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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended January 31, 1998.
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from ________ to ________.
Commission file number 1-8777
VIRCO MFG. CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-1613718
- -------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2027 Harpers Way, Torrance, CA 90501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 533-0474
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
Common Stock, $.01 Par Value American Stock Exchange
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Securities pursuant to section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference or in Part III of this Form 10-K [X].
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The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on April 22, 1998, based on the closing price
at which such stock was sold on the American Stock Exchange on that date was
approximately $199,003,742.
The number of shares of Common Stock outstanding at April 1, 1998, was 8,942,155
shares.
Portions of registrant's definitive proxy statement, expected to be mailed to
stockholders on May 18, 1998, are incorporated into Part III as set forth
herein. Portions of registrant's Annual Report to Stockholders for the year
ended January 31, 1998 are incorporated into Part I and Part II as set forth
herein.
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VIRCO MFG. CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
Caption Page
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PART I
Item 1. Business..................................................................... 4
Item 2. Properties................................................................... 6
Item 3. Legal Proceedings............................................................ 7
Item 4. Submission of Matters to a Vote of Security Holders.......................... 8
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters......... 9
Item 6. Selected Financial Data...................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 9
Item 8. Financial Statements and Supplementary Data ................................. 9
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.................................................... 9
PART III
Item 10. Directors and Executive Officers of the Registrant.............................10
Item 11. Executive Compensation....................................................... 11
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 11
Item 13. Certain Relationships and Related Transactions............................... 11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............ 12
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PART I
Item 1. Business
Introduction
Virco Mfg. Corporation, a Delaware Corporation, is a leader in the
design and production of quality furniture for the contract and
education markets worldwide. Forty-eight years of manufacturing has
resulted in a wide product range for both education and commercial
markets. Major products include student desks, computer stations,
chairs, and activity tables for the education markets; and upholstered
stacking chairs, folding tables, folding chairs, and office tables and
chairs for the commercial markets.
One of the important elements of Virco's success is its manufacturing
capabilities. The Company has developed competencies in several
processes, which are important to the markets we serve. These processes
include finishing systems, plastic molding, metal fabrication and
woodworking. Virco's manufacturing facilities are located in California
and Arkansas. Over one million square feet of manufacturing and support
facilities are organized for the production of furniture. During the
year ended January 31, 1995, Virco made a significant investment in a
new manufacturing and distribution facility in Torrance, California to
service the western region of the United States. The decision to
maintain a significant presence in California was influenced by the
quality of the existing workforce, an established vendor network,
favorable lease terms for an excellent manufacturing facility, and
financial support through an Industrial Revenue Bond issued by the city
of Torrance, California. The Company consolidated all western region
distribution facilities at this location in 1994 and transferred the
former western region manufacturing plant to this facility in 1995.
The Company has continued to make significant capital investments in the
Conway, Arkansas manufacturing facility, which services the eastern
region of the United States. This manufacturing plant was expanded in
1991 and again in 1993. Capital spending at this facility of nearly
$6,900,000 in 1995, $5,700,000 in 1996 and $6,100,000 in 1997 was made
to expand production of hard plastic components, which are a critical
component of the Company's educational product line, as well as more
fully automate this facility. In August 1997, the Board of Directors
authorized an expansion and re-configuration of the Conway, Arkansas
manufacturing facility. The additional manufacturing space will be used
to develop manufacturing cells for new or redesigned products as well as
new processes to support our product development efforts and improve
manufacturing efficiency. In late 1997 and early 1998, the Company
acquired approximately 100 acres of land in Conway and is planning to
break ground on a 400,000 square foot manufacturing facility in
mid-1998. The acreage acquired is large enough to support an additional
1,300,000 square feet of manufacturing, warehousing and distribution,
and office facilities should Virco determine such a need in the future.
Supporting the manufacturing facilities, the Company has nearly one
million square feet of distribution and warehouse facilities.
Substantial warehouse space is required to build adequate inventories to
service the highly seasonal demand for educational sales. Approximately
48% of total sales are delivered in July, August, September, and October
with an even higher portion of educational sales delivered in that
period. The trend in educational sales is becoming increasingly
seasonal. The ability to forecast, finance, manufacture, and warehouse
furniture for this narrow delivery window is a significant competency,
which gives the Company a competitive advantage in this market niche.
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Principal Products
The Company's primary furniture lines are constructed of tubular metal
legs and frames, combined with wood and plastic tops, plastic seats and
backs, upholstered seats and backs, and upholstered rigid polyethylene
and polypropylene shells. The Company offers the broadest product line
of educational furniture to the K-12 market of any Company in the United
States. A variety of student and teacher desks, computer stations,
folding and adjustable height tables, desks and auditorium chairs,
mobile storage cabinets and mobile tables are sold through the Education
sales division. A variety of folding chairs and tables, banquet chairs
and tables, convention center seating, hospitality furniture and
educational furniture products are sold through the Commercial sales
division. Some of our major products are sold through both Education and
Commercial sales divisions.
The Company purchases steel, aluminum, plastic, polyurethane,
polyethylene, polypropylene, plywood, particleboard, cartons and other
raw materials in the manufacture of its principal products from many
different sources and is not more vulnerable on sources and availability
than other manufacturers.
Marketing and Distribution
The educational product line is marketed through what we believe to be
the largest direct sales force in the educational furniture industry in
addition to a variety of educational distributorships. During the fourth
quarter of 1997, Virco terminated distribution arrangements with several
major educational dealerships and increased the size of the direct sales
force to cover these territories. Virco has historically increased both
sales and margins in territories where our direct sales force has
replaced educational dealerships. The sales force calls directly upon
school business officials, who can include purchasing agents or
individual school principals where site based management is practiced.
Our direct sales force is considered to be an important competitive
advantage over competitors who rely primarily upon dealer networks for
distribution of their products. Significant portions of educational
furniture are sold on a bid basis.
Sales of commercial and contract furniture are made throughout the
United States by distributorships and by Company sales representatives
who service the distributorship network. Sales are made direct to
convention centers, individual hospitality installations, and to mass
merchants. Sales to this market include preschools, private schools, and
office training facilities, which typically purchase furniture through
commercial channels.
Sales are made to thousands of customers, and no single customer
represents a significant amount of the Company's business.
Other Matters
Foreign Operation Information
Foreign operation information attributable to the Company's operations
for the years ended January 31, 1998, 1997 and 1996, which appear in
Note 10 of the consolidated financial statements included in Virco Mfg.
Corporation's Annual Report to Stockholders for 1997, is incorporated by
reference in this Form 10-K Annual Report.
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Competition
The Company has numerous competitors in each of its markets. In the
educational furniture market, competitors include Artco-Bell
Corporation, Royal, Smith Systems, Scholarcraft, Fleetwood, and Irwin
Seating Co. Competitors in contract furniture vary depending upon the
specific product line or sales market and include Falcon Products, Inc.,
Krueger Metal Products, Inc., Globe, Mecco, Mity Lite, and Shelby
Williams Industries, Inc.
Backlog
Sales order backlog for continuing operations of the consolidated
companies at January 31, 1998, totaled $11.8 million and approximates
three weeks of sales, compared to $9.6 million at January 31, 1997, and
$12.1 million at January 31, 1996.
Patents and Trademarks
Virco has a number of patents and trademarks for which the Company has
not appraised or established a value. It is believed that the loss of
any of the patents would not have a material effect on its manufacturing
business.
Employees
Virco Mfg. Corporation and its Subsidiaries employ approximately 2,390
full-time employees at various locations. Of this number, approximately
2,060 are involved in manufacturing and distribution, 210 in sales and
marketing and 120 in administrative.
Environmental Compliance
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.
Item 2. Properties
Torrance, California
The Company leases a 560,000 square foot office, manufacturing and
warehousing facility located on 23.5 acres of land. This facility is
occupied under a ten-year lease (with two five-year renewal options)
expiring January 2005. This facility also includes the corporate
headquarters, the West Coast showroom, and all West Coast distribution
operations. In addition, the Company owns a 200,000 sq. ft. warehouse
located on 8.5 acres of land in Torrance, CA. This warehouse is held as
rental property and is leased under a five-year lease expiring January
2001.
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Los Angeles, California
The Company owns a 160,000 sq. ft. manufacturing facility located on 8
acres of land in Gardena, CA. This manufacturing facility is held as
rental property and is leased under a 15-year lease expiring September
2010.
Conway, Arkansas
The Company owns three manufacturing facilities in Conway, Arkansas. The
main plant was expanded in 1991 and now features 325,000 sq. ft. of
factory space and is located on 17.5 acres of land. In 1993, the Company
acquired 7 acres of land adjacent to the main plant and constructed a
155,000 sq. ft. manufacturing facility. The third manufacturing facility
is located a short distance from the main plant and has 60,000 sq. ft.
on 4.5 acres of land.
There are four primary warehousing facilities located in Conway,
Arkansas. The first consists of 250,000 sq. ft. of warehouse space
located on 11 acres of land. This warehouse is occupied under a lease
expiring in December 1998. The second warehouse has a 310,000 sq. ft.
building, which is occupied under leases expiring from April 1998 to
February 1999. The third warehouse facility is a 200,000 sq. ft.
building currently occupied under a ten year lease expiring in March
2008. The fourth is an 87,000 sq. ft. facility consists of warehouse,
showroom and a Company store. This facility is rented under a month to
month lease. Subsequent to fiscal year end, the Company acquired
approximately 100 acres of land in Conway and is planning to break
ground on a 400,000 square foot manufacturing facility in mid-1998. The
acreage acquired is large enough to support an additional 1,300,000
square feet of manufacturing, warehousing and distribution and office
facilities should Virco determine such a need in the future.
Newport, Tennessee
The Company owns a 55,000 sq. ft. manufacturing facility located on 3.5
acres of land in Newport, Tennessee which was previously used to
manufacture melamine plastic seats, backs and table tops for classroom
furniture. This factory is currently used to warehouse finished goods
inventory.
Southern Pines, North Carolina
The Company owns a 225,000 sq. ft. manufacturing facility located on 37
acres of land in Southern Pines, North Carolina. This property is used
to warehouse finished goods inventory and is offered for sale.
Subsequent to fiscal year end, the Company has reached an agreement to
dispose of its North Carolina facility subject to certain terms and
contingencies. The overall terms would have no material impact on the
Company's earnings for 1998 or beyond.
Item 3. Legal Proceedings
Virco has various legal actions pending against it which in the opinion
of Management are either not meritorious or are fully covered by
insurance. While it is impossible to estimate with certainty the
ultimate legal and financial liability with respect to these suits and
claims, Virco believes the aggregate amount of such liabilities will not
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be material to the results of operations, financial position, or cash
flows of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.
Incorporated herein by reference is the information appearing under the
caption "Supplemental Stockholders' Information" which appears in the
registrant's Annual Report to Stockholders for the year ended January
31, 1998. As of April 17, 1998, there were approximately 378 Registered
Stockholders according to transfer agent records. There were
approximately 1,800 Beneficial Stockholders.
Dividend Policy
In December 1996, the Company's Board of Directors voted to initiate a
quarterly cash dividend policy beginning with the payment of a $.017 per
share dividend (adjusted for stock dividends) on January 31, 1997. In
August 1997, the Board declared a 3 for 2 stock split in a form of stock
dividend on the Company's common stock and a $.02 per share quarterly
cash dividend. It is the Board of Directors' policy to periodically
review the payment of cash and stock dividends in light of the Company's
earnings and liquidity.
Item 6. Selected Financial Data
Incorporated herein by reference is the Selected Financial Data
information, which appears in the registrant's Annual Report to
Stockholders for the year ended January 31, 1998.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
This information is incorporated herein by reference to "Management's
Discussion and Analysis and Results of Operations" included in the
registrant's Annual Report to Stockholders for the year ended January
31, 1998.
Item 8. Financial Statements and Supplementary Data
The report of independent auditors and consolidated financial statements
included in the Annual Report to Stockholders for the year ended January
31, 1998 are incorporated herein by reference.
Unaudited quarterly results in Note 12 of the financial statements
included in the Annual Report to Stockholders for the year ended January
31, 1998 are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
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PART III
Item 10. Directors and Executive Officers of the Registrant
Age at Has Held
January 31, Office
Name Office 1998 Since (5)
- ---- ------ -------- ---------
R. A. Virtue (1) President, Chairman of the Board 65 1990
and Chief Executive Officer
J. R. Braam (2) Vice President - Finance, 64 1981
Secretary & Treasurer
R. E. Dose (3) Corporate Controller 41 1995
Assistant Secretary & Assistant Treasurer
R. J. Mills (4) General Manager - Torrance Division 39 1997
W. D. Nutter (5) Vice President - Commercial Sales Group 48 1995
D. R. Smith (6) Vice President - Corporate Marketing 49 1995
M. G. Tarnay (7) Vice President - Engineering 55 1993
H. D. Tyler (8) Vice President - General Manager 56 1988
Conway Division
D. A. Virtue (9) Corporate Executive Vice President 39 1992
R. W. Virtue (10) Vice President - Purchasing 56 1988
L. O. Wonder (11) Vice President - Education Sales Group 46 1995
(1) Appointed Chairman in 1990; has been employed by the Company for 42 years.
Has served as the President since 1982.
(2) Appointed in 1981; has been employed by the Company for 16 years as the
Vice President - Finance, Secretary and Treasurer.
(3) Appointed in 1995; has been employed by the Company for 8 years as the
Corporate Controller.
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(4) Appointed in 1997; has been employed by the Company for 3 years as the
Corporate Counsel, most recently as General Manager of Torrance
division.
(5) Appointed in 1995; has been employed by the company for 17 years in a
variety of sales and marketing positions, most recently as a Division
Vice President of Commercial Sales.
(6) Appointed in 1995; has been employed by the Company for 13 years in a
variety of sales and marketing positions, most recently as Corporate
Marketing Manager.
(7) Appointed in March 1993; has been employed by the Company for 5 years.
Prior employment included 19 years at Price Pfister, most recently as
Vice President - Engineering.
(8) Appointed in June 1988; has been employed by the Company for 29 years
and has served as Division Credit Manager, Accounting Manager and
Division Controller and currently as General Manager of Conway division.
(9) Appointed in April 1992; has been employed by the Company for 13 years
and has served in Production Control, as Contract Administrator, as
Manager of Marketing Services, as General Manager of Torrance Division,
most recently as Corporate Executive Vice President.
(10) Has been employed by the Company for 35 years and has served as
President of the former Delkay subsidiary and currently as Vice
President - Purchasing.
(11) Appointed in 1995; has been employed by the Company for 20 years in a
variety of sales and marketing positions, most recently as Division Vice
President of Education Sales.
(12) Company officers do not have employment contracts.
The information required by this Item regarding Directors will be
contained in the Company's Proxy Statement to be filed within 120 days
after the end of the Company's most recent fiscal year and is
incorporated herein by this reference.
Item 11. Executive Compensation
The information required by this Item will be contained in the Company's
Proxy Statement to be filed within 120 days after the end of the
Company's most recent fiscal year and is incorporated herein by this
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item will be contained in the Company's
Proxy Statement to be filed within 120 days after the end of the
Company's most recent fiscal year and is incorporated herein by this
reference.
Item 13. Certain Relationships and Related Transactions.
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The information required by this Item will be contained in the Company's
Proxy Statement to be filed within 120 days after the end of the
Company's most recent fiscal year and is incorporated herein by this
reference.
PART IV
Item 14. Financial Statements, Financial Statement Schedules, Exhibits, and
Reports on Form 8-K.
a) 1. The following consolidated financial statements of Virco Mfg.
Corporation, included in the annual report of the registrant to its
stockholders for the year ended January 31, 1998 are incorporated by
reference in Item 8.
Consolidated balance sheets - January 31, 1998 and 1997.
Consolidated statements of income - Years ended January 31, 1998, 1997,
and 1996.
Consolidated statements of stockholders' equity - Years ended January
31, 1998, 1997, and 1996.
Consolidated statements of cash flows - Years ended January 31, 1998,
1997, and 1996.
Notes to consolidated financial statements - January 31, 1998.
2. The following consolidated financial statement schedule of Virco Mfg.
Corporation is included in item 14(d):
Schedule II Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and
therefore have been omitted.
3. Exhibits
13 Annual Report to Stockholders for the year ended January 31, 1998.
21 List of all subsidiaries of the registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
b) Reports on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Torrance, and State of California, on the 29th of April, 1998.
VIRCO MFG. CORPORATION
By
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Robert A. Virtue, Chairman of the Board
(Principle Executive Officer)
By
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James R. Braam, V. P.-Finance, Secretary &
Treasurer (Principal Financial Officer)
By
-------------------------------------------
Robert E. Dose, Corporate Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
Chairman of the Board, April 29, 1998
- -------------------------- Chief Executive Officer,
Robert A. Virtue President and Director
- -------------------------- Director April 29, 1998
Donald S. Friesz
- -------------------------- Director April 29, 1998
George W. Ott
- -------------------------- Director April 29, 1998
Donald A. Patrick
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of Torrance,
and State of California, on the 29th of April, 1998.
VIRCO MFG. CORPORATION
By
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Robert A. Virtue, Chairman of the Board
(Principle Executive Officer)
By
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James R. Braam, V. P.-Finance, Secretary &
Treasurer (Principal Financial Officer)
By
--------------------------------------------
Robert E. Dose, Corporate Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
- ------------------------- Director April 29, 1998
John H. Stafford
- ------------------------- Director April 29, 1998
Hugh D. Tyler
- ------------------------- Director April 29, 1998
Douglas A. Virtue
- ------------------------- Director April 29, 1998
Raymond W. Virtue
- ------------------------- Director April 29, 1998
James R. Wilburn
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VIRCO MFG CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED JANUARY 31, 1996, 1997 AND 1998
(in Thousands)
Col. A Col. B Col. C Col. D Col. E Col. F
Additions
Balance at Charged to Costs Charged to Other Deductions from Balance at Close of
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Description Beginning of Period and Expenses Accounts Reserves Period
- ----------- ------------------- ------------ -------- -------- ------
Allowance for Doubtful
Accounts:
Year Ended:
January 31, 1996 $100 $ 67 $ 67(1) $100
January 31, 1997 $100 $202 $202(1) $100
January 31, 1998 $100 $112 $112(1) $100
(1) Uncollectible accounts written off, net of recoveries.