1
Exhibit 13
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 generally
accepted accounting principles, 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 that 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 financial statements.
The Audit Committee of the Board of
Directors, which is composed solely 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.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
REVENUE AND INCOME
1995 vs. 1994
Net sales from operations increased to $224,349,000 for fiscal 1995, compared
to $215,659,000 in fiscal 1994. This sales performance was achieved in a
continued competitive market, and was accomplished through improved operational
performance in our manufacturing and distribution capabilities combined with an
aggressive pricing strategy.
Educational sales, representing 53% of corporate revenues, increased by
$7,204,000 from $112,053,000 to $119,257,000. This increase occurred in an
improved market and was achieved through competitive pricing, increased levels
of inventory going into the peak shipping periods, improved manufacturing
performance, and engineering improvements in certain product lines. Sales of
mobile cabinets and mobile tables demonstrated solid growth. Acceptance of
Virco's hard plastic furniture and other core educational products continue to
improve.
Commercial sales, representing 42% of corporate revenues, increased by
$1,334,000 from $92,391,000 to $93,725,000. Sales improved in several markets,
with Virco targeting market penetration in the hospitality, private school, and
church markets. Sales of products to mass merchandisers have decreased as the
Company is focusing on more profitable markets.
Other sales increased by $152,000 from $11,215,000 to $11,367,000. Sales
performance in this market reflected an improvement in sales to Canada offset
by declining sales into Mexico.
The $8,690,000 increase in sales provided an additional $3,501,000 of gross
margin. During the year, the Company incurred increases in material costs
accompanied by lagging increases in selling prices. Costs of raw materials
peaked during the middle of the year, and by year end had fallen to more
typical levels. We expect raw material prices to be more stable in 1996.
Offsetting these increased costs, the Company experienced efficiencies in both
manufacturing overhead and distribution costs. These costs decreased in both
absolute amounts as well as a percentage of sales. Improvements in these areas
are attributable to the closing of four distribution centers in 1994, improved
automation in the factories, and increased production volumes.
Selling, general and administrative, and interest expenses, as a percentage of
sales, increased compared to the prior year. These increased costs related to
increased spending for product development as well as financing costs related
to the capital investment program and increased levels of inventory. Other
income and expense improved compared to the prior year due to non recurring
events. These 1995 events include an involuntary conversion from tornado damage
and a favorable settlement of legal proceedings relating to our Southern Pines
manufacturing facility. 1994 reflected a provision for a claim against the
Company for products sold under a GSA contract.
1994 vs. 1993
Net sales from operations increased to $215,659,000 for fiscal 1994, compared
to $205,629,000 in fiscal 1993. This sales performance was achieved in a
continued competitive market, and was accomplished through an aggressive
pricing strategy.
Educational sales, representing 52% of corporate revenues, increased by
$2,868,000 from $109,185,000 to $112,053,000. This increase occurred in a
relatively flat market and was achieved through competitive pricing and
engineering improvements in certain product lines. Acceptance of Virco's hard
plastic furniture and other core educational products continue to improve.
Commercial sales, representing 43% of corporate revenues, increased by
$6,560,000 from $85,831,000 to $92,391,000. Sales improved in all markets, with
Virco improving market penetration in the hospitality, private school, and
church markets. Growth in sales to mass merchandisers has leveled off, with
sales to mass merchants representing a comparable percentage of Commercial
sales for 1994 and 1993.
Other sales increased by $602,000 from $10,613,000 to $11,215,000. This
increase was attained by increased export sales to Mexico offset by a decrease
in sales to the Federal Government.
3
The overall $10,030,000 increase in sales provided an additional $3,816,000 of
gross margin. Slight increases in material costs were offset by reductions in
overhead spending, resulting in stable gross margins as a percentage of sales.
A reduction in distribution and warehousing expenditures was achieved by
closing five distribution centers in the latter part of 1993 and four
additional distribution centers in the latter half of 1994. Selling, general
and administrative costs, as a percentage of sales, were comparable to the
prior year.
1993 vs. 1992
Net sales from continuing operations increased to $205,629,000 for fiscal 1993,
compared to $191,324,000 in fiscal 1992. This sales performance, which was
achieved in an extremely competitive market, was accomplished through an
aggressive pricing strategy combined with improved on-time delivery of customer
orders.
Educational sales, representing 53% of 1993 corporate revenues, increased by
$5,161,000 from $104,024,000 to $109,185,000. This increase was achieved
through competitive pricing along with improved on-time deliveries of orders
during the summer and fall educational delivery season.
Commercial sales, which represent 42% of 1993 corporate revenues, increased by
$8,791,000 from $77,040,000 to $85,831,000. Competitive pricing combined with
improved customer service and delivery enabled sales increases in the private
school, hospitality and mass merchandising markets.
Other sales increased slightly from $10,260,000 to $10,613,000. This improvement
is attributable to improved sales in Canada. The Company continued to develop a
dealer network in Mexico with intent to increase sales in both Mexico and
Canada.
Despite a $14,305,000 increase in sales, margins only increased by $1,783,000.
This was attributable to severe price competition combined with slight
increases in costs. Selling, general and administrative costs, as a percentage
of sales, were comparable to the prior year.
OTHER OPERATING ACTIVITIES
In April 1994, the Board of Directors authorized the Company to enter into a
ten year lease for a 560,000 square foot manufacturing and warehousing facility
in Torrance, CA. This new facility has enabled the Company to combine both
manufacturing and warehousing operations for the Western Region under one roof,
reducing materials handling and distribution expenses. The Company moved all
west coast warehousing operations into the new facility in the third quarter of
1994. The transfer of manufacturing operations started in March of 1995 and was
substantially completed by the end of June 1995. This move was accomplished
with virtually no impact upon customer service or level of shipments. By the
end of 1995, the new factory was operating at anticipated production levels.
Current efforts are focusing on running the facility at intended levels of
productivity. The Company has made in 1994 and in 1995, a large investment in
automated equipment and leasehold improvements at this new facility. In
connection with the move, the factory has been redesigned to implement a
"manufacturing cell" concept. This plant layout requires a substantial
investment in capital equipment, but will reduce labor costs as well as
throughput time for production of the Company's significant product lines. In
addition, the new equipment will broaden the Company's manufacturing
capabilities to facilitate expansion into targeted markets and product lines.
The new production capabilities will complement the Company's investment in
enhanced product engineering and design capabilities initiated in 1993 and
continued through the current year.
The Company's Conway, AR manufacturing facility, which was expanded in 1991 and
again in 1993, received nearly $6,500,000 of capital investment in machinery
and equipment in 1994 and an additional $6,900,000 in 1995. This investment
increased capacity to produce hard plastic components, which are a critical
element of the Company's educational product line, increased and automated
welding capabilities, expanded tube forming operations, and significantly
enhanced tool and die fabrication capabilities. The current year's capital
investments are a continuation of an effort initiated several years ago to
expand and more fully automate the Arkansas facility.
4
In connection with the new west coast facility, the Company has discontinued
operations at two facilities in the Los Angeles area. One facility, a 160,000
square foot manufacturing plant owned by the Company, was leased in 1995 under
a 15 year lease. Under the terms of the lease, the Company provided no tenant
improvement allowances and leased the building on an "as is" basis, saving
capital so as to invest available funds in equipment at the new manufacturing
facility. The second facility, a 200,000 square foot finished goods warehouse
and distribution center owned by the Company, was leased during the third
quarter of 1994 under a five year lease which will expire in January 2000.
In 1994, the Company sold one of its two facilities in Newport, TN. This
facility, formerly a finished goods warehouse, had been rented to outside
parties since 1988. The remaining property, formerly used in the production of
hard plastic components, is currently being used to store finished goods
inventory.
In February 1993, a fire at our San Luis, Mexico, manufacturing operation
destroyed a raw material and work-in-process storage facility along with the
related inventory. In addition, there was minor damage to one adjacent
production facility. Repair work to the adjacent production facility was
completed early in 1993. The raw material and work-in-process storage facility
was not replaced. Virco filed and settled a claim for property damage in the
fourth quarter of 1993, resulting in a gain on the involuntary conversion of
the building, offset in part by a small loss on the involuntary conversion of
inventory. Proceeds from the property insurance claim were received in 1994.
The Company filed and settled a claim under the business interruption insurance
policy in 1994.
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 may be expected
to expend significant amounts in the future for the investigation of
environmental conditions, installation of environmental control equipment, or
remediation of environmental contamination.
Currently, the Company is self insured for Product, and General Liability
losses up to $150,000 per occurrence. Effective April 1, 1995, the Company
purchased first dollar coverage for Workers' Compensation and Automobile
Liability. In prior years the Company has been self insured for Workers'
Compensation, Automobile, Product, and General Liability losses. The Company
has purchased insurance to cover losses in excess of $150,000 up to a limit of
$20,000,000. 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 1995 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 or results of operations.
INFLATION AND FUTURE CHANGE IN PRICES
Although inflation has slowed in recent years, it is still a factor in our
economy and the Company continually seeks ways to cope with its effect on all
operating costs. The extremely competitive business climate experienced over
the recent years has limited our ability to pass on these increasing costs to
our customers.
The Company uses the LIFO method of accounting for the material content of
inventory. Under this method, the cost of material included in products sold
reported in the financial statements approximates current costs, 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 1995 and 1994. The assets acquired
will result in higher depreciation charges, but due to technological advances
should result in operating cost savings. Anticipated fixed asset additions in
1996 should return to a more normal level, with 1996 capital acquisitions
approximating 1996 depreciation expense.
5
Material costs were volatile in 1995, with cost increases in plastic and
cartons, as well as increased steel prices. These costs increased during the
year and then dropped back to more normal levels near the end of the year.
Raw material costs are expected to be more stable in 1996. If these costs do
remain stable, we anticipate that total material costs for 1996, as a
percentage of sales, could be less than in 1995. The Company is working to
mitigate possible cost increases by investigating new packaging materials in
addition to new sources of raw material and purchased components.
The material cost and certain overhead expenditures of product manufactured in
Mexico is paid for and denominated in U.S. Dollars, but the cost of labor and
many overhead expenditures are denominated in Mexico Pesos. The volatility and
recession in the Mexican markets has adversely affected efforts to sell product
into Mexico, but has reduced our cost of producing goods for distribution in
the United States.
LIQUIDITY
In October 1995 a two year, $49,500,000 loan facility was completed with Wells
Fargo Bank. The terms of the facility are described in Note 5(a) of the notes
to the consolidated financial statements. Major provisions of the agreement
include that the line is uncollateralized and the interest rate is at prime.
This new facility allows the Company the option to borrow under 30, 60, and 90
day fixed term rates at LIBOR plus 1.75%. Under this agreement, there is a
letter of credit sub feature where the Company issues commercial and standby
letters of credit. Subsequent to year end, the Company was able to reduce
outstanding stand by letters of credit by $5,140,000, converting this amount to
available cash borrowing. This loan facility is intentionally large enough to
finance more production in the early part of the year to have adequate
inventories available for the summer / fall educational delivery season.
During 1994, the Company issued an $8,900,000 Industrial Revenue Bond through
the City of Torrance, CA. The Bond was privately placed with General Electric
Capital Corporation. This Industrial Revenue Bond provides capital funds which
are limited to the acquisition of machinery, equipment, and leasehold
improvements in the new Torrance, CA facility. Under the terms of the Bond,
capital spending at the Torrance facility will be limited to $8,900,000 over a
three year period. During 1995, the Company drew down $8,336,000 to cover
capital expenditures and bond issuance costs. To supplement the Bond proceeds,
the Company has entered into true tax leases with General Electric Capital
Corporation for approximately $2,200,000 worth of machinery and equipment in
1995 and approximately $4,100,000 worth of machinery and equipment during 1994.
Capital assets obtained through these true tax leases will not be applied
toward the $8,900,000 three year limit on capital spending in Torrance. The
Company does not anticipate entering into any additional comparable leases in
1996.
Capital investments for machinery and equipment installed at the Conway, AR
facility totaled $6,900,000 in 1995 and $6,500,000 in 1994. This capital
investment was financed out of operating cash flow and from the loan facility
with Wells Fargo Bank. In 1993, the Company completed an expansion of the
Conway, AR manufacturing plant. The Company financed this expansion by
obtaining a $2,000,000 amortizing note secured by the land and building
acquired. Equipment purchases for the 1993 expansion were again financed out of
operating cash flow and our loan facility with Wells Fargo Bank. Capital
expansion at this facility is expected to continue through 1996 at a reduced
level. The 1996 capital additions will be funded by cash generated from
operations and as necessary through the Wells Fargo credit facility.
In February 1993, a fire at our San Luis, Mexico, manufacturing operation
destroyed a storage facility along with the related inventory. The Company did
not replace the storage facility and improved inventory management to reduce
raw material and work-in-process requirements. This reduction in Mexico assets
generated approximately $5,000,000 in cash.
During 1994, the Company sold one property located in Newport, TN. This sale
provided nearly $700,000 in cash proceeds.
During 1995, the Company received $500,000 as a settlement of legal proceedings
related to the Southern Pines, NC facility.
6
In 1993, the Company established the Virco Employee Stock Ownership Program.
This employee benefit plan allows Virco employees to defer compensation through
a 401(k) plan. One of the four investment options available under the 401(k) is
the Virco Stock Fund. In 1995, the Plan negotiated a credit facility with Wells
Fargo Bank to loan up to $1,500,000 to the Plan. The loan is secured by Company
Stock purchased with the loan proceeds and is guaranteed by the Company. The
Plan may borrow up to $500,000 for recurring periodic transactions. Any
borrowing greater than $500,000 must be approved by the Board of Directors. At
January 31, 1996, the Plan had borrowed $193,000 under the line.
Management believes cash raised from the previously described sources will be
adequate to meet its capital requirements in the short term and for the next
year.
FINANCIAL STRATEGY
The Virco financial strategy is to continue to increase levels of profitability
by new product development, acquisition of automated machinery, the elimination
of under performing assets and continual reassessment of the manufacturing and
distribution capacity needed to meet future demand. This continual assessment
of production capacity has led to a shutdown of the Newport, TN plant in 1992,
expansion of our Conway, AR production facility in both 1991 and 1993, and the
1994 move from the older Los Angeles, CA plant to a larger, more automated
facility. We are continuing in our effort to eliminate or lease underutilized
real estate.
The Company has a manufacturing operation in San Luis, Mexico, which is a
supplier of components and finished products for the Company's other divisions.
The operation's identifiable assets were $6,386,000 and $10,039,000 at January
31, 1996 and 1995 respectively. The feasibility of selling this facility is
under review. The results of this analysis are expected during 1996.
Note 8 of the notes to the consolidated financial statements describes the
result of the implementation of Financial Accounting Standard Board Statement
No. 109 "Accounting for Income Taxes". The Company has not provided an
allowance against the deferred tax assets recorded in the financial statements.
The net deferred tax asset represents less than 4% of the current year pre-tax
earnings. The gross deferred tax asset represents approximately 10% of current
pre-tax earnings. Management believes that it is more likely than not that
taxable earnings in the carryback period and future earnings will be
sufficient to recover deferred tax assets.
The Company implemented Financial Accounting Standards Board Statement No. 106
in 1993. The effect of this implementation was insignificant to the Company's
financial position.
The Company discounts the pension obligations under the Virco Employees
Retirement Plan and the Virco Important Performers Plan (VIP) 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 or results of operations.
7
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Fiscal Year Ended
January 31, January 31, January 31, January 31, January 31,
(In thousands, except per share data) 1996 1995 1994 1993 1992
- - -------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net sales - continuing operations $ 224,349 $ 215,659 $ 205,629 $ 191,324 $ 187,384
Net income
Continuing operations 5,209 5,001 4,302 3,827 3,453
Discontinued operations - - - (668) (347)
Change in accounting methods - - (275) - -
----------------------------------------------------------------------------
$ 5,209 $ 5,001 $ 4,027 $ 3,159 $ 3,106
============================================================================
Net income per share*
Continuing operations $ .96 $ .92 $ .80 $ .71 $ .64
Discontinued operations - - - (.12) (.07)
Change in accounting methods - - (.05) - -
----------------------------------------------------------------------------
$ .96 $ .92 $ .75 $ .59 $ .57
============================================================================
Average number of shares
outstanding 5,431,581 5,408,699 5,373,732 5,314,712 5,404,483
Dividends declared per share:
Cash $ .04 $ .04 $ .04 $ .04 $ .04
Stock 10% 10% 10% 10% 10%
OTHER FINANCIAL DATA
Total assets $ 119,225 $ 115,008 $ 97,164 $ 98,947 $ 89,231
Working capital 51,320 42,780 47,038 52,236 42,805
Current ratio 3.2/1 2.6/1 3.2/1 3.5/1 3.0/1
Total long-term obligations 39,900 37,428 29,722 34,651 28,258
Stockholders' equity 55,461 50,466 45,637 41,937 39,164
Shares outstanding at year-end** 5,369,360 5,360,560 5,360,560 5,360,560 5,404,485
Stockholders' equity per share** 10.33 9.42 8.51 7.81 7.25
* Based on average number of shares outstanding each year after giving
retroactive effect for stock dividends.
** Based on number of shares outstanding at year-end giving effect for
stock dividends declared.
NET SALES
in millions
91 92 93 94 95
187.4 191.3 205.6 215.7 224.3
NET INCOME
in millions
91 92 93 94 95
3.1 3.2 4.0 5.0 5.2
NET INCOME PER SHARE
in dollars
91 92 93 94 95
.57 .59 .75 .92 .96
8
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, 1996 and 1995, and the related
consolidated statements of income, stockholders'
equity, and cash flows for each of the three years
in the period ended January 31, 1996. 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
generally accepted auditing standards. 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, 1996 and 1995, and the
consolidated results of their operations and their
cash flows for each of the three years in the
period ended January 31, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 15, 1996
9
CONSOLIDATED BALANCE SHEETS
January 31
(In thousands, except per share data) 1996 1995
- - --------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 661 $ 585
Trade accounts receivable (less a $100 allowance for doubtful accounts) 25,924 25,845
Other receivables 2,078 1,523
Income taxes receivable 197 -
Inventories:
Finished goods 22,585 21,689
Work in process 6,949 6,113
Raw materials and supplies 13,486 11,418
---------------------------
43,020 39,220
Prepaid expenses and other current assets 1,883 1,505
Deferred income taxes 859 1,154
---------------------------
Total current assets 74,622 69,832
Restricted short-term investments 1,272 8,937
Property, plant and equipment:
Land and land improvements 3,543 3,061
Buildings 13,661 12,497
Machinery and equipment 54,667 48,736
Leasehold improvements 1,822 1,433
---------------------------
73,693 65,727
Less accumulated depreciation and amortization 36,738 34,409
---------------------------
Net property, plant and equipment 36,955 31,318
Other assets 6,376 4,921
---------------------------
Total assets $ 119,225 $ 115,008
===========================
See accompanying notes.
NET PROPERTY, PLANT & EQUIPMENT/
CAPITAL EXPENDITURES in millions
Net Property, Plant & Equipment
Capital Expenditures
91 92 93 94 95
19.0 18.9 23.7 31.3 37.0
5.5 3.8 8.8 12.4 11.1
10
CONSOLIDATED BALANCE SHEETS (CONTINUED)
January 31
(In thousands, except per share data) 1996 1995
- - --------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks released but not yet cleared bank $ 3,545 $ 2,898
Accounts payable 10,199 11,768
Accrued compensation and employee benefits 5,080 5,991
Income taxes payable - 1,372
Current portion of long-term debt 924 874
Other accrued liabilities 3,554 4,149
---------------------------
Total current liabilities 23,302 27,052
Noncurrent liabilities:
Accrued self-insurance retention 1,535 1,913
Accrued pension expenses 2,456 2,938
Long-term debt, less current portion 35,909 32,577
---------------------------
Total noncurrent liabilities 39,900 37,428
Deferred income taxes 562 62
Commitments and contingencies
Stockholders' equity:
Preferred stock:
Authorized 3,000,000 shares, $.01 par value;
none issued or outstanding - -
Common stock:
Authorized 10,000,000 shares, $.01 par value; issued
5,391,749 shares in 1995 and 4,903,625 shares in 1994 54 49
Additional paid-in capital 42,055 36,992
Retained earnings 13,717 13,787
Less treasury stock at cost (22,389 and 30,389 shares at
January 31, 1996 and 1995, respectively) (172) (234)
Less unearned ESOP shares (193) (128)
---------------------------
Total stockholders' equity 55,461 50,466
---------------------------
Total liabilities and stockholders' equity $ 119,225 $ 115,008
===========================
See accompanying notes.
STOCKHOLDERS' EQUITY in millions
91 92 93 94 95
39.2 41.9 45.6 50.5 55.5
11
CONSOLIDATED STATEMENTS OF INCOME
Year ended January 31
(In thousands, except per share data) 1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------------
Net sales $ 224,349 $ 215,659 $ 205,629
Costs of goods sold 163,728 158,539 152,325
---------------------------------------------
Gross profit 60,621 57,120 53,304
Selling, general and administrative expenses 50,050 46,047 44,705
Provision for doubtful accounts 67 220 380
Interest expense, net 3,130 2,329 2,516
Other (income) expense (1,039) 500 (1,197)
---------------------------------------------
Income before taxes and cumulative effect of accounting change 8,413 8,024 6,900
Provision for income taxes 3,204 3,023 2,598
---------------------------------------------
Income before cumulative effect of accounting change 5,209 5,001 4,302
Cumulative effect at February 1, 1994 of change in method
of accounting for income taxes - - (275)
---------------------------------------------
Net income $ 5,209 $ 5,001 $ 4,027
=============================================
Net income per share:
Income before cumulative effect of accounting change $ .96 $ .92 $ .80
Cumulative effect of accounting change - - (.05)
---------------------------------------------
$ .96 $ .92 $ .75
=============================================
Weighted average shares outstanding 5,431,581 5,408,699 5,373,732
=============================================
See accompanying notes.
12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional
------------------- Paid-In Retained Treasury ESOP
(Dollar amounts in thousands) Shares Amount Capital Earnings Stock Trust Total
- - ---------------------------------------------------------------------------------------------------------------
Balance at January 31, 1993 4,027,469 $40 $30,265 $11,866 $ (234) $ - $41,937
Unearned ESOP shares - - - - - (150) (150)
Stock dividend (10%) 402,746 4 2,966 (2,970) - - -
Cash dividend ($.04) - - - (177) - - (177)
Net income - - - 4,027 - - 4,027
----------------------------------------------------------------------------
Balance at January 31, 1994 4,430,215 44 33,231 12,746 (234) (150) 45,637
Unearned ESOP shares - - - - - 22 22
Stock dividend (10%) 443,021 5 3,761 (3,766) - - -
Cash dividend ($.04) - - - (194) - - (194)
Net income - - - 5,001 - - 5,001
----------------------------------------------------------------------------
Balance at January 31, 1995 4,873,236 49 36,992 13,787 (234) (128) 50,466
Unearned ESOP shares - - - - - (65) (65)
Sale of treasury stock 8,000 - 4 - 62 - 66
Stock dividend (10%) 488,124 5 5,059 (5,064) - - -
Cash dividend ($.04) - - - (215) - - (215)
Net income - - - 5,209 - - 5,209
----------------------------------------------------------------------------
Balance at January 31, 1996 5,369,360 $54 $42,055 $13,717 $(172) $(193) $55,461
============================================================================
See accompanying notes.
STOCKHOLDERS' EQUITY PER SHARE in dollars
91 92 93 94 95
7.25 7.81 8.51 9.42 10.33
13
CASH FLOW
SOURCES OF CASH
in millions
NET INCOME
$5.2
ISSUANCE OF LONG-TERM DEBT
$4.2
DEPRECIATION
$5.4
USES OF CASH
in millions
PURCHASE OF PROPERTY, PLANT & EQUIPMENT
$11.1
OTHER - NET
$3.7
14
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended January 31
(In thousands) 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 5,209 $ 5,001 $ 4,027
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,364 4,243 3,642
Provision for doubtful accounts 67 220 380
Gain on sale of property, plant and equipment (51) (90) (974)
Changes in assets and liabilities:
Trade accounts receivable (146) (2,679) 2,247
Other receivables (554) 6,303 (6,353)
Inventories (3,800) (4,234) 7,439
Prepaid expenses and other current assets (378) 159 253
Accounts payable and accrued liabilities (3,288) 6,554 (98)
Income taxes payable (1,569) (169) 1,638
Deferred income taxes 795 (734) (463)
Other 230 (649) 2,535
--------------------------------------------
Net cash provided by operating activities 1,879 13,925 14,273
INVESTING ACTIVITIES
Capital expenditures (11,068) (12,422) (8,821)
Proceeds from sale of property, plant and equipment 118 667 1,420
Net investment in life insurance (1,685) 453 (616)
Restricted short-term investments 7,665 (8,937) -
--------------------------------------------
Net cash used in investing activities (4,970) (20,239) (8,017)
FINANCING ACTIVITIES
Dividends paid $ (215) $ (194) $ (177)
Issuance of long-term debt 4,205 8,900 2,000
Repayment of long-term debt (824) (2,212) (7,856)
Sale of treasury stock 66 - -
ESOP (loan) payment (65) 22 (150)
--------------------------------------------
Net cash provided by (used in) financing activities 3,167 6,516 (6,183)
--------------------------------------------
Net increase in cash 76 202 73
Cash at beginning of year 585 383 310
--------------------------------------------
Cash at end of year $ 661 $ 585 $ 383
============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 3,299 $ 2,288 $ 2,644
Income taxes 3,978 4,027 1,581
See accompanying notes.
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Business
Virco Mfg. Corporation is engaged in the production and distribution of
furniture for the education and contract furniture markets worldwide. The
majority of sales are made to educational institutions and contract
furniture markets located throughout the United States and Canada.
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.
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.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation and amortization is 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 $190,000, $134,000 and $127,000 for the years
ended January 31, 1996, 1995 and 1994, 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 years from the date the software is
operational.
Property held for sale of $1,362,000 and $1,741,000 at January 31, 1996 and
1995, respectively, is stated at the lower of cost or estimated net
realizable value and includes certain facilities and land no longer used in
the Company's operations.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", which requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company will adopt Statement 121 in the
first quarter of 1996 and, based on current circumstances, does not believe
the effect of adoption will be material.
Income Taxes
As discussed in Note 8, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes," in the fiscal year ended January 31, 1994.
Prior to the adoption of Statement No. 109, the provision for income tax
expense was determined using the deferred method in accordance with APB 11.
Income Per Share
Net income per common share is based on the average number of shares of
common stock outstanding during each year and common stock equivalents of
dilutive stock options, after giving retroactive effect to stock dividends.
16
Foreign Currency Translation
The "functional currency" for the financial statements of the Mexico
subsidiary is the U.S. dollar. In accordance with FASB Statement No. 52, all
non-monetary balance sheet accounts have been remeasured using historical
rates. Income statement amounts have been remeasured using the average
exchange rate in effect during the year. All remeasurement gains and losses
are included in the consolidated statement of income. The effect on the
statement of income of gains and losses is insignificant for all years
presented.
Intangible Assets
Intangible assets, which consist principally of deferred pension assets and
which are included in other assets, are recorded at cost and are amortized
over their estimated useful lives using the straight-line method.
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 which 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 $2,790,000
in 1995, $2,934,000 in 1994 and $2,407,000 in 1993.
Self-Insurance
The Company is self-insured or has a self-insured retention for general and
product liability. 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
The Company accounts for compensation cost related to employee stock options
in accordance with the requirements of Accounting Principles Board Opinion
25 (APB 25) and intends to continue to do so. APB 25 requires compensation
cost for stock-based compensation plans to be recognized based on the
difference, if any, between the fair market value of the stock on the date
of grant and the option exercise price.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Revenue Recognition
Revenue from product sales is recognized upon shipment of merchandise.
Fiscal Year End
Fiscal years 1995, 1994 and 1993 refer to the years ended January 31, 1996,
1995 and 1994, respectively.
Reclassifications
The consolidated financial statements for the years ended January 31, 1995
and 1994 contain certain reclassifications to conform to the presentation
for the year ended January 31, 1996.
2. BARTER CREDIT RECEIVABLE
During 1991, the Company sold recalled stack chairs in exchange for barter
credits. At January 31, 1996 and 1995, barter credits receivable of $625,000
and $1,130,000, respectively, were included in other receivables. The barter
credits will expire if not used before January 31, 1997. The Company expects
to fully utilize such barter credits during 1996.
17
3. RESTRICTED SHORT-TERM INVESTMENTS
In December 1994, the City of Torrance issued an $8,900,000 Industrial
Revenue Bond (IRB) which was privately placed with General Electric Capital
Corporation (GECC). The proceeds from this bond are held in money market
funds in trust at U.S. Trust Company and may only be used to pay for
improvements and equipment to be located at the Torrance, CA facility. The
terms of the IRB restrict capital expenditures at the Torrance location to a
cumulative total of $8,900,000 for a three year period ending December 1997.
4. INVENTORIES
The current material cost for inventories exceeded LIFO cost by $5,751,000,
$6,507,000 and $5,450,000 at January 31, 1996, 1995 and 1994, respectively.
Liquidation of prior year LIFO layers due to a reduction in certain
inventories increased income by $288,000, $174,000 and $507,000 in the years
ended January 31, 1996, 1995 and 1994, respectively.
5. NOTES PAYABLE
Outstanding balances (in thousands) for the Company's long-term debt were as
follows:
January 31
1996 1995
------------------------------------------------------------------------------------------
Revolving credit line with Wells Fargo Bank(a) $ 26,359 $ 22,161
IRB with the City of Torrance(b) 8,230 8,845
Other 2,244 2,445
---------------------------
36,833 33,451
Less current portion 924 874
---------------------------
$ 35,909 $ 32,577
===========================
Outstanding stand-by letters of credit $ 7,072 $ 8,735
===========================
(a) A new credit facility with Wells Fargo Bank effective October 1995
provides an unsecured revolving line of credit of up to $49,500,000
with a letter of credit subfeature. This is a two year
non-amortizing line. Interest is payable monthly at a fluctuating
rate equal to the Bank's prime rate (8.25% at January 31, 1996). The
new line also allows the Company the option to borrow under 30, 60
and 90 day fixed term rates at LIBOR plus 1.75%. This replaced the
prior facility with Wells Fargo Bank which provided a revolving line
of credit up to $40,500,000 and a separate $9,000,000 line for
letters of credit.
(b) Ten year $8,900,000 IRB issued through the City of Torrance. This
5.994% fixed interest rate bond will be paid in monthly installments
of $99,000, including interest, through December 2004.
Long-term debt repayments for the next five years and thereafter are
approximately as follows (in thousands):
Year ending January 31
-------------------------------------------------------------------------------------------------
1997 $ 982
1998 980*
1999 2,492
2000 897
2001 918
Thereafter 30,564
-------
$36,833
=======
* The $26,359,000 due under Wells Fargo Bank's line of credit will be
payable in fiscal year ended January 31, 1998 if the agreement is
not renewed annually. It is the Company's intent to renew annually.
18
The Company believes that the carrying value of debt under the Wells Fargo
credit facility approximates fair value at January 31, 1996, as the 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, 1996, $193,000
was outstanding under the line.
6. RETIREMENT PLANS
The Company and its subsidiaries cover all of the United States based
employees under a noncontributory defined benefit retirement plan, the Virco
Employees' Retirement Plan (Plan). Benefits under the Plan are based on years
of service and career average earnings. The employees of the Mexican
subsidiary are covered under the social security law of Mexico. The Company's
general funding policy is to contribute amounts deductible for federal income
tax purposes. Assets of the Plan are invested in common trust funds.
The following table sets forth (in thousands) the funded status of the Plan
at December 31, 1995 and 1994:
1995 1994
- - -----------------------------------------------------------------------------------------------
Accumulated benefit obligation:
Vested $ (6,868) $ (6,552)
Nonvested (224) (185)
--------------------------
$ (7,092) $ (6,737)
==========================
Projected benefit obligation $ (8,677) $ (7,640)
Plan assets at market value 6,922 5,174
--------------------------
Projected benefit obligation in excess of plan assets (1,755) (2,466)
Unrecognized net transition asset being recognized over 15 years (476) (518)
Recognition of minimum liability - (578)
Unrecognized net loss 1,764 1,999
--------------------------
Accrued pension cost $ (467) $ (1,563)
==========================
The total pension expense for the Plan (in thousands) included the following
components:
December 31
1995 1994 1993
- - --------------------------------------------------------------------------------------------------------
Service cost $ 620 $ 562 $ 483
Interest cost 591 539 493
Actual return on plan assets (916) 250 (636)
Net amortization and deferral 486 (832) 16
---------------------------------------
Net periodic pension cost $ 781 $ 519 $ 356
=======================================
The weighted average discount rate was 8%, the rate of increase in future
compensation levels was 5%,and the expected long-term rate of return on
assets was 9.75% for 1995, 1994 and 1993. Gains and losses are amortized on a
straight-line basis over the average remaining service life of the employees.
The Company 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 $1,849,000 and $550,000 at January
31, 1996 and 1995, respectively. These cash surrender values are included in
other assets on the consolidated balance sheet.
19
The following table sets forth (in thousands) the funded status of the VIP Plan
at January 31, 1996 and 1995.
1996 1995
- - ---------------------------------------------------------------------------------------------
Accumulated benefit obligation:
Vested $ (3,005) $ (2,178)
Nonvested (138) (255)
--------------------------
$ (3,143) $ (2,433)
==========================
Projected benefit obligation $ (4,032) $ (2,942)
Plan assets at market value - -
--------------------------
Projected benefit obligation in excess of plan assets (4,032) (2,942)
Unrecognized prior service cost 568 686
Unrecognized net transition liability being amortized over
15 years 24 28
Recognition of minimum liability (798) (522)
Unrecognized net loss 1,095 317
--------------------------
Accrued pension cost $ (3,143) $ (2,433)
==========================
The total pension expense for the VIP Plan (in thousands) included the
following components:
January 31
1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------
Service cost $ 241 $ 270 $ 171
Interest cost 228 203 157
Actual return on plan assets - - -
Net amortization and deferral 124 128 89
------------------------------------------
Net periodic pension cost $ 593 $ 601 $ 417
==========================================
The weighted average discount rate was 8%, the rate of increase in future
compensation levels was 5%, and the expected long-term rate of return on assets
was 9.75% for 1995, 1994 and 1993. Prior service cost and gains and losses are
amortized on a straight-line basis over the average remaining service life of
the employees.
In April 1993, the Company established the Virco Employees Stock Ownership
Plan, covering all U.S. employees. This plan allows Virco employees to defer 1%
to 15% of eligible compensation through a 401(k) retirement program. One of the
four investment options is the Virco Stock Fund. The plan allows the Company to
match contributions to the Virco Stock Fund at the discretion of the Board of
Directors. No matching contributions were made in 1995, 1994, or 1993. At
January 31, 1996, there were 22,704 shares of unallocated stock held by the
plan with a market value of $210,000. These shares will be released to the plan
as employee contributions are made.
The Company provides current and post-retirement life insurance to certain
salaried employees with split dollar life insurance policies. Cash surrender
values of these policies which are included in other assets were $1,757,000 and
$1,336,000 at January 31, 1996 and 1995, respectively.
7. STOCK OPTIONS AND CAPITAL STOCK
All employees are eligible for the grant of awards under the 1993 Stock
Incentive Plan (the 1993 Plan). Non-employee directors automatically receive a
grant for options to purchase 500 shares of stock on the first day of business
following each annual meeting of the Company's stockholders. Options to
purchase vest 20% each year for the first five years following the grant date.
Options expire ten years after the adoption date of
20
the 1993 plan, unless an employee with options has been terminated, in which
case the options expire three months after the date of termination. The maximum
number of shares of stock that may be issued pursuant to stock options and
other awards granted under the 1993 Plan is 266,200 as adjusted for stock
dividends, and subject to certain adjustments to prevent dilution. Grants made
during 1995, 1994, and 1993 were at the fair market value at the date of grant.
Transactions under the 1993 Plan are summarized below:
January 31
Stock Options 1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 137,170 134,200 -
Granted 2,000 1,500 122,000
Exercised - - -
Expired (605) (12,100) -
Effect of stock dividend 13,858 13,570 12,200
--------------------------------------------
Outstanding at end of year 152,423 137,170 134,200
Exercisable at year end 59,726 27,134 -
Available for grant at year end 113,777 104,830 85,800
Option price range at year end
(adjusted for stock dividends) $4.98 - $7.73 $4.98 - $6.41 $4.98
8. PROVISION FOR INCOME TAXES
In February 1992, the FASB issued Statement No. 109, "Accounting for Income
Taxes." The Company adopted the provisions of the new standard in its financial
statements for the year ended January 31, 1994. The cumulative effect as of
February 1, 1993 of adopting FASB Statement No. 109 decreased net income by
$275,000, or $.05 per share. For the fiscal year ended January 31, 1994, the
application of the new income tax rule had an immaterial effect on the
provision for income taxes. As permitted by FASB Statement No. 109, prior year
financial statements have not been restated to reflect the change in accounting
method.
Under FASB Statement No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis 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. Prior to
the adoption of FASB Statement No. 109, income tax expense was determined using
the deferred method. Deferred tax expense was based on items of income and
expenses that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
difference originated.
The provisions for the last three years are reconciled to the statutory federal
income tax rate using the liability method as follows:
January 31
1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------
Statutory 34.0% 34.0% 34.0%
State taxes (net of federal tax) 1.5 2.9 3.0
Jobs tax credit - (0.4) (0.5)
Nondeductible expenses 2.5 1.2 1.2
----------------------------------
38.0% 37.7% 37.7%
==================================
21
Significant components of the provision for income taxes (in thousands) are as
follows:
January 31
1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------
Current:
Federal $ 2,121 $ 3,414 $ 2,545
State 288 450 347
------------------------------------------
2,409 3,864 2,892
Deferred:
Federal 694 (748) (265)
State 101 (93) (29)
------------------------------------------
795 (841) (294)
------------------------------------------
$ 3,204 $ 3,023 $ 2,598
==========================================
Significant components of the Company's deferred tax assets and liabilities (in
thousands) are as follows:
January 31
1996 1995
- - ---------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 40 $ 40
Accrued vacation and sick leave 441 592
Retirement plans 1,290 1,314
Insurance reserves 422 523
Inventory 204 201
---------------------------
2,397 2,670
Deferred tax liabilities:
Tax in excess of book depreciation 2,066 1,668
Other 34 (90)
---------------------------
2,100 1,578
---------------------------
Net deferred tax asset $ 297 $ 1,092
===========================
9. COMMITMENTS
The Company has long-term leases on real property and equipment which expire at
various dates. Certain of the leases contain renewal and 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, 1996 are as follows:
Year ending January 31
- - ---------------------------------------------------------------------------------------------------
1997 $ 6,729
1998 5,549
1999 4,636
2000 4,246
2001 3,624
Thereafter 12,192
-------
$36,976
=======
22
Rent expense relating to operating leases was as follows (in thousands):
Year ending January 31
- - --------------------------------------------------------------------------------------------------
1996 $7,545
1995 5,505
1994 5,457
In 1994, in order to consolidate west coast operations, the Company leased a
combined manufacturing and distribution facility under a 10 year lease. The
Company has two five-year renewal options at fair market value. In 1994, in
connection with this move, the Company leased a company-owned former
warehousing facility to an outside party under a five year lease. In June 1995,
the Company leased the former Los Angeles production facility to an outside
party under a 15 year lease.
In 1995 the Company leased $2,200,000 of machinery and equipment from GECC
under ten year true tax leases. In 1994, the Company leased $4,100,000 of
machinery and equipment from GECC under ten year true tax leases. The Company
has the option of buying out the leases three years into the lease period.
The Company closed five warehouse/distribution centers in 1993 and four in
1994. At January 31, 1996, the Company had continuing lease obligations at four
of these warehouses. All of the facilities were subleased at fiscal year end to
outside parties under lease terms which correspond to the Company's lease
obligation.
Minimum future lease receipts (in thousands) for leases relating to properties
owned or subleased as of January 31, 1996, are as follows:
Year ending January 31
- - --------------------------------------------------------------------------------------------------
1997 $1,227
1998 1,169
1999 1,175
2000 1,153
2001 378
Thereafter 3,687
------
$8,789
======
10. 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, or remediation of
environmental contamination.
In connection with its plans to dispose of certain real estate, the Company
must investigate environmental conditions, and may be required to take certain
corrective action prior or pursuant to any such disposition. The Company does
not expect the cost of any such corrective action to have a significant effect
on the Company's financial position, results of operations, or upon the net
realizable value of assets. The Company carries no insurance for environmental
liabilities.
The Company is self-insured for product and general liability losses up to
$150,000 per occurrence. The Company has purchased insurance to cover losses in
excess of $150,000 up to a limit of $20,000,000.
The Company has recorded the net present value of its total expected future
losses ($2.4 million before discount, $2.2 million after discount), based upon
the Company's estimated payout period of four years using a 10% discount rate.
23
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 or results
of operations.
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.
The Company has received a $1,000,000 claim from the General Services
Administration regarding price reductions relating to $6,400,000 of sales made
during the period August 1984 through June 1987. The Company has established a
reserve to cover any ultimate liability under this claim. It is the opinion of
management that the ultimate payment, if any, under this claim will not be
material to the Company's financial position or results of operations.
11. FOREIGN OPERATION
The Company has a manufacturing operation in San Luis, Mexico, which is a
supplier of components and finished products for the Company's other divisions.
Total revenues of this operation, consisting primarily of transfers between
geographic areas of the Company, were $30,042,000, $36,598,000 and $37,691,000
for the years ended January 31, 1996, 1995 and 1994, respectively. Transfers
are accounted for at actual manufacturing costs. The operation's identifiable
assets were $6,386,000 and $10,039,000 at January 31, 1996 and 1995,
respectively. The feasibility of selling this facility is currently under
review. The results of the analysis are inconclusive at this time.
12. QUARTERLY RESULTS
The Company's quarterly results for the years ended January 31, 1996 and 1995
are summarized as follows (in thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
- - ---------------------------------------------------------------------------------------------------------------
Year ended January 31, 1996:
Net sales $ 36,925 $ 66,197 $ 74,613 $46,614
Gross profit 9,457 17,553 19,180 14,431
--------------------------------------------------------------
Net income (loss) $ (1,515) $ 1,713 $ 2,748 $ 2,263
==============================================================
Net income (loss) per share $ (.28) $ .32 $ .51 $ .42
==============================================================
Year ended January 31, 1995:
Net sales $ 36,414 $ 60,268 $ 69,014 $49,963
Gross profit 8,551 16,241 18,999 13,329
--------------------------------------------------------------
Net income (loss) $ (1,228) $ 1,656 $ 2,986 $ 1,587
==============================================================
Net income (loss) per share $ (.23) $ .31 $ .55 $ .29
==============================================================
Earnings per share has been adjusted to reflect 10% stock dividends declared in
August 1995 and August 1994.
24
SUPPLEMENTAL STOCKHOLDERS' INFORMATION
Annual Meeting
The Annual Meeting of Virco stockholders will be held on Tuesday, June 18,
1996, at 2:00 p.m., at 2027 Harpers Way, Torrance, California. The record date
for this meeting is May 6, 1996. The Proxy Statement and Proxy pertaining to
this meeting will be mailed on or about May 17, 1996.
SEC Form 10-K
A copy of the annual report to the Securities and Exchange Commission on Form
10-K may be obtained by stockholders without charge upon written request to:
Corporate Secretary
Virco Mfg. Corporation
Post Office Box 44846
Los Angeles, CA 90044
Virco Common Stock
The American Stock Exchange is the principal market on which Virco Mfg.
Corporation (VIR) stock is traded. As of April 17, 1996, there were
approximately 408 Registered Stockholders according to the Transfer Agent
Records. There are approximately 1,400 Beneficial Stockholders.
Transfer Agent and Registrar
Chemical Mellon Shareholder Services
Encino Terrace Center
15821 Ventura Blvd., Suite 670
Encino, CA 91436
Stockholder Records
Records pertaining to stockholdings and dividends are maintained by Chemical
Mellon Shareholder Services. Inquiries with respect to these matters, as well
as notices of address changes, should be directed to: Chemical Mellon
Shareholder Services, Shareholder Relations, P.O. Box 590, Ridgefield Park, NJ
07660, telephone (800) 356-2017.
If a stock certificate is lost or mutilated, immediately communicate with
Chemical Mellon Shareholder Services at the above address.
Quarterly Dividend and Stock Market Information
Cash Dividends Declared Common Stock Range
1-31-96 1-31-95 1-31-96 1-31-95
--------------------------------------------------------------------------
High Low High Low
- - -------------------------------------------------------------------------------------------------------------
1st Quarter - - 8 1/8 7 1/4 6 7/8 6 1/8
2nd Quarter - - 8 1/8 7 1/4 7 1/2 6 1/4
3rd Quarter -* -* 10 3/8 7 7/8 9 1/2 7
4th Quarter $.04 $.04 10 5/8 8 1/2 9 3/4 7 5/8
* 10% stock dividends were issued October 18, 1995 and October 17, 1994.
Stock prices have been adjusted for the effect of stock dividends.
25
DIRECTORS, OFFICERS AND FACILITIES
DIRECTORS
Robert A. Virtue
President, Chairman of the Board
and Chief Executive Officer
Donald S. Friesz
Former Vice President - Sales and Marketing
George Ott
President
Ott and Hansen, Inc.
Donald A. Patrick
Management Consultant,
Diversified Business Resources, Inc.
John H. Stafford
Former Partner of KPMG Peat Marwick LLP
(certified public accountants)
Hugh D. Tyler
Vice President and General Manager,
Conway Division
Douglas A. Virtue
Vice President and General Manager,
Los Angeles Division
Raymond W. Virtue
Vice President - Purchasing
Dr. James R. Wilburn
Dean of the School of Business and
Management, Pepperdine University
INDEPENDENT AUDITORS
Ernst & Young LLP
1999 Avenue of the Stars
Los Angeles, California 90067
LEGAL COUNSEL
Gibson, Dunn & Crutcher
2029 Century Park East
Los Angeles, California 90067
OFFICERS
Robert A. Virtue
President, Chairman of the Board
and Chief Executive Officer
James R. Braam
Vice President - Finance,
Secretary and Treasurer
Robert E. Dose
Corporate Controller
Assistant Secretary and Assistant Treasurer
W. Dale Nutter
Vice President - Commercial Sales Group
D. Randal Smith
Vice President - Marketing
Matthew G. Tarnay
Vice President - Engineering
Hugh D. Tyler
Vice President and General Manager,
Conway Division
Douglas A .Virtue
Vice President and General Manager,
Los Angeles Division
Raymond W. Virtue
Vice President - Purchasing
Larry O. Wonder
Vice President - Education Sales Group
CORPORATE HEADQUARTERS
2027 Harpers Way
Torrance, California 90501
(310) 533-0474
MAJOR FACILITIES
Torrance Division
2027 Harpers Way
Torrance, California 90501
Conway Division
Highway 65, South
Conway, Arkansas 72032
Virsan, S.A. de C.V. subsidiary
San Luis, R.C.
Sonora, Mexico
26
[LOGO]
VIRCO MFG. CORPORATION
2027 Harpers Way
Torrance, California 90501
(310) 533-0474