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, 2001 Commission File Number 1-8777
VIRCO MFG. CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 95-1613718
------------------------------------ ------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
2027 Harpers Way, Torrance, CA 90501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 533-0474
No change
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of
common stock, as of November 16, 2001.
Common Stock 12,285,569 Shares*
* Adjusted for 10% stock dividend declared August 21, 2001, date of record
September 6, 2001, payable September 28, 2001.
VIRCO MFG. CORPORATION
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets - October 31, 2001 and
January 31, 2001
Condensed consolidated statements of income - Three months ended
October 31, 2001 and 2000
Condensed consolidated statements of income -- Nine months ended
October 31, 2001 and 2000
Condensed consolidated statements of cash flows - Nine months
ended October 31, 2001 and 2000
Notes to condensed consolidated financial statements -- October
31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II. Other Information
Item 4. Submission of matters to a vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Exhibit (11) - Statement re: Computation of Earnings Per Share
Signatures
2
PART I
Item 1. Financial Statements
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
ASSETS 10/31/2001 1/31/2001
------ ---------- ---------
Current assets
Cash $ 388 $ 351
Accounts and notes receivable 36,305 25,345
Less allowance for doubtful accounts (557) (200)
--------- ---------
Net accounts and notes receivable 35,748 25,145
Inventories (Note 2)
Finished goods 16,514 27,009
Work in process 9,702 14,442
Raw materials and supplies 13,163 16,588
--------- ---------
Total inventories 39,379 58,039
Income taxes receivable -- 2,508
Prepaid expenses and deferred income tax 2,472 2,930
--------- ---------
Total current assets 77,987 88,973
Property, plant & equipment
Cost 154,372 153,504
Less accumulated depreciation (68,738) (58,859)
--------- ---------
Net property, plant & equipment 85,634 94,645
Other assets 14,783 15,931
--------- ---------
Total assets $ 178,404 $ 199,549
========= =========
See notes to condensed consolidated financial statements.
3
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY 10/31/2001 1/31/2001
------------------------------------ ---------- ---------
Current liabilities
Checks released but not yet cleared bank $ 2,373 $ 2,216
Accounts payable 9,167 13,930
Accrued compensation and employee benefits 8,813 10,775
Current maturities on long-term debt 12,101 12,101
Income tax payable 546 --
Other current liabilities 4,135 6,778
--------- ---------
Total current liabilities 37,135 45,800
Non-current liabilities
Long term debt (less current portion) 26,627 43,741
Other non-current liabilities 13,865 11,334
--------- ---------
Total non-current liabilities 40,492 55,075
Deferred income taxes 4,533 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; 13,165,498
issued at 10/31/2001 and 12,032,233 shares issued at
1/31/2001 131 120
Additional paid-in capital 109,625 97,656
Retained earnings 2,629 10,645
Less treasury stock at cost, 879,929 shares at 10/31/2001 and
749,246 shares at 1/31/2001 (13,348) (12,009)
Less unearned ESOP shares (400) (696)
Less accumulated comprehensive loss (2,393) (1,575)
--------- ---------
Total stockholders' equity 96,244 94,141
--------- ---------
Total liabilities and stockholders' equity $ 178,404 $ 199,549
========= =========
See notes to condensed consolidated financial statements.
4
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
Three Months Ended
------------------------
10/31/2001 10/31/2000
---------- ----------
Restated (Note 1)
Net sales $ 86,232 $ 99,016
Cost of goods sold 57,641 69,423
-------- --------
Gross profit 28,591 29,593
Selling, general and administrative and other 21,062 24,434
Interest expense 1,116 1,491
Other income -- (4,052)
-------- --------
22,178 21,873
Income before income taxes 6,413 7,720
Income taxes 2,501 3,007
-------- --------
Net income $ 3,912 $ 4,713
======== ========
Earnings per share $ .32 $ .38
Earnings per share -- assuming dilution $ .32 $ .37
Weighted average share outstanding (a) 12,209 12,468
Weighted average share outstanding -- assuming dilution (a) 12,341 12,635
Dividend per share
Cash (a) $ .02 $ .02
Stock 10% 10%
(a) Adjusted for 10% stock dividend declared August 21, 2001.
See notes to condensed consolidated financial statements.
5
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (Note 1)
(Dollar amounts in thousands, except per share data)
Nine Months Ended
-------------------------
10/31/2001 10/31/2000
---------- ----------
Restated (Note 1)
Net sales $ 217,882 $ 242,026
Cost of goods sold 149,459 166,184
--------- ---------
Gross profit 68,423 75,842
Selling, general and administrative and other 57,164 64,579
Interest expense 3,572 4,257
Loss (Gain) on sale of fixed assets 86 (7,945)
Other income -- (4,052)
--------- ---------
60,822 56,839
Income before income taxes and cumulative effect of accounting 7,601 19,003
change
Income taxes 2,964 7,411
--------- ---------
Income before cumulative effect of accounting change 4,637 11,592
Cumulative effect of accounting change -- (297)
--------- ---------
Net income $ 4,637 $ 11,295
========= =========
Amounts per common share -- basic (a)
Income before cumulative effect of accounting change $ .38 $ .92
Cumulative effect of accounting change -- (.02)
--------- ---------
Net income $ .38 $ .90
========= =========
Amounts per common share -- assuming dilution (a)
Income before cumulative effect of accounting change $ .37 $ .92
Cumulative effect of accounting change -- (.02)
--------- ---------
Net income $ .37 $ .90
========= =========
Weighted average share outstanding (a) 12,302 12,497
Weighted average share outstanding -- assuming dilution (a) 12,429 12,651
Dividend per share (a)
Cash $ .06 $ .06
Stock 10% 10%
(a) Adjusted for 10% stock dividend declared August 21, 2001.
See notes to condensed consolidated financial statements.
6
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (Note 1)
(Dollar amounts in thousands)
Nine Months Ended
------------------------
10/31/2001 10/31/2000
---------- ----------
Cash flows from operating activities
Net income $ 4,637 $ 11,295
Adjustments to reconcile net income to net cash used in
operating activities:
Cumulative effect of accounting change -- 297
Depreciation 11,789 9,838
Provision for doubtful accounts 387 217
Loss (Gain) on sale of fixed assets 86 (7,945)
Change in assets and liabilities:
Accounts and notes receivable (10,990) (17,331)
Inventories 18,660 5,604
Prepaid expenses and deposits 1,004 609
Income taxes receivable/payable 3,054 4,028
Accounts payable and accrued expenses (6,889) (6,613)
-------- --------
Net cash provided by (used in) operating activities 21,738 (1)
Cash flows from investing activities
Capital expenditures (3,434) (18,331)
Proceeds from sale of assets 570 10,130
Net investment in life insurance (7) (14)
-------- --------
Net cash used in investing activities (2,871) (8,215)
Cash flows from financing activities
Issuance of long-term debt -- 10,252
Repayment of long-term debt (17,114) (1,517)
Payment of cash dividend (696) (608)
Purchase of treasury stock (1,327) (433)
Issuance of common stock 11 12
Repayment (Issuance) of ESOP loans 296 (203)
-------- --------
Net cash (used in) provided by financing activities (18,830) 7,503
Net change in cash 37 (713)
Cash at beginning of period 351 1,072
-------- --------
Cash at end of period $ 388 $ 359
======== ========
See notes to condensed consolidated financial statements
7
VIRCO MFG. CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2001 and October 31, 2000
Note 1: The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the
three-month and nine-month periods ended October 31, 2001 are not
necessarily indicative of the results that may be expected for the
year ending January 31, 2002. The balance sheet at January 31, 2001
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, 2001.
Management continually monitors production costs, material costs and
inventory levels to determine that interim inventories are fairly
stated.
Note 3. Income Taxes
8
Income taxes for the three and nine months ended October 31, 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
The weighted average number of shares used in the computation of
diluted net income per share were 12,341,000 and 12,635,000 for the
quarter ended October 31, 2001 and October 31, 2000, respectively.
The weighted average number of shares used in the computation of
diluted net income per share were 12,429,000 and 12,651,000 for the
nine months ended October 31, 2001 and October 31, 2000,
respectively. Per share and weighted-average share amounts for the
third quarter and nine months ended October 31, 2000 have been
restated to reflect a `10% stock dividend payable on September 28,
2001 to stockholders of record as of September 6, 2001.
Comprehensive income includes net income and minimum pension
liability adjustments. Comprehensive income was $3,691,000 and
$4,713,000 for the quarters ended October 31, 2001 and October 31,
2000, respectively. Comprehensive income was $3,819,000 and
$11,295,000 for the nine months ended October 31, 2001 and October
31, 2000, respectively.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities," (SFAS 133, as amended by SFAS 138), which is required to
be adopted 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 reflected as income or expense. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives are either offset against commitments through
earnings or recognized in other comprehensive income until the hedge
item is recognized in earnings. The ineffective portion of a
derivative's change in fair value is immediately recognized in
earnings.
The Company enters into interest rate swap contracts to reduce its
exposure to fluctuations in interest rates. At October 31, 2001, the
Company had 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. There is no impact to
current earnings due to hedge ineffectiveness.
Note 5. Gain on Sale of Real Estate
9
On April 25, 2000, the Company finalized the sale of its Torrance,
California, warehouse. The Company received $9,385,000 in cash and
recorded $7,945,000 pre-tax gain on disposition during the quarter
ended April 30, 2000.
Note 6. Interest Rate Swap Contract
It is the Company's policy to enter into interest rate swap contracts
only to the extent necessary to reduce exposure to fluctuations in
interest rates. The Company does not enter into interest rate swap
contracts for speculative purposes. Interest rate swaps are
contractual agreements between the Company and third parties to
exchange fixed and floating interest payments periodically without
the exchange of the underlying principal amounts (notional amounts).
In the unlikely event that a counterparty fails to meet the terms of
an interest rate swap contract, the Company's exposure is limited to
the interest rate differential on 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, 2003. At October 31, 2001, the notional amount of the swap
was $20,000,000 with an affixed payment rate of 7.23% and a
fluctuating receiving rate based upon LIBOR.
At October 31, 2001 the carrying value approximated the fair value of
$1,364,000. During the quarter ended October 31, 2001, the Company
recorded an additional loss amount of $221,000 (net of an applicable
income tax benefit of $148,000) in other comprehensive loss in order
to account for the change in fair value. The fair value of the swap
is estimated on pricing models using current assumptions.
Note 7. New Accounting Standards
In June 2001 the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets," which supersedes Accounting Principles Board
Opinion No. 17. SFAS No. 141 is effective for any business
combination completed subsequent to June 30, 2001, and SFAS No. 142
is effective for fiscal years beginning after December 15, 2001.
Under SFAS No. 142, goodwill deemed to have an indefinite life will
no longer be amortized and will be subjected to annual impairment
tests. Other intangible assets will continue to be amortized over
their useful lives. Accordingly, the Company will apply the
provisions of SFAS No. 141 should it enter into any business
combinations after June 30, 2001. The Company believes SFAS No. 142
will not have any effect on the Company's financial position, results
of operations or cash flows.
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 143,
"Accounting for Asset Retirement Obligations," which addresses
financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset
retirement costs, and requires such obligations and costs to be
recognized at fair value in the period in which they are incurred.
SFAS No. 143 is effective for financial statements issued for fiscal
years beginning after
10
June 15, 2002, although earlier application is encouraged. The
Company expects to adopt SFAS No. 143 as of February 1, 2003, and has
not yet determined what impact, if any, the adoption of the Statement
will have on the Company's financial position and results of
operations.
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment of Disposal of Long-Lived Assets," which addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets and superseded SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations for a disposal
of a segment of a business." FAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application
encouraged. The Company expects to adopt FAS 144 as of February 1,
2002 and it does not expect that the adoption of the Statement will
have a significant impact on the Company's financial position and
results of operations.
Note 8. Other Income
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
October 31, 2000, the Company recognized $4,052,000 in other income
from this settlement.
11
VIRCO MFG. CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations:
For the third quarter of 2001, the Company had a net income of $3,912,000 on
sales of $86,232,000 compared to a net income of $4,713,000 on sales of
$99,016,000 in the same period last year. Prior year results for the quarter
included other income of $4,052,000 related to the settlement of a dispute
relating to non-manufacturing equipment. The settlement was a non-recurring
payment unrelated to the Company's ongoing operations. Earnings were $.32 per
share for the quarter ended October 31, 2001 compared to $.37 for the quarter
ended October 31, 2000, after giving effect to the 10% stock dividend declared
August 21, 2001. For the nine months ended October 31, 2001, the Company earned
net income of $4,637,000 on sales of $217,882,000 compared to net income of
$11,295,000 on sales of $242,026,000 in the same period last year. Prior year
results included a pre-tax gain of $7,945,000 on the sale of real estate in
addition to the $4,052,000 settlement discussed above. Earnings were $.37 per
share compared to $.90 per share in the same period last year, after giving
effect to the 10% stock dividend declared August 21, 2001.
The third quarter and year to date results are consistent with Virco's seasonal
business cycle, which produces diminished first quarter sales followed by strong
second and third quarter deliveries of educational furniture. In the current
year, the commercial furniture industry has suffered the worst recession in the
20 years that BIFMA has been keeping furniture industry statistics. Our
commercial furniture markets have suffered from the current recession, but our
sales to the publicly funded K-12 education markets have not suffered as
dramatically. As a result, year to date sales are down approximately 10%,
compared to an average of 16% - 20% for the entire industry. Sales for the third
quarter decreased $12,784,000 compared to the same period last year. Backlog at
October 31, 2001 was approximately $7,900,000 higher compared to the same time
last year.
Gross margin for the third quarter increased by 3% compared to the same period
last year. The improvement in margin is attributable to an increase in selling
prices and reductions in spending. In the prior year, the Company built a large
quantity of finished goods inventory to stock during the first and second
quarters 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 on average approximately 545 (20%) fewer employees during the third
quarter of 2001 compared to the prior year. At November 1, 2001, the Company
employed approximately 435 (16%) fewer employees than at the same date last
year, reflecting a reduction in temporary summer hiring. The reduction in
production hours resulted in unfavorable production variances compared to the
12
prior year, but has allowed the Company to reduce inventories compared to the
prior year despite reduced levels of sales.
During the third quarter, the Company continued to implement a manufacturing
strategy it refers to as "Assemble to Ship". Under this strategy, the Company
builds components to stock instead of building finished goods to stock. The
Company then assembles the finished product as customer orders determine
production quantities and color combinations. This ATS strategy has been
complimented with a policy of seasonal workforce assignments. The Company has
traditionally relied upon seasonal hiring to help meet peak summer shipping
demands. In the current quarter, the Company paid seasonal incentives to
fabrication employees who transferred to assembly and warehouse positions during
the summer. This strategy played a significant role in achieving the workforce
reductions referenced above. The Company believes that it can support a greater
volume and variety of customer orders with a smaller investment in inventory and
a smaller but more experienced permanent workforce utilizing these strategies.
Selling, general and administrative expense and other for the quarter ended
October 31, 2001 decreased by approximately $3,372,000 compared to the same
period last year. The reduction was primarily attributable to reduced freight
expense resulting from lower unit sales volume and overall reduction in
spending.
Interest expense decreased by $375,000 due to a lower average borrowing balance
and lower interest rates for the quarter ended October 31, 2001 compared to the
same period last year. The decrease in borrowings was attributable to reduced
capital spending and decreased levels of inventory.
In response to the continued recession affecting business activity, the Company
continues to reduce spending as severely as possible without compromising its
mid- and long-term ability to take advantage of market opportunities, whether
they come in the form of large individual orders, a rebound in the economy, or
the weakness of competitors. As part of this strategy, subsequent to the end of
the third quarter, the Company further reduced spending by implementing an
across the board 10% reduction in payroll. Salaried employees and executives all
had their rates of pay reduced by 10%. Hourly employees had their hours reduced
by 10%. In addition, the Company has established a holiday schedule which
includes plant closures for the Thanksgiving, Christmas, and New Years. This
reduction in payroll is intended to be temporary, with employees returning to
normal rates of pay and hours as soon as business activity permits. This
reduction will assist the Company in conserving cash and controlling inventory
levels.
Subsequent to quarter end, as part of the Company's initiative to consolidate
operations, it combined what had previously been the Commercial and Educational
sales groups into one field sales team. Instead of having two representatives
pursuing separate customers within the same geographic territory, it will now
have only one. It was increasingly clear that the needs of our commercial and
educational customers were evolving towards greater similarity, and that
combining its sales efforts would allow individual representatives to plow more
deeply in a smaller field. The Company eliminated fourteen sales positions as
part of this consolidation. It also established a tightly focused National
Accounts Sales Group to pursue what the Company believe are significant
opportunities with wholesalers, mail order accounts, and national chains.
13
Financial Condition:
As a result of seasonally high shipments in the third quarter, accounts
receivable increased by approximately $10,990,000 compared to year-end. This
increase in accounts receivable was financed through the credit facility with
Wells Fargo Bank.
Capital spending for the nine months ended October 31, 2001 was $3,434,000
compared to $18,331,000 for the same period last year. In the prior year, the
Company completed a significant investment cycle at the Conway, Arkansas
manufacturing and distribution facility. 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 expenditures are being financed through credit facilities established
with Wells Fargo Bank and operating cash flow. Beginning May 1, 2001, the credit
facility with Wells Fargo Bank was expanded to $80,000,000 from $70,000,000. The
maximum principal amount available under this note was reduced on September 1,
2001 and shall be reduced automatically on January 1, 2002 by the amount of
$10,000,000. If cash flow permits, the Company intends to prepay a portion of
the line used to finance the Conway, Arkansas expansion in the fourth quarter.
At October 31, 2001, the Company has approximately $36,128,000 available under
its credit facility with Wells Fargo Bank. The Company has satisfied or
obtained an appropriate waiver of its debt covenants.
The Company is also pursuing the sale of two other facilities no longer
necessary for operations: the original factory in Los Angeles, California, which
has been held as a rental property, and the former woodshop in Conway, Arkansas,
which have been used as a warehouse. 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 provided by (used in) operating activities for the nine months ended
October 31, 2001 was $21,738,000 compared to ($1) for the same period last year.
The increase in cash provided by operating activities was primarily due to the
substantially reduced inventory level and reductions in accounts receivable.
Long term debt was $26,627,000 as of October 31, 2001 compared to $43,741,000 as
of January 31, 2001.
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. At the December 11, 2001
meeting of the Board of Directors the amount authorized was increased to
$20,000,000. As of October 31, 2001, the Company has repurchased approximately
850,000 shares at a cost of approximately $12,900,000 since the inception of
this program in April 1998. The Company intends to continue buying back shares
of common stock as long as the Company believes the shares are undervalued and
operating cash flows and borrowing capacity under the Wells Fargo line allow.
On August 21, 2001, the Company's Board of Directors authorized a 10% stock
dividend payable on September 28, 2001 to stockholders of record as of September
6, 2001. In the same meeting, the Board also authorized a $0.02 per share cash
dividend payable on October 31, 2001
14
to stockholders on record as of October 12, 2001. For the three months and nine
months ended October 31, 2001, the Company paid $246,000 and $696,000 in cash
dividends, respectively.
The Company believes that cash flows 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.
Forward-Looking Statements
This report contains "forward-looking statements" as defined by the Private
Securities Litigation Reform Act of 1995. These statements include, but are not
limited to, statements regarding: new business strategies, our ability to
continue to control costs and inventory levels, the potential impact of ATS on
earnings, market demand, pricing and seasonality. Forward-looking statements are
based on current expectations and beliefs about future events or circumstances,
and you should not place undue reliance on these statements. Such statements
involve known and unknown risks, uncertainties, assumptions and other factors,
many of which are out of our control and difficult to forecast, that may cause
actual results to differ materially from those which are anticipated. Such
factors include, but are not limited to, changes in general economic conditions,
the markets for school and office furniture generally and specifically in areas
and with customers with which the Company conducts its principal business
activities, customer confidence, and competition. See the Companies Annual
Report on Form-10K for year ended January 31, 2001 and other materials filed
with the Securities and Exchange Commission for further description of these and
other risks and uncertainties applicable to the Company's business. We assume
no, and hereby disclaim any, obligation to update any of our forward-looking
statements. We nonetheless reserve the right to make such updates from time to
time by press release, periodic reports or other methods of public disclosure
without the need for specific reference to this press release. No such update
shall be deemed to indicate that other statements which are not addressed by
such an update remain correct or create an obligation to provide any other
updates.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
On February 22, 2000, the Company entered into an interest rate swap agreement
with Wells Fargo Bank. The initial notional swap amount is $30,000,000 for the
period February 22, 2000 through February 29, 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, 2001, the Company has borrowed $36,627,000 under its Wells
Fargo credit facility, of which $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
$127,000 per fiscal quarter and $411,000 for the nine months ended October 31,
2001. The Company would benefit from a similar interest savings if the base rate
were to fluctuate downward by a like amount.
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
16
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 14, 2001 By: /s/ Robert E. Dose
------------------------------------ -------------------------
Robert E. Dose
Vice President - Finance
Date: December 14, 2001 By: /s/ Bassey Yau
------------------------------------ ----------------------
Bassey Yau
Corporate Controller
18