fourth quarter of the year ended
January 31, 2001.
(5) During the fourth quarter of 2000, the Company changed its method of
accounting for revenue recognition in accordance with Staff Accounting
Bulletin No. 101, "Revenue Recognition in 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.
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MANAGEMENT'S STATEMENT
The financial statements of Virco Mfg. Corporation were prepared by management,
which is responsible for the integrity and objectivity of the data presented,
including amounts that must necessarily be based on judgments and estimates. The
statements were prepared in conformity with accounting principles generally
accepted in the United States, and in situations where acceptable alternative
accounting principles exist, management selected the method that was most
appropriate in the circumstances.
Virco depends upon the Corporation's system of internal controls in meeting its
responsibilities for reliable financial statements. This system is designed to
provide reasonable assurance that assets are safeguarded and transactions are
properly recorded and executed in accordance with management's authorization.
Judgments are required to assess and balance the relative cost and expected
benefits of these controls.
The financial statements have been audited by our independent auditors, Ernst &
Young LLP. The independent auditors provide an objective, independent review as
to management's discharge of its responsibilities insofar as they relate to the
fairness of reported operating results and financial condition. They obtain and
maintain an understanding of Virco's accounting and financial controls, and
conduct such tests and procedures, as they deem necessary to arrive at an
opinion on the fairness of the financial statements.
The Audit Committee of the Board of Directors, which is composed of Directors
from outside the Company, maintains an ongoing appraisal of the effectiveness of
audits and the independence of the auditors. The Committee meets periodically
with the auditors and management. The independent auditors have free access to
the Committee, without management present, to discuss the results of their audit
work and their opinions on the adequacy of internal financial controls and the
quality of financial reporting.
Based on a review and discussions of the Company's 2000 audited consolidated
financial statements with management and discussions with the independent
auditors, the Audit Committee recommended to the Board of Directors that the
Company's 2000 audited consolidated financial statements be included in the
Company's annual report in Form 10-K. The Board of Directors concurred.
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
REVENUE AND INCOME
2000 vs. 1999
For the year ended January 31, 2001, sales increased 7.2% to $287,300,000,
compared to $268,100,000 for the same period last year. Approximately 90% of the
increase in sales for the year ended January 31, 2001 was from education sales,
with the balance from commercial sales. The increase in revenues was
attributable to the Company pursuing an aggressive pricing policy during the
educational bidding season of late 1999/early 2000. The attained sales growth
was substantially less than the Company had planned to achieve with this pricing
strategy.
Education sales, which are primarily composed of sales to publicly funded K-12
schools and represent 64% of corporate revenues, increased by $17,300,000 to
$184,100,000 from $166,800,000 in the prior year. Sales of our newer computer
furniture, Plateau(R) tables, Core-a-Gator(R) lightweight folding tables, mobile
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tables and mobile cabinets improved, as did many of our older product lines. Due
to aggressive pricing, the sales increase was achieved primarily by unit volume,
not price increases.
Virco's commercial sales include private schools, pre-schools, churches,
convention centers, agencies at city, county, state and federal levels,
furniture distributors, retailers and catalog retailers. Commercial sales, which
represent 36% of corporate revenues, increased by $1,900,000 to $103,200,000
from $101,300,000 in the prior year. The breadth of Virco's product line for
target niche markets, and the continuing success of its Quick Ship stocking
program favorably affected sales for the commercial sales channels.
During the 1999 fiscal year, the Company initiated production at a new
manufacturing plant and implemented a new enterprise resources planning system.
The combined effect of these two significant events resulted in inadequate
levels of customer service during the summer of 1999. In addition, the new
manufacturing facility provided the Company with enhanced capacity to support a
substantial sales increase. In order to address both of these concerns, the
Company pursued two objectives in 2000, which adversely affected gross margins.
The first objective was to substantially improve the levels of customer service
by increasing the stocking plan for inventories to ensure better service during
the summer delivery season. The second objective was to increase sales and
utilize the new factory capacity through aggressive pricing. To support these
two objectives, the Company ran its factories at high levels of output for the
first eight months of the year in order to build to the enhanced stocking plan
and in anticipation of increased sales. The aggressive pricing strategy did
increase sales, but not to the extent anticipated. In order to return
inventories to more normal levels, the Company significantly reduced production
in the third and fourth quarters, resulting in unfavorable manufacturing
variances. The Company reduced its work force and spending in the fourth
quarter, but not in time to prevent the decline in manufacturing efficiency
related to the sharply curtailed production levels. The aggressive pricing
strategy affected the entire sales volume, not only at the margin, and the
Company experienced a slight reduction in prices for the year, while absorbing
cost increases related to some materials, labor and benefit costs, and
additional capacity from the plant expansion. As a result of the events
described above, gross profits for the year ended January 31, 2001, as a percent
of sales, decreased by 5.5% to 29.1% from 34.6% in the prior year.
Selling, general and administrative expense for the year ended January 31, 2001
increased both in total dollars and as a percentage of sales compared to the
same period last year. The higher selling, freight and warehousing expense was
primarily attributable to growth in unit sales volume, increased freight rates,
costs incurred during the consolidation of our Conway warehouses, and reduction
in selling prices, which increased these costs as a percentage of sales. The
increase in general and administration expense was primarily attributable to
greater depreciation expense, as well as system maintenance services, training
costs and other expenses relating to the implementation of sales force
automation, a business-to-business website, and an upgrade of the Company's SAP
enterprise resource planning system.
Interest expense increased by $2,577,000 for the year ended January 31, 2001
compared to the same period last year. This was attributable to increases in
interest rates during the year, and a larger average borrowing balance due to
increased levels of inventory and the completion of the Company's capital
expansion in Conway, Arkansas.
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In December, the Company announced a corporate reorganization and reduction in
force. As part of this reorganization, the Company reduced its workforce by 141
employees. This reduction was distributed proportionately among managerial,
administrative and support positions at both divisions and at the Corporate
headquarters. The reduction in force did not include any direct labor. In the
fourth quarter ended January 31, 2001, the Company incurred approximately
$1,500,000 in severance costs related to this reduction in force.
1999 vs. 1998
For the year ended January 31, 2000, sales declined 2.6% to $268,100,000,
compared to $275,100,000 for the same period last year. The Company believes two
factors contributed to the decline in sales. First, the Company experienced some
very aggressive regional price competition that resulted in a slight reduction
in year-to-date educational sales. Second, sales and orders of commercial
furniture declined as a result of the Company's strategic decision to reduce
business with mass merchandisers. This decision, which was initiated in 1995,
was substantially completed in 1999. The Company does not anticipate further
significant impact on sales volume relating to this market segment. The
reduction in sales to mass merchandisers has been partially offset by increases
in sales to hospitality markets, convention centers, churches, and the General
Services Administration. The Company continues to believe that its long-term
interests will be served by avoiding the low-margin mass merchandising commodity
business and emphasizing higher margin products and customers. For 1999, the
Company continued to be more selective and more disciplined in the business it
pursued in terms of product mix, customer mix and pricing in order to emphasize
profitable business, rather than pursue sales volume increases. As the Company
has grown in more profitable markets and products, it has reduced business in
certain commodity type products, which typically generate lower profit margins.
Education sales, which represented 62% of corporate revenues, decreased slightly
by $1,400,000 to $166,800,000 from $168,200,000 in the prior year. Sales of the
Company's newer computer furniture, its line of Core-a-Gator(R) lightweight
folding tables and mobile tables improved, but were offset by reductions in some
older product lines.
Commercial sales, which represented 38% of corporate revenues, decreased by
$5,500,000 to $101,300,000 from $106,800,000 in the prior year. Commercial sales
were affected more significantly by the Company's efforts to reduce sales to
mass merchandisers. The reduction in business to mass merchants was partially
offset by an increase in sales to other markets. Sales of Core-a-Gator(R)
lightweight tables, the breadth of the Company's product line for target niche
markets, and the continuing success of Virco's Quick Ship stocking program
favorably affected sales for the other commercial sales channels.
Gross profits for the year ended January 31, 2000, as a percent of sales, were
comparable to the prior year. During 1999, the Company incurred increased
overhead costs related to the start up of the new factory in Conway, Arkansas.
These increased overhead costs were offset by a more favorable product mix and
stable material costs.
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Selling, general and administrative expense for the year ended January 31, 2000,
increased both in total dollars and as a percentage of sales compared to the
same period last year. The increase in selling, general and administrative
expense was partially attributable to product mix. The reduction in mass
merchant business, which was typically sold FOB factory, was replaced in part by
sales to commercial customers, which frequently include freight and
installation. In addition, the inefficiencies related to the plant start up
mentioned above, combined with the concurrent "go live" of the SAP system,
contributed to some additional costs incurred in the delivery and installation
of furniture. The Company also incurred additional selling expenses relating to
the hiring of additional direct sales representatives and product development
expenses. The rise in general and administration expense was primarily
attributable to an increase in depreciation expense, system maintenance
services, training costs and other expenses relating to the implementation of an
SAP enterprise resources planning system.
Interest expense increased by $1,300,000 for the year ended January 31, 2000
compared to the same period in the prior year. The increase was attributable to
a higher average borrowing balance offset by interest capitalized relating to
assets under construction.
OTHER OPERATING ACTIVITIES
In August 1997, the Board of Directors authorized an expansion and
re-configuration of the Conway, Arkansas manufacturing and distribution
facilities. In late 1997 and early 1998, the Company acquired approximately 100
acres of land in Conway, which can support up to 1,700,000 sq. ft. of
manufacturing, warehousing, office, and showroom facilities. Phase one of the
project consisted of a 400,000 sq. ft. manufacturing plant and was completed in
March 1999. This plant replaced an existing 150,000 sq. ft. facility, providing
an additional 250,000 sq. ft., which was earmarked for new manufacturing
processes to support product development efforts, as well as future growth in
sales. This plant utilizes a manufacturing cell concept, which has proved
successful in the Company's Torrance, California facility. The Conway
manufacturing facility contains new equipment, which was selected to improve
manufacturing efficiency and flexibility, as well as improve product quality. In
March 1999, substantially all of the production equipment from the existing
150,000 sq. ft. facility was transferred to the new plant. New processes and
equipment are being brought on line, as capacity and process requirement demand.
The 150,000 sq. ft. facility, which is adjacent to the main factory in Conway,
was converted to a finished goods warehouse.
Phase two of the Conway project consists of an 800,000 sq. ft. assembly,
warehouse and distribution facility. Construction on the first 400,000 sq. ft.
segment began in March 1999 and was completed and fully operational in December
1999. The Company vacated two rental facilities in late 1999 with the completion
of this first segment. The second segment was substantially completed in July
2000. With the completion of the second segment, the Company vacated two
additional rental facilities in November 2000, as well as a building which was
sold subsequent to fiscal year end, and a building in Newport, Tennessee, which
is held for sale. The final stage of this consolidation will occur when the
Company sells a 150,000 sq. ft. manufacturing plant located in Conway. The
Company converted this plant to a finished goods warehouse in 1999 and expects
to store finished goods at this location until the building is sold.
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This new production and manufacturing complex will enable the Company to pursue
manufacturing strategies which are expected to support growth in sales volume
without a proportional increase in inventory. In addition, it will allow all
finished goods manufactured at Conway to be stored in one location, and
substantially reduce costs related to material handling. Conway's warehouse
facility has been equipped with high-density storage systems, features over 70
dock doors dedicated to out-bound freight, and has substantial yard capacity for
storing and staging trailers. The Company believes that this facility will
significantly improve its ability to support increased sales during the peak
delivery season and enhance the efficiency with which orders are filled.
On March 1, 1999, the Company went live with its newly implemented ERP system.
As a result of this installation, the Company incurred additional depreciation
and support costs, and experienced some inefficiencies related to production
scheduling, distribution, and installation of furniture.
In the first quarter of 2000, the Company distributed laptop computers to its
entire sales force to provide them with an efficient link between Virco's
factories and customers. At the same time, the Company unveiled its new
business-to-business website designed to provide Virco's sales force and
existing customers with the ability to access the Company's ERP system through
the Internet. In November 2000, the Company successfully upgraded the ERP system
to the most current version of the SAP application software, as well as more
current versions of Oracle database and UNIX operating systems. These
significant investments in technology have entailed a considerable cost to the
Company; not just in cash, but in the extraordinary amount of management time
and effort necessary to implement information systems. The Company is beginning
to realize benefits from this investment, and will continue to benefit as its
workforce more fully utilizes the capabilities of this technology.
At the end of January 31, 1999, the Company closed two of its distribution
facilities, one in Atlanta, Georgia, and one in Columbus, Ohio. This leaves the
Company with its main distribution facilities at the Torrance and Conway
factories, and one satellite facility in Pennsylvania.
In October 2000, the Company entered into a confidential settlement of a dispute
involving past services related to the installation 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 ended October 31, 2000, the Company recognized $4,052,000
in other income from this settlement.
ENVIRONMENTAL AND CONTINGENT LIABILITIES
The Company and other furniture manufacturers are subject to federal, state, and
local laws and regulations relating to the discharge of materials into the
environment and the generation, handling, storage, transportation, and disposal
of waste and hazardous materials. The Company has expended, and can be expected
to expend, significant amounts in the future for the investigation of
environmental conditions, installation of environmental control equipment, and
remediation of environmental contamination.
Currently, the Company is self-insured for Product Liability losses up to
$100,000 per occurrence. In prior years the Company has been self-insured for
Workers Compensation, Automobile, Product, and General Liability losses.
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The Company has purchased insurance to cover losses in excess of $100,000 up to
a limit of $30,000,000. In 1993 the Company initiated a program to reduce
product liability losses and to more aggressively litigate product liability
cases. This program has continued through 2000 and has resulted in reductions in
litigated product liability cases. Management does not anticipate that any
related settlement, after consideration of the existing reserves for claims and
potential insurance recovery, would have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
INFLATION AND FUTURE CHANGE IN PRICES
Inflation rates in the U.S. did not have a significant impact on the Company's
operating results for the fiscal year just ended. Material and labor costs
increased modestly in 2000. The Company anticipates upward pressure on costs,
particularly in the areas of transportation, energy costs, certain raw
materials, labor and benefits in the coming year. Total material costs for 2001,
as a percentage of sales, could be slightly higher than in 2000. However, no
assurance can be given that the Company will experience stable, modest or
substantial increases in prices in 2001. The Company is working to control and
reduce costs by improving production and distribution methodologies,
investigating new packaging and shipping materials, and searching for new
sources of purchased components.
The Company uses the LIFO method of accounting for the material component of
inventory. Under this method, the cost of products sold as reported in the
financial statements approximates current cost, and reduces the distortion in
reported income due to increasing costs. Depreciation expense represents an
allocation of historic acquisition costs and is less than if based on the
current cost of productive capacity consumed. The Company has made significant
fixed asset acquisitions during the last three fiscal years. The assets acquired
will result in higher depreciation charges, but due to technological advances
should result in operating cost savings. In addition, some depreciation charges
will be offset by a reduction in lease expense.
The Company is also subject to interest rate risk related to its $48,555,000 of
borrowings on January 31, 2001 and any seasonal borrowings used to finance
additional inventory and receivables during the summer. Fluctuating interest
rates may adversely impact the Company's results of operations and cash flows
for its variable rate bank borrowings. In February 2000, the Company entered
into an interest rate swap agreement with Wells Fargo Bank to reduce exposure
due to changes in interest rates. The initial notional swap amount is
$30,000,000 for the period February 22, 2000 through February 28, 2001. The
notional swap amount then decreases to $20,000,000 until the end of the swap
agreement, March 3, 2003. Under this agreement, interest is payable monthly at
7.23% plus a fluctuating margin of 1.25% to 1.50%.
LIQUIDITY
In December 2000, the Company renewed its loan facility with Wells Fargo Bank,
extending the agreement to a three-year commitment, maturing on October 1, 2003.
Under the terms of this agreement, the Company can borrow up to the aggregate
principal amount of $50,000,000 from December 1, 2000 through and including
April 30, 2001; $60,000,000 from May 1, 2001 through and including August 31,
2001; and $50,000,000 from September 1, 2001 through the maturity date. In
addition, the Company borrowed $30,000,000 that will be repaid in three annual
$10,000,000 installments, the first of which was paid on January 31, 2001. The
Company is currently obligated to pay commitment fees equal to 0.25% to 0.375%
per annum on the unused amount of the credit facility.
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The credit facility includes certain restrictive financial and operating
covenants. The terms of the facility are described in more detail in Note 3 of
the notes to the consolidated financial statements. This facility also allows
the Company the option to borrow under 30, 60, and 90 day fixed term rates at
LIBOR plus 1.25% to 1.50%. The applicable LIBOR margin is adjusted quarterly
based on the Company's funded debt to EBITDA ratio. Under the revolving line,
there is a letter of credit sub-feature, under which the Company issues
commercial and standby letters of credit. This loan facility is intentionally
large enough to finance more production in the early part of the year in order
to have adequate inventories available for the summer / fall educational
delivery season.
In April 1998, the Board of Directors approved a stock buy-back program giving
authorization to buy back up to $5,000,000 of Company stock. In January 1999,
the Board increased the authorization to $7,000,000 and subsequently increased
it to $14,000,000. As of January 31, 2001 the Company had repurchased
approximately 690,000 shares at a cost of approximately $11,539,000. The Company
intends to continue buying back shares of Virco common stock as long as the
Company feels the shares are undervalued, and either operating cash flow or
borrowing capacity under the Wells Fargo Bank line is available.
In 1997, the Company initiated two large capital projects, which had significant
cash flow effects on the 1998, 1999, and 2000 fiscal years. The first project is
the implementation of the SAP enterprise resources planning system, initiated in
October 1997. The Company went live with the new system in March 1999,
implemented a business to business website along with sales force automation in
the first quarter of 2000, and upgraded to the most current version of SAP in
the fourth quarter of 2000. General Electric Capital Corporation (GECC) financed
the initial portion of this project under a lease arrangement, which is treated
as a capital lease for book purposes and an operating lease for tax purposes. As
of January 31, 2001, the Company has expended $13,100,000 relating to this
project. Capital and training costs not funded by the lease are financed by cash
flows from operations and from the loan facility with Wells Fargo Bank.
The second project is the expansion and re-configuration of the Conway,
Arkansas, manufacturing and distribution facility. During the fourth quarter of
1997, the Company expended approximately $1,200,000 to acquire roughly 70 acres
of land for the expansion. In 1998, the Company expended approximately
$20,600,000 to buy an additional 30 acres of land, initiate construction of a
400,000 sq. ft. manufacturing facility and purchase production equipment for the
Conway, Arkansas location. During 1999, the Company expended approximately
$29,200,000 to complete construction of the factory, purchase additional
production equipment, construct and complete the first 400,000 sq. ft. segment
of the planned 800,000 sq. ft. distribution facility, and initiate the
construction of a second 400,000 sq. ft. segment of that facility. In 2000, the
Company expended approximately $15,974,000 to complete the expansion and to
acquire high-density racking and material handling systems. This project was
financed with the loan facility with Wells Fargo Bank, operating leases from
GECC, and operating cash flow.
With the completion of these substantial capital projects, the Company intends
to limit further capital spending until growth in sales volume fully utilizes
the new plant and distribution capacity. The Company has established a goal of
limiting capital spending to approximately $7,0000,000 for 2001, which is
approximately one-half of anticipated depreciation expense.
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The Company is currently marketing three properties for sale, which have a
cumulative estimated market value of approximately $8,000,000. One of these
properties, a former production facility in Conway, Arkansas, is currently being
utilized as a finished goods warehouse. A second property, located in Los
Angeles, California, is currently leased to a third party. The third property, a
former production facility located in Newport, Tennessee, is vacant.
Subsequent to year-end, the Company sold a building in Conway, Arkansas, that
had been most recently used to warehouse inventory. The sale generated
approximately $490,000 in cash and resulted in a $25,000 pre-tax gain on sale.
In April 2000, the Company sold its 200,000 sq. ft. warehouse located on 8.5
acres of land in Torrance, California. The Company received approximately
$9,500,000 in cash and recorded a pre-tax gain of approximately $7,900,000 on
disposition in the first quarter of 2000.
In the second quarter of 1998, the Company sold its manufacturing facility in
Southern Pines, North Carolina. This sale generated approximately $945,000 in
cash and resulted in a $128,000 pre-tax loss on disposition.
Management believes cash generated from operations and raised from the
previously described sources will be adequate to meet its capital requirements
in the short term.
FINANCIAL STRATEGY
Virco's financial strategy is to continue to increase levels of profitability by
targeting specific profitable market segments and customers. The Company has
organized its sales force, developed products, and acquired production and
distribution facilities for the specific needs of these customers. During the
last three years, the Company has made significant capital expenditures to
support future sales growth in these targeted markets. For the next several
years, the Company intends to increase sales to these markets, and to service
these sales without making further significant investments in facilities.
The Company has not provided an allowance against the deferred tax assets
recorded in the financial statements. The Company has a net deferred tax
liability of $2,753,000 at January 31, 2001. The gross deferred tax asset
represents approximately 25% of current pre-tax earnings. Management believes
that it is more likely than not that future earnings will be sufficient to
recover deferred tax assets.
The Company discounts the pension obligations under the Virco Employees
Retirement Plan and the Virco Important Performers (VIP) Plan utilizing an 8%
discount rate. Although the Company does not anticipate any change in this rate
in the coming year, any such change would not have a significant effect on the
Company's financial position, results of operations or cash flows.
FORWARD-LOOKING STATEMENTS
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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 "plans," "anticipates,"
"expects," "will continue," "estimates," "projects," "budgets" 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, the economic climate, the
availability and cost of energy, raw material, the availability and cost of
labor and employee benefits, demand for the Company's products, and competitive
conditions affecting selling prices and margins.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation". The
Interpretation addresses implementation practice issues in accounting for
compensation costs under existing rules prescribed by Accounting Principles
Board No. 25. The new rules are applied prospectively to all new awards,
modifications to outstanding awards and changes in grantee status after July 1,
2000, with certain exceptions. The Company did not grant or modify any options
subsequent to July 1, and will consider the impact of the new rules when
granting any options at a future date.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements", or SAB 101. SAB
101 summarizes certain of the SEC Staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company recorded the cumulative effect of this accounting change in the fourth
quarter of the current fiscal year. The Company does not expect this SAB to
significantly affect annual revenues, but due to the seasonality of education
sales, its application can cause a shift of revenues from the second to the
third fiscal quarters.
The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138
"Accounting for Certain Derivative Instruments and Certain Hedging Activities-An
Amendment of FASB Statement 133," which require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not
designated as hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.
Upon initial application of SFAS Nos. 133 and 138 on February 1, 2001, the
Company adjusted its interest rate swap agreement to fair value with an
offsetting charge to comprehensive income of approximately $552,000, net of
income taxes.
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FINANCIAL HIGHLIGHTS
in thousands, except per share data 2000 1999 1998 1997 1996 1995
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Summary of Operations
Net sales - continuing operations(3,4) $ 287,342 $ 268,079 $ 275,096 $ 259,586 $ 237,551 $ 225,559
Net income
Continuing operations 4,313 10,166 17,630 13,852 9,326 5,209
Discontinued operations -- -- -- -- -- --
Change in accounting methods (297) -- -- -- -- --
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4,016 10,166 17,630 13,852 9,326 5,209
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Net income per share(1) $ 0.35 $ 0.87 $ 1.45 $ 1.14 $ 0.78 $ 0.44
Stockholder's equity 94,141 93,834 88,923 77,077 63,921 55,386
Stockholder's equity per share(2) 8.34 8.26 7.62 6.52 5.42 4.70
FINANCIAL HIGHLIGHTS
in thousands, except per share data 1994 1993 1992 1991
- ---------------------------------------------------------------------------------
Summary of Operations
Net sales - continuing operations(3,4) $216,822 $206,738 $192,356 $188,395
Net income
Continuing operations 5,001 4,302 3,827 3,453
Discontinued operations -- -- (668) (347)
Change in accounting methods -- (275) -- --
------------------------------------------
5,001 4,027 3,159 3,106
------------------------------------------
Net income per share(1) $ 0.42 $ 0.34 $ 0.27 $ 0.26
Stockholder's equity 50,466 45,637 41,937 39,164
Stockholder's equity per share(2) 4.29 3.88 3.56 3.33
(1) Based on average number of shares outstanding each year after giving
retroactive effect for stock dividends and 3 for 2 stock split.
(2) Based on number of shares outstanding at year-end giving effect for stock
dividends and 3 for 2 stock split.
(3) The prior period statements of operations contain certain reclassifications
to conform to the presentation required by EITF No. 00-10, Accounting for
Shipping and Handling Fees and Costs, which the Company adopted during the
fourth quarter of the year ended January 31, 2001.
(4) During the fourth quarter of 2000, the Company changed its method of
accounting for revenue recognition in accordance with Staff Accounting
Bulletin No. 101, "Revenue Recognition in 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.
12
Report of Independent Auditors
The Board of Directors and Stockholders
Virco Mfg. Corporation
We have audited the accompanying consolidated balance sheets of Virco Mfg.
Corporation as of January 31, 2001 and 2000, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended January 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Virco Mfg.
Corporation at January 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
January 31, 2001, in conformity with accounting principles generally accepted in
the United States.
As discussed in Note 1 to the consolidated financial statements, during the year
ended January 31, 2001 the Company changed its method of revenue recognition for
certain of its product sales.
/s/ ERNST & YOUNG LLP
Long Beach, California
March 19, 2001
1
13
Virco Mfg. Corporation
Consolidated Balance Sheets
(In thousands, except per share data)
JANUARY 31
--------------------
2001 2000
-------- --------
ASSETS
Current assets:
Cash $ 351 $ 1,072
Trade accounts receivable (less allowance
for doubtful accounts of $200 in 2001 and 2000) 24,559 26,457
Other receivables 586 927
Inventories:
Finished goods 27,009 35,795
Work in process 14,442 9,260
Raw materials and supplies 16,588 12,003
-------- --------
58,039 57,058
Income taxes receivable 2,508 1,753
Prepaid expenses and other current assets 1,150 1,288
Deferred income taxes 1,780 1,371
-------- --------
Total current assets 88,973 89,926
Property, plant and equipment:
Land and land improvements 3,880 4,871
Buildings 50,382 43,240
Machinery and equipment 98,024 87,238
Leasehold improvements 1,218 966
-------- --------
153,504 136,315
Less accumulated depreciation and amortization 58,859 48,378
-------- --------
Net property, plant and equipment 94,645 87,937
Other assets 15,931 13,000
-------- --------
Total assets $199,549 $190,863
======== ========
2
14
JANUARY 31
----------------------
2001 2000
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks released but not yet cleared bank $ 2,216 $ 4,786
Accounts payable 13,930 19,749
Accrued compensation and employee benefits 15,210 10,333
Current portion of long-term debt 12,101 1,998
Other accrued liabilities 2,343 1,637
--------- ---------
Total current liabilities 45,800 38,503
Noncurrent liabilities:
Accrued self-insurance retention 2,598 2,560
Accrued pension expenses 8,736 5,408
Long-term debt, less current portion 43,741 46,027
--------- ---------
Total noncurrent liabilities 55,075 53,995
Deferred income taxes 4,533 4,531
Commitments and contingencies
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; issued
12,032,233 shares in 2001 and 10,952,350 shares in 2000 120 110
Additional paid-in capital 97,656 84,635
Retained earnings 10,645 20,242
Less treasury stock at cost (749,246 shares in 2001 and
621,874 shares in 2000) (12,009) (10,692)
Less unearned ESOP shares (696) (41)
Less accumulated comprehensive loss (1,575) (420)
--------- ---------
Total stockholders' equity 94,141 93,834
--------- ---------
Total liabilities and stockholders' equity $ 199,549 $ 190,863
========= =========
See accompanying notes.
3
15
Virco Mfg. Corporation
Consolidated Statements of Income
(In thousands, except per share data)
YEAR ENDED JANUARY 31
---------------------------------
2001 2000 1999
--------- --------- ---------
Net sales $ 287,342 $ 268,079 $ 275,096
Costs of goods sold 203,765 175,247 180,554
--------- --------- ---------
Gross profit 83,577 92,832 94,542
Selling, general and administrative expenses 83,192 73,360 63,839
Provision for doubtful accounts 156 188 530
Interest expense, net 4,962 2,385 1,111
(Gain) loss on sale of assets (7,667) 206 160
Other income (4,052) -- --
--------- --------- ---------
Income before income taxes and cumulative effect of
change in accounting principle 6,986 16,693 28,902
Provision for income taxes 2,673 6,527 11,272
--------- --------- ---------
Income before cumulative effect of change in
accounting principle 4,313 10,166 17,630
Cumulative effect of change in accounting principle (297) -- --
--------- --------- ---------
Net income $ 4,016 $ 10,166 $ 17,630
========= ========= =========
AMOUNTS PER COMMON SHARE - BASIC
Income before cumulative effect of change in
accounting principle $ 0.38 $ 0.89 $ 1.48
Cumulative effect of change in accounting principle (0.03) -- --
--------- --------- ---------
Net income $ 0.35 $ 0.89 $ 1.48
========= ========= =========
AMOUNTS PER COMMON SHARE - ASSUMING DILUTION
Income before cumulative effect of change
in accounting principle $ 0.38 $ 0.87 $ 1.45
Cumulative effect of change in accounting principle (0.03) -- --
--------- --------- ---------
Net Income $ 0.35 $ 0.87 $ 1.45
========= ========= =========
Pro forma amounts assuming the accounting change is
applied retroactively:
Net income $ 4,313 $ 10,186 $ 17,663
Net income per common share - basic 0.38 0.89 1.48
Net income per common share - assuming dilution 0.38 0.87 1.45
Weighted average shares outstanding:
-- Basic 11,361 11,481 11,904
-- Assuming dilution 11,475 11,642 12,153
See accompanying notes.
4
16
Virco Mfg. Corporation
Consolidated Statements of Stockholders' Equity
(In thousands, except per share amounts)
Additional
Common Stock Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income
---------------------------------------------------------------
Balance at January 31, 1998 8,886,794 $ 89 $ 50,301 $ 27,423
Net income - - - 17,630 $ 17,630
Minimum pension liability, net of tax - - - - (158)
----------
Comprehensive income $ 17,472
==========
Unearned ESOP shares - - - -
Stock issued under option plans 134,180 2 690 -
Stock dividend (10%) 891,213 9 17,370 (17,379)
Cash dividends - - - (746)
Purchase of treasury stock (268,260) - - -
---------------------------------------------------------------
Balance at January 31, 1999 9,643,927 100 68,361 26,928
Net income - - - 10,166 $ 10,166
Minimum pension liability, net of tax - - - - (14)
----------
Comprehensive income $ 10,152
==========
Unearned ESOP shares - - - -
Stock issued under option plans 33,261 - 232 -
Stock dividend (10%) 947,704 10 16,042 (16,052)
Cash dividends - - - (800)
Purchase of treasury stock (294,416) - - -
---------------------------------------------------------------
Balance at January 31, 2000 10,330,476 110 84,635 20,242
Net income - - - 4,016 $ 4,016
Minimum pension liability, net of tax - - - - (1,155)
----------
Comprehensive income $ 2,861
==========
Unearned ESOP shares - - - -
Stock issued under option plans 49,783 - 284 -
Stock dividend (10%) 1,030,100 10 12,737 (12,747)
Cash dividends - - - (866)
Purchase of treasury stock (127,372) - - -
---------------------------------------------------------------
Balance at January 31, 2001 11,282,987 $ 120 $ 97,656 $ 10,645
===============================================================
Accumulated
Treasury ESOP Comprehensive
Stock Trust Loss Total
------------------------------------------------------
Balance at January 31, 1998 $ (172) $ (316) $ (248) $ 77,077
Net income - - - 17,630
Minimum pension liability, net of tax - - (158) (158)
Comprehensive income
Unearned ESOP shares - 70 - 70
Stock issued under option plans (298) - - 394
Stock dividend (10%) - - - -
Cash dividends - - - (746)
Purchase of treasury stock (5,344) - - (5,344)
------------------------------------------------------
Balance at January 31, 1999 (5,814) (246) (406) 88,923
Net income - - - 10,166
Minimum pension liability, net of tax - - (14) (14)
Comprehensive income
Unearned ESOP shares - 205 - 205
Stock issued under option plans - - - 232
Stock dividend (10%) - - - -
Cash dividends - - - (800)
Purchase of treasury stock (4,878) - - (4,878)
------------------------------------------------------
Balance at January 31, 2000 (10,692) (41) (420) 93,834
Net income - - - 4,016
Minimum pension liability, net of tax - - (1,155) (1,155)
Comprehensive income
Unearned ESOP shares - (655) - (655)
Stock issued under option plans - - - 284
Stock dividend (10%) - - - -
Cash dividends - - - (866)
Purchase of treasury stock (1,317) - - (1,317)
------------------------------------------------------
Balance at January 31, 2001 $ (12,009) $ (696) $ (1,575) $ 94,141
======================================================
See accompanying notes.
5
17
Virco Mfg. Corporation
Consolidated Statements of Cash Flows
(In thousands, except per share data)
YEAR ENDED JANUARY 31
--------------------------------
2001 2000 1999
-------- -------- --------
OPERATING ACTIVITIES
Net income $ 4,016 $ 10,166 $ 17,630
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of accounting change 297 -- --
Depreciation and amortization 13,412 9,993 7,132
Provision for doubtful accounts 156 188 530
(Gain) loss on sale of property, plant and equipment
(7,667) 112 113
Deferred income taxes (407) 2,735 420
Changes in assets and liabilities:
Trade accounts receivable 1,742 3,820 (5,292)
Other receivables 341 (619) 831
Inventories (981) (8,589) (4,606)
Income taxes (755) (2,557) 859
Prepaid expenses and other current assets 138 (347) 311
Accounts payable and accrued liabilities 560 8,182 5,493
Other (4,383) (2,506) (506)
-------- -------- --------
Net cash provided by operating activities 6,469 20,578 22,915
INVESTING ACTIVITIES
Capital expenditures (22,711) (38,849) (28,142)
Proceeds from sale of property, plant and equipment 10,258 128 945
Net investment in life insurance -- (956) (1,024)
-------- -------- --------
Net cash used in investing activities (12,453) (39,677) (28,221)
6
18
Virco Mfg. Corporation
Consolidated Statements of Cash Flows (continued)
(In thousands, except per share data)
YEAR ENDED JANUARY 31
--------------------------------
2001 2000 1999
-------- -------- --------
FINANCING ACTIVITIES
Dividends paid $ (866) $ (800) $ (746)
Issuance of long-term debt 19,817 26,794 13,109
Repayment of long-term debt (12,000) (2,468) (2,312)
Issuance of common stock 284 232 394
Purchase of treasury stock (1,317) (4,878) (5,344)
ESOP loan (655) 205 70
-------- -------- --------
Net cash provided by financing activities 5,263 19,085 5,171
-------- -------- --------
Net decrease in cash (721) (14) (135)
Cash at beginning of year 1,072 1,086 1,221
-------- -------- --------
Cash at end of year $ 351 $ 1,072 $ 1,086
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net of amounts capitalized $ 4,953 $ 2,277 $ 2,069
Income taxes 3,835 6,416 10,106
See accompanying notes.
7
19
Virco Mfg. Corporation
Notes to Consolidated Financial Statements
January 31, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Virco Mfg. Corporation, which operates in one business segment, is engaged in
the design, production and distribution of quality furniture for the commercial
and education markets. Over 50 years of manufacturing have resulted in a wide
product range. Major products include student desks, computer furniture, chairs,
activity tables, folding chairs and folding tables. The Company manufactures its
products in Torrance, California, and Conway, Arkansas, for sale primarily in
the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Virco Mfg.
Corporation and its wholly owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the 1999 and 1998 information to conform to
the 2000 presentation.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of accounts receivable. The Company performs
ongoing credit evaluations of its customers and maintains allowances for
potential credit losses. The Company purchases insurance on receivables from
commercial sales to minimize the Company's credit risk. No customers exceeded
10% of the Company's sales for each of the three years in the period ended
January 31, 2001. Foreign sales were less than 5% for each of the three years in
the period ended January 31, 2001.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method of valuation for the material content of
inventories and the first-in, first-out (FIFO) method for labor and overhead.
8
20
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation.
Depreciation and amortization are computed on the straight-line method for
financial reporting purposes based upon the following estimated useful lives:
Land improvements 5 to 25 years
Buildings (including improvements) 5 to 40 years
Machinery and equipment 3 to 10 years
Leasehold improvements Life of lease
Certain assets are depreciated under accelerated methods for income tax
purposes.
Interest costs, amounting to $453,000, $1,461,000 and $375,000 for the years
ended January 31, 2001, 2000 and 1999, respectively, have been capitalized as
part of the acquisition cost of property, plant and equipment.
The Company capitalizes costs associated with software developed for its own
use. Such costs are amortized over three to seven years from the date the
software becomes operational. The net book value of capitalized software was
$10,004,000 and $11,492,000 at January 31, 2001 and 2000, respectively.
The book value of assets held under capital leases included in machinery and
equipment amounted to $2,856,000 and $3,417,000 at January 31, 2001 and 2000,
respectively. Amortization of capital leases is included in depreciation
expense.
IMPAIRMENT OF LONG-LIVED ASSETS
An impairment loss is recognized in the event facts and circumstances indicate
the carrying amount of an asset may not be recoverable, and an estimate of
future undiscounted cash flows is less than the carrying amount of the asset.
Impairment is recorded based on the excess of the carrying amount of the
impaired asset over the fair value. Generally, fair value represents the
Company's expected future cash flows from the use of an asset or group of
assets, discounted at a rate commensurate with the risks involved.
9
21
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Basic net income per share is calculated by dividing net income by the
weighted-average number of common shares outstanding. Diluted net income per
share is calculated by dividing net income by the weighted-average number of
common shares outstanding plus the dilution effect of convertible securities.
The following table sets forth the computation of basic and diluted earnings per
share before cumulative effect of the accounting change:
2000 1999 1998
------------------------------------------------------
Numerator:
Income before cumulative effect of the
accounting change $ 4,313,000 $ 10,166,000 $ 17,630,000
======================================================
Denominator:
Denominator for basic earnings
per share - weighted-average shares 11,360,774 11,480,660 11,903,660
Dilutive potential common shares 114,216 161,098 249,675
------------------------------------------------------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 11,474,990 11,641,758 12,153,335
======================================================
On August 15, 2000, the Company's board of directors authorized a 10% stock
dividend payable on September 29, 2000, to stockholders of record as of
September 7, 2000. This resulted in the issuance of 1,030,100 additional shares
of common stock. All per share and weighted-average share amounts have been
restated to reflect this stock dividend and any splits or dividends previously
declared.
INTANGIBLE ASSETS
Intangible assets, which consist principally of deferred pension assets and
which are included in other noncurrent assets, are recorded at cost and are
amortized over their estimated useful lives using the straight-line method.
10
22
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ENVIRONMENTAL COSTS
Costs incurred to investigate and remediate environmental waste are expensed as
incurred, unless the remediation extends the useful life of the assets employed
at the site. Remediation costs that extend the useful life of assets are
capitalized and amortized over the useful life of the assets.
ADVERTISING COSTS
Advertising costs are expensed in the period in which they occur. Selling,
general and administrative expenses include advertising costs of $3,517,000 in
2000, $3,775,000 in 1999 and $3,535,000 in 1998.
SELF-INSURANCE
The Company has a self-insured retention for general and product liability
claims. Consulting actuaries assist the Company in determining its liability for
the self-insured component of claims, which have been discounted to their net
present value.
STOCK-BASED COMPENSATION PLANS
Stock-based compensation is recognized using the intrinsic-value method. For
disclosure purposes, pro forma net income and earnings per share impacts are
provided as if the fair-value method had been applied. The Financial Accounting
Standards Board issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation". The Interpretation addressed
implementation practice issues in accounting for compensation costs under
existing rules prescribed by Accounting Principles Board No. 25. The new rules
were applied by the Company prospectively after July 1, 2000.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
11
23
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Effective February 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements." Previously, the Company had
recognized revenue upon shipment of merchandise to the customer even though at
each fiscal year-end and quarter a portion of its merchandise was shipped FOB
destination. The company believes it had given up substantially all the risks
and rewards of ownership upon shipment. Under the new accounting method adopted
retroactive to February 1, 2000, the Company now recognizes all sales when title
passes under its various shipping terms. The cumulative effect of the change on
prior years resulted in a charge to income of $297,000 (net of income taxes of
$191,000), which is included in income for the year ended January 31, 2001.
There was no effect on the Company's net income for the year ended January 31,
2001 before the cumulative effect of the accounting change was made. The pro
forma amounts presented in the income statement were calculated assuming the
accounting change was made retroactively to prior periods.
SHIPPING AND HANDLING FEES AND COSTS
The Company adopted EITF No. 00-10, "Accounting for Shipping and Handling Fees
and Costs", during fiscal year 2000. EITF 00-10 requires that the amounts billed
related to shipping and handling be classified as revenue and that the
classification of shipping and handling costs is an accounting policy decision
that should be disclosed. Accordingly, shipping and handling fees are included
as revenue in net sales. Costs related to shipping and handling are included in
operating expenses. For the years ended January 31, 2001, 2000, and 1999,
shipping and handling costs of approximately $31,903,000, $24,656,000, and
$22,861,000, respectively, were included in selling, general and administrative
expenses. The adoption of this EITF has no effect on the Company's results of
operations.
FISCAL YEAR END
Fiscal years 2000, 1999 and 1998, refer to the years ended January 31, 2001,
2000 and 1999, respectively.
12
24
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE ACCOUNTING REQUIREMENTS
The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138
"Accounting for Certain Derivative Instruments and Certain Hedging Activities-An
Amendment of FASB Statement 133," which require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not
designated as hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.
Upon initial application of SFAS Nos. 133 and 138 on February 1, 2001, the
Company adjusted its interest rate swap agreement to fair value with an
offsetting charge to comprehensive income of approximately $552,000, net of
income taxes.
2. INVENTORIES
The current material cost for inventories exceeded LIFO cost by $3,585,000 and
$2,462,000 at January 31, 2001 and 2000, respectively. Liquidation of prior year
LIFO layers due to a reduction in certain inventories increased income by
$111,000, $59,000 and $8,000 in the years ended January 31, 2001, 2000 and 1999,
respectively.
Details of inventory amounts, including the material portion of inventory which
is valued at LIFO, at January 31, 2001 and 2000, are as follows (in thousands):
JANUARY 31, 2001
-----------------------------------------------------------------
MATERIAL LABOR,
CONTENT AT LIFO OVERHEAD
FIFO RESERVE AND OTHER TOTAL
-----------------------------------------------------------------
Finished goods $ 18,858 $ (1,211) $ 9,362 $ 27,009
Work in process 8,626 (1,059) 6,875 14,442
Raw materials and supplies 17,903 (1,315) - 16,588
-----------------------------------------------------------------
Total $ 45,387 $ (3,585) $ 16,237 $ 58,039
=================================================================
13
25
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
2. INVENTORIES (CONTINUED)
JANUARY 31, 2000
----------------------------------------------------------
MATERIAL LABOR,
CONTENT AT LIFO OVERHEAD
FIFO RESERVE AND OTHER TOTAL
----------------------------------------------------------
Finished goods $ 19,954 $ (964) $ 16,805 $ 35,795
Work in process 5,017 (718) 4,961 9,260
Raw materials and supplies 12,783 (780) - 12,003
----------------------------------------------------------
Total $ 37,754 $ (2,462) $ 21,766 $ 57,058
==========================================================
3. NOTES PAYABLE
Outstanding balances (in thousands) for the Company's long-term debt were as
follows:
JANUARY 31
2001 2000
--------------------------
Revolving credit line with Wells Fargo Bank(a) $ 28,555 $ 38,739
Term loan with Wells Fargo Bank(a) 20,000 -
IRB with the City of Torrance(b) 4,124 5,037
Equipment credit line with GECC(c) 1,857 2,779
Other 1,306 1,470
--------------------------
55,842 48,025
Less current portion 12,101 1,998
--------------------------
$ 43,741 $ 46,027
==========================
Outstanding stand-by letters of credit $ 3,163 $ 5,481
(a) A revolving credit facility with Wells Fargo Bank, amended and restated
December 2000, provides a secured revolving line of credit of up to
$50,000,000. The credit facility increases from $50,000,000 to
$60,000,000 from May 1, 2001 to August 30, 2001 to allow for additional
working capital requirements during the Company's traditional peak
period. At September 1, 2001, the available commitment reduces back to
$50,000,000. This is a three-year non-amortizing line with interest
payable monthly at a fluctuating rate equal to the Bank's prime rate
(9.00% at January 31, 2001). The line also allows the Company the
option to borrow under 30- 60- and 90-day fixed term rates at LIBOR
plus a margin of 1.25% to 1.50%. Approximately $18,282,000 was
available for borrowing as of January 31, 2001.
14
26
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
3. NOTES PAYABLE (CONTINUED)
The Company was also extended a $30,000,000 three year fully amortizing
term loan in December 2000. The term loan requires monthly interest
payments and annual principal payments of $10,000,000 at January 2001,
January 2002 and a final payment at January 2003. The Company made its
first required principal payment in January 2001, reducing the balance
to $20,000,000. The term loan carries the same interest rates as the
revolving credit facility.
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 28, 2001.
The notional swap amount then decreases to $20,000,000 until the end of
the swap agreement on 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%. The revolving credit facility and the term loan with
Wells Fargo Bank are subject to various financial covenants including a
liquidity requirement, a leverage requirement, a cash flow coverage
requirement and profitability requirements. The agreement also places
certain restrictions on capital expenditures, dividends and the
repurchase of the Company's common stock. The revolving credit facility
and the term loan are secured by the Company's accounts receivable,
inventory and equipment.
(b) Ten-year $8,900,000 IRB issued through the City of Torrance. This
5.994% fixed interest rate bond is payable in monthly installments of
$99,000, including interest, through December 2004.
(c) In October 1998, the Company finalized a credit agreement with General
Electric Capital Corporation (GECC) to finance the initial portion of
the new business information system. This is a four-year amortizing
capital lease with principal and interest (approximately 7.5%) payable
of $87,500 monthly. The Company has the option of buying out the lease
three years into the lease period.
15
27
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
3. NOTES PAYABLE (CONTINUED)
Long-term debt repayments are approximately as follows (in thousands):
Year ending January 31
2002 $ 12,101
2003 12,053
2004* 30,633
2005 1,055
---------
$ 55,842
=========
* The $28,555,000 due under Wells Fargo Bank's line of credit will be
payable in the fiscal year ending January 31, 2004, if the agreement is
not renewed. The Company intends to renew the agreement.
The Company believes that the carrying value of debt under the Wells Fargo
credit facility approximates fair value at January 31, 2001 and 2000, as the
majority of the long-term debt bears interest at variable rates or is fixed for
periods equal to or less than 90 days. The carrying value of other debt
instruments approximates their fair value given the Company's incremental
borrowing rate for similar types of financing arrangements.
The Company guarantees a $1,500,000 line of credit from Wells Fargo Bank to the
Virco Employee Stock Ownership Plan (ESOP). At January 31, 2001 and 2000,
$696,000 and $41,000, respectively, was outstanding under the line.
4. RETIREMENT PLANS
The Company and its subsidiaries cover all employees under a noncontributory
defined benefit retirement plan, the Virco Employees' Retirement Plan (the
Plan). Benefits under the Plan are based on years of service and career average
earnings. The Company's general funding policy is to contribute amounts
deductible for federal income tax purposes. Minimum pension liability
adjustments for the years 2000, 1999, and 1998 were $1,155,000, $14,000, and
$158,000 respectively (net of taxes of $716,000, $9,000 and $98,000
respectively) and are included in comprehensive income. Assets of the Plan are
invested in common trust funds.
16
28
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
The following table sets forth (in thousands) the funded status of the Plan at
December 31, 2000 and 1999:
PENSION BENEFITS
-----------------------
2000 1999
-----------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 15,916 $ 10,603
Service cost 930 752
Interest cost 1,425 1,091
Plan amendments 2,384 2,992
Actuarial loss 384 2,325
Benefit paid (1,604) (1,847)
-----------------------
Benefit obligation at end of year $ 19,435 $ 15,916
=======================
Change in plan assets:
Fair value at beginning of year $ 11,657 $ 9,843
Actual return on plan assets (1,099) 1,867
Company contributions 1,239 1,794
Benefits paid (1,604) (1,847)
-----------------------
Fair value at end of year $ 10,193 $ 11,657
=======================
Funded status of plan $ (9,242) $ (4,259)
Unrecognized net transition amount (267) (309)
Unrecognized prior service cost 4,555 2,698
Unrecognized net actuarial loss 5,415 2,991
-----------------------
Net amount recognized $ 461 $ 1,121
=======================
Statements of financial position:
Accrued benefit liability $ (6,718) $ (2,278)
Intangible asset 4,555 2,698
Accumulated other comprehensive income 2,624 701
-----------------------
Net amount recognized $ 461 $ 1,121
=======================
17
29
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
2000 1999
---------------
Weighted average assumptions:
Discount rate 8.00% 8.00%
Expected return on plan assets 9.75% 9.75%
Rate of compensation increase 5.00% 5.00%
The total pension expense for the Plan (in thousands) included the following
components:
DECEMBER 31
2000 1999 1998
-----------------------------
Components of net cost:
Service cost $ 930 $ 752 $ 794
Interest cost 1,425 1,091 765
Expected return on plan assets (1,089) (936) (818)
Amortization of transition amount (42) (42) (42)
Amortization of prior service cost 528 294 --
Recognized net actuarial loss 148 128 134
-----------------------------
Benefit cost $ 1,900 $ 1,287 $ 833
=============================
The Company also provides a supplementary retirement plan for certain key
employees, the VIP Retirement Plan (VIP Plan). The VIP Plan provides a benefit
up to 50% of average compensation for the last five years in the VIP Plan,
offset by benefits earned under the Virco Employees' Retirement Plan. The VIP
Plan is funded by a life insurance program. The cash surrender values of the
policies funding the VIP Plan were $1,977,000 and $3,405,000 at January 31, 2001
and 2000, respectively. These cash surrender values are included in other assets
in the consolidated balance sheets.
The following table sets forth (in thousands) the funded status of the VIP Plan
at January 31, 2001 and 2000:
NONQUALIFIED PENSION
--------------------
2000 1999
--------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 4,004 $ 5,794
Service cost 417 296
Interest cost 299 254
Plan amendments (1,240) (2,519)
Actuarial loss 1,166 501
Benefit paid (348) (322)
------------------
Benefit obligation at end of year $ 4,298 $ 4,004
==================
18
30
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
NONQUALIFIED PENSION
--------------------------
2000 1999
--------------------------
Change in plan assets:
Company contributions $ 348 $ 322
Benefits paid (348) (322)
-------------------------
Fair value at end of year $ -- $ --
=========================
Funded status of plan $(4,298) $(4,004)
Unrecognized prior service cost (2,964) (2,037)
Unrecognized net actuarial loss 2,420 1,410
-------------------------
Accrued benefit cost $(4,842) $(4,631)
=========================
Statements of financial position:
Accrued benefit liability $(4,842) $(4,631)
-------------------------
Net amount recognized $(4,842) $(4,631)
=========================
2001 2000
-------------------------
Weighted average assumptions:
Discount rate 8.00% 8.00%
Expected return on plan assets 9.75% 9.75%
Rate of compensation increase 5.00% 5.00%
The total plan expense for the VIP retirement plan included the following
components (in thousands):
DECEMBER 31
2000 1999 1998
-------------------------------------
Components of net cost:
Service cost $ 417 $ 296 $ 212
Interest cost 299 254 426
Amortization of transition amount -- -- 4
Amortization of prior service cost (314) (181) 111
Recognized net actuarial loss 157 369 65
-------------------------------------
Benefit cost $ 559 $ 738 $ 818
=====================================
19
31
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
4. RETIREMENT PLANS (CONTINUED)
The Company's Employee Stock Ownership Plan, which covers all U.S. employees,
allows participants to defer from 1% to 15% of their eligible compensation
through a 401(k) retirement program. One of the four investment options is the
Virco Stock Fund. Shares owned by the ESOP are held by the Plan Trustee, U.S.
Trust Company of California. At January 31, 2001, the Plan held 596,535 shares
of Virco Stock including 539,879 shares allocated to participants' accounts.
Using the January 31, 2001 closing price of $10.00, the unallocated account has
56,656 shares valued at $566,560. At January 31, 2001, the Plan had borrowed
$696,000 directly from Wells Fargo Bank. This loan is secured by the unallocated
shares and guaranteed by Virco. Allocated shares held by the Trust are included
in shares outstanding and the related dividends are charged to retained
earnings. For the fiscal years ended January 31, 2001, 2000 and 1999, there was
no employer match and therefore no compensation cost to the Company.
The Company provides current and post-retirement life insurance to certain
salaried employees with split dollar life insurance policies under the Dual
Option Life Insurance Plan. Cash surrender values of these policies, which are
included in other assets in the consolidated balance sheets, were $3,550,000 and
$3,551,000 at January 31, 2001 and 2000, respectively.
The Company established, effective January 1, 1997, a Deferred Compensation
Plan, which allows certain key employees to defer up to a maximum of 90% of
their base annual salary and/or up to 90% of their annual bonus on a pretax
basis. The total participant deferrals were $1,226,000 and $976,000 for the
years ended January 31, 2001 and 2000, respectively.
The Company maintains a Rabbi Trust to hold assets related to the VIP Retirement
Plan, the Dual Option Life Insurance Plan, and the Deferred Compensation Plan.
Substantially all assets funding these Plans are held in the Rabbi Trust.
5. STOCK OPTIONS AND STOCKHOLDERS' RIGHTS
The Company's two stock plans are the 1997 Employee Incentive Plan (the 1997
Plan) and the 1993 Employee Incentive Stock Plan (the 1993 Plan). Under these
stock plans, the Company may grant an aggregate of 1,183,565 shares (as adjusted
for the stock split and stock dividends) to its employees in the form of stock
options. Non-employee directors automatically receive a grant for options to
purchase 1,000 shares of common stock on the first business day following each
annual meeting of the Company's stockholders. Subsequent to the year ended
January 31, 2001, this was increased to 2000 shares.
20
32
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS AND STOCKHOLDERS' RIGHTS (CONTINUED)
As of January 31, 2001, 252,900 shares remain available for future grant.
Options granted under the plans have an exercise price equal to the market price
at the date of grant, have a maximum term of 10 years and generally become
exercisable ratably over a five-year period. During the year, certain optionees
satisfied the exercise price of their options by exchanging shares already owned
rather than paying cash. As a result, 983 and 8,791 shares were recorded as
treasury stock for the years ended January 31, 2001 and 2000, respectively.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair-value method of SFAS No. 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following ranges of weighted-average assumptions:
risk-free interest rates of 4.83% to 6.26%; dividend yield of 0.10% to 0.98%;
volatility factor of the expected market price of the Company's common stock of
0.26 to 0.39; and a weighted-average expected life of the option of five years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The pro forma effect
only takes into account options granted since January 1, 1993, and is likely to
increase in future years as additional options are granted and amortized ratably
over the vesting period. The Company's pro forma information follows (in
thousands except for net income per share information):
YEAR ENDED JANUARY 31
2001 2000 1999
--------------------------------------
Pro forma net income $ 3,914 $ 9,698 $ 17,401
Pro forma net income per share -
assuming dilution $ .34 $ .83 $ 1.43
21
33
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS AND STOCKHOLDERS' RIGHTS (CONTINUED)
A summary of the Company's stock option activity, and related information for
the years ended January 31 follows:
2001 2000 1999
--------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------------------------------------------------------------------------------------
Outstanding at beginning
of year 635,511 $ 10.85 562,452 $ 7.80 671,268 $ 7.09
Granted 5,500 11.38 141,570 13.36 75,928 15.47
Exercised (50,368) 5.61 (68,511) 3.39 (184,744) 3.83
--------------- ------------ -------------
Outstanding at end of year 590,643 11.30 635,511 10.85 562,452 9.31
=============== ============ =============
Exercisable at end of year 493,525 10.77 530,978 10.50 424,745 8.46
Weighted-average fair value of options
granted during the year $ 3.96 $ 5.64 $ 6.36
The data included in the above table have been retroactively adjusted, if
applicable, for stock dividends and the stock split.
Information regarding stock options outstanding as of January 31, 2001, is as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE
REMAINING CONTRACTUAL WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICE RANGE NUMBER OF SHARES LIFE EXERCISE PRICE NUMBER OF SHARES EXERCISE PRICE
- -------------------------------------------------------------------------------------------------------------------------
$ 2.27-7.70 240,834 1.72 years $ 5.24 227,266 $ 5.10
10.34-15.29 223,464 7.66 13.90 141,911 13.31
18.22-19.44 126,345 6.01 18.25 124,348 18.23
------- -------
590,643 4.89 11.30 493,525 10.77
======= =======
22
34
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCK OPTIONS AND STOCKHOLDERS' RIGHTS (CONTINUED)
On October 15, 1996, the board of directors declared a dividend of one preferred
stock purchase right (a Right) for each outstanding share of the Company's
common stock. Each Right entitles a stockholder to purchase for an exercise
price of $50.00 ($25.05, as adjusted for the stock split and stock dividend),
subject to adjustment, one one-hundredth of a share of Series A Junior
Participating Cumulative Preferred Stock of the Company, or under certain
circumstances, shares of common stock of the Company or a successor company with
a market value equal to two times the exercise price. The Rights are not
exercisable, and would only become exercisable for all other persons when any
person has acquired or commences to acquire a beneficial interest of at least
20% of the Company's outstanding common stock. The Rights expire on October 25,
2006, have no voting privileges, and may be redeemed by the board of directors
at a price of $.001 per Right at any time prior to the acquisition of a
beneficial ownership of 20% of the outstanding common shares. There are 200,000
shares (399,300 shares as adjusted by the stock split and stock dividend) of
Series A Junior Participating Cumulative Preferred Stock reserved for issuance
upon exercise of the Rights.
6. PROVISION FOR INCOME TAXES
The Company uses the liability method to determine the provision for income
taxes. Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The provisions for the last three years are reconciled to the statutory federal
income tax rate using the liability method as follows:
JANUARY 31
2001 2000 1999
---------------------------------
Statutory 34.0% 35.0% 35.0%
State taxes (net of federal tax) 3.2 3.1 3.2
Nondeductible expenses 1.1 1.0 .8
---------------------------------
38.3% 39.1% 39.0%
=================================
23
35
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
6. PROVISION FOR INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes (in thousands)
attributes to income before income taxes and cumulative effect of the accounting
change are as follows:
JANUARY 31
2001 2000 1999
---------------------------------------
Current:
Federal $ 2,690 $ 2,952 $ 9,425
State 390 840 1,427
---------------------------------------
3,080 3,792 10,852
Deferred:
Federal (350) 2,347 376
State (57) 388 44
---------------------------------------
(407) 2,735 420
---------------------------------------
$ 2,673 $ 6,527 $ 11,272
=======================================
Deferred tax assets and liabilities (in thousands) are comprised of the
following:
JANUARY 31
2001 2000
-------------------------------
Deferred tax assets:
Accrued vacation and sick leave $ 1,242 $ 1,179
Retirement plans 2,678 2,017
Insurance reserves 1,410 1,371
Inventory 322 196
Other 216 339
-------------------------------
5,868 5,102
Deferred tax liabilities:
Tax in excess of book depreciation 4,381 3,654
Capitalized software development costs 4,240 4,608
-------------------------------
8,621 8,262
-------------------------------
Net deferred tax liability $ (2,753) $ (3,160)
===============================
24
36
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS
The Company has long-term leases on real property and equipment, which expire at
various dates. Certain of the leases contain renewal, purchase options and
require payment for property taxes and insurance.
Minimum future lease payments (in thousands) for operating leases in effect as
of January 31, 2001, are as follows:
Year ending January 31
2002 $ 9,250
2003 9,784
2004 7,633
2005 6,143
2006 3,142
Thereafter 1,301
-----------
$ 37,253
===========
Rent expense relating to operating leases was as follows (in thousands):
Year ending January 31
2001 $ 12,937
2000 10,516
1999 9,438
The Company leases machinery and equipment from GECC under a 10-year operating
lease arrangement. The total amount of machinery and equipment leased in 2000
and 1999 was $0 and $8,800,000, respectively. The Company has the option of
buying out the leases three to five years into the lease period.
Minimum future lease-receipts (in thousands) for leases relating to properties
owned or subleased as of January 31, 2001 are as follows:
Year ending January 31
2002 $ 730
2003 572
2004 572
2005 572
2006 525
Thereafter 2,623
--------
$ 5,594
========
25
37
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
8. CONTINGENCIES
The Company and other furniture manufacturers are subject to federal, state and
local laws and regulations relating to the discharge of materials into the
environment and the generation, handling, storage, transportation and disposal
of waste and hazardous materials. The Company has expended, and may be expected
to expend significant amounts for the investigation of environmental conditions,
installation of environmental control equipment and remediation of environmental
contamination.
The Company is subject to contingencies pursuant to environmental laws and
regulations that in the future may require the Company to take action to correct
the effects on the environment of prior disposal practices or releases of
chemical or petroleum substances by the Company or other parties. At January 31,
2001 and 2000, there are no required reserves for such environmental
contingencies.
The Company has a self-insured retention for product and general liability
losses up to $100,000 per occurrence. The Company has purchased insurance to
cover losses in excess of $100,000 up to a limit of $30,000,000. The Company has
obtained an actuarial estimate of its total expected future losses for liability
claims and recorded the net present value of $3,657,000 at January 31, 2001,
based upon the Company's estimated payout period of four years using a 10%
discount rate.
Workers' compensation, automobile, general and product liability claims may be
asserted in the future for events not currently known by management. Management
does not anticipate that any related settlement, after consideration of the
existing reserve for claims incurred and potential insurance recovery would have
a material adverse effect on the Company's financial position, results of
operations or cash flows.
The Company and its subsidiaries are defendants in various legal proceedings
resulting from operations in the normal course of business. It is the opinion of
management that the ultimate outcome of all such matters will not materially
affect the Company's financial position, results of operations or cash flows.
9. GAIN ON SALE OF ASSETS AND OTHER INCOME
On April 25, 2000, the Company completed the sale of its Torrance, California,
warehouse, which was held as rental property. 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.
26
38
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
9. GAIN ON SALE OF ASSETS AND OTHER INCOME (CONTINUED)
In October 2000, the Company entered into a confidential settlement of a dispute
involving past services related to the installation 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 ended October 31, 2000, the Company recognized $4,052,000
in other income from this settlement.
27
39
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
10. QUARTERLY RESULTS (UNAUDITED)
The Company's quarterly results for the years ended January 31, 2001 and 2000,
are summarized as follows (in thousands, except per share data):
PREVIOUSLY PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
APRIL 30 APRIL 30(1,3) JULY 30 JULY 30(1,3)
-------------------------------------------------------
Year ended January 31, 2001:
Net sales(3) $ 46,258 $ 46,432 $ 98,917 $ 96,578
Gross profit(3) 14,106 14,481 32,144 31,768
Income (loss) before cumulative effect of accounting change 2,607 2,617 4,757 4,262
Cumulative effect of accounting change, net of tax:
Revenue recognition(1) - (297) - -
Net income (loss) 2,607 2,320 4,757 4,262
Per common share(2):
Income (loss) before cumulative effect of accounting changes:
Basic 0.23 0.23 0.42 0.38
Assuming dilution 0.23 0.23 0.41 0.37
Net income:
Basic 0.23 0.20 0.42 0.38
Assuming dilution 0.23 0.20 0.41 0.37
Year ended January 31, 2000:
Net sales(3) 37,479 37,681 88,224 88,700
Gross profit(3) 11,361 11,563 30,468 30,944
Net (loss) income (1,965) (1,965) 6,527 6,527
Net (loss) income per common share(2):
Basic (0.17) (0.17) 0.57 0.57
Assuming dilution (0.17) (0.17) 0.56 0.56
PREVIOUSLY
REPORTED RESTATED
OCTOBER 31 OCTOBER 31(1,3) JANUARY 31
------------------------------------------
Year ended January 31, 2001:
Net sales(3) $ 95,866 $ 99,016 $ 45,316
Gross profit(3) 28,316 29,593 7,735
Income (loss) before cumulative effect of accounting change 4,240 4,713 (7,279)
Cumulative effect of accounting change, net of tax:
Revenue recognition(1) - - -
Net income (loss) 4,240 4,713 (7,279)
Per common share:
Income (loss) before cumulative effect of accounting changes(2):
Basic 0.37 0.42 (0.64)
Assuming dilution 0.37 0.41 (0.64)
Net income:
Basic 0.37 0.42 (0.64)
Assuming dilution 0.37 0.41 (0.64)
Year ended January 31, 2000:
Net sales(3) 93,895 94,401 47,297
Gross profit(3) 33,683 34,189 16,136
Net (loss) income 6,414 6,414 (810)
Net (loss) income per common share(2):
Basic 0.56 0.56 (0.07)
Assuming dilution 0.55 0.55 (0.07)
28
40
Virco Mfg. Corporation
Notes to Consolidated Financial Statements (continued)
10. QUARTERLY RESULTS (UNAUDITED) (CONTINUED)
PREVIOUSLY PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
APRIL 30 APRIL 30(1,3) JULY 30 JULY 30(1,3)
--------------------------------------------------------
Pro forma amounts assuming the accounting change is
applied retroactively:
Net (loss) income $ (1,899) $ - $ 5,950 $ -
Net (loss) income per common share:
Basic (0.17) 0.52
Assuming dilution (0.17) 0.51
PREVIOUSLY
REPORTED RESTATED
OCTOBER 31 OCTOBER 31(1,3) JANUARY 31
--------------------------------------------
Pro forma amounts assuming the accounting change is
applied retroactively:
Net (loss) income $ 6,839 $ - $ (705)
Net (loss) income per common share:
Basic 0.60 (0.06)
Assuming dilution 0.59 (0.06)
(1) During the fourth quarter of 2000, the Company changed its method of
accounting for revenue recognition in accordance with Staff Accounting
Bulletin No. 101, "Revenue Recognition in 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 three quarters of 2000
which had been previously reported has been restated. No restatement of 1999
information was necessary.
(2) Net income per share has been adjusted to reflect the 10% stock dividends
declared in August 2000 and 1999.
(3) Net sales and gross profit have been adjusted to reflect reclassifications
to conform to the presentation required by EITF No. 00-10, "Accounting for
Shipping and Handling Fees and Costs", which the Company adopted during the
fourth quarter for the year ended January 31, 2001.
29
41
VIRCO MFG. CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED JANUARY 31, 1999, 2000 AND 2001 (In Thousands)
Col. A Col. B Col. C Col. D
Additions
Description Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts
----------- ------------------------------ ----------------------------- -------------------------
Allowance for Doubtful Accounts:
Year Ended:
January 31, 1999 $ 100 $ 530
January 31, 2000 $ 200 $ 188
January 31, 2001 $ 200 $ 156
Col. A Col. E Col. F
Description Deductions from Reserves Balance at Close of Period
----------- ------------------------ --------------------------
Allowance for Doubtful Accounts:
Year Ended:
January 31, 1999 $ 430 (1) $ 200
January 31, 2000 $ 188 (1) $ 200
January 31, 2001 $ 156 (1) $ 200
(1) Uncollectible accounts written off, net of recoveries.