UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑
☐
Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the fiscal year ended January 31, 2021.
Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-8777
VIRCO MFG. CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
95-1613718
(IRS Employer Identification No.)
2027 Harpers Way, Torrance, California
(Address of principal executive offices)
90501
(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
Trading Symbol
Name of each exchange on which registered:
Common Stock, $0.01 Par Value
VIRC
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the issuer is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes ¨ No þ
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated Filer þ
Smaller reporting company ☑
Emerging growth
company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No þ
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on July 31,
2020, was $30 million (based upon the closing price of the registrant’s common stock on such day, as reported by NASDAQ).
As of April 21, 2021, there were 15,918,642 shares of the registrant’s common stock ($0.01 par value) outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2021 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission are incorporated by reference into Part III of this Annual Report on Form 10-K as set
forth herein.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers of the Registrant and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
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Cautionary Statement Regarding Forward-Looking Statements
PART I
This report on Form 10-K contains a number of “forward-looking statements” that reflect the current views of Virco Mfg.
Corporation (the "Company" or "Virco") with respect to future events and financial performance, including, but not limited to,
statements concerning: the impact of the COVID-19 virus on the economy, school funding, the ability to operate our
manufacturing and distribution operations and the availability of labor; availability of funding for educational institutions;
plans and objectives of management for future operations, including relating to the Company’s future products, pricing,
marketing, seasonal fluctuations in demand, expansion, manufacturing processes, and business strategies; the Company's
ability to continue to control costs and inventory levels; availability and cost of raw materials, especially steel and petroleum-
based products; the cost and availability of imported components; the availability and cost of labor; transportation costs; the
potential impact of the Company's “Assemble-To-Ship” program on earnings; market demand; the Company's ability to
position itself in the market; current and future investments in and utilization of infrastructure; and management's beliefs that
cash flow from current operations, existing cash reserves, and available lines of credit will be sufficient to support the
Company's working capital requirements to fund existing operations. Forward-looking statements also include the assumptions
underlying or relating to any of the foregoing statements. Such forward-looking statements are not guarantees of future
performance and are subject to known and unknown risks, uncertainties, assumptions and other factors, many of which are out
of the Company's control and difficult to forecast, that may cause actual results to differ materially from those which are
expressed or implied in any forward-looking statements. Such factors include, but are not limited to, changes in, or the
Company's ability to predict, general economic conditions, the availability and cost of raw materials, the markets for school
and office furniture generally and specifically in areas and with customers with which the Company conducts its principal
business activities, the rate of approval of school bonds for the construction of new schools, the extent to which existing schools
order replacement furniture, customer confidence, competition, and other factors included in the “Risk Factors” section of this
report.
The forward-looking statements contained in this report on Form 10-K are made on the basis of the views and assumptions of
management regarding future events and business performance as of the date this report is filed with the SEC. We do not
undertake any obligation to update these statements to reflect events or circumstances occurring after the date this report is
filed.
In this report, words such as “anticipates,” “believes,” “expects,” “will continue,” “future,” “intends,” “plans,” “estimates,”
“projects,” “potential,” “budgets,” “may,” “could” and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof.
Please note that this report includes trademarks of Virco, including, but not limited to, the following: ZUMA®, ZUMAfrd™,
Ph.D.®, I.Q®, Virtuoso®, Classic Series™, Martest 21®, Lunada®, Plateau®, Core-a-Gator®, Future Access®, Sigma®,
Metaphor®, Telos®, TEXT®, Parameter®, Sage™, Analogy™ and Civitas™. Solely for convenience, from time to time, we
refer to our trademarks in this report without the ® and ™ symbols, but such references are not intended to indicate that we
will not assert, to the fullest extent under applicable law, our rights to our trademarks. In addition, other names and brands
included in this report may be claimed by us as well or by third parties.
Our fiscal year ends on January 31 of each year and references in this Annual Report on Form 10-K to a year refer to our
fiscal year. As such, references in this Annual Report to 2022, 2021, 2020, and 2019 relate to the fiscal years ended January
31, 2022, 2021, 2020, and 2019, respectively.
Item 1. Business
Introduction
Designing, producing and distributing high-value furniture for a diverse family of customers is a 71-year tradition at Virco Mfg.
Corporation (“Virco” or the “Company”, or in the first person, “we”, “us” or “our”). Virco was incorporated in California in
February 1950 and reincorporated in Delaware in April 1984. Virco started as a local manufacturer of chairs and desks for Los
Angeles-area schools, and over the years has become the largest manufacturer and supplier of moveable educational furniture
and equipment for the preschool through 12th grade market in the United States. The Company manufactures a wide
assortment of products, including mobile tables, mobile storage equipment, desks, computer furniture, chairs, activity tables,
folding chairs and folding tables. Additionally, Virco has worked with accomplished designers - such as Peter Glass, Richard
Holbrook, and Bob Mills - to develop additional products for contemporary applications. These include the best-selling ZUMA
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Series; Analogy and Civitas furniture collections; Metaphor and Sage Series items for educational settings; and the wide-
ranging Plateau and Text Series.
Along with serving customers in the education market - which in addition to preschool through 12th grade public and private
schools includes: junior and community colleges; four-year colleges and universities; trade, technical and vocational schools -
Virco is a furniture and equipment supplier for convention centers and arenas; the hospitality industry with respect to banquet
and meeting facilities; government facilities at the federal, state, county and municipal levels; and places of worship. We also
sell to wholesalers, distributors, traditional retailers and catalog retailers that serve these same markets.
To meet the furniture and equipment needs of our customers, Virco leases a 560,000 sq. ft. office, manufacturing and
warehousing facility located on 23.5 acres of land in Torrance, California; this facility includes our corporate headquarters,
West Coast showroom, and our West Coast distribution operations. To complement our Torrance-based operations, Virco
owns three manufacturing and distribution facilities in Conway, Arkansas. The primary facility is located on 100 acres of land
in Conway, Arkansas, containing 1,200,000 sq. ft. of manufacturing, warehousing, and office space. With high-density storage
systems, 70 dock doors dedicated to outbound freight, and substantial yard capacity to store and stage trailers, this facility
supports Virco's ability to handle increased sales during our peak summer delivery season and enhances the efficiency with
which orders are filled. Virco also operates two other facilities in Conway. The first is a 375,000 sq. ft. factory - acquired in
1954 and expanded and modernized in subsequent years - where a variety of operations take place, including the manufacture
of fabricated steel components, chrome plating, and plastic injection-molding; components generated here are transferred to
other facilities for assembly into finished goods. The second is a 175,000 sq. ft. manufacturing facility where compression-
molded hard plastic components are fabricated and stored. The Company occupied this building under a series of leases for
approximately 20 years and purchased this facility in the third quarter of the fiscal year ended January 31, 2018.
New Products and Markets
Because the product needs and preferences of our customers continue to evolve - and in response to competitive furniture and
equipment offerings from domestic and offshore suppliers - Virco maintains an active new product development program.
We've worked with accomplished designers - such as Peter Glass and Bob Mills - to introduce exciting furniture and equipment
solutions for contemporary applications. In addition to new product programs, our domestic factories allow the Company to
respond to custom requests or modifications to existing product offerings made by our customers. Often these custom requests
are incorporated into our product offering for all customers. Over the past three years, Virco has launched a substantial number
of new products, including the products discussed below.
In the fiscal year ended January 31, 2019 (“fiscal 2019”), Virco continued with the full launch of our Room to Move Collection,
bringing our new Floor Rockers and C2M and R2M chairs to market, further supporting varied classroom and student needs.
Adding additional comfort and design appeal to the Floor Rocker family, we introduced the Sage Floor Rocker with Padded
Seat, now available in nine coordinating colors. Also new to our Healthy Movement seating was the Adjust-Right Stool.
Designed for use in one-on-one settings, this stool adapts to each user as they develop and strengthen their core and sense of
balance. Understanding that collaboration and engagement take place beyond the walls of a classroom, Virco introduced the
Plateau Series Media Tables. With collaborative environments in mind, these tables were designed to bring groups of people
together in schools and the workplace. Featuring a TV mount for screens and built-in USB and Power Ports, students and
colleagues can easily exchange ideas and share content. To address changing preferences and meet the needs of designers,
Virco added to our robust color program by introducing two new soft plastic colors with vibrant, modern tones, Kelly Green
and Lemon Yellow, as well as expanding our edge banding color offering for our 4000 and 5000 series tables. We also added
new upholstery colors to complement our existing pallet.
For the fiscal year ended January 31, 2020 (“fiscal 2020”), we continued to refine and enhance our product lines to further
address the needs of today’s modern classrooms. We extended our line of 5000 Series stand-up height activity tables
broadening the selection for this option popular in flexible classrooms. To address the needs of lower elementary classrooms,
adjustable-height low legs were introduced for the 5000 series activity tables as well. Providing color choices is also important
to our customers. As such, we added additional colors to our edge banding offerings for our various table lines. Because
mobility is essential in dynamic classrooms, we introduced our Tetra Series Student desk with casters. Keeping up with
technology, we updated our power and data ports to better accommodate modern devices. Looking beyond our K-12 market,
the Virco Tilt-Top Training Table provides a simple and effective solution to setting up and storing multi-use tables.
The fiscal year ended January 31, 2021 ("fiscal 2021") was unique due to the unprecedented circumstances of the global
COVID-19 pandemic. With many schools across the country completely shut down and others selectively opening under strict
guidelines for safety and physical distancing, we saw a shift away from collaborative classroom furniture. More traditional
single-student desks and chair desk combo units began to replace tables and collaborative set-ups to allow for physical distance
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in the classroom environment. While we did release several new products to address customer demand, such as both a ZUMA
Series and Plateau Series slide-shaped student desk, a ZUMA Series adjustable-height lab stool and adjustable-height low legs
for our TEXT Series student desk, this was not the year to introduce an extensive line of new products. Rather, we focused on
meeting current customer needs by utilizing our existing product offerings that are well-suited to best help schools bring back
students for in person learning. These included 785 Series open front desks, ZUMA Series student desks as well as the 9400
Series and 3400 Series combo desks. Our product development pipeline also continued during this time in preparation for new
product releases in the coming year.
As of January 31, 2021, the Company employed approximately 775 full-time employees, manufacturing its products in 1.1
million square feet of fabrication facilities and 1.2 million square feet of assembly and warehousing facilities in Torrance,
California and Conway, Arkansas.
Subsequent to the dot com bust in 2003 and again following the recession in 2008-2009, due to budgetary constraints, many
schools reduced or eliminated central warehouses, janitorial services, and professional purchasing functions. As a result, fewer
school districts now administer their own bids, and are more likely to use regional, state, or national contracts. A shift to site-
based management combined with reductions in professional purchasing personnel has increased the reliance of schools on
suppliers that provide for a variety of needs from one source rather than administering different vendor relationships for each
item. In response to these changes, the Company has expanded both the products and the services it provides to its educational
customers. Now, in addition to buying furniture FOB (Freight On Board) Factory, customers can purchase furniture for
delivery to warehouses and school sites and can also purchase full-service furniture delivery that includes the delivery of the
furniture in classrooms. Because the Company has been aggressively developing new furniture lines to enhance the range of
products it manufactures - and by purchasing furniture and equipment from other companies for re-sale with Virco products -
the Company is now able to provide “one-stop shopping” for all furniture, fixtures and equipment ("FF&E") needs in our
educational market.
The expansion of the Company's product line combined with the expansion of its services over the years has provided Virco
with the ability to serve various markets including the education market (the Company's primary market), which is made up of
public and private schools (preschool through 12th grade), junior and community colleges; four-year colleges and universities;
and trade, technical and vocational schools. Virco also serves convention centers and arenas; the hospitality industry with
respect to banquet and meeting facilities; government facilities at the federal, state, county and municipal levels; and places of
worship. In addition, the Company also sells to wholesalers, distributors, internet and catalog retailers that serve these same
markets.
Manufacturing and Distribution
Virco serves its customers through a well-trained, nationwide sales and support team. Virco's educational product line is
marketed through an extensive direct sales force, as well as through a dealer network. In addition, Virco has a Corporate Sales
Group to pursue international business wholesalers, mail order accounts and national chains. The Company also has an array of
support services, including complete package solutions for the FF&E line item on school budgets; computer-assisted layout
planning; transportation planning; and product delivery. Virco also now offers registered customers the ability to purchase
products online through our shop.virco.com website.
Another important element of Virco's business model is the Company's emphasis on developing and maintaining key
manufacturing, assembly, distribution, and service capabilities. For example, Virco has developed competencies in several
manufacturing processes that are important to the markets the Company serves, such as finishing systems, plastic molding,
metal fabrication and woodworking. Virco's physical facilities are designed to support its Assemble-to-Ship ("ATS") strategy.
Warehouses have substantial staging areas combined with a large number of dock doors to support the seasonal peak in
shipments during summer months.
In years subsequent to China entering the World Trade Organization, many furniture manufacturers closed their domestic
manufacturing facilities and began importing increasing quantities of furniture from international sources. During this same
period, Virco elected to significantly reduce its work force, but retain its domestic factory locations. The Company believes
that its domestic manufacturing capabilities are a significant strength. The Company has effectively used product selection,
color selection, and dependable execution of delivery to customers to enhance its market position. With increasing costs from
international sources, supply chain disruptions, and increasing freight costs, our factories are cost-competitive for bulky
educational furniture and equipment items. The Company's ATS strategy allows for low-cube component parts to be sourced
globally, with fabrication of bulky welded steel frames, wood tops, and larger molded-plastic components to be performed
locally. Domestic production of laminated wood tops and molded plastic enables the Company to market a color palette that
cannot be matched in a short delivery window by imported finished goods.
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Domestic assembly allows the Company to use standard ATS components to assemble customer-specific product and color
combinations shortly prior to delivery.
Finally, management continues to hone Virco's ability to finance, manufacture and warehouse furniture within the relatively
narrow delivery window associated with the highly seasonal demand for education sales. In fiscal 2021 and 2020,
approximately 49-52% of the Company's total sales were delivered in June, July, and August. Shipments of furniture during
peak weeks in July and August can be six times greater than in the seasonally slow winter months. Virco's substantial
warehouse space allows the Company to build adequate inventories to service this narrow delivery window for the education
market.
Principal Products
Virco produces the broadest line of furniture for the K-12 market of any manufacturer in the United States. By supplementing
products manufactured by Virco with products from other manufacturers, Virco provides a comprehensive product assortment
that covers substantially all products and price points that are traditionally included on the FF&E line item on a new school
project or school budget. Virco also provides a variety of products for preschool markets and has developed products that are
targeted for college, university, and corporate learning center environments. The Company has an ambitious and on-going
product development program featuring products developed in-house as well as products developed with accomplished
designers. 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.
Virco also has flat metal forming capabilities to enable the production of desks, returns, bookcases, filing cabinets, mobile
pedestals and related items.
Virco's principal manufactured products include:
SEATING - Virco offers a full line of classroom seating in a variety of price points providing high value and quality across all
types of seating, from traditional to modern solutions. The ergonomically supportive ZUMA® line designed by Peter Glass and
Bob Mills was launched in 2004 and continues to be the top-seller. In addition to fixed-height 4-leg chairs, the ZUMA line
includes cantilever chairs; mobile task chairs and lab stools; tablet armchairs with a fixed or articulating work surface and a
compact footprint; steel-frame rockers, and floor rockers. The Sage™ line, originally designed to serve students in college,
university and other adult education settings - and on high school campuses - now offers a 13” and a 15” 4-leg chair and a
corresponding pair of cantilever chairs for younger or smaller students; there's also a selection of Sage rockers and floor rockers
for K-12 applications and several tablet arm units. Selected adult-height Sage models can be ordered with a padded,
upholstered seat. The Analogy seating line includes fixed-height 4-leg chairs, mobile task chairs and lab stools, cantilever
chairs; tablet armchairs with a fixed or articulating work surface and a compact footprint; steel-frame rockers, and floor rockers.
Other Virco seating choices include the Metaphor® Series - an updated sequel to Virco's best-selling Classic Series™ furniture
with improvements in comfort, ergonomics, stackability, and manufacturing efficiencies. The Sage Contract line is targeted for
offices and reception areas, colleges, hospitality venues and other adult environments. Virco expanded the Sage Contract line
with the addition of a mobile tablet-arm workstation that includes an integrated bookrack to further penetrate the higher
education market. Civitas™ chairs and stools are intended for foodservice, libraries, media centers, circulation areas, and
related areas where people gather. Additional Virco seating alternatives range from 120, 121 and 122 Series stools to
Analogy™ Series chairs by Peter Glass and Bob Mills. The N2 Series was designed by Virco as a comprehensive, ergonomic
seating line that specifically caters to the budget conscious consumer. Classic Series™ stack chairs and Martest 21® hard
plastic seating models are popular choices in schools across America. Along with this range of seating, Virco serves additional
markets such as event venues and training spaces with a line of folding chairs and upholstered stack chairs, as well as additional
plastic stack chairs and upholstered ergonomic chairs.
TABLES - Our broad collection of tables offer solutions for K-12 classrooms and multi-use areas across the entire campus as
well as serving higher learning, event, training and administrative spaces. Our 4000 and 5000 Series Activity Tables provide a
broad range of shapes, sizes and heights ideal for collaborative learning. Virco’s TEXT® table collection for learning
environments - designed by Peter Glass and Bob Mills- features heavy-gauge tubular steel and proven Virco construction for
extended product life, and elliptical legs, swooping yokes and arched feet for exceptional elegance. Selected TEXT models can
be equipped with a variety of technology-support and storage accessories. TEXT Tilt-Top Height Adjustable Table further
expand Virco’s reach into the seminar, training room, and higher education markets by enhancing the functionality and
flexibility of the table while strengthening the Virco and TEXT brands. The Tetra™ Series is a versatile collection of tables
and student desks suitable for various environments. From classrooms to open-office spaces, the Tetra is simple enough to
serve as an everyday workstation but can be customized to suit the needs of a fast-paced computer lab or seminar training room.
Lunada® tables, combining Virco's popular Lunada bi-point bases with a selection of 20 top sizes, make great choices for
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seminar, conference and related settings. Designed for Virco by Peter Glass, Plateau® tables bring exceptional versatility,
sturdy construction and great styling to working and learning environments. For durable, easy-to-use lightweight folding
tables, Virco's Core-a-Gator® models are unsurpassed. When paired with attractive, durable Virco cafe tops, Lunada bases by
Peter Glass provide eye-catching table solutions for hospitality settings. Civitas tops and bases provide excellent furniture
solutions for casual spaces where people gather. Virco’s Makerspace tables are designed specifically for hands-on learning
environments most commonly found in vocational classes, makerspace areas and STEM / STEAM centered education. Virco
also carries traditional folding tables, CT Series tables with a hand crank mechanism for top height adjustment, and office
tables, as well as the computer tables and mobile tables described below.
COMPUTER FURNITURE - The TEXT and Tetra Series table collections described in the preceding paragraph provides an
array of computer furniture choices for learning or business environments; Virco's Flip-Top Technology tables and HWT
(Hinged Wire Trough) Technology tables also deliver popular computer furniture solutions. Future Access® computer tables
come with an integral wire management panel and all rectangular models have a smooth post-formed front and rear edge. Like
our Future Access models, 8700 Series computer tables can be equipped with Virco's functional computing accessories, such as
keyboard mouse trays, CPU holders and support columns for optional elevated shelves. To address the demand for
collaborative solutions in a computer lab environment, Virco added the Quarter Round 8700 Series Computer Table that allows
multiple tables to be grouped together while maintaining a technology-based environment. The 5700 Series features the thick
profile leg of the 5000 Series with integrated technology for a modern look. The Plateau Office Solutions collection offers
desks and workstations with technology-support capabilities, while the Plateau Library/Technology Solutions line has specialty
tables and other products for computing applications. Virco offers Instructor Media Stations and Towers that include several
options for media storage and presentation.
DESKS/CHAIR DESKS - From the ergonomic and collaborative-learning strengths of our best-selling ZUMA® student desks
to the continuing popularity of our traditional Classic Series™ chair desks and combo units, Virco's wide-ranging furniture
models can be found in thousands of America's schools. To expand on the popularity of the 785 Student Desk, Virco added a
Collaborative Top work surface as an option on all 785 desk models, which facilitates convenient grouping of desks for break-
out sessions and classroom collaboration. The Sage Contract Series now includes an optional bookrack, which combined with
the tablet arm and caster options, creates a complete mobile workstation for a variety of environments. The Molecule is a
student desk with a unique shaped collaborative work surface that can be used by a single student or grouped together with
multiple Molecules to create various arrangements and group settings. Related products include an array of tablet arm units,
new Agile Combo models and new Analogy™ Series combo chair desks. Selected models are available with durable, colorfast
Martest 21® or Fortified Recycled Wood™ hard plastic components. For teachers, principals and district administrators - and
for business environments - Virco offers an extensive range of Parameter® desks, returns and credenzas designed by Peter
Glass and Bob Mills. Textameter™ mobile workstations provide additional furniture choices for educators.
ADMINISTRATIVE OFFICE FURNITURE - In addition to the Plateau® Office Solutions, Parameter®, and Textameter™
product lines, Virco manufactures a selection of desks, returns, bookcases and other items that employ the Company's flat metal
forming capabilities. These products include 53 Series steel storage cabinets, an expanded range of 53 Series lateral files, and
special versions of 543 and 546 Series desks with wire management capabilities. Other products range from 53 Series
wardrobe tower cabinets and Parameter file credenzas to Parameter mobile pedestals and Plateau bookcases in popular 36” wide
and 48” wide models that work in classroom settings and related educational environments as well as administrative offices.
LABORATORY FURNITURE - For biology and chemistry classes, and other school- and college-based lab settings, Virco
offers a variety of steel-based science tables. Virco manufactures the table bases of these items and equips them with specialty
Chemsurf® and epoxy resin tops. Virco's ZUMA®, Sage™, Analogy™, N2, Telos®, Metaphor®, Classic Series™, and 3000
Series collections include pneumatically adjustable lab stools with high-range seat-height adjustment and a steel foot-ring.
Virco also carries a selection of wood-frame science tables with Chemsurf and epoxy resin tops.
MOBILE FURNITURE - Cafeterias are perfect venues for the ever-popular Virco mobile tables - including a selection of oval
mobile tables with attached benches or stools - while classrooms benefit from the spacious storage capacity of Virco mobile
cabinets; additional mobile cabinet models with a magnetic marker back are available. ADA compliant Mobile Bench & Stool
Tables were also introduced to the Virco line of mobile products to expand on our wheelchair accessible solutions. An array of
Virco product lines includes mobile chairs for school settings and offices.
STORAGE EQUIPMENT - For moving selected Virco chairs and folding tables, the Company carries a wide range of handling
and storage equipment. For our convention center, arena, and auditorium customers, Virco also manufactures stackable storage
trucks that work with Virco upholstered stack chairs, folding chairs and folding tables.
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Virco's wide-ranging product selection includes hundreds of furniture models that have earned GREENGUARD® Gold
Certification (formerly known as the GREENGUARD® Children & Schools Program for indoor air quality). Virco's ZUMA
and ZUMAfrd™ products earned the distinction of being the first classroom furniture models to be certified by the
GREENGUARD Children & Schools Program, now known as GREENGUARD Gold certification. All of the models in the
Company's most popular product lines - including ZUMA, Sage, Analogy™, 9000 Series, 5000 and 4000 Series Activity
Tables, TEXT®, Core-a-Gator®, Parameter®, Plateau®, Tetra™ furniture models - are GREENGUARD-certified. Along with
Virco's leadership relative to GREENGUARD-certified furniture, the Company also introduced the classroom furniture
industry's first Take-Back program in, enabling qualifying schools, colleges, universities, and other organizations and customers
to return selected out-of-service furniture components for recycling rather than sending these items to a landfill.
To provide a comprehensive product offering for the education market, the Company supplements Virco-manufactured
products with items purchased for re-sale, including wood and steel office furniture, early learning products for pre-school and
kindergarten classrooms, science laboratory furniture, and library tables, chairs and equipment. Virco now offers customized,
space-efficient workstations by Interior Concepts™ for technology and language labs, media centers, computer classrooms,
reception areas and offices. Interior Concepts is one of the many vendors with which the Company partners to effectively
position Virco as the preferred one-stop furniture and equipment source for K-12 schools. None of the products from vendor
partners accounted for more than 10% of consolidated net sales in fiscal 2021.
To complement Virco's extensive selection of furniture and equipment, we offer customers a variety of valuable services in
connection with the purchase of Virco products; revenues from these service levels are included in the purchase price of the
furniture items. In addition to giving customers the option of purchasing Virco products and making their own delivery
arrangements, Virco provides three levels of delivery service. When customers choose Standard Delivery - also known as
tailgate delivery - the delivery driver is responsible for moving the customer's goods to the tailgate of the truck only; therefore,
the customer must have personnel on hand to unload the truck. Virco also offers Inside Delivery (to an inside location), or Full-
Service Delivery (delivered and placed in the classroom).
Customers
Virco's major customers include educational institutions, convention centers and arenas, hospitality providers, government
facilities, and places of worship. No customer exceeded 10% of the Company’s net sales for fiscal years ended January 31,
2021 and January 31, 2020.
Raw Materials
Virco purchases steel, aluminum, plastic, polyurethane, polyethylene, polypropylene, plywood, particleboard, medium density
fiberboard ("MDF"), cartons and other raw materials from many different sources for the manufacture of its principal products.
Management believes the Company is not more vulnerable with respect to the sources and availability of these raw materials
than other manufacturers of similar products. The Company's largest raw material cost is for steel, followed by plastics and
wood.
The price of these commodities, particularly steel and plastic, can be volatile. Historically the Company has experienced years
where the price of steel, plastic, and wood have spiked significantly, often because of global demand or tariffs on international
supply but also in response to domestic supply interruptions. In fiscal 2021, the cost of commodities was relatively stable. In
fiscal 2020, the Company incurred an additional 15% increase in tariffs related to components sourced from China. Other than
the tariffs on these products, the cost of commodities was stable, and in some cases decreased slightly. Subsequent to fiscal
year end 2021, the Company has experienced significant cost increases for steel and components sourced from China. While
Virco sources most of its steel domestically, domestic prices increase concurrently with the effective date of the tariff on
foreign steel.
In addition to the raw materials described above, the Company purchases components used in the fabrication and assembly of
furniture from a variety of overseas locations, primarily from China, and certain components from domestic suppliers. These
components are classified as raw materials in the financial statements until such time that the components are consumed in a
fabrication or assembly processes. These components are sourced from a variety of factories, none of which are owned or
operated by the Company. Costs for these imported components can be volatile, impacted by tariffs, freight cost and
availability, and price increases by the supplier.
The supply chain for components from China is typically interrupted for a short period of time each year during the Chinese
New Year in January or February. As this is in a seasonally slow period of the Company’s business cycle and is predictable, it
has not created supply chain disruptions. In 2020, the COVID-19 pandemic caused several weeks of additional supply chain
8
disruption following the 2020 Chinese New Year. Starting in April 2020, our sources in China operated at a capacity level
adequate to supply our requirements, and as the entire period of disruption occurred in our slow season, the Company was not
materially affected. In 2021 the Company has experienced supply chain disruption caused primarily by availability of freight
from China to the United States. There can be no assurance that our suppliers in China will not experience material disruptions
in the future, whether due to COVID-19 or otherwise. In addition, our domestic suppliers of components, services and
consumables used in the manufacturing process have been disrupted due to COVID-19 and may continue to be disrupted, which
could result in a slowdown of our manufacturing processes and result in increased costs to us.
With respect to the Company's annual pricing contracts (or those contracts that have longer terms), the Company may have
limited ability to increase prices during the term of the contract. The Company has, however, negotiated increased flexibility
under many of these contracts, allowing the Company to increase prices on future orders. Nevertheless, even with respect to
these more flexible contracts, the Company does not have the ability to increase prices on orders received prior to any
announced price increases in commodities. Due to the intensely seasonal nature of our business, the Company may receive
significant orders during the first and second quarters for delivery in the second and third quarters of its fiscal year. With
respect to any of the contracts described above, if the costs of raw materials increase suddenly or unexpectedly, the Company
cannot be certain that it will be able to implement corresponding increases in its sales prices to offset such increased costs.
Significant cost increases in providing products during a given contract period can adversely impact operating results and have
done so during prior years. The Company typically benefits from any decreases in raw material costs under the contracts
described above.
Marketing and Distribution
Virco serves its customers through a well-trained, nationwide sales and support team, as well as a dealer network. In addition,
Virco has a Corporate Sales Group to pursue international sales, wholesalers, mail order accounts and national chains where
management believes it would be more efficient to have a single sales representative or group approach, as they tend to have
needs that transcend the geographic boundaries established for Virco's local accounts.
Virco's educational product line is marketed through what management believes to be the largest direct sales force of any
education furniture manufacturer. The Company's approach to servicing its customer base is very flexible and is tailored to best
meet the needs of individual customers and regions. When considered to be most efficient, the sales force will call directly
upon school business officials, who may include purchasing agents or individual school principals where site-based
management is practiced. Where it is considered advantageous, the Company will use large exclusive distributors and full-
service dealer partners. The Company's direct sales force is considered to be an important competitive advantage over
competitors who rely primarily upon dealer networks for distribution of their products.
Virco's sales force is assisted by the Company's proprietary PlanSCAPE® software and experienced PlanSCAPE support team
when preparing complete package solutions for the FF&E segment of bond-funded public-school construction projects.
PlanSCAPE software also enables the entire Virco sales force to prepare quotations for less complicated projects.
A significant portion of Virco's business is awarded through annual bids with school districts or other buying groups used by
school districts. These bids are typically valid for one year. Many contracts contain penalty, performance, and debarment
provisions that can result in debarment for several years, a financial penalty, or calling of performance bonds.
Sales of commercial and contract furniture are made throughout the United States by distributorships and by Company sales
representatives who service the distributorship network. Virco representatives call directly upon state and local governments,
convention centers, individual hospitality venues, and places of worship. This market includes colleges and universities,
preschools, private schools, and office training facilities, which typically purchase furniture through commercial channels.
The Company sells to thousands of customers, and, as such no single customer represented more than 10 percent of the
Company's consolidated net sales in fiscal 2021. Significant purchases of furniture using public funds often require annual bids
or some form of “authorization” to purchase goods or services from a vendor. This authorization can include state contracts,
local and national buying groups, or local school districts that “piggyback” on the bid of a larger district. In virtually all cases,
purchase orders and payments are processed by the individual school districts, even though the contract pricing may be
determined by a state contract, national or local buying group, or consortium of school districts. Schools usually can purchase
from more than one contract or purchasing vehicle if they are participants in buying groups as well as being eligible for a state
or national contract.
Virco is the exclusive supplier of movable classroom furniture for one nationwide purchasing organization under which many
of our customers price their furniture. See “Item 1A. Risk Factors: Approximately 60% to 70% of our sales are priced
9
through one contract, under which we are the exclusive supplier of classroom furniture.” Sales priced under this contract
represented approximately 67% of sales in fiscal 2021 and 65% of sales in fiscal 2020. We have had a history of contracts with
the purchasing organization and was most recently awarded in fiscal 2018, a five-year contract with this organization that
extends through December 2022, with two two-year extensions extending through 2026. If Virco were unable to sell under this
contract, we believe we would be able to sell to the vast majority of our customers under alternative contracts.
The Company’s education customers typically do not have logistic capabilities and more than 75% of sales are FOB destination
and include freight to customer. Sales of furniture that are sold FOB factory are typically made to resellers of our product who
in turn provide logistics to the ultimate customer. More than 90% of the Company’s freight is supplied by third-party carriers.
Utilizing third-party carriers is an effective method of addressing the significant seasonal peak in summer and moderating
excess capacity issues in the slow season. Reliance on third-party carriers can expose the Company to freight rate volatility,
fuel surcharges, and to capacity constraints in the transportation industry. Historically, the Company has been able to obtain
adequate capacity from freight vendors to service the summer season.
Seasonality
The educational sales market is extremely seasonal. Approximately 52% of net sales in fiscal 2021 and 49% of net sales in
fiscal 2020 were delivered in June, July and August. Shipments during peak weeks in July and August can be as great as six
times the level of shipments in the winter months.
Working Capital Requirements During Our “Peak” Summer Season
As discussed above, the market for educational furniture and equipment is marked by extreme seasonality, with the majority of
shipments occurring from June to August each year, which is the Company's peak season. Because of this seasonality, Virco
builds and carries significant amounts of inventory during the peak summer season to facilitate the rapid delivery requirements
of customers in the educational market. This requires a large up-front investment in raw materials and components, labor,
storage and related costs as inventory is built in anticipation of peak sales during the summer months. As the capital required
for this build-up generally exceeds cash available from operations, Virco has historically relied on bank financing to meet cash
flow requirements during the build-up period immediately preceding the peak season. Currently, the Company has a line of
credit with PNC Bank to assist in meeting cash flow requirements as inventory is built for, and business is transacted during the
peak summer season.
In addition, Virco typically is faced with a large balance of accounts receivable during the peak season. This occurs for three
primary reasons. First, accounts receivable balances naturally increase during the peak season as product shipments increase.
Second, many customers during this period are government institutions, which tend to pay accounts receivable more slowly
than commercial customers. Third, many summer deliveries may be “projects” where the Company provides furniture for a
new school or significant refurbishment of an existing school. Projects may require architect sign off, school board approval
prior to payment, or punch list completion, all of which can delay payment. Virco has historically enjoyed high levels of
collectability on these accounts receivable due to the low-credit risk associated with such customers. Nevertheless, due to the
time differential between inventory build-up in anticipation of the peak season and the collection on accounts receivable
throughout the peak season, the Company must rely on external sources of financing.
As a result of the seasonality of our business, our manufacturing capacity is dictated by the capacity requirement during the
months of June, July and August. Because of this seasonality, factory utilization is lower during the slow season. The
Company utilizes a variety of tactics to address this seasonal business. During the summer months, which comprise our second
and third fiscal quarters, our full-time personnel utilization generally is at or exceeds full capacity. The Company utilizes
temporary labor and significant overtime to meet these seasonal requirements. During the slow portions of the year, temporary
labor and overtime are eliminated to moderate the off-season costs. Our manufacturing facility capacity utilization generally
remains less than 100% during these off-season months; because physical structure capacity cannot be adjusted as readily as
personnel capacity, we have secured sufficient physical structure capacity to accommodate our current needs as well as for
anticipated future growth. Our physical structure utilization is significantly lower during the first and fourth quarters of each
year than it is during the second and third quarters.
The Company utilizes a comparable strategy to address warehousing and distribution requirements. During summer months,
temporary labor is hired to supplement experienced warehouse and distribution personnel. More than 90% of the Company's
freight is provided by third-party carriers. Utilizing third-party carriers is an effective method of addressing the significant
seasonal peak in summer and moderating excess capacity issues in the slow season. Reliance on third-party carriers can expose
the Company to freight rate volatility, fuel surcharges, and to capacity constraints in the transportation industry. The Company
has secured sufficient warehouse capacity to accommodate our current needs as well as anticipated future growth.
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Virco's working capital requirements during, and in anticipation of, the peak summer season require management to make
estimates and judgments that affect assets, liabilities, revenues and expenses, and related contingent assets and liabilities. For
example, management expends a significant amount of time in the first quarter of each year developing a stocking plan and
estimating the number of temporary summer employees, the amount of raw materials, and the types of components and
products that will be required during the peak season. If management underestimates any of these requirements, Virco's ability
to meet customer orders in a timely manner or to provide adequate customer service may be diminished. If management
overestimates any of these requirements, the Company may have to absorb higher storage, labor and related costs, each of
which may negatively affect the Company's results of operations. On an on-going basis, management evaluates and adjusts its
estimates, including those related to market demand, labor costs, and stocking inventory. Moreover, management continually
strives to improve its ability to correctly forecast the requirements of the Company's business during the peak season each year
based in part on annual contracts which are in place and management's experience with respect to the market.
As part of Virco's efforts to balance seasonality, financial performance and quality without sacrificing service or market share,
management has been refining the Company's ATS (assemble-to-ship) operating model. ATS is Virco's version of mass-
customization, which assembles standardized, stocked components into customized configurations before shipment. The ATS
program reduces the total amount of inventory and working capital needed to support a given level of sales. It does this by
increasing the inventory's versatility, delaying assembly until the customer’s specific product and color requests are identified,
and reducing the amount of warehouse space needed to store finished goods. As part of the ATS stocking program, Virco has
endeavored to create a more flexible work force. The Company has developed compensation programs to reward employees
who are willing to move from fabrication to assembly to the warehouse as seasonal demands evolve.
Other Matters
Competition
Virco has numerous competitors in each of its markets. In the educational furniture market, Virco manufactures furniture and
sells direct to educational customers. Competitors typically fall into two categories (1) furniture manufacturers that sell to
dealers which re-sell furniture to the end user, and (2) dealers that purchase product from these manufacturers and re-sell to
educational customers. The manufacturers that Virco competes with include Artco-Bell, KI Inc., Smith System (owned by
Steelcase), V/S America, Scholarcraft, Academia, Alumni, Columbia, Paragon, SICO, Learniture (owned by School Outfitters)
and Hon ("HNI"). Our competitors that purchase and re-sells furniture include School Outfitters, School Specialty ("SCHS"),
MeTEOR (formerly Contrax), and Hertz. There are numerous catalogers, internet resellers, and smaller local education
furniture dealers that sell into local markets. Competitors in contract and hospitality furniture vary depending upon the specific
product line or sales market and include Falcon Products, National Public Seating, MTS and Mity Enterprises, Inc.
The educational furniture market is characterized by price competition, as many sales occur on a bid basis. Management
compensates for this market characteristic through a combination of methods that include emphasizing the value of Virco's
products and product assortment, the convenience of one-stop shopping for “Equipment for Educators™”, the value of Virco's
project management capabilities, the value of Virco's distribution and delivery capabilities, and the value of Virco's customer
support capabilities and other intangibles. In addition, management believes that the streamlining of costs assists the Company
in compensating for this market characteristic by allowing Virco to offer a higher value product at a lower price. For example,
as discussed above, Virco has decreased distribution costs by avoiding re-sellers, and management believes that the Company's
large direct sales force and the Company's sizeable manufacturing and warehousing capabilities facilitate these efforts.
Although management prefers to compete on the value of Virco products and services, when market conditions warrant, the
Company will compete based on direct prices and may reduce its prices to build or maintain its market share.
Backlog
Sales order backlog at January 31, 2021, totaled approximately $20.9 million and approximated eight weeks of sales, compared
to $20.7 million at January 31, 2020. Substantially all of the backlog will ship during the fiscal year ending January 31, 2022.
Patents and Trademarks
In the last 15 years, the United States Patent and Trademark Office (“USPTO”) has issued to Virco more than 50 patents on its
various new product lines. These patents cover various design and utility features in Ph.D.® chairs, I.Q.® Series furniture, the
ZUMAfrd™ family of products, and the ZUMA® family of products, among others.
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Virco has a number of other design and utility patents in the United States and other countries that provide protection for
Virco's intellectual property as well. These patents expire over the next one to 19 years. Virco maintains an active program to
protect its investment in technology and patents by monitoring and enforcing its intellectual property rights. While Virco's
patents are an important element of its success, Virco's business as a whole is not believed to be materially dependent on any
one patent. See “Item 1A. Risk Factors: An inability to protect our intellectual property could have a significant impact on
our business.”
To distinguish genuine Virco products from competitors' products, Virco has obtained the rights to certain trademarks and trade
names for its products and engages in advertising and sales campaigns to promote its brands and to identify genuine Virco
products. While Virco's trademarks and trade names play an important role in its success, Virco's business as a whole is not
believed to be materially dependent on any one trademark or trade name, except perhaps “Virco,” which the Company has
protected and enhanced as an emblem of quality educational furniture for over 71 years.
Virco has no franchises or concessions that are considered to be of material importance to the conduct of its business and has
not appraised or established a value for its patents or trademarks.
Human Capital
As of January 31, 2021, Virco and its subsidiaries employed approximately 775 full-time employees across our facilities. Of
this number, approximately 595 are involved in manufacturing and distribution, approximately 115 in sales and marketing and
approximately 65 in administration. Our employees are not unionized or represented by collective bargaining agreements. The
Company also utilizes temporary workers as necessary to meet seasonal production, warehousing or distribution requirements
that cannot be filled by its full-time workforce. In a typical year, the Company employs a range of 200 - 300 temporary
workers during the months of May, June, and July, with smaller numbers immediately preceding and following these months.
For fiscal 2021 the Company utilized fewer temporary workers in response to the COVID-19 pandemic.
Our employees play a central role in the success of our long-term strategy. Our values – Voice, Dignity, Fairness, Leadership
and Merit – direct the management of our company and are built on the foundation that our people and the way we treat one
another promote inclusion, creativity, innovation and productivity, which drives the Company’s success. In addition, as a
manufacturing company, our safety policy centers around safety, housekeeping and quality, which fosters an atmosphere where
health and safety are given a high priority.
We believe we offer fair, competitive compensation and benefits that support our employees’ overall well-being and foster their
growth and development. To ensure alignment with our short-term and long-term goals, our compensation programs for
employees include base pay, short-term incentives, and opportunities for long-term incentives. We offer a wide array of benefits
including comprehensive health and welfare insurance; generous time-off and leave; and retirement programs. We provide
emotional, physical, legal and financial well-being services through our Employee Assistance Program. Our emotional well-
being support offers help with a wide range of issues including stress management, work/life balance, grief and loss, self-
esteem and personal development. In addition, our financial education and financial wellness coaches offer employees tools and
resources to reach their personal financial goals.
In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of
our employees as well as the communities in which we operate. The Company adopted a number of measures in response to the
COVID-19 pandemic. Our sales force has been working remotely and as a general matter only physically called on school sites
when specifically invited by the district. The Company is considered to be an essential manufacturer under the California
public health order issued in March 2020, and with the exception of a two brief closures of our Torrance operations, all
facilities in California and Arkansas have been operating. However, we are operating our Torrance manufacturing and
distribution facility on a voluntary basis to give employees the flexibility to remain at home with children who are out of school
or for other personal reasons as they deem necessary. In addition, office employees and others who can work from home
continue to do so.
Environmental Compliance
Virco is subject to numerous federal, state and local environmental laws and regulations in the various jurisdictions in which it
operates that (a) govern operations that may have adverse environmental effects, such as the discharge of materials into the
environment, as well as handling, storage, transportation and disposal practices for solid and hazardous wastes, and (b) impose
liability for response costs and certain damages resulting from past and current spills, disposals or other releases of hazardous
materials. In this context, Virco works diligently to remain in compliance with all such environmental laws and regulations as
these affect the Company's operations. Moreover, Virco has enacted policies for recycling and resource recovery that have
12
earned repeated commendations, including: recognition by the California Department of Resources Recycling and Recovery
("CalRecycle") in 2012 and 2011 as a Waste Reduction Awards Program (WRAP) honoree; recognition by the United States
Environmental Protection Agency in 2019 as a WasteWise Winner for reducing waste, in 2004 as a WasteWise Hall of Fame
Charter Member, in 2003 as a WasteWise Partner of the Year and in 2002 as a WasteWise Program Champion for Large
Businesses; and recognition by the Sanitation Districts of Los Angeles County for compliance with industrial waste water
discharge guidelines in 2008 through 2011. In addition to these awards and commendations, Virco's ZUMA® and ZUMAfrd™
product lines were the first classroom furniture collections to earn indoor air quality certification through the stringent
GREENGUARD® Children & Schools Program, now known as Greenguard Gold certification. As a follow-up to the
certification of ZUMA and ZUMAfrd models in 2006, hundreds of other Virco furniture items - including Analogy™ furniture
models and Textameter™ instructor workstations - have earned GREENGUARD certification. Moreover, all Virco products
covered by the Consumer Product Safety Improvement Act of 2008 are in compliance with this legislation. All affected Virco
models are also in compliance with the California Air Resources Board rule and Toxic Substances Control Act rule concerning
formaldehyde emissions from composite wood products. Environmental laws have changed rapidly in recent years, and Virco
may be subject to more stringent environmental laws in the future. The Company has expended, and may be expected to
continue to expend, significant amounts in the future for compliance with environmental rules and regulations, for the
investigation of environmental conditions, for the installation of environmental control equipment, or remediation of
environmental contamination. Normal recurring expenses relating to operating our factories in a manner that meets or exceeds
environmental laws are matched to the cost of producing inventory. It is possible that the Company's operations may result in
noncompliance with, or liability for remediation pursuant to, environmental laws. Should such eventualities occur, the
Company records liabilities for remediation costs when remediation costs are probable and can be reasonably estimated. See
Item 1A. Risk Factors: We could be required to incur substantial costs to comply with environmental requirements.
Violations of, and liabilities under, environmental laws and regulations may increase our costs or require us to change our
business practices.
Financial Information About Industry Segment and Geographic Areas
Virco operates in a single industry segment. For information regarding the Company's revenues, gross profit and total assets for
each of the last two fiscal years, see the Company's consolidated financial statements.
During fiscal 2021, Virco derived approximately 4.5% of its revenues from customers located outside of the United States
(primarily Canada).
During fiscal 2020, Virco derived approximately 6.3% of its revenues from customers located outside of the United States
(primarily Canada).
The Company determines sales to these markets based upon the customers' principal place of business.
During fiscal 2021 and 2020, the Company did not have any long-lived assets outside of the United States.
Executive Officers of the Registrant
As of April 1, 2021, the executive officers of the Company, who are elected by and serve at the discretion of the Company’s
Board of Directors, were as follows:
Name
Robert A. Virtue (1)
Douglas A. Virtue (2) President
Robert E. Dose (3)
Chairman of the Board and Chief Executive Officer
Office
Senior Vice President - Chief Financial Officer, Secretary and
Treasurer
Age at
January 31, 2021
88
62
64
Has Held
Office Since
1990
2014
1995
________________________
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(1)
(2)
(3)
Appointed Chairman in 1990; has been employed by the Company for 64 years and served as the President from
1982 until 2014 and Chief Executive Officer since 1988.
Appointed President in 2014; has been employed by the Company for 35 years and has served in Production Control,
as Contract Administrator, as Manager of Marketing Services, as General Manager of the Torrance Division, as
Corporate Executive Vice President and currently as President.
Appointed in 1995; has been employed by the Company for 30 years and has served as the Corporate Controller, and
currently as Senior Vice President of Finance, Secretary and Treasurer.
None of the Company’s executive officers have written employment contracts.
Available Information
Virco files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange
Commission (“SEC”). Stockholders may also obtain copies of this information by mail from the Public Reference Room at the
address set forth above, at prescribed rates.
The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers like
Virco who file electronically with the SEC. The address of that site is www.sec.gov.
In addition, Virco makes available to its stockholders, free of charge through its Internet website, its annual reports on Form 10-
K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed, or furnished pursuant
to, Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”), as soon as reasonably practicable after
Virco electronically files such material with, or furnishes it to, the SEC. The address of that site is www.virco.com
Item 1A. Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered.
The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we presently deem less significant may also adversely affect our business, operating results, cash flows and
financial condition. If any of the following risks actually occur, our business, operating results, cash flows and financial
condition could be materially adversely affected.
RISKS RELATED TO COVID-19
The current health pandemic from COVID-19 has adversely affected our operations and may have material adverse
effects on our future business, financial condition and results of operations.
The COVID-19 pandemic had an immediate impact on the Company’s operating activities during fiscal 2021, and this impact is
anticipated to continue into fiscal 2022. In March 2020, most school districts that we serve closed their doors to students and
initiated remote learning. During the 2020-2021 academic year many school districts and private schools successfully re-
introduced in-class or hybrid learning, but the majority of students in the United States were learning remotely during the
Company’s fiscal year ended January 31, 2021.
Virco determined that the Company is considered to be an essential manufacturer under the California public health order
issued in March 2020, and with the exception of two brief closures of our Torrance operations, all facilities in California and
Arkansas have been operating. While the Company is considered to be an essential manufacturer, not all of our domestic
suppliers meet this criterion, and the Company may experience supply chain challenges from domestic suppliers depending
upon the length and severity of state and local orders to shelter in place. In addition, there can be no assurance that our
suppliers in China will not experience material disruptions in the future, whether due to COVID-19 or otherwise. The Company
believes that it is not more subject to supply chain disruptions than our competitors and is substantially less dependent upon a
supply chain extending to China than many competitors in the industry.
Our sales force worked remotely from March 2020 through January 31, 2021, and as a general matter only physically called on
school sites when specifically invited by the district. Most school districts in the United States closed campuses to students for
the remainder of the 2019-2020 academic year, and district business officials typically operated from home offices. While
14
students returned to class in many locations, districts continued to limit in person sales calls. Subsequent to fiscal 2021, there
are some regions of the country where school districts are entertaining on site visits by Virco sales representatives. The
Company does not know how quickly the balance of the districts will re-open to on-site visits.
The COVID-19 pandemic has materially adversely impacted the U.S. economy and the education system and is expected to
continue to do so for at least the next fiscal year. The education system and education budgets are typically highly dependent
on state and local tax revenues. The severity of this pandemic may materially adversely impact state and local tax revenues and
result in changes in spending priorities for state and local governments, which may have a material adverse effect on future
school budgets. The loss of state and local revenues may be substantially or partially offset by federal programs providing
assistance to state governments, local governments and schools, although there can be no assurance that any federal funds could
be used for capital expenditures or that the level of federal funding, if any, will be sufficient to maintain our historic order rates
for school furniture. In addition, while we expect the majority of schools to be in session, there can be no assurance that school
systems in the United States will reopen or resume normal operations for the 2021-2022 academic year.
These events, among others, related to the COVID-19 pandemic have in the last year and possibly in the future cause demand
for our products to decline and competitive pricing pressures to increase, any of which would likely have a material adverse
effect to our business, operating results, cash flows and financial condition.
RISKS RELATED TO SCHOOL FUNDING
Our product sales are significantly affected by education funding, which is a function of tax revenues and general
economic conditions. If the economy weakens, funding for education may fail to improve or decrease, which would
adversely affect our business and results of operations.
Our sales are significantly impacted by the level of education funding primarily in North America, which, in turn is a function
of the general economic environment. In a weak economy, state and local tax revenues for many of our customers are flat or
decline, restricting funding for K-12 education spending, which typically leads to a decrease in demand for school furniture.
Sustained declines in the per-student funding levels provided for in state and local budgets in the future could have a materially
adverse impact on our business, financial condition and results of operations as they have in the past.
In addition, medical pandemics including COVID-19, geopolitical uncertainties, terrorist attacks, acts of war, natural disasters,
increases in energy and other costs or combinations of such factors and other factors that are outside of our control could at any
time have a significant effect on the economy, which in turn would affect government revenues and allocations of government
spending. The occurrence of any of these or similar events in the future could cause demand for our products to decline or
competitive pricing pressures to increase, any of which would likely adversely affect our business, operating results, cash flows
and financial condition.
Gaps in state budgets may adversely affect our revenue and results of operations.
Virtually all states are required to balance their operating budgets either on an annual or biannual basis. Unlike the federal
government, states cannot maintain services during an economic downturn by running a deficit. Many states are adversely
impacted by underfunded retirement and health insurance obligations and face competing requests for available funding. Tax
revenues and other state funds may be allocated to underfunded benefit obligations instead of education. If states in which we
do business cut spending for education to address such budgetary shortfalls or for other reasons including the potential impact
of COVID-19 funding, our sales in those states will likely decline and our revenue and results of operations will be adversely
affected.
Reduced levels of spending on education may significantly impact spending on furniture and increase price competition
in the furniture market. If price competition increases, we may need to reduce our prices to build or maintain our
market share, which in turn could lower our profit margins.
The educational furniture market is characterized by price competition, as many sales occur on a bid basis and are based on
demand related to educational funding available to schools. When funding for education declines, schools typically reduce
spending on all budget line items prior to reducing teacher and administrator salaries and benefits. This in turn can result in
reduced demand for school furniture, which in turn can intensify price competition in our industry. This price competition
could impact our ability to implement price increases or, in some cases, such as during an industry downturn, maintain prices.
In addition, when market conditions warrant, we may need to reduce prices to build or maintain our market share. If we are
unable to increase or maintain prices for our products, our profit margins could decline. Such decline will be compounded to
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the extent we are unable to maintain or reduce the cost of our products, which may be especially difficult in the current
environment given the volatility of the commodities markets.
STRATEGIC AND OPERATIONAL RISKS
Our efforts to introduce new products that meet customer requirements may not be successful, which could limit our
sales growth or cause our sales to decline.
To keep pace with industry trends, such as changes in education curriculum and increases in the use of technology, and with
evolving regulatory and industry requirements, including environmental, health, safety and other standards for the education
environment and for product performance, we must periodically introduce new products or modify existing ones. The
introduction of new or modification of existing products requires the coordination of the design, manufacturing and marketing
of such products, which may be affected by factors beyond our control. The design and engineering of certain of our new
products can take a year or more, and further time may be required to achieve customer acceptance. Accordingly, the launch of
any product may be later or less successful than we originally anticipated. Additionally, our competitors may develop new
product designs that achieve a high level of customer acceptance, which could give them a competitive advantage over us in
making future sales. Difficulties or delays in introducing new or modified products or lack of customer acceptance of such
products could limit our sales growth or cause our sales to decline.
We depend on outside suppliers who may be unable to meet our volume and quality requirements, and we may be
unable to obtain alternative sources.
We require substantial amounts of raw materials and components to manufacture our products, which we purchase from outside
sources. Materials comprised our single largest total cost. Contracts with most of our suppliers are short-term. These suppliers
may not continue to provide raw materials and components to us at attractive prices, or at all, and we may not be able to obtain
the raw materials we need in the future from these or other providers on the scale and within the time frames we require. In a
deteriorating economic environment, including the current economic disruption caused by COVID-19, many of the Company's
suppliers may experience difficulty obtaining financing and may go out of business. The Company may have difficulty
replacing these suppliers, especially if the supplier fails as the Company is entering the seasonal summer shipping season.
Moreover, we do not carry significant inventories of raw materials, components or finished goods that could mitigate an
interruption or delay in the availability of raw materials and components. In addition, because we purchase components from
international sources, primarily China, we are subject to tariffs, fluctuations in currency exchange rates as well as the impact of
natural disasters, war and other factors that may disrupt the transportation systems, ports, or shipping lines used by our
suppliers, and other uncontrollable factors such as changes in foreign regulation or economic conditions. Any failure to obtain
raw materials and components on a timely basis, or any significant delays or interruptions in the supply of raw materials, could
prevent us from being able to manufacture products ordered by our customers in a timely fashion, which could have a negative
impact on our reputation and could cause our sales to decline.
Cost and availability of third-party freight can adversely affect our profitability and results of operations.
The majority of our sales are FOB destination and include freight from Virco’s facilities to the customer location. Virco
depends upon third-party carriers for more than 90% of customer deliveries. The size of many carriers’ fleets varies due to
economic conditions. Increased regulation and more stringent enforcement of federal regulations governing the transportation
industry (especially regarding drivers) have adversely impacted the cost and availability of transportation services. Further,
there may be a lack of available trained and licensed drivers, which may reduce the availability of transportation services.
Inability to obtain adequate third-party freight on a timely basis during the summer delivery season can adversely affect cost to
deliver products to customers and the level of customer service, which can in turn adversely impact future sales.
The Company imports component parts from international sources (primarily China). Disruptions in the cost or availability of
ocean freight or disruptions in port operations, may adversely impact the Company’s ability to obtain adequate component parts
to support sales, particularly in the busy summer season.
Approximately 67% of our sales are priced through one contract, under which we are the exclusive supplier of
classroom furniture.
We utilize a nationwide contract/price list for the pricing of a significant portion of our sales. This contract/price list allows
schools and school districts to purchase furniture without bidding, and is sponsored by a nationwide purchasing organization
that does not purchase products from the Company. By providing a public bid specification and authorization service to
publicly funded agencies, the organization's contract/price list enables such agencies to make authorized expenditures of
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taxpayer funds. For all sales under this contract/price list, Virco has a direct selling relationship with the purchaser, whether it
is a school, a district, or another publicly funded agency. In addition, Virco can ship directly to the purchaser; perform delivery
services at the purchaser's location; and finally bill directly to, and collect from, the purchaser. Although Virco sells direct to
hundreds of individual schools and school districts, these schools and school districts can purchase our products and services
under several bids and contracts available to them. Approximately 67% of Virco's sales in fiscal 2021 and 65% of Virco's sales
in fiscal 2020 were priced under this nationwide contract/price list. In November 2017, the Company was awarded a five-year
contract extending through December 2022 along with two two-year extensions through 2026. If Virco were to lose its
exclusive supplier status under this contract/price list, and other manufacturers were allowed to sell under this contract/price
list, it could cause Virco's sales, or growth in sales, to decline.
In addition, this contract/price list determines selling prices for goods and services for periods of one year and occasionally
longer. Though the Company has negotiated increased flexibility under many of these contracts that may allow the Company to
increase prices on future orders, the Company does not have the ability to raise prices on orders received prior to any
announced price increase. Due to the intensely seasonal nature of our business, the Company may receive significant orders
during the first and second quarters for delivery in the second and third quarters. With respect to any of the contracts described
above, if the costs of providing our products or services increase between the date the orders are received and the shipping date,
we will likely not be able to implement corresponding increases in our sales prices for such products or services to offset the
related increased costs. Significant cost increases in providing either the services or products during a given contract period
could therefore lower our profit margins.
We operate in a seasonal business and require significant amounts of working capital through our existing credit facility
to fund acquisitions of inventory, fund expenses for freight and classroom delivery and finance receivables during the
summer delivery season. Restrictions imposed by the terms of our existing credit facility may limit our operating and
financial flexibility. The Company may not meet the requirements of its financial covenants on an ongoing basis or that
should it fail to meet such covenants in the future, the agent and lender under the Credit Agreement will agree to
waivers or amendments with respect thereto.
Our credit facility with PNC, among other things, largely prevents us from incurring any additional indebtedness, limits capital
expenditures, limits dividends and stock repurchases, and provides for seasonal variations in the maximum borrowing amount,
including a reduced maximum level of borrowing during the fourth fiscal quarter. Our credit facility also provides for periodic
financial covenants, which currently include a minimum fixed charge coverage ratio requirement. As a result of the foregoing,
our operational and financial flexibility may be limited, which may prevent us from engaging in transactions that might further
our growth strategy or otherwise be considered beneficial to us.
Under our credit facility, substantially all of our accounts receivable is automatically and promptly swept to repay amounts
outstanding under the credit facility upon our receipt. Due to this automatic liquidating nature, if we breach any covenant,
violate any representation or warranty or suffer any deterioration in our ability to borrow pursuant to the borrowing base
calculation contained in the credit facility, we may not have access to cash liquidity unless provided by the lender in its
discretion. If the indebtedness under our credit facility were to be accelerated, we cannot be certain that we will have sufficient
funds available to pay such indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms
favorable to us or at all. Any such acceleration could also result in a foreclosure on all or substantially all of our assets, which
would have a negative impact on the value of our common stock and jeopardize our ability to continue as a going concern. In
addition, certain of the covenants and representations and warranties set forth in our credit facility contain limited or no
materiality thresholds, and many of the representations and warranties must be true and correct in all material respects upon
each borrowing, which we expect to occur on an ongoing basis. There can be no assurance that we will be able to comply with
all such covenants and be able to continue to make such representations and warranties on an ongoing basis. There can be no
assurance that the Company will meet the requirements of its financial covenants on an ongoing basis or that, should it fail to
meet such covenants, the Agent and Lender under our credit facility will agree to waivers or amendments with respect thereto.
If we breach any of our financial covenants without receiving a corresponding waiver or amendment, the Agent and Lender
may accelerate our credit facility and impose default interest and other fees, any of which could have a material adverse effect
on our financial condition and results of operations.
INDUSTRY AND ECONOMIC RISKS
Increases in basic commodity, raw material and component costs could adversely affect our profitability.
Fluctuations in the price, availability and quality of the commodities, raw materials and components used in manufacturing our
products could have an adverse effect on our costs of sales, profitability and our ability to meet customers' demand. The price
of commodities, raw materials and components, including steel and plastics, our largest raw material categories, have been
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volatile in prior years, and the cost, quality and availability of such commodities have been significantly affected in recent years
by, among other things, changes in global supply and demand, changes in laws and regulations (including tariffs and duties),
changes in exchange rates and worldwide price levels, natural disasters, public health issues such as the current COVID-19
pandemic (or other future pandemics), labor disputes, terrorism and political unrest or instability. These factors could lead to
further price increases or supply interruptions in the future. As discussed above, in the short term, rapid changes in raw
material costs can be very difficult for us to offset with price increases because, in the case of many of our contracts, we have
committed to selling prices for goods and services for periods of one year, and occasionally longer. Our profit margins could
be adversely affected if commodity, raw material and component costs remain high or escalate further, and, we are unable to
pass along a portion of the higher costs to our customers.
In fiscal 2020, the Company incurred a 15% increase in tariffs on product imported from China. Other than the increased
tariffs, commodity costs were stable, and in some cases slightly reduced.
The Company has increased list prices for its products in fiscal 2022 in an effort to recover all reasonable anticipated increases
in material costs.
We are affected by the cost of petroleum-based products and increases in petroleum prices could reduce our margins
and profits.
The profitability of our operations is sensitive to the cost of fuel, which materially affects our transportation costs, the costs of
petroleum-based materials (like plastics) and the costs of energy (including electricity and natural gas) used in operating our
manufacturing facilities. Petroleum prices have fluctuated significantly in recent years and are expected to rise from current
levels. Prices and availability of petroleum products are subject to political, economic and market factors that are generally
outside our control. Political events in petroleum-producing regions, as well as hurricanes and other weather-related events
may cause petroleum prices to increase. If such prices increase, our transportation costs may be adversely affected in the form
of increased operation costs for our fleet and surcharges on freight paid to third-party carriers. If our transportation costs
increase, and/or the price of petroleum-based products and cost of operating our manufacturing facilities increase, these
increases could have a negative impact on our gross margins and profitability.
FINANCING RISKS
We may not be able to renew our credit facility on favorable terms, or at all, which would adversely affect our results of
operations.
We have historically relied on third-party bank financing to meet our seasonal cash flow requirements. Our current credit
facility with PNC Bank matures on March 19, 2023. On an annual basis, we prepare a lender-approved forecast of seasonal
working capital requirements and use borrowings under our credit facility with PNC Bank to help meet these seasonal cash
flow and working capital requirements. Uncertainty in the credit markets may negatively impact our ability to obtain approval
of our annual forecast, make changes in our forecast or renew our credit facility upon its maturity in 2023 on favorable terms or
at all. If we are unable to access or renew our credit facility on favorable terms (including available borrowing line and the rate
of interest charged thereunder), or at all, our ability to fund our operations would be impaired, which would have a material
adverse effect on our results of operations.
If management does not accurately forecast the Company's requirements for the peak summer season, the Company's
results of operations could be adversely affected.
The Company's business is highly seasonal and requires significant working capital in anticipation of and during the peak
summer season. This requires management to make estimates and judgments with respect to the Company's working capital
requirements during, and in anticipation of, the peak summer season. These estimates are complicated by the economic impact
of the COVID-19 pandemic, particularly with respect to anticipated future demand and the ability to maintain our supply chain.
Management expends a significant amount of time in the fourth quarter of the prior year and the first quarter of each year
developing a stocking plan and estimating the number of temporary summer employees, the amount of raw materials and the
types of components and products that will be required during the peak season. If management does not accurately forecast the
Company's requirements, the Company's results of operations could be adversely affected. For example, if management
underestimates any of these requirements, Virco's ability to meet customer orders in a timely manner or to provide adequate
customer service may be diminished. If management overestimates any of these requirements, the Company may be required to
absorb higher storage, labor and related costs, each of which may negatively affect the Company's results of operations.
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We may require additional capital in the future, which may not be available or may be available only on unfavorable
terms.
Our capital requirements depend on many factors, including capital improvements, tooling and new product development. To
the extent that our existing capital is insufficient to meet these requirements and cover any losses, we may need to raise
additional funds through financings or curtail our growth and reduce our assets. Any equity or debt financing, if available at all,
may be on terms that are not favorable to us. Equity financings could result in dilution to our stockholders, and the securities
may have rights, preferences and privileges that are senior to those of our common stock. If our need for capital arises because
of significant losses, the occurrence of these losses may make it more difficult for us to raise the necessary capital.
Volatility in the equity markets or interest rates could substantially increase our pension costs and have a negative
impact on our operating results.
We sponsor one qualified defined benefit pension plan, the Virco Employee Retirement Plan (“Employee Plan”), and one
nonqualified pension plan. Benefits under the Plans were frozen in 2003. The difference between plan obligations and assets,
or the funded status of the Employee Plan, significantly affects net periodic benefit costs of our Employee Plan and our ongoing
funding requirements with respect to the Employee Plan. The Employee Plan is funded with trust assets invested in a
diversified portfolio of debt and equity securities and other investments. Among other factors, changes in interest rates,
investment returns, and the market value of plan assets can (i) affect the level of plan funding; (ii) cause volatility in the net
periodic pension cost; and (iii) increase our future contribution requirements. Because the current economic environment is
characterized by historically low interest rates, we may be required to make additional cash contributions to the Employee Plan
and recognize further increases in our net pension cost to satisfy our funding requirements. A significant decrease in
investment returns or the market value of plan assets or a significant decrease in interest rates could increase our net periodic
pension costs and adversely affect our results of operations. These factors are further complicated by the substantial
intervention in the U.S. credit markets by the Federal Reserve Board and Treasury Department in response to the COVID-19
pandemic, which could have the effect of artificially reducing market interest rates.
LEGAL AND REGULATORY RISKS
An inability to protect our intellectual property could have a significant impact on our business.
We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret
laws. Our ability to compete effectively with our competitors depends, to a significant extent, on our ability to maintain the
proprietary nature of our intellectual property. The degree of protection offered by the claims of the various patents, trademarks
and service marks may not be broad enough to provide significant proprietary protection or competitive advantages to us, and
patents, trademarks or service marks may not be issued on our pending or contemplated applications. In addition, not all of our
products are covered by patents. It is also possible that our patents, trademarks and service marks may be challenged,
invalidated, cancelled, narrowed or circumvented. If we are unable to maintain the proprietary nature of our intellectual
property with respect to our significant current or proposed products, our competitors may be able to sell copies of our products,
which could adversely affect our ability to sell our original products and could also result in competitive pricing pressures.
If third parties claim that we infringe upon their intellectual property rights, we may incur liability and costs and may
have to redesign or discontinue an infringing product.
We face the risk of claims that we have infringed third parties' intellectual property rights. Companies operating in the furniture
industry routinely seek protection of the intellectual property for their product designs, and our principal competitors may have
large intellectual property portfolios. Our efforts to identify and avoid infringing third parties' intellectual property rights may
not be successful. Any claims of intellectual property infringement, even those without merit, could (i) be expensive and time-
consuming to defend; (ii) cause us to cease making, licensing or using products that incorporate the challenged intellectual
property; (iii) require us to redesign, reengineer, or rebrand our products or packaging, if feasible; or (iv) require us to enter into
royalty or licensing agreements in order to obtain the right to use a third party's intellectual property. Such claims could have a
negative impact on our sales and results of operations.
We could be required to incur substantial costs to comply with environmental and other legal requirements. Violations
of, and liabilities under, these laws and regulations may increase our costs or require us to change our business
practices.
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Our past and present ownership and operation of manufacturing plants are subject to extensive and changing federal, state and
local environmental laws and regulations, including those relating to discharges to air, water and land, the handling and disposal
of solid and hazardous waste and the cleanup of properties affected by hazardous substances. As a result, we are involved from
time to time in administrative and judicial proceedings and inquiries relating to environmental matters and could become
subject to fines or penalties related thereto. We cannot predict what environmental legislation or regulations will be enacted in
the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may
be found to exist. Compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require
additional expenditures by us, some of which may be material. If new environmental laws and regulations are introduced and
enforced domestically, but not implemented or enforced internationally, we will operate at a competitive disadvantage
compared to competitors who source product primarily from international sources. In addition, in the past we have been
identified as a potentially responsible party pursuant to the Comprehensive Environmental Response Compensation and
Liability Act (“CERCLA”) for remediation costs associated with waste disposal sites previously used by us. In general,
CERCLA can impose liability for costs to investigate and remediate contamination without regard to fault or the legality of
disposal and, under certain circumstances, liability may be joint and several, resulting in one party being held responsible for
the entire obligation. Liability may also include damages for harm to natural resources. We may also be subject to claims for
personal injury or contribution relating to CERCLA sites. We reserve amounts for such matters when expenditures are
probable and reasonably estimable.
In addition to environmental laws and regulations affecting our manufacturing activities, the Company is subject to laws and
regulations related to consumer product regulation. The Company sells products that are subject to the Consumer Product
Safety Improvement Act of 2008 and the California Air Resources Board rule and Toxic Control Substances Act rule,
concerning formaldehyde emissions from composite wood products.
We are subject to potential labor disruptions, which could have a significant impact on our business.
None of our work force is represented by unions, and while we believe that we have good relations with our work force, we
may experience work stoppages or other labor problems in the future. Any prolonged work stoppage could have an adverse
effect on our reputation, our vendor relations and our customers.
Our insurance coverage may not adequately cover for any product liability claims.
We maintain product liability and other insurance coverage that we believe to be generally in accordance with industry
practices. Our insurance coverage may not be adequate to protect us fully against substantial claims and costs that may arise
from product defects, particularly if we have a large number of defective products that we must repair, retrofit, replace or recall.
Holders of approximately 35% of the shares of our stock have entered into an agreement restricting the sale of the
stock.
Certain shares of the Company's common stock received by the holders thereof as gifts from Julian A. Virtue, including shares
received in subsequent stock dividends, are subject to an agreement that restricts the sale or transfer of those shares. Because of
the share ownership and representation on the board and in management, the parties to the agreement have significant influence
on affairs and actions of the Company, including matters requiring stockholder approval such as the election of directors and
approval of significant corporate transactions. In addition, these transfer restrictions and concentration of ownership could have
the effect of impeding an acquisition of the Company.
Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in
control of our company.
Provisions in our certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent a merger
or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation
currently provides for a staggered board of directors, whereby directors serve for three-year terms, with approximately one-third
of the directors coming up for reelection each year. Having a staggered board will make it more difficult for a third party to
obtain control of our board of directors through a proxy contest, which may be a necessary step in an acquisition of us that is
not favored by our board of directors.
We are also subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Under these
provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for
three years without special approval, which could discourage a third party from making a takeover offer and could delay or
prevent a change of control. For purposes of Section 203, “interested stockholder” means, generally, someone owning 15% or
20
more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the
past three years, subject to certain exceptions as described in Section 203.
GENERAL RISK FACTORS
We may not be able to manage our business effectively if we are unable to retain our experienced management team or
recruit other key personnel.
The success of our operations is highly dependent upon our ability to attract and retain qualified employees and upon the ability
of our senior management and other key employees to implement our business strategy. We believe there are only a limited
number of qualified executives in the industry in which we compete. The loss of the services of key members of our
management team could seriously harm our efforts to successfully implement our business strategy.
Failure in our information technology and storage systems could significantly disrupt the operation of our business.
Our ability to execute our business plan and maintain operations depends on the continued and uninterrupted performance of
our information technology systems. These systems are vulnerable to risks and damages from a variety of sources, including
telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and
backup measures, some of our computer servers and those of our vendors are potentially vulnerable to physical or electronic
break-ins, including cyber-attacks, ransomware attacks, computer viruses and similar disruptive problems. These events could
lead to the unauthorized access, disclosure and use of non-public information and disruption of our accounting, sales and
purchasing systems and overall operations. The techniques used by criminal elements to attack computer systems are
sophisticated, change frequently and may originate from less regulated and remote areas of the world. As a result, we may not
be able to address these techniques proactively or implement adequate preventative measures. If any of our computer systems
are compromised, our business could be interrupted and we could be subject to fines, damages, litigation and enforcement
actions and we could lose trade secrets, the occurrence of which could harm our business.
Any failure by us to comply with a variety of privacy and consumer protection laws may harm us.
Any failure by us or our vendor or other business partners to comply with privacy, data protection or security laws or
regulations relating to the processing, collection, use, retention, security and transfer of personally identifiable information
could result in regulatory or litigation-related actions against us, legal liability, fines, damages, ongoing audit requirements and
other significant costs. Substantial expenses and operational changes may be required in connection with maintaining
compliance with such laws, and in particular certain emerging privacy laws are still subject to a high degree of uncertainty as to
their interpretation and application. The California Consumer Privacy Act took effect on January 1, 2020 and imposes certain
legal obligations on our use and processing of personal information related to California residents, including certain personal
information regarding our California employees. In November 2020, California voters passed the California Privacy Rights and
Enforcement Act of 2020, which further expands the California Consumer Privacy Act with additional data privacy compliance
requirements that may impact our business, and establishes a regulatory agency dedicated to enforcing those requirements.
Aspects of these new laws and their interpretation and enforcement remain uncertain, and their potential effects are far-reaching
and may require us to modify our data processing practices and policies and incur substantial costs and expenses in order to
comply. These new laws may also lead other states to pass comparable legislation, with potentially greater penalties and more
rigorous compliance requirements relevant to our business.
Our stock price has historically been volatile, and investors in our common stock could suffer a decline in value.
There has been significant volatility in the market price and trading volume of equity securities, which may be unrelated to the
financial performance of the companies issuing the securities. The economic impact and uncertainty of the COVID-19
pandemic has exacerbated this volatility in both our common stock and the overall stock markets. The limited “float” of shares
available for purchase or sale of Virco stock can magnify this volatility. These broad market fluctuations may negatively affect
the market price of our common stock. Some specific factors that may have a significant effect on our common stock market
price include:
•
•
•
actual or anticipated fluctuations in our operating results or future prospects;
our announcements or our competitors’ announcements of new products;
the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
21
•
•
•
•
•
•
strategic actions by us or our competitors, such as acquisitions or restructurings;
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
changes in our growth rates or our competitors’ growth rates;
our inability to raise additional capital;
conditions of the school furniture industry as a result of changes in funding or general economic conditions, including
those resulting from war, incidents of terrorism and responses to such events; and
changes in stock market analyst recommendations or earnings estimates regarding our common stock, other
comparable companies or the education furniture industry generally.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Torrance, California
Virco leases a 560,000 sq. ft. office, manufacturing and warehousing facility located on 23.5 acres of land in Torrance,
California. This facility is occupied under a lease expiring on April 30, 2025. This facility also includes the corporate
headquarters, the West Coast showroom, and all West Coast distribution operations.
Conway, Arkansas
The Company owns 100 acres of land in Conway, Arkansas, containing 1,200,000 sq. ft. of manufacturing, warehousing, and
office space. This facility - which is equipped with high-density storage systems, features 70 dock doors dedicated to outbound
freight, and has substantial yard capacity to store and stage trailers - has enabled the Company to consolidate the warehousing
function and implement the Assemble-to-Ship inventory stocking program. Management believes that this facility supports
Virco's ability to handle increased sales during the peak delivery season and enhances the efficiency with which orders are
filled. This facility and the underlying real estate, along with the rest of the Company’s assets, secure the Company’s
obligations under its credit facility.
In addition to the complex described above, the Company operates two other facilities in Conway, Arkansas. The first is a
375,000 sq. ft. fabrication facility that was acquired in 1954 and expanded and modernized over subsequent years. The
Company manufactures fabricated steel components, chrome plates, and fabricates injection-molded plastic components at this
facility. These components are transferred to other facilities for assembly into finished goods. The second is a 175,000 sq. ft.
manufacturing facility that is used to fabricate and store compression-molded components. This building was occupied under a
series of leases for approximately 20 years. In August 2017, the Company purchased this building.
Item 3. Legal Proceedings
Virco is involved in legal proceedings from time to time in the ordinary course of business. In the opinion of the Company,
such legal proceedings are not material in amount or management expects that the Company will be successful on the merits in
pending cases against the Company or any liabilities resulting from such cases will be substantially covered by insurance.
While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to these suits and claims,
management believes that the aggregate amount of such liabilities will not be material to the results of operations, financial
position, or cash flows of the Company.
Item 4. Mine Safety Disclosures
Not applicable.
22
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
The NASDAQ Global Market is the principal market on which Virco Mfg. Corporation (VIRC) stock is traded. As of April 27,
2021, there were approximately 170 registered stockholders according to the Company's transfer agent records. As of such date,
there were approximately 1,200 beneficial stockholders.
Dividend Policy
Historically it has been the board of directors' policy to periodically review the payment of cash and stock dividends in light of
the Company's earnings and liquidity. The Company paid four quarterly cash dividends of $0.015 per share in 2018. In March
2018, the Company entered into Amendment No. 17 which allows the Company to pay dividends or conduct stock repurchases
in an amount up to $2.0 million. In fiscal 2020, the Company entered into Amendment No. 20 suspending the Company’s
ability to pay cash dividends or repurchase stock through January 31, 2020
Stock Repurchases
The Company did not repurchase any shares of its stock during 2021 and 2020.
Item 6. Selected Financial Data
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act as of our second quarter of fiscal
2021 and are not required to provide the information under this item.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Effects of COVID-19 Pandemic
To the best of management’s knowledge, the United States has never closed schools en masse to classroom instruction until the
COVID-19 pandemic. Not in WWI; the Spanish Flu of 1918-1919; The Great Depression; WWII; The Hong Kong Flu of
1968; or any other crisis in the past 50 years.
The COVID-19 pandemic had an immediate impact on the Company’s operating activities during fiscal 2021, and this impact is
anticipated to continue into fiscal 2022. In March 2020, most school districts that we serve closed their doors to students and
initiated remote learning. Most school districts in the United States kept campuses closed to students for the remainder of the
2019-2020 academic year, and district business officials typically operated from home offices. During the 2020-2021 academic
year many school districts and private schools successfully re-introduced in-class or hybrid learning, but the majority of
students in the United States were learning remotely during the Company’s fiscal year ended January 31, 2021. These mass
closures impacted more than ten of the twelve months included in this fiscal year, including all of the traditionally busy summer
season.
The Company adopted a number of measures in response to the COVID-19 pandemic. Our sales force worked remotely from
March 2020 through January 31, 2021, and as a general matter only physically called on school sites when specifically invited
by the district. While students returned to class in many locations, districts continued to limit in person sales calls. Subsequent
to fiscal 2021, there are some regions of the country where school districts are entertaining on-site visits by Virco sales
representatives. The Company does not know how quickly the balance of the districts will re-open to on-site visits.
Virco determined that the Company is considered to be an essential manufacturer under the California public health order
issued in March 2020, and with the exception of a two brief closures of our Torrance operations, all facilities in California and
Arkansas have been operating. While the Company is considered to be an essential manufacturer, not all of our domestic and
international suppliers meet this criterion, and the Company experienced supply chain challenges from suppliers depending
upon the length and severity of state and local orders to shelter in place. In addition, there can be no assurance that our
domestic suppliers or supply chain from China (including freight costs and availability) will not experience material disruptions
in the future, whether due to COVID-19 or otherwise. The Company believes that it is not more subject to supply chain
disruptions than our competitors and is substantially less dependent upon a supply chain extending to China than many
competitors in the industry.
23
For the period from March 2020 through January 31, 2021, and as of the date of this Annual Report, the Company is operating
its Torrance manufacturing and distribution facility on a voluntary basis to give employees the flexibility to remain at home
with children who are out of school or for other personal reasons as they deem necessary. Office employees and others who
can work from home continue to do so. Additional measures have been taken to insure adequate social distancing among
employees performing essential on-site operations.
The demand for school furniture was adversely impacted by COVID-19 in fiscal year 2021. School administrators were
challenged by COVID-19, and purchases of furniture for empty classrooms may not have been a priority. Subsequent to year
end, there is a new U.S. President and administration that has placed a priority on returning children to schools. The Company
anticipates that there will be continued disruption for the balance of the 2020-2021 academic year but that the majority of
schools will resume substantially normal operations for the summer of 2021 and 2021-2022 academic year.
The education system and education budgets are typically highly dependent on state and local tax revenues. The severity of this
pandemic may materially adversely impact state and local tax revenues and result in changes in spending priorities for state and
local governments, which may have a material adverse effect on future school budgets. The loss of state and local revenues
may be substantially or partially offset by federal programs providing assistance to state governments, local governments and
schools, although there can be no assurance that any federal funds could be used for capital expenditures or that the level of
federal funding, if any, will be sufficient to maintain our historic order rates for school furniture.
Executive Overview
The market for school furniture is traditionally seasonal, with approximately 50% of annual sales occurring in the months of
June, July, and August. The Company has traditionally met the seasonal needs with significant overtime and by hiring seasonal
temporary labor. During fiscal 2021, the demand for school furniture declined primarily due to the COVID-19 pandemic
disruption, and the Company reduced production levels. Because of the traditional dependence on temporary seasonal labor, the
Company was able to reduce seasonal hiring to match production to demand. The Company did not sever any of its full-time
employees during the pandemic.
The markets that Virco serves include the education market (the Company's primary market), which is made up of public and
private schools (preschool through 12th grade), junior and community colleges, four-year colleges and universities and trade,
technical and vocational schools. Virco also serves convention centers and arenas; the hospitality industry, with respect to their
banquet and meeting facilities; government facilities at the federal, state, county and municipal levels; and places of worship.
In addition, the Company sells to wholesalers, distributors, retailers, catalog retailers, and internet retailers that serve these same
markets. These institutions are frequently characterized by extreme seasonality and/or a bid-based purchasing function. The
Company's business model, which is designed to support this strategy, is highly integrated. The Company purchases coils of
steel, plastic resin, particle board, and other raw materials and fabricated finished goods for education market. The Company
markets and sells direct to the schools and provides project management and logistics. The Company primarily sells to schools
FOB destination, with more than 75% of sales delivered FOB classroom destination.
As part of this integrated business model, the Company has developed several competencies to enable superior service to the
markets in which Virco competes. An important element of Virco's business model is the Company's emphasis on developing
and maintaining key manufacturing, warehousing, distribution, delivery, project management and service capabilities. The
Company has developed a comprehensive product offering for the furniture, fixtures and equipment (FF&E) needs of the K-12
education market, enabling a school to procure all of its FF&E requirements from one source.
Virco's product offering consists primarily of items manufactured by Virco, complemented with products sourced from other
furniture manufacturers to fill any gaps in product manufactured by the Company. The Company has served the education
industry for over 70 years and over this time developed products to address a variety classroom management trends, from
collaborative learning to individual and combination desks facilitating distancing and classroom control. The pandemic caused
a noticeable change in the types of product requested by educators. Although total sales were lower than last year, we
experienced a significant increase in the demand for individual desks. Our product offerings are continually enhanced with an
ongoing new product development program that incorporates internally developed products as well as product lines developed
with accomplished designers. Finally, management continues to hone Virco's ability to forecast, finance, manufacture,
warehouse, deliver and install furniture within the relatively narrow delivery window associated with the highly seasonal
demand for education sales. In fiscal 2021 and 2020, approximately 52% and 49% respectively of the Company's total sales
were delivered in June, July and August. Average weekly shipments during July and August can be as great as six times the
level of average weekly shipments in the winter months. Virco's substantial warehouse space allows the Company to build and
ship adequate inventories to service this narrow delivery window for the education market.
24
The budgetary pressures directly impact the demand for the Company's products, as the demand for educational furniture
largely depends upon: (1) available funding in a school's general operating fund and (2) the completion of bond-funded
projects, which is directly impacted by the amount of bond financing issued to fund new school construction, to renovate older
schools, and to fully equip new and renovated schools.
We believe that a significant majority, approximately 80-85%, of a school's operating budget is for the salaries and benefits for
school teachers and administrators. Increasing costs for medical insurance, combined with pressures from unfunded post-
retirement medical and pension obligations reduces funds available for other purposes. In response to these budgetary
pressures, schools typically elect to retain teachers and spend less on repairs, maintenance and replacement furniture, which in
turn reduces the demand for, and sales of, the Company's products. Prior to COVID-19, there had been an improvement in
state and local tax collections. The impact of COVID-19 combined with potential federal relief is not clear at this time.
The significant budgetary challenges faced by the education industry have had an impact on the Company’s business model
over this time frame and have created opportunities as well. In response to their budgetary challenges, many school districts
closed warehouses and reduced janitorial and support staff in order to retain accredited teachers. Selling efforts must now reach
school principals and administrative staff in addition to the district business offices. Sales priced under national contracts or
buying groups are displacing competitive bids administered by professional purchasing departments. Distribution has become a
more meaningful component of our business as most deliveries are to school sites, and often include delivery into the
classroom. This evolution adds to the seasonal challenges of our business, but also creates opportunities to suppliers that can
execute during the short summer delivery window.
The Company’s operating results can be impacted significantly by cost and volatility of commodities, especially steel, plastic,
wood and energy. Because a majority of the Company's sales are generated under annual contracts in which the Company has
limited ability to raise the price of its products during the term of the contract, if the costs of the Company's raw materials
increase suddenly or unexpectedly, the Company cannot be certain that it will be able to implement immediate corresponding
increases in its sales prices in order to offset such increased costs. The Company moderates this exposure by building
significant quantities of finished goods and component parts during the first and second quarters. During fiscal 2021
commodities were reasonably stable. During the year ended January 31, 2020 ("fiscal 2020"), the Company incurred an
additional 15% increase tariffs on components sourced from China, but other commodities were stable, and in some cases
slightly lower. The majority of Virco’s sales include freight to the customer facility and the cost or availability of transportation
equipment can adversely impact both profitability and customer service. Significant cost increases in manufacturing or
distributing products during a given contract period can adversely impact operating results and have done so during prior years.
The Company typically benefits from any decreases in raw material or distribution costs under the contracts described above.
During the year ending January 31, 2022 ("fiscal 2022"), the Company anticipates continued uncertainty and volatility in
commodity costs, particularly with respect to steel and other raw materials, transportation and energy. The global pandemic
related to COVID-19 is expected to continue to disrupt global and domestic supply chains.
While the Company anticipates challenging economic conditions to continue to impact its core customer base in the near term,
there are certain underlying demographics, customer responses and changes in the competitive landscape that provide
opportunities. First, the underlying demographics of the student population are stable compared to the volatility of school
budgets and the related level of furniture and equipment purchases. This volatility is attributable to the financial health of the
school systems. Virco management believes that there is a pent-up demand for quality school furniture (though it is unclear
when and to what extent that pent-up demand will be converted into a meaningful increase in purchases). Second, management
believes that parents and voters will make quality education an ongoing priority for future government spending. Third, many
schools have responded to the budget strains by reducing their support infrastructure. This change provides opportunities to
provide services to schools, such as project management for new or renovated schools, delivery to individual school sites rather
than truckload deliveries to central warehouses and delivery of furniture into classrooms. Moreover, this change offers
opportunities for Virco to promote its complete product assortment which allows one-stop shopping as opposed to sourcing
furniture needs from a variety of suppliers. Fourth, many suppliers previously shut down or dramatically curtailed their
domestic manufacturing capabilities, making it difficult for competitors to adapt to dynamic fluctuations in demand or provide
custom colors or finishes during a narrow seasonal summer delivery window when they are reliant upon a supply chain
extending to Asia or elsewhere. Meanwhile, Virco has continued to invest in automation at its domestic manufacturing
facilities, adding flat metal forming processes to its manufacturing capabilities and bringing production into its factories of
items formerly sourced from other suppliers (both domestic and international). Domestic production facilitates our product
development process, enabling the Company to more rapidly develop new products, release extensions of product families and
offer customized variants of our product offering. Virco views its domestic factories as a strategic resource for providing its
customers with timely delivery of a broad selection of colors, finishes, laminates, and product styles.
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Critical Accounting Policies and Estimates
This discussion and analysis of Virco's financial condition and results of operations is based upon the Company's consolidated
financial statements (“financial statements”), which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires Virco management to make estimates and judgments that
affect the Company's reported assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. Certain of these estimates are considered critical accounting estimates. On an on-going basis, management evaluates
such critical estimates, including those related to valuation of inventory and related excess and obsolescence reserves, self-
insured retention for workers' compensation insurance, liabilities under defined benefit and other compensation programs, and
estimates related to deferred tax assets and liabilities. Management bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances. This forms the basis of judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Factors that could cause or contribute to these differences include the
factors discussed above under Item 1, Business, and elsewhere in this Annual Report on Form 10-K. Virco's critical accounting
policies and estimates are as follows:
Inventory Valuation: Inventory is valued at the lower of cost or net realizable value (determined on a first-in, first-out basis)
and includes material, labor and factory overhead. The Company records valuation adjustments for the excess cost of the
inventory over its estimated net realizable value. Valuation adjustments for slow-moving and obsolete inventory are calculated
using an estimated percentage applied to inventories based on a physical inspection of the product in connection with a physical
inventory, a review of slow-moving products and component stage, inventory category, historical and forecasted consumption
of sales, and consideration of active marketing programs. The market for education furniture is traditionally driven by value,
not style, and the Company has not typically incurred significant obsolescence expenses. If market conditions are less
favorable than those anticipated by management, additional valuation adjustments may be required. Due to reductions in sales
volume in the past years, the Company's manufacturing facilities are operating at reduced levels of capacity. The Company
records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation.
Self-Insured Retention: For fiscal 2021 and 2020 the Company was self-insured for product and general liability losses ranging
up to $250,000 per occurrence, workers' compensation losses up to $250,000 per occurrence and auto liability up to $50,000 per
occurrence. The Company obtains quarterly or semi-annual actuarial valuations for the self-insured retentions. Product
liability, workers' compensation and auto reserves for known and unknown incurred but not reported (“IBNR”) losses are
recorded at the net present value of the estimated losses using a risk-free discount rate of 4% for fiscal 2021 and 2020. Given
the relatively short term over which the known losses and IBNR losses are discounted, the sensitivity to the discount rate is not
significant. Estimated workers' compensation losses were funded during the insurance year and subject to retroactive loss
adjustments. The Company's exposure to self-insured retentions varies depending upon the market conditions in the insurance
industry and the availability of cost-effective insurance coverage. Self-insured retentions for fiscal 2022 will be comparable to
the retention levels for fiscal 2021.
Defined Benefit Obligations: The Company has two defined benefit plans, the Virco Employees Retirement Plan (“Employee
Plan”) and the Virco Important Performers Plan (“VIP Plan”), which provide retirement benefits to employees. Virco
discounted the pension obligations for the various plans using the following discount rates for the fiscal years ended January 31:
Employee Plan
VIP Plan
2021
2.75%
2.80%
2020
3.00%
3.05%
Because new benefit accruals for both plans were frozen by the Company effective December 31, 2003, the assumed rate of
increase in compensation has no effect on the accounting for the plans. For the Employee Plan, the Company estimated a 6.0%
return on plan assets for 2021 and 6.5% for fiscal 2020. The VIP Plan is unfunded and has no plan assets. These rate
assumptions can vary due to changes in interest rates and expected returns in the stock market. In prior years, the discount rate
has decreased, causing pension expense and pension obligations to increase.
Because the plans have been frozen for many years, there is no service cost related to the plans. In prior years, due to a large
number of lump-sum benefits paid to retired and terminated employees, the Company has incurred settlement costs for the
Employee Plan. In effort to “de-risk” the Employee Plan, the Company intends to continue to reach out to and offer lump sum
benefits to terminated and retired employees, which may result in settlement costs in the future. The Company did not incur
settlement costs in fiscal 2021 or 2020.
26
Due to the size of the Company's pension obligations, a one percent change in discount rates can cause a material change in the
pension obligations. A one percent reduction in discount rates would cause obligations under the Plans to increase by
approximately $6.7 million and increase pension expense by approximately $800,000. A one percent decrease in return on Plan
assets would increase pension expense by $210,000 and have no impact on retirement obligations. The retirement obligations
would decrease by similar amounts if discount rate were to increase by a comparable percentage. The Company obtains annual
actuarial valuations for both plans.
Deferred Tax Assets and Liabilities: The Company recognizes deferred tax assets to the extent that it is expected that these
assets are more likely than not to be realized. The Company evaluates the realizability of its deferred tax assets, and to the
extent that the Company estimates that it is more likely than not that a benefit will not be realized, the carrying amounts of its
deferred tax assets are reduced with a valuation allowance. As a part of this evaluation, the Company assesses all available
positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable
income, the availability of tax carrybacks, tax-planning strategies, and results of recent operations (including cumulative losses
in recent years), to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets.
The Company has identified objective and verifiable negative evidence in the form of cumulative losses on an unadjusted basis
in the U.S. and in certain state jurisdictions over the preceding twelve quarters ended January 31, 2021. Additionally, the
Company has noted a decline in the volume of net sales processed for the twelve months ended January 31, 2021 compared to
the prior year period, due to the impact of the COVID-19 pandemic. The Company evaluated both its actual forecasts of future
taxable income and its historical earnings over the prior twelve quarters, adjusted for certain nonrecurring items. On the basis of
this assessment, and after considering future reversals of existing taxable temporary differences and the effects of seasonality on
the Company’s business, the Company determined that it is more likely than not that its U.S. federal deferred tax assets will be
realizable, but that valuation allowances are needed for certain state NOL’s to reduce the carrying amount of those state
deferred tax assets to an amount that is more likely than not to be realized.
The amount of the deferred tax asset considered realizable, however, could be adjusted if the Company’s actual results vary
from its forecasts of future taxable income or if the Company’s estimates of the projected future profitability of its operations
change. The Company’s future taxable income projections are subject to a high degree of uncertainty and could be impacted,
both positively and negatively, by changes in our business or the markets in which we operate. A change in the assessment of
the realizability of our deferred tax assets could materially impact our results of operations.
Results of Operations (fiscal 2021 vs. 2020)
Financial Highlights
The Company incurred a pre-tax loss of ($2,976,000) on net sales of $152,795,000 for fiscal 2021, compared to pre-tax profit of
$2,727,000 on net sales of $193,001,000 in fiscal 2020. Pre-tax profit/(loss) deteriorated by $5,703,000. Net income / (loss)
per diluted share decreased to a loss of ($0.14) for fiscal 2021, compared to a profit of $0.15 per diluted share in the prior year.
Cash flow provided by operations was $7,799,000 in fiscal 2021, compared to $9,759,000 in fiscal 2020.
Net Sales
Virco's net sales decreased by 20.8% in fiscal 2021 to $152,795,000 compared to $193,001,000 in fiscal 2020. The decrease in
net sales was primarily attributable to a reduction in volume partially offset by a 5% increase in list selling prices.
In fiscal 2021 and 2020, Virco increased list selling prices by approximately 5% each year to recover significant cost increases
incurred in fiscal 2019 related to increased raw material costs, primarily driven by tariffs on steel and imported components
sourced from China. In addition, the Company increased compensation for factory employees in response to minimum wage
and other market conditions. During 2021 the Company suffered a significant reduction in demand related to the COVID-19
pandemic. Despite a reduction in industry demand, the Company did not reduce selling prices. Short lead times, urgent orders,
disciplined pricing, and general supply chain disruption in the industry (especially imported items) allowed the Company to
realize the price increase announced at the beginning of the year.
For fiscal 2022, the COVID-19 pandemic is continuing to create uncertainty as state and local government revenues may be
severely impacted and spending priorities may be re-evaluated. The anticipated government revenue shortfall may be offset
significantly or in part by a variety of federal government programs. The Company anticipates that the budgetary challenges
for state and local governments will continue to affect our growth in net sales. The Company intends to increase selling prices
to recover volatile and increasing commodity and freight costs. As we have throughout this economic cycle, the Company
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continues to focus on strategies to develop and strengthen its brand with an aggressive product development campaign. We will
continue to use our domestic factories to provide greater flexibility for custom specifications such as laminates, colors and on-
time delivery. The Company will continue to emphasize the value, design, variety of its products, the value of its distribution,
delivery, classroom delivery and project management capabilities, and the importance of timely deliveries during the peak-
seasonal delivery period. The Company plans to increase selling prices to recover increased costs of commodities and to
improve gross margins. To increase or maintain market share during fiscal 2022, when market conditions warrant, the
Company may selectively compete based on direct prices to build or maintain its market share. Estimates of sales volume for
the next year may continue to be impacted by the COVID-19 pandemic. Demand for project business is anticipated to be stable
compared to pre-COVID-19 levels. Short term transactional business may increase when schools re-open. The potential
impact of Government stimulus programs and possible failures of competitors cannot be reasonably estimated as of the date of
this report.
Cost of Sales
Cost of sales was 64.1% of net sales in fiscal 2021 and 62.9% of net sales in fiscal 2020. The increase in cost of sales as a
percentage of sales was primarily attributable to an increase in manufacturing overhead variances related to reduced levels of
production. In the first quarter of fiscal 2021, the Company increased selling prices to recover increased costs incurred in fiscal
2021 and 2020. In fiscal 2021, the cost of commodities was reasonably stable. The Company incurred a reduction in unit sales
volume which increased manufacturing overhead variances offset in part by the selling price increases.
During fiscal 2022, the Company anticipates continued uncertainty and volatility in commodity costs, particularly with respect
to certain raw materials, transportation, energy and tariffs due to potential macroeconomic events, including the global
pandemic caused by COVID-19. The Company also anticipates continued and possibly increased supply chain disruptions
from both domestic and international suppliers. Due in part to volatile transportation and energy costs, we may incur higher
commodity costs in fiscal 2022. For more information, please see the section below entitled “Inflation and Future Change in
Prices.”
Selling, General and Administrative and Other Expenses
Selling, general and administrative expenses for fiscal 2021, decreased by $11.5 million to $54,197,000 from $65,726,000 but
increased as a percentage of net sales by approximately 1.4% to 35.5% in fiscal 2021 from 34.1% in fiscal 2020. Service costs,
including warehousing, freight and classroom delivery costs decreased $5,883,000 and decreased by 0.1% as a percentage of
net sales. Selling costs decreased by $4,899,000 and were flat as a percentage of sales compared to the prior year. Decreased
selling costs were attributable to reduced variable expenses. G&A spending decreased in terms of dollars and increased as a
percentage of net sales. Interest expense was $924,000 lower in fiscal 2021 compared to fiscal 2020 because of reduced levels
of borrowing and decreased interest rates.
Provision for Income Taxes
Our effective tax rate is based on recurring factors, including the forecasted mix of income before taxes in various jurisdictions,
estimated permanent differences and the recording of a partial valuation allowance on net deferred tax asset.
For fiscal 2021, the effective tax rate was 25.0%. The Company has a partial valuation allowance of $1,064,000 against certain
state deferred tax assets that the Company does not believe is more-likely-than-not to be realized. At January 31, 2021, the
Company has net operating loss carryforwards of approximately $12,897,000 for federal, that do not expire, and $29,891,000
for state income tax purposes, expiring at various dates through January 31, 2039.
For fiscal 2020, the effective tax rate was 12.7%. The Company has a partial valuation allowance of $1,183,000 against certain
state deferred tax assets that the Company does not believe is more-likely-than-not to be realized. At January 31, 2020, the
Company has net operating loss carryforwards of approximately $9,499,000 for federal, that do not expire, and $26,098,000 for
state income tax purposes, expiring at various dates through January 31, 2040.
Cash Flow
The following table shows summary cash flows information for the years ended January 31, 2021 and 2020, respectively:
28
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net (decrease) increase in cash
Year ended January 31,
2021
2020
(In thousands)
$
7,799 $
(2,135)
(6,412)
(748)
9,759
(4,258)
(5,089)
412
Operating activities. Our cash flows from operating activities are primarily collections from the sale and distribution of
furniture to our customers in the education market. Net cash provided by operating activities was $7.80 million for the year
ended January 31, 2021, a decrease of $1.96 million compared to the prior year. The decrease was primarily due to a reduction
net income.
Investing activities. Our investments primarily consist of investments in our factories and technology to support our business
activities. Investment activities decreased for the year ended January 31, 2021 due to reduced business activity related to the
COVID pandemic. Capital expenditures have been financed using cash provided by operating activities and borrowings under
our line of credit with PNC Bank. There were no material commitments for capital expenditures as of January 31, 2021.
Financing activities. Our financing activities primarily consist of the proceeds and repayments of borrowings under our line of
credit with PNC Bank. Due to the seasonal nature of our business, the Company typically borrows material amounts under the
line to finance seasonal building of inventory and financing of accounts receivable. The Company typically repays the seasonal
borrowings at the conclusion of the summer busy season.
Inflation and Future Change in Prices
We commit to annual contracts that determine selling prices for goods and services for periods of one year and occasionally
longer. Though the Company has negotiated flexibility under many of these contracts that may allow the Company to increase
prices on future orders, the Company does not have the ability to raise prices on orders received prior to any announced price
increase. Due to the intensely seasonal nature of our business, the Company may receive significant orders during the first and
second quarters for delivery in the second and third quarters. With respect to any of the contracts described above, if the costs
of providing our products or services increase between the date the orders are received and the shipping date, we may not be
able to implement corresponding increases in our sales prices for such products or services to offset the related increased costs.
In fiscal 2021 the cost of sales were relatively stable compared to prior years, which were impacted by tariffs on steel and
Chinese imports.
For fiscal 2022, the Company anticipates continued volatility in costs, particularly with respect to imported components from
China, freight from China, certain raw materials including steel, transportation, energy, and potential impacts of legislation
increasing minimum wages. Anticipated adverse volatility for fiscal 2022 could be severe in light of tariffs imposed or
threatened on imported commodities and disruptions caused by COVID-19 upon our suppliers. There is continued uncertainty
with respect to steel and other raw material costs, including plastics, that are affected by the price of oil. Transportation costs
may be adversely affected by increased oil prices, in the form of increased operation costs for our fleet, and surcharges on
freight paid to third-party carriers. Virco depends upon third-party carriers for more than 90% of customer deliveries.
Subsequent to 2010, many carriers went out of business or were required to reduce the size of their fleets due to economic
conditions and have not increased their fleets as the economy has improved. Recent regulation and more stringent enforcement
of federal regulations governing the transportation industry (especially regarding drivers) have adversely impacted the cost and
availability of freight services. Virco expects to incur continued pressure on employee benefit costs. The Company has
renewed health insurance contracts for its employees through December 2021, but costs after that date may be adversely
impacted by current legislation, claim costs and industry consolidation. Virco has aggressively addressed these costs by
controlling headcount, freezing pension benefits and passing on a portion of increased medical costs to employees.
To recover the cumulative impact of increased costs, the Company has increased published list prices for fiscal 2022. Due to
current economic conditions, the Company anticipates continued significant price competition in fiscal 2022 and may not be
able to raise prices without risk of losing market share. As a significant portion of Virco's business is obtained through
competitive bids, the Company is carefully considering material and transportation costs as part of the bidding process. Total
material costs for fiscal 2022, as a percentage of sales, could be higher than in fiscal 2021. The Company is working to control
29
and reduce costs by improving production and distribution methodologies, investigating new packaging and shipping materials
and searching for new sources of purchased components and raw materials.
Liquidity and Capital Resources
Working Capital Requirements
Virco addresses liquidity and working capital requirements in the context of short-term seasonal requirements and long-term
capital requirements of the business. The Company's core business of selling furniture to publicly-funded educational
institutions is extremely seasonal. The seasonal nature of this business permeates most of Virco's operational, capital and
financing decisions.
The Company's working capital requirements during and in anticipation of the peak summer season oblige management to
make estimates and judgments that affect Virco's assets, liabilities, revenues and expenses. Management expends a significant
amount of time during the year, and especially in the fourth quarter of the prior year and first quarter of current year, developing
a stocking plan and estimating the number of employees, the amount of raw materials and the types of components and
products that will be required during the peak season. If management underestimates any of these requirements, Virco's ability
to fill customer orders on a timely basis or to provide adequate customer service may be diminished. If management
overestimates any of these requirements, the Company may be required to absorb higher storage, labor and related costs, each
of which may affect profitability. On an on-going basis, management evaluates such estimates, including those related to
market demand, labor costs and inventory levels, and continually strives to improve Virco's ability to correctly forecast business
requirements during the peak season each year.
As part of Virco's efforts to address seasonality, financial performance and quality without sacrificing service or market share,
management has been refining the Company's ATS operating model. ATS is Virco's version of mass-customization, which
assembles standard, stocked components into customized configurations before shipment. The Company's ATS program
reduces the total amount of inventory and working capital needed to support a given level of sales. It does this by increasing
the inventory's versatility, delaying assembly until the last moment and reducing the amount of warehouse space needed to store
finished goods. In order to provide “one-stop shopping” for all FF&E needs, Virco purchases and re-sells certain finished
goods from other furniture manufacturers. When practical, these furniture items are drop shipped from the Company's supplier.
Where cost effective, the Company will bring the item into the Virco warehouse and the third-party products will be shipped
along with product manufactured by Virco. The Company did not carry material amounts of vendor inventory during the fiscal
years ended January 31, 2021 and 2020.
In addition, Virco finances its largest balance of accounts receivable during the peak season. This occurs for three primary
reasons. First, accounts receivable balances naturally increase during the peak season as shipments of products increase.
Second, many customers during this period are government institutions, which tend to pay accounts receivable more slowly
than commercial customers. Third, many summer deliveries may be “projects” where the Company fulfills large orders of
furniture for a new school or significant refurbishment of an existing school. Customers with large projects may require
architect sign off, school board approval prior to payment, or punch list completion, all of which can delay payment.
Because of the seasonality of our business, our manufacturing and distribution capacity is dictated by the capacity requirement
during the months of June, July and August. Because of this seasonality, factory utilization is lower during the slow season.
The Company utilizes a variety of tactics to address the seasonality of its business. During the summer months, which
comprise our second and third fiscal quarters, our personnel utilization generally is at or close to full capacity. The Company
utilizes temporary labor and significant overtime to meet the seasonal requirements. During the slow portions of the year,
temporary labor and overtime are eliminated to moderate the off-season costs. Our manufacturing facility capacity utilization
generally remains less than 100% during these off-season months; because physical structure capacity cannot be adjusted as
readily as personnel capacity, we have secured sufficient physical structure capacity to accommodate our current needs as well
as for anticipated future growth. Our physical structure utilization is significantly lower during the first and fourth quarters of
each year than it is during the second and third quarters.
The Company utilizes a comparable strategy to address warehousing and distribution requirements. During summer months,
temporary labor is hired to supplement experienced warehouse and distribution personnel. More than 90% of the Company's
freight is provided by third-party carriers. The Company has secured sufficient warehouse capacity to accommodate our
current needs as well as anticipated future growth.
Line of Credit
30
As the capital required for the summer season generally exceeds cash available from operations, Virco has historically relied on
third-party bank financing to meet seasonal cash flow requirements. On December 22, 2011 (“Closing Date”), the Company
and Virco Inc., a wholly owned subsidiary of the Company (“Virco” and, together with the Company, the “Borrowers”) entered
into a Revolving Credit and Security Agreement (“Credit Agreement”) with PNC Bank, National Association, as administrative
agent and lender (“PNC”). The credit agreement has been amended a number of times.
The Credit Agreement provides the Borrowers with a secured revolving line of credit (“Revolving Credit Facility”) of up to
$65,000,000, with seasonal adjustments to the credit limit and subject to borrowing base limitations and includes a sub-limit of
up to $3,000,000 for issuances of letters of credit. In addition, the Credit Agreement provides an Equipment Line for purchases
of equipment up to $2,000,000. The Revolving Credit Facility is an asset-based line of credit that is subject to a borrowing base
limitation and generally provides for advances of up to 85% of eligible accounts receivable, plus a percentage equal to the lesser
of 60% of the value of eligible inventory or 85% of the liquidation value of eligible inventory, plus $15,000,000 for the period
from December to July of each year minus undrawn amounts of letters of credit and reserves. The Revolving Credit Facility is
secured by substantially all of the Borrowers' personal property and certain of the Borrowers' real property. The principal
amount outstanding under the Credit Agreement and any accrued and unpaid interest is due no later than March 19, 2023, and
the Revolving Credit Facility is subject to certain prepayment penalties upon earlier termination of the Revolving Credit
Facility. Prior to the maturity date, principal amounts outstanding under the Credit Agreement may be repaid and reborrowed
at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments and
certain other conditions.
The Revolving Credit Facility bears interest, at the Borrowers' option, at either the Alternate Base Rate (as defined in the Credit
Agreement) or the Eurodollar Currency Rate (as defined in the Credit Agreement), in each case plus an applicable margin. The
applicable margin for Alternate Base Rate loans is a percentage within a range of 1.25% to 1.75%, and the applicable margin
for Eurodollar Currency Rate loans is a percentage within a range of 2.25% to 2.75%, in each case based on the adjusted
EBITDA (as defined in the Credit Agreement, “EBITDA”) of the Borrowers at the end of each fiscal quarter and may be
increased at PNC's option by 2.0% during the continuance of an event of default. Accrued interest with respect to principal
amounts outstanding under the Credit Agreement is payable in arrears on a monthly basis for Alternative Base Rate loans, and
at the end of the applicable interest period but at most every three months for Eurodollar Currency Rate loans. The interest rate
at January 31, 2021 was 5.0%.
As the result of the Company’s non-compliance with certain covenants of the Credit Agreement at January 31, 2019, described
below, the Company entered into Amendment No. 20 in April 2019 that suspended the Company’s ability to pay dividends or
repurchase stock from February 1, 2019 through January 31, 2020. The Credit Agreement contains numerous other covenants
that limit under certain circumstances the ability of the Borrowers and their subsidiaries to, among other things, merge with or
acquire other entities, incur new liens, incur additional indebtedness, sell assets outside of the ordinary course of business, enter
into transactions with affiliates, or substantially change the general nature of the business of the Borrowers, taken as a whole.
In September 2020 the Company entered into Amendment No. 21 which waived a violation of the fixed charge covenant for the
second quarter ended July 31, 2020, modified the fixed charge ratio for the quarter ended October 31, 2020 to 1.00 to 1.00 and
updated the definition of Base Rate, Eurodollar Rate and eliminated references to LIBOR. In December 2020 the Company
entered into Amendment No. 22 which waived a violation of the fixed charge covenant for the quarter ended October 31, 2020
and modified the fixed charge covenant to allow up to a $2 million COVID “addback” for purposes of calculating the fixed
charge covenant for quarters ending through April 30, 2021.
The Credit Agreement requires the Company to maintain compliance with a minimum fixed charge coverage ratio. The
Company was in compliance with all quarterly debt covenants for the fiscal year ended January 31, 2020. In July 2020, the
Company violated the fixed charge covenant of 1.1 to 1.0. Amendment No. 21 waived the violation and amended the covenant
for the quarter ended October 31, 2020 to 1.0 to 1.0. In October 2020, the Company violated the fixed charge covenant of 1.0
to 1.0. The Company entered into Amendment No. 22 which waived the violation and amended the fixed charge covenant to
allow for a COVID addback of up to $2.0 million for costs incurred through April 30, 2021. In addition, the Credit Agreement
also permits the Company to pay dividends or conduct stock repurchases subject to certain requirements. The Company was in
compliance with its covenants, including the fixed charge covenant with the inclusion of the COVID addback as of January 31,
2021.
In addition, the Credit Agreement, in effect as of January 31, 2021, contains a clean-down provision that requires the Company
to reduce borrowings under the line of credit to less than $10,000,000 for a period of 30 consecutive days during the
Company’s fourth fiscal quarter of each fiscal year. The clean-down provision allows the Company to maintain the minimum
outstanding balance of $10,000,000 to be carried on an uninterrupted period extending beyond one year and ultimately due at
31
the schedule maturity date in March 2023. The Company believes that normal operating cash flow will continue to allow it to
meet the clean-down requirement with no adverse impact on the Company's liquidity.
Events of default (subject to certain cure periods and other limitations) under the Credit Agreement include, but are not limited
to, (i) non-payment of principal, interest or other amounts due under the Credit Agreement, (ii) the violation of terms,
covenants, representations or warranties in the Credit Agreement or related loan documents, (iii) any event of default under
agreements governing certain indebtedness of the Borrowers and certain defaults by the Borrowers under other agreements that
would materially adversely affect the Borrowers, (iv) certain events of bankruptcy, insolvency or liquidation involving the
Borrowers, (v) judgments or judicial actions against the Borrowers in excess of $250,000,subject to certain conditions, (vi) the
failure of the Company to comply with Pension Benefit Plans (as defined in the Credit Agreement), (vii) the invalidity of loan
documents pertaining to the Credit Agreement, (viii) a change of control of the Borrowers and (ix) the interruption of
operations of any of the Borrowers' manufacturing facilities for five consecutive days during the peak season or 15 consecutive
days during any other time, subject to certain conditions.
Pursuant to the Credit Agreement, substantially all of the Borrowers' accounts receivable are automatically and promptly swept
to repay amounts outstanding under the Revolving Credit Facility upon receipt by the Borrowers. Due to this automatic
liquidating nature of the Revolving Credit Facility, if the Borrowers breach any covenant, violate any representation or warranty
or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have
access to cash liquidity unless provided by PNC at its discretion. In addition, certain of the covenants and representations and
warranties set forth in the Credit Agreement contain limited or no materiality thresholds, and many of the representations and
warranties must be true and correct in all material respects upon each borrowing, which the Borrowers expect to occur on an
ongoing basis. There can be no assurance that the Borrowers will be able to comply with all such covenants and be able to
continue to make such representations and warranties on an ongoing basis.
The Company's line of credit with PNC is structured to provide seasonal credit availability during the Company's peak summer
season. Approximately $21,891,000 was available for borrowing as of January 31, 2021.
Long-Term Capital Requirements
In addition to short-term liquidity considerations, the Company continually evaluates long-term capital requirements.
Capital expenditures will continue to focus on automation, both in the factory and software applications, and new product
development along with the tooling and new processes required to produce new products. The Company has identified several
opportunities for capital expenditures during the next five years. The Company anticipates capital spending of no more than
$5,000,000 for fiscal 2022. Our Revolving Credit Facility with PNC Bank provides a line for equipment and covenants allow
for anticipated capital expenditures for fiscal 2022.
Retirement Obligations
The Company provides retirement benefits to employees under two defined benefit retirement plans; the Employee Plan and the
VIP Plan. The Employee Plan is a qualified retirement plan that is funded through a trust held at PNC Bank ("Trustee"). The
other plan is non-qualified retirement plan. Benefits payable under the VIP Plan are secured by life insurance policies and
securities held in a rabbi trust. The Company obtains annual actuarial valuations for both retirement plans.
Because the plans have been frozen since 2003, there is no service cost related to the plans. In past, due to a large number of
lump sum benefits paid to retired and terminated employees, the Company has incurred settlement costs for the Employee Plan.
In effort to “de-risk” the Employee Plan, the Company intends to continue to reach out to and offer lump sum benefits to
terminated and retired employees, which may result in settlement costs in the future. The Company did not incur settlement
costs in fiscal 2021 or 2020. It is the Company's policy to contribute adequate funds to the trust accounts to cover benefit
payments under the VIP Plan and to maintain the funded status of the Employee Plan at a level which is adequate to avoid
significant restrictions to the Employee Plan under the Pension Protection Act of 2006. Contributions to the Qualified Plan
Trust and benefit payments under the VIP Plan totaled $604,000 in fiscal 2021 and $954,000 in fiscal 2020.
Contributions during fiscal 2022 will depend upon actual investment results and benefit payments but are anticipated to be
approximately $428,000. At January 31, 2021, accumulated other comprehensive loss of approximately $13.6 million, net of
tax, is attributable to the pension plans.
The Company does not anticipate making any significant changes to the pension assumptions in the near future. If the
Company were to have used different assumptions in the fiscal year ended January 31, 2021, a 1% reduction in investment
32
return would have increased expense by approximately $210,000, a 1% change in the rate of compensation increase would have
no impact, and a 1% reduction in the discount rate would have increased expense by $800,000.
Stockholders' Equity
Historically it has been the board of directors' policy to periodically review the payment of cash and stock dividends in light of
the Company's earnings and liquidity. The Company paid four quarterly cash dividends of $0.015 per share in 2018.
The Company entered into a credit facility with PNC Bank in December 2011 that prohibited the Company from paying
dividends and repurchasing any shares of its stock except in cases where a repurchase is financed by a substantially concurrent
issuance of new shares of the Company's common stock. In March 2018, the Company entered into Amendment No. 17 which
allows the Company to pay dividends or conduct stock repurchases in an amount up to $2.0 million. In fiscal 2020, the
Company entered into Amendment No. 20 suspending the Company’s ability to pay cash dividends or repurchase stock through
January 31, 2020.
Virco issued a 10% stock dividend or 3/2 stock split every year beginning in 1983 through 2003. Although the stock dividend
had no cash consequences to the Company, the accounting methodology required for 10% dividends has affected the equity
section of the balance sheet. When the Company records a 10% stock dividend, 10% of the market capitalization of the
Company on the date of the declaration is reclassified from retained earnings to additional paid-in capital. During the period
from 1983 through 2003, the cumulative effect of the stock dividends has been to reclassify over $122 million from retained
earnings to additional paid-in capital. The equity section of the balance sheet on January 31, 2021 reflects additional paid-in
capital of approximately $120 million and accumulated deficit of approximately $52 million. Other than the losses incurred
during 2004-2006, 2011-2014, 2018-2019, and 2021 the accumulated deficit is a result of the accounting reclassification and is
not the result of accumulated losses.
Environmental and Contingent Liabilities
Environmental Compliance
Virco is subject to numerous federal, state and local environmental laws and regulations in the various jurisdictions in which it
operates that (a) govern operations that may have adverse environmental effects, such as the discharge of materials into the
environment, as well as handling, storage, transportation and disposal practices for solid and hazardous wastes, and (b) impose
liability for response costs and certain damages resulting from past and current spills, disposals or other releases of hazardous
materials. In this context, Virco works diligently to remain in compliance with all such environmental laws and regulations as
these affect the Company's operations. Moreover, Virco has enacted policies for recycling and resource recovery that have
earned repeated commendations, including: recognition by the California Department of Resources Recycling and Recovery
("CalRecycle") in 2012 and 2011 as a Waste Reduction Awards Program ("WRAP") honoree; recognition by the United States
Environmental Protection Agency in 2019 as a WasteWise Winner for reducing waste, in 2004 as a WasteWise Hall of Fame
Charter Member, in 2003 as a WasteWise Partner of the Year and in 2002 as a WasteWise Program Champion for Large
Businesses; and recognition by the Sanitation Districts of Los Angeles County for compliance with industrial waste water
discharge guidelines in 2008 through 2011. This is only a partial list of Virco's environmental awards and commendations; for
a more complete list, go to www.virco.com.
In addition to these awards and commendations, Virco's ZUMA and ZUMAfrd product lines were the first classroom furniture
collections to earn indoor air quality certification through the stringent GREENGUARD® Children & Schools Program, now
known as Greenguard Gold certification. As a follow-up to the certification of ZUMA and ZUMAfrd models in 2006,
hundreds of other Virco furniture items - including Analogy furniture models and Textameter instructor workstations - have
earned GREENGUARD certification. Moreover, all Virco products covered by the Consumer Product Safety Improvement Act
of 2008 are in compliance with this legislation. All affected Virco models are also in compliance with the California Air
Resources Board rule and Toxic Control Substances Act rule concerning formaldehyde emissions from composite wood
products. Environmental laws have changed rapidly in recent years, and Virco may be subject to more stringent environmental
laws in the future. The Company has expended, and may be expected to continue to expend, significant amounts in the future
for compliance with environmental rules and regulations, for the investigation of environmental conditions, for the installation
of environmental control equipment or remediation of environmental contamination. Normal recurring expenses relating to
operating our factories in a manner that meets or exceeds environmental laws are matched to the cost of producing inventory. It
is possible that the Company's operations may result in noncompliance with, or liability for remediation pursuant to,
environmental laws. Should such eventualities occur, the Company records liabilities for remediation costs when remediation
costs are probable and can be reasonably estimated. See “Item 1A. Risk Factors: We could be required to incur substantial
33
costs to comply with environmental requirements.” Violations of, and liabilities under, environmental laws and regulations
may increase our costs or require us to change our business practices.
Contingent Liabilities
In fiscal 2021 and 2020, the Company was self-insured for product liability losses of up to $250,000 per occurrence, general
liability losses of up to $50,000 per occurrence, workers' compensation losses up to $250,000 per accident and auto liability up
to $50,000 per accident. In prior years the Company has been partially self-insured for workers' compensation, automobile,
product, and general liability losses. The Company has purchased insurance to cover losses in excess of the self-insured
retention or deductible up to a limit of $30,000,000. For the insurance year beginning April 1, 2021, the Company will be self-
insured for product liability losses up to $250,000 per occurrence, general liability losses up to $50,000 per occurrence,
workers' compensation losses up to $250,000 per occurrence, and auto liability up to $50,000 per occurrence. In future years,
the Company's exposure to self-insured retentions will vary depending upon the market conditions in the insurance industry and
the availability of cost-effective insurance coverage.
The Company has aggressively pursued a program to improve product quality, reduce product liability claims and losses and to
aggressively defend product liability cases. This program has continued through fiscal 2021 and has resulted in reductions in
product liability claims and litigated product liability cases. In addition, the Company has active safety programs to improve
plant safety and control workers' compensation losses. Under California Workers Compensation law, COVID-19 is subject to
workers compensation unless the Company can prove that the employee contracted COVID-19 outside the workplace. As of
January 31, 2021, the Company has incurred no significant workers compensation claims related to COVID-19. Management
does not anticipate that any related settlement, after consideration of the existing reserves for claims and potential insurance
recovery, would have a material adverse effect on the Company's financial position, results of operations or cash flows.
Off-Balance Sheet Arrangements & Contractual Obligations
The Company did not enter into any material off-balance sheet arrangements during fiscal 2021, nor did the Company have any
material off-balance sheet arrangements outstanding at January 31, 2021.
New Accounting Pronouncements
See disclosure of recently adopted and recently issued but not yet adopted accounting standards in Note 2 to the Consolidated
Financial Statements contained in Item 8. Financial Statements and Supplementary Data to this Annual Report on Form 10-
K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act as of our second quarter of fiscal
2021 and are not required to provide the information under this item.
34
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of January 31, 2021 and 2020
Consolidated Statements of Operation for the Years Ended January 31, 2021 and Consolidated Statements of
Operations for the Years Ended January 31, 2021 and 2020
Consolidated Statements of Comprehensive Loss for the Years Ended January 31, 2021 and 2020
Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended January 31, 2021 and 2020
Notes to Consolidated Financial Statements
Page
Numbers
36
39
41
42
43
44
45
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Virco Mfg. Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Virco Mfg. Corporation and subsidiaries (the "Company") as
of January 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and
cash flows, for each of the two fiscal years in the period ended January 31, 2021, and the related notes and the schedule listed in
the Index at Item 15 (2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of January 31, 2021 and 2020, and the results of its
operations and its cash flows for each of the two fiscal years in the period ended January 31, 2021, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Inventories – Valuation adjustments for slow-moving and obsolete inventories — Refer to Note 1 to the financial statements
Critical Audit Matter Description
Inventory is valued at the lower of cost or net realizable value (determined on a first-in, first-out basis) and includes material,
labor and factory overhead. The Company records valuation adjustments for the excess cost of inventory over the estimated net
realizable value. Valuation adjustments for slow-moving and obsolete inventory are calculated using an estimated percentage
applied to inventories based on physical inspection of the product in connection with a physical inventory, review of slow-
moving products and component stage, inventory category, historical and forecasted consumption and sales, and consideration
of active marketing programs. As of January 31, 2021, the Company's inventories balance was $38,270,000.
36
We identified valuation adjustments for slow-moving and obsolete inventories as a critical audit matter because of the
significant judgment required by management in developing its assumptions about forecasted consumption and sales, and in
determining the estimated percentages applied to inventories to calculate net realizable value. Testing management’s
assumptions and estimates used in calculating the valuation adjustments required a high degree of auditor judgment and the use
of more experienced audit professionals.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to valuation adjustments for slow-moving and obsolete inventories included the following, among
others:
•
•
•
•
We tested the reliability of system-generated reports used by management on a sample basis by agreeing the
selected items to the underlying records.
We observed the physical condition of inventories during physical inventory counts.
We tested the accuracy and completeness of the valuation adjustments by selecting a sample of inventory items
and recalculating the estimated net realizable value based on management’s estimated percentages.
We tested the reasonableness of management’s assumptions about forecasted consumption and sales by:
o Performing a retrospective review to assess management’s estimated percentages by comparing the prior
year inventory to current year consumption and sales
o Discussing with management to identify active marketing programs and to determine whether any
changes in the business would impact forecasted consumption and sales
o Corroborating the assumptions related to slow-moving products and component stage, inventory category
and forecasted consumption and sales with individuals within the Company’s production team
Deferred Income Tax Assets, net – Valuation allowance — Refer to Notes 1 and 6 to the financial statements
Critical Audit Matter Description
The Company evaluates the realizability of its deferred tax assets, and to the extent that the Company estimates that it is more
likely than not that a benefit will not be realized, the carrying amounts of the Company’s deferred tax assets are reduced with a
valuation allowance. As a part of this evaluation, the Company assesses all available positive and negative evidence, including
future reversals of existing taxable temporary differences, projected future taxable income, the availability of tax carrybacks,
tax-planning strategies, and results of recent operations, to determine whether sufficient future taxable income will be generated
to realize existing deferred tax assets.
The Company identified objective and verifiable negative evidence in the form of cumulative losses on an unadjusted basis in
the preceding 12 quarters ended January 31, 2021. Additionally, the Company has noted a decline in the volume of net sales
processed for the twelve months ended January 31, 2021 compared to the prior year period, due to the impact of the COVID-19
pandemic. The Company evaluated both its actual forecasts of future taxable income and its historical earnings over the prior
twelve quarters, adjusted for certain nonrecurring items. On the basis of this assessment, and after considering future reversals
of existing taxable temporary differences and the effects of seasonality on the Company’s business, the Company determined
that, with the exception of certain state deferred tax assets, it is more likely than not that its deferred tax assets will be
realizable.
We identified the realizability of the Company’s U.S. federal deferred tax assets as a critical audit matter because of the
significant judgments made by management in its assessment of available positive and negative evidence, its projections of
future taxable income and its conclusions regarding the realizability of such assets. Our audit procedures required a high degree
of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists, to evaluate the
reasonableness of management’s realizability assessment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the realizability of the Company’s U.S. federal deferred tax assets included the following,
among others:
37
•
•
•
•
We evaluated the reasonableness of the methods, assumptions, and judgments used by management to
determine whether a valuation allowance was necessary.
With the assistance of our income tax specialists, we evaluated the nature of the deferred tax assets, including
the expiration dates.
We evaluated the scheduled pattern of reversals of the Company’s deferred tax assets and liabilities.
We evaluated the Company’s historical earnings history, including the effects of seasonality, along with the
Company’s identification and quantification of nonrecurring items used to adjust historical losses to determine
if such amounts were reasonable and consistent with evidence obtained in other areas of the audit.
•
We evaluated the reasonableness of management’s actual forecast of projected future taxable income by:
o Testing the completeness, accuracy and relevance of underlying data used in forecast
o Comparing prior year and current year-to-date results to management’s forecast
o Reviewing industry reports and internal communications to management and the board of directors
o Making inquiries of individuals outside of the accounting function, including sales and marketing
/s/ Deloitte & Touche LLP
Los Angeles, California
April 28, 2021
We have served as the Company's auditor since 2018.
38
Virco Mfg. Corporation
Consolidated Balance Sheets
January 31,
2021
2020
(In thousands, except share and par value data)
Assets
Current assets
Cash
Trade accounts receivables (net of allowance for doubtful accounts of $200 at
January 31, 2021 and 2020)
Other receivables
Income tax receivable
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment
Land
Land improvements
Buildings and building improvements
Machinery and equipment
Leasehold improvements
Total property, plant and equipment
Less accumulated depreciation and amortization
Net property, plant and equipment
Operating lease right-of-use assets
Deferred income tax assets, net
Other assets
Total assets
See accompanying notes to consolidated financial statements.
$
402
$
9,759
26
199
38,270
2,311
50,967
3,731
734
51,262
112,098
1,004
168,829
132,003
36,826
17,596
11,716
7,931
1,150
11,762
57
298
43,329
1,746
58,342
3,731
717
51,200
110,610
990
167,248
127,351
39,897
21,325
11,230
8,198
$
125,036
$
138,992
39
Virco Mfg. Corporation
Consolidated Balance Sheets
January 31,
2021
2020
(In thousands, except share and par value data)
$
8,421
$
10,587
4,576
887
4,672
3,550
22,106
935
21,889
65
9,553
15,619
682
48,743
6,392
878
3,654
3,607
25,118
1,410
21,310
70
15,818
19,787
661
59,056
Liabilities
Current liabilities
Accounts payable
Accrued compensation and employee benefits
Current portion of long-term debt
Current portion operating lease liability
Other accrued liabilities
Total current liabilities
Non-current liabilities
Accrued self-insurance
Accrued retirement benefits
Income tax payable
Long-term debt, less current portion
Operating lease liability, less current portion
Other long-term liabilities
Total non-current liabilities
Commitments and contingencies
Stockholders’ equity
Preferred stock:
Authorized 3,000,000 shares, $0.01 par value; none issued or outstanding
—
—
Common stock:
Authorized 25,000,000 shares, $0.01 par value; issued and outstanding 15,918,642
shares in 2021 and 15,713,549 shares in 2020
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
159
119,655
(52,042)
(13,585)
54,187
$
125,036
$
157
118,782
(49,810)
(14,311)
54,818
138,992
40
Virco Mfg. Corporation
Consolidated Statements of Operations
Net sales
Costs of goods sold
Gross profit
Selling, general and administrative expenses
(Gain) loss on sale of property, plant & equipment
Operating income
Pension expense
Interest expense, net
(Loss) income before income taxes
Income tax (benefit) expense
Net (loss) income
Net (loss) income per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
See accompanying notes to consolidated financial statements.
Year ended January 31,
2021
2020
(In thousands, except per share data)
$
$
$
$
152,795 $
97,870
54,925
54,197
(7)
735
2,173
1,538
(2,976)
(744)
(2,232) $
(0.14) $
(0.14) $
15,759
15,759
193,001
121,326
71,675
65,726
34
5,915
726
2,462
2,727
345
2,382
0.15
0.15
15,590
15,694
41
Virco Mfg. Corporation
Consolidated Statements of Comprehensive Loss
Net (loss) income
Other comprehensive income (loss)
Pension adjustments (net of $257 tax expense in 2021 and $1,840 tax benefit in 2020)
Comprehensive loss
See accompanying notes to consolidated financial statements.
Years ended January 31,
2021
2020
(In thousands)
(2,232) $
2,382
726
(1,506) $
(5,269)
(2,887)
$
$
42
Virco Mfg. Corporation
Consolidated Statements of Stockholders’ Equity
In thousands, except share data
Balance at February 1, 2019
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholder's
Equity
15,541,956 $
155 $
118,106 $
(52,192) $
(9,042) $
57,027
Net income
Pension adjustments, net of tax benefit of $1,840
Shares vested
Stock compensation expense
Balance at January 31, 2020
Net loss
Pension adjustments, net of tax expense of $257
Shares vested
Stock compensation expense
Balance at January 31, 2021
—
—
171,593
—
—
2
—
—
(248)
924
2,382
—
—
—
—
(5,269)
—
—
2,382
(5,269)
(246)
924
15,713,549 $
157 $
118,782 $
(49,810) $
(14,311) $
54,818
—
—
205,093
—
—
—
2
—
—
—
(139)
1,012
(2,232)
—
—
—
—
726
—
—
(2,232)
726
(137)
1,012
15,918,642 $
159 $
119,655 $
(52,042) $
(13,585) $
54,187
See accompanying notes to consolidated financial statements.
43
Virco Mfg. Corporation
Consolidated Statements of Cash Flows
Operating activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
$
(2,232) $
2,382
Year Ended January 31,
2021
2020
(In thousands)
Depreciation and amortization
Non-cash lease expense
Provision for doubtful accounts
(Gain) loss on sale of property, plant and equipment
Deferred income taxes
Stock-based compensation
Defined benefit plan, recognized net loss due to settlements
Amortization of net actuarial loss for pension plans
Changes in operating assets and liabilities:
Trade accounts receivable
Other receivables
Inventories
Income taxes
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Net cash provided by operating activities
Investing activities
Capital expenditures
Proceeds from sale of property, plant and equipment
Proceeds from life insurance
Investments in life insurance
Net cash used in investing activities
Financing activities
Proceeds from long-term debt
Repayment of long-term debt
Tax withholding payments on share-based compensation
Payment on deferred financing costs
Net cash used in financing activities
Net (decrease) increase in cash
Cash at beginning of year
Cash at end of year
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest
Income tax paid (received)
See accompanying notes to consolidated financial statements.
44
5,090
579
—
(7)
(742)
1,012
—
1,831
2,003
31
5,060
93
(234)
(4,685)
7,799
5,769
341
83
34
209
924
—
776
1,408
(17)
3,960
(97)
215
(6,228)
9,759
(2,154)
(4,216)
82
5
(68)
17
5
(64)
(2,135)
(4,258)
32,240
(38,496)
(156)
—
(6,412)
(748)
1,150
402 $
39,770
(44,488)
(246)
(125)
(5,089)
412
738
1,150
1,538 $
(309)
2,462
81
$
$
VIRCO MFG. CORPORATION
Notes to Consolidated Financial Statements
January 31, 2021
1. Summary of Business and Significant Accounting Policies
Business
Virco Mfg. Corporation (the “Company”), which operates in one business segment, is engaged in the design, production and
distribution of quality furniture for the commercial and education markets. Over 71 years of manufacturing operations have
resulted in a wide product assortment. Major products include mobile tables, mobile storage equipment, desks, computer
furniture, chairs, activity tables, folding chairs and folding tables. The Company manufactures its products in Torrance,
California, and Conway, Arkansas, for sale primarily in the United States.
The Company operates in a seasonal business and requires significant amounts of working capital under its credit facility to
fund acquisitions of inventory and finance receivables during the summer delivery season. Restrictions imposed by the terms of
the Company’s credit facility may limit the Company’s operating and financial flexibility (see Note 3).
Principles of Consolidation and Reclassification
The consolidated financial statements include the accounts of Virco Mfg. Corporation and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation. The classification of certain prior year sales
allowances of approximately $1.9 million, representing the replacement of damaged goods, previously presented in net sales, is
presented in costs of goods sold in the accompanying prior year statement of operations, which conforms to current period
presentation.
Management Use of Estimates
Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities - and
disclosure of contingent assets and liabilities - at the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Significant estimates made by management include, but are not limited to,
valuation of inventory; deferred tax assets and liabilities; useful lives of property, plant and equipment; liabilities under pension,
warranty, self-insurance and environmental claims; and the accounts receivable allowance for doubtful accounts.
As a result of the COVID-19 pandemic and its ongoing impact in the future may cause demand for our products to decline and
competitive pricing pressures to increase, and other unforeseen effects, which makes these estimates more challenging and
actual results could differ materially from these estimates.
COVID-19 Pandemic
The COVID-19 pandemic has materially adversely impacted the U.S. economy and the education system and is expected to
continue to do so for at least the next fiscal year. The education system and education budgets are typically highly dependent
on state and local tax revenues. The severity of this pandemic may materially adversely impact state and local tax revenues and
result in changes in spending priorities for state and local governments, which may have a material adverse effect on future
school budgets. The loss of state and local revenues may be substantially or partially offset by federal programs providing
assistance to state governments, local governments and schools, although there can be no assurance that any federal funds could
be used for capital expenditures or that the level of federal funding, if any, will be sufficient to maintain our historic order rates
for school furniture. In addition, while we expect the majority of schools to be in session, there can be no assurance that school
systems in the United States will reopen or resume normal operations for the 2021-2022 academic year.
Fiscal Year End
Fiscal years 2021 and 2020 refer to the fiscal years ended January 31, 2021 and 2020, respectively.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk consist principally of accounts
receivable. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit
45
losses. Sales to the Company’s recurring customers are generally made on open account with terms consistent with the industry.
Credit is extended based on an evaluation of the customer’s financial condition and payment history. Past due accounts are
determined based on how recently payments have been made in relation to the terms granted. Amounts are written off against
the allowance in the period that the Company determines that the receivable is not collectable. The Company purchases
insurance on receivables from certain commercial customers to minimize the Company’s credit risk. The Company does not
typically obtain collateral to secure credit risk. Customers with inadequate credit are required to provide cash in advance or
letters of credit. The Company does not assess interest on receivable balances. A substantial percentage of the Company’s
receivables come from low-risk government entities. There was one customer who accounted for 12.3% of the Company’s
accounts receivable at January 31, 2021. No customer accounted for more than 10% of the Company's accounts receivable at
January 31, 2020. Because of the short time between shipment and collection, the net carrying value of receivables
approximates the fair value for these assets. No customer exceeded 10% of the Company’s net sales for fiscal years ended
January 31, 2021 and January 31, 2020. Foreign net sales were approximately 4.5% and 6.3% of the Company’s net sales for
fiscal years 2021 and 2020, respectively.
Cash
Cash consists of cash on hand, and the Company has no cash equivalents. Outstanding checks, representing a book overdraft,
are classified in accounts payable on the accompanying consolidated balance sheets and in operating activities in the
accompanying consolidated statements of cash flows.
Fair Values of Financial Instruments
The fair values of the Company’s cash, accounts receivable, accounts payable and debt approximate their carrying amounts due
to their short-term nature. For fair value of debt, see Note 3.
Financial assets and liabilities measured at fair value on a recurring basis are classified in one of the three following categories,
which are described below:
Level 1 — Valuations based on unadjusted quoted prices for identical assets in an active market.
Level 2 — Valuations based on quoted prices in markets where trading occurs infrequently or whose values are based on
quoted prices of instruments with similar attributes in active markets.
Level 3 — Valuations based on inputs that are unobservable and involve management judgment and our own assumptions
about market participants and pricing.
Financial assets measured at fair value on a recurring basis include assets associated with the Virco Employees Retirement Plan
(see Note 4).
Inventories
Inventory is valued at the lower of cost or net realizable value (determined on a first-in, first-out basis) and includes material,
labor and factory overhead. The Company records valuation adjustments for the excess cost of the inventory over its estimated
net realizable value. Valuation adjustments for slow-moving and obsolete inventory are calculated using an estimated
percentage applied to inventories based on a physical inspection of the product in connection with a physical inventory, a
review of slow-moving products and component stage, inventory category, historical and forecasted consumption of sales, and
consideration of active marketing programs. The market for education furniture is traditionally driven by value, not style, and
the Company has not typically incurred significant obsolescence expenses. If market conditions are less favorable than those
anticipated by management, additional valuation adjustments may be required. Due to reductions in sales volume in the past
years, the Company's manufacturing facilities are operating at reduced levels of capacity. The Company records the cost of
excess capacity as a period expense, not as a component of capitalized inventory valuation.
The following table presents an updated breakdown of the Company’s net inventory (in thousands) as of January 31:
46
Finished goods
Work in Process
Raw materials
Inventories, net
Property, Plant and Equipment
2021
2020
$
$
15,606
$
11,907
10,757
38,270
$
15,401
15,957
11,971
43,329
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization are computed on
the straight-line method for financial reporting purposes based upon the following estimated useful lives:
Land improvements
Buildings and building improvements
Machinery and equipment
Leasehold improvements
5 to 25 years
5 to 40 years
3 to 10 years
shorter of lease or useful life
The Company capitalizes the cost of betterments that extend the life of an asset. Repairs and maintenance that do not extend the
life of an asset are expensed as incurred. Repair and maintenance expense were $1,727,000 and $1,960,000 for fiscal years
ended January 31, 2021 and 2020, respectively. Property, plant and equipment purchased during the year that remains unpaid
as of January 31, 2021 and 2020 was $113,000 and $173,000, respectively.
The Company has established asset retirement obligations related to leased manufacturing facilities in accordance with
Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 410, Asset Retirement and
Environmental Obligations. Accrued asset retirement obligations are recorded at net present value and discounted over the life
of the lease. Asset retirement obligations, included in other non-current liabilities were $192,000 and $186,000 at January 31,
2021 and 2020, respectively.
Balance at beginning of period
Decrease in obligation
Accretion expense
Balance at end of period
Impairment of Long-Lived Assets
January 31,
2021
2020
$
$
186,000 $
—
6,000
192,000 $
179,000
—
7,000
186,000
An impairment loss is recognized in the event facts and circumstances indicate the carrying amount of a long-lived asset may
not be recoverable, and an estimate of future undiscounted cash flows is less than the carrying amount of the asset. Impairment
is recorded based on the excess of the carrying amount of the impaired asset over the fair value. Generally, fair value represents
the Company’s expected future cash flows from the use of an asset or group of assets, discounted at a rate commensurate with
the risks involved. There were no impairments for fiscal years ended January 31, 2021 and 2020.
Net (Loss) Income per Share
Basic net (loss) income per share is calculated by dividing net income (loss) by the weighted-average number of common
shares outstanding. Diluted net income (loss) per share is calculated by dividing net (loss) income by the weighted-average
number of common shares outstanding plus the dilutive effect of stock award grants. The following table sets forth the
computation of basic and diluted loss per share:
47
Numerator
(Loss) income
Denominator
Weighted-average shares — basic
Dilutive effect of common stock equivalents from equity incentive plans
Weighted-average shares — diluted (a)
Net (loss) income per common share
Basic
Diluted
January 31,
2021
2020
(In thousands, except per share)
$
(2,232) $
2,382
15,759
—
15,590
104
15,759 $
15,694
(0.14) $
(0.14)
0.15
0.15
$
$
(a) For fiscal year 2021, approximately 52,000 shares of common stock equivalents were excluded in the computation of
diluted net loss per share, as the effect would be anti-dilutive since the Company reported a net loss.
Environmental Costs
The Company is subject to numerous environmental laws and regulations in the various jurisdictions in which it operates that
(a) govern operations that may have adverse environmental effects, such as the discharge of materials into the environment, as
well as handling, storage, transportation and disposal practices for solid and hazardous wastes, and (b) impose liability for
response costs and certain damages resulting from past and current spills, disposals or other releases of hazardous materials.
Normal, recurring expenses related to operating the Company's factories in a manner that meets or exceeds environmental laws
and regulations are matched to the cost of producing inventory.
Despite our efforts to comply with existing laws and regulations, compliance with more stringent laws or regulations or stricter
interpretation of existing laws, may require additional expenditures by us, some of which may be material. We reserve amounts
for such matters when expenditures are probable and reasonably estimable.
Costs incurred to investigate and remediate environmental waste are expensed, unless the remediation extends the useful life of
the assets employed at the site. At January 31, 2021 and 2020, the Company had not capitalized any remediation costs and had
not recorded any amortization expense in fiscal years 2021 and 2020.
Advertising Costs
Advertising costs are expensed in the period during which the advertising space is run. Selling, general and administrative
expenses include advertising costs for the years ended January 31, 2021 and 2020 of $468,000 and $1,030,000, respectively,
and are expensed as incurred. Fiscal year 2021 reduction in advertising expenses was attributable to lack of participation in
shows and exhibitions resulted from impacts of the COVID-19 pandemic. Prepaid advertising costs reported as a prepaid asset
on the accompanying consolidated balance sheets at January 31, 2021 and 2020, were $341,000 and $300,000, respectively.
Product Warranty Expense
The Company provides a product warranty on most products. The standard warranty offered on products sold through
January 31, 2013 is ten years. Effective February 1, 2014 through December 31, 2016, the Company modified its warranty to a
limited lifetime warranty. Effective January 1, 2017, the Company modified the warranty offered to provide specific warranty
periods by product component, with no warranty period longer than ten years. The Company generally provides that customers
can return a defective product during the specified warranty period following purchase in exchange for a replacement product
or the repair of the product by the Company at no charge to the customer. The Company determines whether replacement or
repair is appropriate in each circumstance. The Company uses historic data to estimate appropriate levels of warranty reserves.
Because product mix, production methods and raw material sources change over time, historic data may not always provide
precise estimates for future warranty expense. The Company recorded warranty reserves of $700,000 and $800,000 as of
January 31, 2021 and 2020, respectively, as other long-term liabilities in the accompanying consolidated balance sheets. The
current portion of the warranty reserve was $300,000 and $325,000 as of January 31, 2021 and 2020, respectively; and included
in other accrued liabilities in the accompanying consolidated balance sheets.
48
Self-Insurance
In fiscal 2021 and 2020, the Company was self-insured for product and general liability losses up to $250,000 per occurrence,
workers’ compensation losses up to $250,000 per occurrence, and auto liability up to $50,000 per occurrence. Actuaries assist
the Company in determining its liability for the self-insured component of claims, which have been discounted to their net
present value utilizing a discount rate of 4.00% in both fiscal 2021 and fiscal 2020.
Stock-Based Compensation Plans
The Company recognizes stock-based compensation cost for shares that are expected to vest, on a straight-line basis, over the
requisite service period of the award.
Virco issued a 10% stock dividend or 3/2 stock split every year beginning in 1983 through 2003. Although the stock dividend
had no cash consequences to the Company, the accounting methodology required for 10% dividends affected the equity section
of the balance sheet. When the Company recorded a 10% stock dividend, 10% of the market capitalization of the Company on
the date of the declaration was reclassified from retained earnings to additional paid-in capital. During the period from 1983
through 2003, the cumulative effect of the stock dividends has been to reclassify over $122 million from retained earnings to
additional paid-in capital. The equity section of the balance sheet on January 31, 2021 reflects additional paid-in capital of
approximately $120 million and accumulated deficit of approximately $52 million. Other than the losses incurred during
2004-2006, 2011-2014, 2018-2019 and 2021, the accumulated deficit is a result of the accounting reclassification and is not the
result of accumulated losses.
Accumulated Other Comprehensive Loss, Net of Tax
The following table summarizes the changes in accumulated balances of other comprehensive (loss) income for the years
ended January 31, 2021 and 2020:
(in thousands)
Balance as of beginning of year
Other comprehensive loss before reclassifications
Amounts reclassified from AOCI
Net current period other comprehensive income (loss)
January 31,
2021
2020
$
(14,311) $
(9,042)
(1,105)
1,831
726
(6,045)
776
(5,269)
Balance as of end of year
$
(13,585) $
(14,311)
The reclassifications out of accumulated other comprehensive (loss) income of $1,831,000 and $776,000 for the years ended
January 31, 2021 and 2020, respectively, related to amortization of actuarial losses and settlements (See Note 4).
Revenue Recognition
The Company manufactures, markets and distributes a wide variety of school and office furniture to wholesalers, distributors,
educational institutions and governmental entities. Revenue is recorded for promised goods or services when control is
transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for
those goods or services.
The Company's sales generally involve a single performance obligation to deliver goods pursuant to customer purchase orders.
Prices for our products are based on published price lists and customer agreements. The Company has determined that the
performance obligations are satisfied at a point in time when the Company completes delivery per the customer contract. The
majority of sales are free on board ("FOB") destination where the destination is specified per the customer contract and may
include delivering the furniture into the classroom, school site or warehouse. Sales of furniture that are sold FOB factory are
typically made to resellers of our product who in turn provide logistics to the ultimate customer. Once a product has been
delivered per the shipping terms, the customer is able to direct the use of, and obtain substantially all of the remaining benefits
from, the asset. The Company considers control to have transferred upon shipment or delivery in accordance with shipping
49
terms because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company
has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.
Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. The
Company offers sales incentives and discounts through various regional and national programs to our customers. These
programs include product rebates, product returns allowances and trade promotions. Variable consideration for these programs
is estimated in the transaction price at contract inception based on current sales levels and historical experience using the
expected value method, subject to constraint.
The Company generates revenue primarily by manufacturing and distributing products through resellers and direct-to-
customers. Control transfers to both resellers and direct customers at a point in time when the delivery process is complete as
determined by the corresponding shipping terms. Therefore, we do not consider them to be meaningfully different revenue
streams given similarities in the nature of the products, performance obligation and distribution processes. Sales are
predominately in the United States and to a similar class of customer. We do not manage or evaluate the business based on
product line or any other discernable category.
For product produced by and sourced from third parties, management has determined that it is the principal in all cases, since it
(i) bears primary responsibility for fulfilling the promise to the customer; (ii) bears inventory risk before and/or after the good
or service is transferred to the customer; and (iii) has discretion in establishing the price for the sale of good or service to the
customer.
Delivery Costs
For the fiscal years ended January 31, 2021 and 2020, shipping and classroom delivery costs of approximately $15,090,000,
and $20,552,000, respectively, were included in selling, general and administrative expenses in the accompanying consolidated
statements of operations.
Accounting for Income Taxes
The Company recognizes deferred income taxes under the asset and liability method of accounting for income taxes in
accordance with the provisions of FASB ASC Topic 740, Accounting for Income Taxes. Deferred income taxes are recognized
for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for
the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded when it is
determined to be more likely than not that the asset will not be realized.
2. New Accounting Pronouncements
Recently Adopted Accounting Updates
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement benefits (Topic 715-20). This ASU amends ASC
715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The
ASU eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized
as part of net periodic benefit cost over the next year. The ASU also removes the disclosure requirements for the effects of a
one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost
and the benefit obligation for postretirement health care benefits. The Company adopted the new standard effective January 31,
2021 and the adoption did not have any impact on the Company’s results of operations, cash flows or financial position.
In response to the large volume of anticipated lease concessions to be granted related to the effects of the COVID-19 pandemic,
and the resultant expected cost and complexity of applying the lease modification requirements in ASC 842, the FASB issued
Staff Q&A—Topic 842 and Topic 840: Accounting For Lease Concessions Related to the Effects of the COVID-19 Pandemic,
in April 2020 as interpretive guidance to provide clarity in response to the crisis. The FASB staff indicated that it would be
acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic
consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in
the original contract. Consequently, for such lease concessions, an entity will not need to reassess each existing contract to
determine whether enforceable rights and obligations for concessions exist and an entity can elect to apply or not to apply the
lease modification guidance in ASC 842 to those contracts. The election is available for concessions related to the effects of the
COVID-19 pandemic that result in the total payments required by the modified contract being substantially the same as or less
than total payments required by the original contract.
50
Table of Contents
In accordance with this interpretive guidance, the Company elected to account for lease concessions related to the effects of the
COVID-19 pandemic that resulted in the total payments required by the modified contract being substantially the same as or
less than total payments required by the original contract consistent with how they would be accounted for as though
enforceable rights and obligations for those concessions existed in the original contract. Consequently, for such lease
concessions, the Company did not reassess each existing contract to determine whether enforceable rights and obligations for
concessions existed and elected not to apply the lease modification guidance in ASC 842 to those contracts. During fiscal 2021,
the Company accounted for COVID-19 lease abatements of $136,000 as reductions to variable lease expense as if no changes to
the lease contract were made while continuing to recognize expense and reductions in the operating lease liability, as well as the
operating lease right-of-use asset during the abatement period.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This update simplifies
various aspects related to accounting for income taxes, removes certain exceptions to the general principles in ASC 740, and
clarifies and amends existing guidance to improve consistent application. The Company adopted this ASU as of February 1,
2020 and the adoption of this standard did not have a material effect on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure
requirements of fair value measurements in Topic 820, Fair Value Measurement. For public companies the ASU removes
disclosure requirements for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers
between levels and the valuation process for Level 3 fair value measurements. The ASU modifies the disclosure requirements
for investments in certain entities that calculate net asset value and clarifies that the measurement uncertainty disclosure is to
communicate information about the uncertainty in measurement as of the reporting date. The ASU adds the disclosure
requirement for changes in unrealized gains and losses for the period included in other comprehensive income for recurring
Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this ASU as of February 1, 2020
and the adoption of this standard did not have a material effect on our consolidated financial statements.
Recently Issued Accounting Updates
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology for measuring and
recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range
of reasonable and supportable information to inform credit loss estimates. The adoption date, as modified by the recently
issued ASU 2019-10 discussed below, will be for the fiscal year ending after December 15, 2022 and interim periods therein.
The Company is currently evaluating the effect the standard will have on the consolidated financial statements and related
disclosures.
In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging
(Topic 815), and Leases (Topic 842): Effective Dates. ASU 2019-10 moves the effective date for certain previously issued
amendments to later dates, depending on the filing status of the respective entity. Specifically, due to the amendment and the
Company’s status as a smaller reporting company, the new effective dates for relevant previously issued amendments not yet
adopted by the Company relate to ASU 2016-13 as described above.
Other recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial
statements.
3. Debt
Outstanding balances (in thousands) for the Company’s long-term debt were as follows:
Revolving credit line
Other
Total debt
Less current portion
Non-current portion
51
January 31,
2021
2020
$
4,590 $
5,850
10,440
887
9,553 $
$
9,969
6,727
16,696
878
15,818
The Company ("the “Borrowers”) has a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank,
National Association, as administrative agent and lender (“PNC”) structured to provide seasonal credit availability during the
Company’s peak summer season. The Credit Agreement has been amended twenty-two times since it’s origination in 2011
through fiscal 2021, which, among other things, extended the maturity date of the Credit Agreement for three years until March
19, 2023.
The Credit Agreement is an asset-based loan consisting of (i) a revolving line of credit with a Maximum Revolving Advance
Amount of $65,000,000 that is subject to a borrowing base limitation and generally provides for advances of up to 85% of
eligible accounts receivable, plus a percentage equal to the lesser of 60% of the value of eligible inventory or 85% of the
liquidation value of eligible inventory, plus $15,000,000 from January through July of each year, minus undrawn amounts of
letters of credit and reserves, and (ii) an equipment loan of $2,000,000. The Credit Agreement is secured by substantially all of
the Company's, as defined, personal property and certain of the Company's real property. The principal amount outstanding
under the Credit Agreement and any accrued and unpaid interest is due no later than March 19, 2023, and the Credit Agreement
is subject to certain prepayment penalties upon earlier termination of the Credit Agreement. Prior to the maturity date, principal
amounts outstanding under the Credit Agreement may be repaid and reborrowed at the option of the Borrowers without
premium or penalty, subject to borrowing base limitations, seasonal adjustments and certain other conditions, including reduced
borrowings under the revolving line to less than or equal $10,000,000 for a period of 30 consecutive days during the fourth
quarter of each fiscal year. The Credit Agreement also contains certain financial covenants, including a fixed charge coverage
ratio beginning on February 1st, 2020 of not less than 1.10 to 1.00, and capital expenditures not to exceed $8,000,000. The
Company was in violation with its financial covenants as of July 31, 2020. On September 8, 2020, the Company entered into
Amendment No. 21 to the Credit Agreement (“Amendment No. 21”) with its lender, PNC Bank, National Association.
Amendment No. 21 provided a limited waiver of the Company’s violation of the covenant to maintain a Fixed Charge Coverage
Ratio of at least 1.00 to 1.00 for the four fiscal quarter period ended July 31, 2020, and amended the Fixed Charge Coverage
Ratio as follows: (i) 1.00 to 1.00 for the consecutive four fiscal quarter period ended October 31, 2020, and (ii) 1.10 to 1.00 for
each consecutive four fiscal quarter period ending thereafter. In connection with Amendment No. 21, the Company also agreed
to pay to PNC Bank a non-refundable fee of $75,000. However, the Company was not in compliance with this amended fixed-
charge ratio of 1.00:1.00 as of October 31, 2020 due to the continuing decline in net sales and net income. The Company
successfully negotiated and entered into Amendment No. 22 on December 11, 2020 to the Credit Agreement (“Amendment No.
22”) with its lender, PNC Bank, National Association. Amendment No. 22 provided a limited waiver of the Fixed-Charge
Coverage Ratio for the four fiscal quarter period ended October 31, 2020 and amended the Fixed-Charge Coverage calculation
to allow for the add back of certain COVID-19 related costs incurred from May 1, 2020 through April 30, 2021 not to exceed
$2 million to adjusted EBITDA beginning with the four fiscal quarter period ended January 31, 2021, and retains the required
minimum coverage ratio of 1.10:1.00. . In addition, the Credit Agreement also permits the Company to pay dividends or
conduct stock repurchases subject to certain requirements. In connection with Amendment No. 22, the Company also agreed to
pay PNC Bank a non-refundable fee of $40,000. The Company was in compliance with the covenants as of January 31, 2021.
The Credit Agreement bears interest, at the Borrowers’ option, at either the Alternate Base Rate (as defined in the Credit
Agreement) or the Eurodollar Currency Rate (as defined in the Credit Agreement), in each case plus an applicable margin. The
applicable margin for Alternate Base Rate loans is a percentage within a range of 1.25% to 1.75%, and the applicable margin
for Eurodollar Currency Rate loans is a percentage within a range of 2.25% to 2.75%, in each case based on the EBITDA of
the Borrower's at the end of each fiscal quarter and may be increased at PNC's option by 2.0% during the continuance of an
event of default. The interest rate as of January 31, 2021 was 5.0%. The Company also incurs a fee on the unused portion of the
revolving line of credit at a rate of 0.375%.
To date the impact of COVID-19 on liquidity has been to moderate the seasonal increase in accounts receivable and production
of inventory for summer delivery. Both the increase in accounts receivable and inventory are traditionally financed through the
Company’s revolving line of credit with PNC Bank. Reductions in receivables and inventory were substantially offset by a
reduction in borrowing under the revolving line of credit with PNC Bank.
Events of default (subject to certain cure periods and other limitations) under the Credit Agreement include, but are not limited
to, (i) non-payment of principal, interest or other amounts due under the Credit Agreement, (ii) the violation of terms,
covenants, representations or warranties in the Credit Agreement or related loan documents, (iii) any event of default under
agreements governing certain indebtedness of the Borrowers and certain defaults by the Borrowers under other agreements that
would materially adversely affect the Borrowers, (iv) certain events of bankruptcy, insolvency or liquidation involving the
Borrowers, (v) judgments or judicial actions against the Borrowers in excess of $250,000, subject to certain conditions, (vi) the
failure of the Company to comply with Pension Benefit Plans (as defined in the Credit Agreement), (vii) the invalidity of loan
documents pertaining to the Credit Agreement, (viii) a change of control of the Borrowers and (ix) the interruption of
operations of any of the Borrowers' manufacturing facilities for five consecutive days during the peak season or fifteen
consecutive days during any other time, subject to certain conditions.
52
Pursuant to the Credit Agreement, substantially all of the Borrowers' accounts receivable are automatically and promptly swept
to repay amounts outstanding under the Credit Agreement upon receipt by the Borrowers remittances. Due to this automatic
liquidating nature of the Credit Agreement, if the Borrowers breach any covenant, violate any representation or warranty or
suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access
to cash liquidity unless provided by PNC at its discretion. In addition, certain of the covenants and representations and
warranties set forth in the Credit Agreement contain limited or no materiality thresholds, and many of the representations and
warranties must be true and correct in all material respects upon each borrowing, which the Borrowers expect to occur on an
ongoing basis. There can be no assurance that the Borrowers will be able to comply with all such covenants and be able to
continue to make such representations and warranties on an ongoing basis.
Approximately $21,891,000 was available for borrowing as of January 31, 2021.
As of January 31, 2021, long-term debt repayments are approximately as follows (in thousands):
Year ending January 31,
2022
2023
2024
2025
2026
Thereafter
$
887
4,930
238
248
258
3,879
Management believes that the carrying value of debt approximated fair value at January 31, 2021 and 2020, as all of the long-
term debt bears interest at variable rates based on prevailing market conditions.
4. Retirement Plans
Pension Plans
The Company maintains two defined benefit pension plans, the Virco Employees Retirement Plan (“Employee Plan”), and the
Virco Important Performers Retirement Plan (“VIP Plan”). The annual measurement date for both plans is January 31. The
Company and its subsidiaries cover all employees hired prior to December 31, 2003 under the Employee Plan, which is a
qualified noncontributory defined benefit retirement plan. Benefits under the Employee Plan are based on years of service and
career average earnings. Benefit accruals under the Employee Plan were frozen effective December 31, 2003. All benefits were
fully vested as of January 31, 2021 and 2020.
The Company also provides a supplementary retirement plan for certain key employees, the 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 Employee
Plan. Benefit accruals under the VIP Plan were frozen effective December 31, 2003. Substantially all assets, consisting of life
insurance contracts and cash equivalents, securing the VIP Plan are held in a rabbi trust. The cash surrender values of the life
insurance policies are included in other assets and money market funds in the accompanying consolidated balance sheets. The
cash surrender values of the life insurance policies securing the VIP Plan were $3,430,000 and $3,384,000 at January 31, 2021
and 2020, respectively. Death benefits payable under life insurance policies held by the Plan were approximately $8,845,000
and $8,919,000 at January 31, 2021 and 2020, respectively.
Accounting policy regarding pensions requires management to make complex and subjective estimates and assumptions
relating to amounts which are inherently uncertain. Three primary economic assumptions influence the reported values of plan
liabilities and pension costs. The Company takes the following factors into consideration: discount rate, assumed rate of return
and rate of increase in compensation.
The discount rate represents an estimate of the rate of return on a portfolio of high-quality, fixed-income securities that would
provide cash flows that match the expected benefit payment stream from the plans. When setting the discount rate, the
Company utilizes a spot-rate yield curve developed from high-quality bonds currently available which reflects changes in rates
that have occurred over the past year. This assumption is sensitive to movements in market rates that have occurred since the
preceding valuation date, and therefore, may change from year to year. Discount rate ranges for the Employee Plan and the VIP
Plan 2.75% - 2.80% and 3.00% - 3.05% at January 31, 2021 and 2020, respectively.
53
Because the Company’s future benefit accruals for both benefit plans were frozen in 2003, the compensation increase
assumption had no impact on pension expense, accumulated benefit obligation or projected benefit obligation for the period
ended January 31, 2021 or 2020.
The assumed rate of return on plan assets represents an estimate of long-term returns available to investors who hold a mixture
of stocks, bonds and cash equivalent securities. When setting its expected return on plan asset assumptions, the Company
considers long-term rates of return on various asset classes (both historical and forecasted, using data collected from various
sources generally regarded as authoritative) in the context of expected long-term average asset allocations for its defined benefit
pension plan.
The Company maintains a trust for and funds the pension obligations for the Employee Plan. The Board of Directors appoints a
Retirement Plan Committee that establishes a policy for investment and funding strategies. Approximately 49% of the trust
assets are managed by investment advisors and held in common trust funds with the balance managed by the Retirement Plan
Committee. The Retirement Plan Committee has established target asset allocations for its investment advisors, who invest the
trust assets in a variety of institutional collective trust funds. The Company’s investment advisors have developed a funding
strategy that moves fund asset allocation from equity and other investments to fixed income instruments designed to mirror the
changes in discount rates as the Plan becomes more fully funded. At January 31, 2021, approximately 12% of the trust assets
were held in these investments. The Retirement Plan Committee receives quarterly reports addressing investment returns,
funded status of the plan and progress on the glidepath to fully funded status from the investment advisors and meets
periodically with them to discuss investment performance. At January 31, 2021 and 2020, the amount of the plan assets
invested in bond or short-term investment funds was 15% and 16%, respectively, and the balance of the trust was held in equity
funds or other investments. The trust does not hold any Company stock.
It is the Company's policy to contribute adequate funds to the trust accounts to cover benefit payments under the VIP Plan and
to maintain the funded status of the Employee Plan at a level which is adequate to avoid significant restrictions to the Employee
Plan under the Pension Protection Act of 2006. Contributions to the Qualified Plan Trust and benefit payments under the VIP
Plan totaled $604,000 in fiscal 2021 and $954,000 in fiscal 2020. Contributions during fiscal 2022 will depend upon actual
investment results and benefit payments but are anticipated to be approximately $428,000. At January 31, 2021, accumulated
other comprehensive loss of approximately $13.6 million, net of tax, is attributable to the pension plans.
The Company does not anticipate making any significant changes to the pension assumptions in the near future. If the
Company were to have used different assumptions in the fiscal year ended January 31, 2021, a 1% reduction in investment
return would have increased expense by approximately $210,000, a 1% change in the rate of compensation increase would have
no impact, and a 1% reduction in discount rates would cause obligations under the Plans to increase by approximately
$6.7 million and increase pension expense by approximately $800,000.
54
The following tables set forth (in thousands) the combined funded status of the Company’s pension plans at January 31, 2021
and 2020:
Combined Employee Retirement Plans
1/31/2021
1/31/2020
$
43,292 $
—
1,211
—
—
1,588
—
(1,913)
44,178 $
23,654 $
1,591
640
—
(1,913)
23,972 $
36,299
—
1,382
—
—
8,280
—
(2,669)
43,292
23,527
1,806
990
—
(2,669)
23,654
(20,206) $
(19,638)
(364) $
(19,842)
(20,206) $
(20,206)
14,444
(5,762) $
14,444 $
—
—
14,444 $
(314)
(19,324)
(19,638)
(19,638)
15,427
(4,211)
15,427
—
—
15,427
$
$
$
$
$
$
$
$
$
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Participant contributions
Amendments
Actuarial losses (gains)
Plan settlement
Benefits paid
Benefit obligation at end of year
Change in Plan Assets
Fair value at beginning of year
Actual return on plan assets
Company contributions
Settlements
Benefits paid
Fair value at end of year
Funded Status
Unfunded status of the plans
Amounts Recognized in Statement of Financial Position
Current liabilities
Non-current liabilities
Accrued benefit cost
Amounts Recognized in Statement of Financial Position and Operations
Accrued benefit liability
Accumulated other compensation loss
Net amount recognized
Items not yet Recognized as a Component of Net Periodic Pension Expense, Included in AOCI
Unrecognized net actuarial loss
Unamortized prior service costs
Net initial asset recognition
55
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Combined Employee Retirement Plans
1/31/2021
1/31/2020
Net loss
Prior service cost
Amortization of loss
Amortization of prior service cost (credit)
Amortization of initial asset
Total recognized in other comprehensive (loss) income
Items to be Recognized as a Component of Periodic Pension Cost for next fiscal year
Prior service cost
Net actuarial loss
Supplemental Data
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Components of Net Cost
Service cost
Interest cost
Expected return on plan assets
Amortization of transition amount
Recognized (gain) loss due to settlement
Amortization of prior service cost
Recognized net actuarial loss
Benefit cost
Estimated Future Benefit Payments
FYE 01-31-2022
FYE 01-31-2023
FYE 01-31-2024
FYE 01-31-2025
FYE 01-31-2026
FYE 01-31-2027 to 2031
Total
7,885
—
(776)
—
—
7,109
—
1,872
1,872
43,292
43,292
23,654
—
1,382
(1,432)
—
—
—
776
726
$
$
$
$
$
$
$
$
$
849 $
—
(1,831)
—
—
(982) $
— $
1,771
1,771 $
44,178 $
44,178
23,972
— $
1,211
(869)
—
—
—
1,831
2,173 $
6,724
3,122
2,791
3,169
2,647
11,917
30,370
Weighted Average Assumptions to Determine Benefit Obligations at
Year-End
Discount rate
Rate of compensation increase
Weighted Average Assumptions to Determine Net Periodic Pension Cost
Discount rate
Expected return on plan assets
Rate of compensation increase
2.75% -2.80%
3.00% - 3.05%
N/A
3.00% - 3.05%
6.00%
N/A
N/A
4.10%
6.50%
N/A
56
The Employee Plan held no Level 2 or 3 investments at January 31, 2021 and 2020. The following table sets for the fair value
of the Level 1 investments for the Employee Plan as of January 31, 2021 and 2020 (in thousands):
Fair Value Measurements of Plan Assets
Employee Plan
Level 1 Measurement
Common Stock
Principal Money Market
PNC Govt Money Fund
Vanguard INTM Term Investment
Vanguard LT Investment
Ishares Russell 2000
Ishares Russell MID-CAP
Ishares Emerging Markets
Ishares MCSI RAFE
Ishares S&P Index
Vanguard INTM Term Treasury
Vanguard LT Treasury
Total Level 1 Investments
1/31/2021
1/31/2020
10,323
10,080
458
271
410
1,044
1,724
1,890
1,191
1,636
2,091
410
1,047
799
175
250
1,161
1,560
1,850
1,103
1,577
2,252
250
1,183
$
22,495 $
22,240
In addition to the holdings above, the Employee Plan has a holding in a mutual fund investment, Managed Investment Fund.
The mutual fund investment is valued using the net asset value (“NAV”) as a practical expedient and is not required to be
categorized in the fair value hierarchy table. The total fair value of this investment was $1,454,000 and $1,414,000 as of
January 31, 2021 and 2020, respectively, and is not included in the table above. In relation to this investment, there is no
unfunded commitments and the shares can be redeemed on a daily basis with minimal restrictions. Events that may lead to a
restriction to transact with the fund is not considered probable.
401(k) Retirement Plan
The Company’s retirement plan, which covers all U.S. employees, allows participants to defer from 1% to 75% of their eligible
compensation through a 401(k)-retirement program. Through December 31, 2001, the plan included an employee stock
ownership component. The plan continues to include Virco stock as one of the investment options. At January 31, 2021 and
2020, the plan held 915,542 shares and 706,654 shares of the Company’s common stock, respectively. Effective January 1,
2019, the Company initiated an employer match. For the fiscal years ended January 31, 2021 and 2020, the compensation costs
incurred for employer match was $774,000 and $765,000, respectively.
Life Insurance
The Company provided post-retirement life insurance to certain retired employees under the Dual Option Life Insurance Plan
(the "Plan"). Effective January 2004, the Company terminated this plan for active employees. The Company has purchased
split-dollar life insurance on the lives of the remaining covered participants. Death benefits due to participants are
approximately $2,250,000. Cash surrender values of these policies, which are included in other assets in the accompanying
consolidated balance sheets, were $1,895,000 and $1,906,000 at January 31, 2021 and 2020, respectively. Death benefits
payable under the policies were approximately $3,917,000 and $3,902,000 at January 31, 2021 and 2020, respectively. Death
benefits received under the Plan in excess of the benefit obligation will be retained in the trust and used to secure and fund
benefits payable under the VIP Pension Plan. The Company maintains a rabbi trust to hold assets related to the Dual Option
Life Insurance Plan. All assets securing this plan are held in the rabbi trust.
The following sets forth the Company's change in death benefits payable during the years ended January 31, 2021 and 2020:
57
Liability beginning of year
Accretion expense
Death benefits paid
Liability end of year
5. Stock-Based Compensation
Stock Incentive Plans
$
1/31/2021
1,986,000 $
48,000
—
$
2,034,000 $
1/31/2020
2,037,000
49,000
(100,000)
1,986,000
The Company's two stock plans are the 2019 Employee Stock Incentive Plan (the “2019 Plan”) and the 2011 Employee
Incentive Stock Plan (the “2011 Plan”).
Under the 2019 Plan, the Company may grant an aggregate of 1,000,000 shares to its employees in the form of restricted stock
units and non-employee directors in the form of restricted stock awards. Restricted stock units and awards granted under the
2019 Plan are expensed ratably over the vesting period of the awards. The Company determines the fair value of its restricted
stock units or awards and related compensation expense as the difference between the market value of the units or awards on
the date of grant less the exercise price of the units or awards granted. During fiscal year 2021, the Company granted 94,695
awards to non-employee directors, vested 45,600 shares according to their terms and forfeited 0 shares under the 2019 Plan. As
of January 31, 2021, there were approximately 677,305 shares available for future issuance under the 2019 Plan.
Under the 2011 Plan, the Company may grant an aggregate of 2,000,000 shares to its employees in the form of restricted stock
units and non-employee directors in the form of restricted stock awards. Restricted stock units and awards granted under the
2011 Plan are expensed ratably over the vesting period of the awards. The Company determines the fair value of its restricted
stock units or awards and related compensation expense as the difference between the market value of the units or awards on
the date of grant less the exercise price of the units or awards granted. During fiscal year 2021, the Company granted 0
restricted awards to non-employee directors and 0 units to its employees; vested 59,385 stock awards and 119,200 units
according to their terms and forfeited 0 stock units under the 2011 Plan. As of January 31, 2021, there were approximately
32,892 shares available for future issuance under the 2011 Plan.
During fiscal year 2021, stock-based compensation expense related to restricted stock units and awards recognized in cost of
goods sold and selling, general and administrative expenses was $257,000 and $755,000, respectively. During fiscal year 2020,
stock-based compensation expense related to restricted stock units and/or awards recognized in cost of goods sold and selling,
general and administrative expenses was $239,000 and $685,000, respectively.
Accounting for the Plans
A summary of the Company’s restricted stock unit awards activity, and related information for the following years ended
January 31, is as follows:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Weighted-average fair value of restricted stock
units granted during the year
2021
2020
Restricted stock
units
Weighted-
Average Exercise
Price
Restricted stock
units
Weighted- Average
Exercise Price
740,985 $
94,695
(224,185)
—
611,495
501,155 $
547,385
(223,555)
(84,000)
740,985
4.54
2.64
2.60
—
4.26
2.64
4.44
4.38
4.45
4.51
4.54
4.38
The aggregate fair value of restricted stock awards vested during fiscal years 2021 and 2020 was $582,881 and $994,820,
respectively. The Company recognized compensation expense, net of forfeitures, for the restricted stock awards of $1,012,000
and $924,000 for fiscal 2021 and 2020, respectively. The Company records forfeitures as incurred.
58
The weighted-average grant-date fair value of restricted stock awards is the quoted market price of the Company’s common
stock on the date of grant, as shown in the table above. The weighted-average grant-date fair value of restricted stock awards
granted in fiscal 2021 and 2020 was $2.64 per share and $4.38 per share, respectively.
As of January 31, 2021, there was $1.9 million of total unrecognized compensation expense related to restricted stock awards.
That expense is expected to be recognized over a weighted-average period of 2.95 years.
To satisfy employee minimum statutory tax withholding requirements for restricted stock awards that vest, the Company
withholds and retires a portion of the vesting common shares, unless an employee elects to pay cash. In fiscal 2021 and 2020,
the Company withheld 54,402 and 55,792 common shares, respectively, with a total value of approximately $156,000 and
$246,000, respectively. These amounts are presented as a cash outflow from financing activities in the accompanying
consolidated statement of cash flows.
6. Income Taxes
The income tax (benefit) expense for the last two years is reconciled to the statutory federal income tax rates of 21% for the tax
years ended January 31, respectively, as follows (in thousands):
Statutory
State taxes (net of federal tax)
Change in valuation allowance
State rate adjustment
Change in unrecognized tax benefits
Stock Compensation
Expirations of attributes
Permanent differences
Return to provision
Income tax (benefit) expense
2021
2020
(625) $
9
(119)
(104)
(4)
85
16
11
(13)
(744) $
585
400
(573)
(291)
20
(28)
345
(17)
(96)
345
$
$
Significant components of the (benefit) expense for income taxes attributed to continuing operations are as follows for the years
ended January 31 (in thousands):
Current
Federal
State
Deferred
Federal
State
Change in valuation allowance
Income tax (benefit) expense
2021
2020
$
$
— $
(2)
(2)
(555)
(68)
(623)
(119)
(742)
(744) $
—
136
136
442
340
782
(573)
209
345
59
Deferred tax assets and liabilities are comprised of the following as of January 31 (in thousands):
Deferred tax assets
Accrued vacation and sick leave
Retirement plans
Insurance reserves
Warranty
Net operating loss carryforwards
Right of use liabilities
Inventory
Business interest expense limitation
Other
Deferred tax liabilities
Tax in excess of book depreciation
Right of use assets
Other
Valuation allowance
Net long term deferred tax asset
2021
2020
835 $
5,657
293
181
4,501
5,237
1,287
—
324
18,315 $
(924) $
(4,541)
(70)
(5,535) $
(1,064)
11,716 $
1,264
5,448
443
207
3,658
6,067
1,175
224
301
18,787
(802)
(5,519)
(53)
(6,374)
(1,183)
11,230
$
$
$
$
$
In assessing the realizability of deferred tax assets, the Company considers whether it is more-likely-than-not that some portion
or all of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary
differences become deductible. As a part of this evaluation, the Company assesses all available positive and negative evidence,
including future reversals of existing taxable temporary differences, projected future taxable income, the availability of tax
carrybacks, tax-planning strategies, and results of recent operations (including cumulative losses in recent years), to determine
whether sufficient future taxable income will be generated to realize existing deferred tax assets. On the basis of this evaluation,
and after considering future reversals of existing taxable temporary differences and the effects of seasonality on the Company’s
business, the Company determined that its U.S. federal deferred tax assets are more likely than not to be realizable, but that
valuation allowances of $1,064,000 are needed for certain state NOL’s to reduce the carrying amount of deferred tax assets to
an amount that is more likely than not to be realized. At January 31, 2021, the Company has net operating loss carryforwards
of approximately $12,897,000 for U.S. federal, with no expirations, and $29,891,000 for state income tax purposes, expiring at
various dates through January 31, 2039.
The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended January 31 (in
thousands):
Balances as of February 1,
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Decreases related to lapsing of statute of limitations
Balance as of January 31,
2021
2020
$
$
60 $
—
(4)
8
(10)
54 $
38
8
—
18
(4)
60
At January 31, 2021, the Company’s unrecognized tax benefits associated with uncertain tax positions were $54,000, of which
$43,000 if recognized, would favorably affect the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense
which is consistent with the recognition of the items in prior reporting. The Company had recorded a liability for interest and
penalties related to unrecognized tax benefits of $11,000 at January 31, 2021, and $10,000 at January 31, 2020. The year ended
January 31, 2017 and subsequent years remain open for examination by the IRS and state tax authorities. The Company is
60
currently under IRS examination for fiscal year ended January 31, 2016. The Company is not currently under state
examinations.
The specific timing of when the resolution of each tax position will be reached is uncertain. As of January 31, 2021, it is
reasonably possible that unrecognized tax benefits will decrease by $6,000 within the next 12 months due to the expiration of
the statute of limitations.
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The
Company has performed an analysis of the impact of the CARES Act and have determined that the impact would not be
significant. There were several provisions of the CARES Act that impact Company's fiscal 2020 tax filings, but were not
included in the determination of the tax provision due to the date of enactment after January 31, 2020.
The CARES Act provides single-employer pension companies additional time to meet the funding obligations. The Company
has deferred the timing of funding contributions to a new due date of January 1, 2021. Consequently, the tax deduction related
to such contributions will be deferred until the funding payment is made. The CARES Act also modifies the limitation for
business interest expense deduction. The new limitation has increased from 30 to 50 percent of adjusted taxable income. As of
the issuance of this report, the Company continues to evaluate the impact of the CARES Act.
7. Leases and Commitments
The Company has operating leases on real property, equipment, and automobiles that expire at various dates. The Company
determines if an arrangement is a lease at inception and assesses classification of the lease at commencement. All of the
Company’s leases are classified as operating leases, as a lessee. Beginning on the first day of fiscal 2020, the Company adopted
ASC 842 to account for its leases. Pursuant to ASC 842, the Company uses the implicit rate when readily determinable, or the
incremental borrowing rate. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized
basis with similar terms and payments using company specific credit spreads. The Company’s lease terms include options to
extend or terminate the lease only when it is reasonably certain that we will exercise that option. Lease expense for our
operating leases is recognized on a straight-line basis over the lease term.
The Company has an operating lease for its corporate office, manufacturing and distribution facility located in Torrance, CA,
currently with a remaining lease term through April 30, 2025. The Company leases equipment under a 5-year operating lease
arrangement. The Company has the option of buying the assets at the end of the lease period at a price that does not result in the
Company being reasonably certain of exercising the option. In addition, the Company leases trucks, automobiles, and forklifts
under operating leases that include certain fleet management and maintenance services. Certain of the leases contain renewal or
purchase options and require payment for property taxes and insurance. The Company records lease expense on a straight-line
basis based on the contractual lease payments. In accordance with ASC 842, the Company recognizes the present value of the
future lease commitments as an operating lease liability, and a corresponding right-of-use asset ("ROU asset"), net of tenant
allowances. Tenant improvements and related tenant allowances are recorded as a reduction to the ROU asset. The Company
elected to account for leases with an original term of 12 months or less that do not contain a purchase option as short-term
leases. Additionally, certain of the leases provide for variable payment for property taxes, insurance, and common area
maintenance payments among others. The Company recognizes variable lease expenses for these leases in the period incurred.
The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
In accordance with ASC 842, quantitative information regarding our leases is as follows:
61
Table of Contents
Operating lease cost
Short-term lease cost
Short-term sublease income
Variable lease cost
Total lease cost
Other operating leases information:
Cash paid for amounts included in the measurement of lease
liabilities
Right-of-use assets obtained in exchange for new lease liabilities
Weighted-average remaining lease term (years)
Weighted-average discount rate
Twelve-Months Ended
1/31/2021
Twelve-months ended
1/31/2020
$
$
$
$
(in thousands)
5,742
$
263
(40)
766
6,731
$
5,435
149
(40)
892
6,436
5,163,000
622,000
$
$
4.06
6.41 %
5,435,000
1,613,000
4.95
6.38 %
Minimum future lease payments (in thousands) for operating leases in effect as of January 31, 2021, are as follows:
Year ending January 31,
2022
2023
2024
2025
2026
Thereafter
Remaining balance of lease payments
Short-term lease liabilities
Long-term lease liabilities
Total lease liabilities
Difference between undiscounted cash flows and discounted cash flows
Operating Lease
5,822
5,398
5,261
5,370
1,349
—
23,200
4,672
15,619
20,291
2,909
$
$
$
$
$
8. Contingencies
The Company and other furniture manufacturers are subject to federal, state and local laws and regulations relating to the
discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and
hazardous materials. The Company has expended, and expects to continue to spend, significant amounts in the future to comply
with environmental laws. Normal recurring expenses relating to operating the Company factories in a manner that meets or
exceeds environmental laws are matched to the cost of producing inventory. Despite the Company’s significant dedication to
operating in compliance with applicable laws, there is a risk that the Company could fail to comply with a regulation or that
applicable laws and regulations change. On these occasions, the Company records liabilities for remediation costs when
remediation costs are probable and can be reasonably estimated.
62
The Company is subject to contingencies pursuant to environmental laws and regulations that in the future may require the
Company to take action to correct the effects on the environment of prior disposal practices or releases of chemical or
petroleum substances by the Company or other parties.
The Company has a self-insured retention for product and general liability losses up to $250,000 per occurrence, workers’
compensation liability losses up to $250,000 per occurrence and automobile liability losses up to $50,000 per occurrence. The
Company has purchased insurance to cover losses in excess of the retention up to a limit of $30,000,000. The Company has
obtained an actuarial estimate of its total expected future losses for liability claims and recorded a liability equal to the net
present value of $1,135,000 and $1,700,000 at January 31, 2021 and 2020, respectively, based upon the Company’s estimated
payout period of five years using a 4.0% and 4.0% discount rate, respectively.
Workers’ compensation, automobile, general and product liability claims may be asserted in the future for events not currently
known by management. Management does not anticipate that any related settlement, after consideration of the existing reserve
for claims incurred and potential insurance recovery, would have a material adverse effect on the Company’s financial position,
results of operations or cash flows. Estimated payments under the self-insurance programs are as follows (in thousands):
Year ending January 31,
2022
2023
2024
2025
2026
Thereafter
Total
Discount to net present value
$
$
$
200
225
225
225
225
75
1,175
(40)
1,135
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, in consultation with legal counsel, that the ultimate outcome of all such matters will
not materially affect the Company’s financial position, results of operations or cash flows.
9. Warranty
The Company provides a warranty against all substantial defects in material and workmanship. The standard warranty offered
on products sold through January 31, 2013 is ten years. Effective February 1, 2014 the Company modified its warranty to a
limited lifetime warranty. The warranty effective February 1, 2014 is not anticipated to have a significant effect on warranty
expense. Effective January 1, 2017, the Company modified the warranty offered to provide specific warranty periods by
product component, with no warranty period longer than ten years. The Company’s warranty is not a guarantee of service life,
which depends upon events outside the Company’s control and may be different from the warranty period. The Company
accrues an estimate of its exposure to warranty claims based upon both product sales data and an analysis of actual warranty
claims incurred. The following is a summary of the Company’s warranty-claim activity during for the years ended January 31
(in thousands):
Beginning balance
Provision for current year
Benefits from prior years
Costs incurred
Ending balance
10. Subsequent Events
None
2021
2020
$
800 $
380
(325)
(155)
$
700 $
700
570
(145)
(325)
800
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
63
Table of Contents
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be
disclosed in reports filed with the Commission pursuant to the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and
communicated to the Company’s management, including its President and Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. Assessing the costs and benefits of such controls and
procedures necessarily involves the exercise of judgment by management, and such controls and procedures, by their nature,
can provide only reasonable assurance that management’s objectives in establishing them will be achieved.
Management of the Company, including its President and Chief Executive Officer along with its Chief Financial Officer,
carried out an evaluation of the effectiveness of the design and operation of disclosure controls and procedures as of the end of
the period covered by this Annual Report pursuant to Exchange Act Rule 13a-15. Based upon the foregoing, the Company’s
President and Chief Executive Officer along with the Company’s Chief Financial Officer concluded that Virco’s disclosure
controls and procedures are effective in ensuring that (i) information required to be disclosed by the Company in the reports that
it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SEC’s rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive
and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
Management's Report on Internal Control over Financial Reporting
Management of Virco Mfg. Corporation (the “Company”) is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As
defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or
supervised by, the Company’s principal executive and principal financial officers, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting
principles.
The Company’s internal control over financial reporting is supported by written policies and procedures, that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Company’s annual financial statements, management of the Company has undertaken
an assessment of the effectiveness of the Company’s internal control over financial reporting as of January 31, 2021, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). Management’s assessment included an evaluation of the design
of the Company’s internal control over financial reporting and testing of the operational effectiveness of the Company’s internal
control over financial reporting.
Based on this assessment, management did not identify any material weakness in the Company’s internal control over financial
reporting, and management has concluded that the Company’s internal control over financial reporting was effective as of
January 31, 2021.
Changes in Internal Control Over Financial Reporting
64
There was no change in the Company’s internal control over financial reporting during the fourth fiscal quarter ended
January 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item 9B. Other Information
None.
65
PART III
Item 10. Directors, Executive Officers of the Registrant and Corporate Governance
Except for the information disclosed in Part 1 under the heading “Executive Officers of the Registrant”, the information
required by this Item regarding directors shall be incorporated by reference to information set forth in the Company’s definitive
Proxy Statement to be filed within 120 days after the end of the Company’s fiscal year end of January 31, 2021.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to information set forth in the Company’s definitive Proxy
Statement to be filed within 120 days after the end of the Company’s fiscal year end of January 31, 2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference to information set forth in the Company’s definitive Proxy
Statement to be filed within 120 days after the end of the Company’s fiscal year end of January 31, 2021.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to information set forth in the Company’s definitive Proxy
Statement to be filed within 120 days after the end of the Company’s fiscal year end of January 31, 2021.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated by reference to information set forth in the Company’s definitive Proxy
Statement to be filed within 120 days after the end of the Company’s fiscal year end of January 31, 2021.
66
Item 15. Exhibits, Financial Statement Schedules
PART IV
1. The following consolidated financial statements of Virco Mfg. Corporation are set forth in Item 8 of this Annual Report on
Form 10-K.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - January 31, 2021 and 2020
Consolidated Statements of Operation - Years Ended January 31, 2021 and 2020
Consolidated Statements of Comprehensive Loss - Years Ended January 31, 2021 and 2020
Consolidated Statements of Stockholders' Equity - Years Ended January 31, 2021 and 2020
Consolidated Statements of Cash Flows - Years Ended January 31, 2021 and 2020
Notes to Consolidated Financial Statements - January 31, 2021
Page numbers
36
39
41
42
43
44
45
67
2. The following consolidated financial statement schedule of Virco Mfg. Corporation is included in Item 15:
VIRCO MFG. CORPORATION AND SUBSIDIARIES
SCHEDULE II — QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED JANUARY 31, 2021 and 2020
(In Thousands)
Col. A
Allowance for doubtful accounts for the
period ended:
January 31, 2021
January 31, 2020
Product, general, workers’ compensation and
automobile liability reserves for the period
ended:
January 31, 2021
January 31, 2020
$
$
$
$
Col. B
Beginning Balance
Col. C
Charged to
(Reduced from)
Expenses
Col. E
Deductions from
Reserves
Col. F
Ending Balance
200 $
200 $
— $
83 $
— $
83 $
200
200
1,700 $
1,265 $
1,055 $
1,520 $
1,620 $
1,085 $
1,135
1,700
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, are inapplicable, or are included in the Financial Statements or
Notes thereto, and therefore are not required to be presented under this Item.
3. Exhibits
See Index to Exhibits. The exhibits listed in the accompanying Index to Exhibits are filed as part of this report.
68
Item 16. Form 10-K Summary
Not applicable.
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.
SIGNATURES
Date: April 28, 2021
VIRCO MFG. CORPORATION
By:
/s/ Robert A. Virtue
Robert A. Virtue
Chairman of the Board and Chief Executive Officer
By:
/s/ Robert E. Dose
Robert E. Dose
Sr. Vice President, Finance, Secretary and Treasurer
(Principal Financial Officer)
By:
/s/ Bassey Yau
Bassey Yau
Vice President, Accounting, Corporate Controller, Assistant
Secretary and Assistant Treasurer (Principal Accounting
Officer)
69
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Robert A. Virtue and Robert E. Dose his/her true and lawful attorney-in-fact and agent, with full power of substitution and, for
him/her and in his/her name, place and stead, in any and all capacities to sign any and all amendments to this report on Form
10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he/she might or
could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his/her substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
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
/s/ Robert A. Virtue
Robert A. Virtue
/s/ Douglas A. Virtue
Douglas A. Virtue
/s/ Robert E. Dose
Robert E. Dose
/s/ Bassey Yau
Bassey Yau
/s/ Alexander L. Cappello
Alexander L. Cappello
/s/ Craig Levra
Craig Levra
/s/ Don Rudkin
Don Rudkin
/s/ Robert Lind
Robert Lind
/s/ Kathy Virtue Young
Kathy Virtue Young
/s/ Agnieszka Winkler
Agnieszka Winkler
April 28, 2021
April 28, 2021
April 28, 2021
April 28, 2021
April 28, 2021
April 28, 2021
April 28, 2021
April 28, 2021
April 28, 2021
April 28, 2021
Chairman of the Board, Chief Executive Officer,
Director (Principal Executive Officer)
President, Director
Sr. Vice President, Finance, Secretary and Treasurer
(Principal Financial Officer)
Vice President, Accounting, Corporate Controller,
Assistant Secretary and Assistant Treasurer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
70
Exhibit
Number
3.1
3.2
4.1*
10.1
10.1.1
10.1.2
10.1.3
10.1.4
10.2†
10.2.1†
10.3
10.3.1
10.3.2
10.3.3
10.3.4
10.3.5
VIRCO MFG. CORPORATION
EXHIBITS TO FORM 10-K ANNUAL REPORT
for the Year Ended January 31, 2021
Description
Certificate of Incorporation of the Company dated April 23, 1984, as amended (incorporated by reference to Exhibit 1 to the
Company’s Form 8-A12B (Commission File No. 001-08777), filed with the Commission on June 18, 2007).
Third Amended and Restated Bylaws of the Company dated June 9, 2020 (incorporated by reference to Exhibit 3.3 to the
Company's Quarterly Report on Form 10-Q filed with the SEC on June 12, 2020)
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed
herewith).
Lease dated February 1, 2006, between FHL Group, a California Corporation, as landlord and Virco Mfg. Corporation, a
Delaware Corporation, as tenant (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
filed with the Commission on February 3, 2006).
Design Agreement dated January 21, 2008, between the Company and Peter Glass Design, LLC, and Hedgehog Design,
LLC. (incorporated by reference to Exhibit 10.1 and 10.2 to the Company’s Current Report on Form 8-K filed with the
Commission on January 25, 2008).
Lease amendment dated August 14, 2008, between AMB Property, L.P., a Delaware Limited Partnership, as landlord and
Virco Mfg. Corporation, a Delaware Corporation, as tenant (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10Q filed with the Commission on September 9, 2008).
Third Amendment to Lease Agreement, entered into as of December 20, 2013, by and between Starboard Distribution
Center, LLC, a Delaware limited liability company, successor in interest to AMB Property, L.P., a Delaware limited
Partnership and Virco Mfg. Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the Commission on December 23, 2013.
Fourth Amendment to Lease Agreement, entered into as of November 4, 2017, by and between Starboard Distribution
Center, LLC, a Delaware limited liability company, successor in interest to AMB Property, L.P., a Delaware limited
Partnership and Virco Mfg. Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K filed with the Commission on November 15, 2017).
Virco Mfg. Corporation 2011 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8K filed with the Commission on June 27, 2011).
First Amendment to the Virco Mfg. Corporation 2011 Stock Incentive Plan (incorporated by reference to the Company’s
Proxy Statement on Form DEF 14A filed with the Commission on May 23, 2014).
Revolving Credit and Security Agreement dated as of December 22, 2011 by and among Virco Mfg. Corporation and Virco
Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8K filed with the Commission on December 22, 2011).
First Amendment to Revolving Credit and Securities Agreement, dated as of June 15, 2012, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the Commission on
September 14, 2012).
Second Amendment to Revolving Credit and Security Agreement, dated as of July 27, 2012, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on
July 31, 2012).
Third Amendment to Revolving Credit and Security Agreement, dated as of September 12, 2012, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the Commission on
September 14, 2012).
Fourth Amendment to Revolving Credit and Security Agreement, dated as of December 6, 2012, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed with the Commission on
December 7, 2012).
Fifth Amendment to Revolving Credit and Security Agreement, dated as of March 1, 2013, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on
March 1, 2013).
71
10.3.6
10.3.7
10.3.8
10.3.9
10.3.10
10.3.11
10.3.12
10.3.13
10.3.14
10.3.15
10.3.16
10.3.17
10.3.18
10.3.19
10.3.20
Sixth Amendment to Revolving Credit and Security Agreement, dated as of January 9, 2014, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent.
Seventh Amendment to Revolving Credit and Security Agreement, dated as of April 15, 2014, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent.
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on
April 16, 2014).
Eighth Amendment to Revolving Credit and Security Agreement, dated as of August 18, 2014, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent.
Ninth Amendment to Revolving Credit and Security Agreement, dated as of March 31, 2015, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K filed with the Commission on
April 24, 2015).
Tenth Amendment to Revolving Credit and Security Agreement, dated as of June 18, 2015, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K filed with the Commission on
September 11, 2015).
Eleventh Amendment to Revolving Credit and Security Agreement, dated as of December 2, 2015, by and among Virco
Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K filed with the Commission on
December 15, 2015).
Twelfth Amendment to Revolving Credit and Security Agreement, dated as of April 4, 2016, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K filed with the Commission on
April 26, 2016).
Thirteenth Amendment to Revolving Credit and Security Agreement, dated as of October 27, 2016, by and among Virco
Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K filed with the Commission on
April 26, 2016).
Fourteenth Amendment to Revolving Credit and Security Agreement, dated as of March 13, 2017, by and among Virco
Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q filed with the Commission on
June 12, 2017).
Fifteenth Amendment to Revolving Credit and Security Agreement, dated as of June 8, 2017, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.22 to the Company's Quarterly Report on Form 10-Q filed with the Commission on
June 12, 2017).
Sixteenth Amendment to Revolving Credit and Security Agreement, dated as of August 7, 2017, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.21 to the Company's Current Report on Form 8-K filed with the Commission on
September 14, 2017).
Seventeenth Amendment to Revolving Credit and Security Agreement, dated as of March 19, 2018, by and among Virco
Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on
March 22, 2018).
Nineteenth Amendment to Revolving Credit and Security Agreement, dated as of March 12, 2019, by and among Virco
Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.25 to the Company's Current Report on Form 10-K filed with the Commission on
May 1, 2019).
Twentieth Amendment to Revolving Credit and Security Agreement, dated as of April 29, 2019, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent
(incorporated by reference to Exhibit 10.26 to the Company's Current Report on Form 10-K filed with the Commission on
May 1, 2019).
Twenty-First Amendment to Revolving Credit and Security Agreement, dated as of September 8, 2020, by and among
Virco Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and
administrative agent.(incorporated by reference to Exhibit 10.3.20 to the Company's Current Report on Form 10-Q filed
with the Commission on September 14, 2020).
72
10.3.21
10.4†
10.4.1†
10.4.2†
10.4.3†
10.4.4†
10.4.5†
Twenty-Second Amendment to Revolving Credit and Security Agreement, dated December 11, 2020, by and among Virco
Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative
agent.(incorporated by reference to Exhibit 10.3.21 to the Company's Current Report on Form 10-Q filed with the
Commission on December 14, 2020).
Virco Mfg Corporation 2019 Omnibus Equity Incentive Plan (incorporated by reference to Appendix A to the Company’s
Definitive Proxy Statement filed on May 17, 2019)
Form of Restricted Stock Agreement (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on
Form S-8 filed on June 21, 2019)
Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 4.5 to the Company’s Registration
Statement on Form S-8 filed on June 21, 2019)
Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 4.6 to the Company’s Registration
Statement on Form S-8 filed on June 21, 2019)
Form of Nonqualified Option Agreement (incorporated by reference to Exhibit 4.7 to the Company’s Registration Statement
on Form S-8 filed on June 21, 2019)
Form of Unrestricted Stock Agreement (incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement
on Form S-8 filed on June 21, 2019)
21.1*
List of All Subsidiaries of Virco Mfg. Corporation.
23.1*
31.1*
31.2*
Consent of Independent Registered Public Accounting Firm.
Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as
adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as
adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS*
XBRL Instance Document.
101.SCH*
XBRL Taxonomy Extension Schema Document.
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.
______________________
Filed herewith.
*
† Indicates management contract or compensatory plan or arrangement.
73
EXHIBIT 4.1
DESCRIPTION OF SECURITIES REGISTERED
PURSUANT TO SECTION 12 OF
THE SECURITIES EXCHANGE ACT OF 1934
As of January 31, 2021, Virco Mfg. Corporation (“we”, “us”, “our” or the “Company”) registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), its common stock, par value $0.01 per share
(“Common Stock”). The following description of our Common Stock is a summary and does not purport to be complete. The
description is subject to and qualified in its entirety by reference to our Certificate of Incorporation and Bylaws, each of which
is filed or incorporated by reference as exhibits to our Annual Report on Form 10-K of which this Exhibit 4.1 is a part, and
certificates of designation that may be approved in the future designating one or more series of preferred stock.
Description of Common Stock
Voting Rights. Holders of our Common Stock are entitled to cast one vote per share. Holders of our Common Stock are
not entitled to cumulate their votes in the election of directors. Generally, all matters to be voted on by stockholders must be
approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all stockholders
present in person or represented by proxy, voting together as a single class. Except as otherwise provided by law, amendments
to the Certificate of Incorporation must be approved by a majority or, in some cases, a super-majority of the combined voting
power of all shares entitled to vote, voting together as a single class.
Dividend Rights. Holders of Common Stock share ratably (based on the number of shares of Common Stock held) if
and when any dividend is declared by the board of directors out of funds legally available therefor, subject to any statutory or
contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms
of any outstanding preferred stock.
Liquidation Rights. On our liquidation, dissolution or winding up, each holder of Common Stock will be entitled to a
pro rata distribution of any assets available for distribution to common stockholders.
Other Matters. No shares of Common Stock are subject to redemption or have preemptive rights to purchase additional
shares of Common Stock. Holders of shares of our Common Stock do not have subscription, redemption or conversion rights.
There are no redemption or sinking fund provisions applicable to the Common Stock.
Authorized Shares. Our Certificate of Incorporation authorizes the issuance of up to 25,000,000 shares of Common
Stock, and up to 3,000,000 shares of preferred stock, par value $0.01 per share.
Listing. The Common Stock is listed for trading on The NASDAQ Stock Market LLC under the symbol “VIRC”.
Transfer Agent. Computershare acts as the transfer agent and registrar of our Common Stock.
LIST OF SUBSIDIARIES
Exhibit 21.1
Virco Inc.
2027 Harpers Way
Torrance, CA 90501
Delkay Plastics- Inactive
2027 Harpers Way
Torrance, CA 90501
Virtue of California, Inc-Inactive
2027 Harpers Way
Torrance, CA 90501
Virsan S. A. DE C.V.- Inactive
2027 Harpers Way
Torrance, CA 90501
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-135618 on Form S-3 and Registration
Statement Nos. 333-175638, 333-198723, 333-232248 on Form S-8 of our report dated April 28, 2021, relating to the financial
statements and financial statement schedule of Virco Mfg. Corporation appearing in this Annual Report on Form 10-K for the
fiscal year ended January 31, 2021.
/s/ Deloitte & Touche LLP
Los Angeles, California
April 28, 2021
Exhibit 31.1
I, Robert A. Virtue, certify that:
1. I have reviewed this Form 10-K of Virco Mfg. Corporation;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: April 28, 2021
/s/ Robert A. Virtue
Robert A. Virtue
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
Exhibit 31.2
I, Robert E. Dose, certify that:
1. I have reviewed this Form 10-K of Virco Mfg. Corporation;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: April 28, 2021
/s/ Robert E. Dose
Robert E. Dose
Vice President — Finance, Secretary and Treasurer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Each of the undersigned hereby certifies, in his capacity as an officer of Virco Mfg. Corporation (the “Company”), for purposes
of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his own knowledge:
•
•
The Annual Report of the Company on Form 10-K for the period ended January 31, 2021, fully complies with
the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
The information contained in such report fairly presents, in all material respects, the financial condition and
results of operation of the Company.
Date: April 28, 2021
/s/ Robert A. Virtue
Robert A. Virtue
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
/s/ Robert E. Dose
Robert E. Dose
Vice President — Finance, Secretary and Treasurer
(Principal Financial Officer)
A signed original of this written statement required by Section 906 has been provided to Virco Mfg. Corporation and will be
retained by Virco Mfg. Corporation and furnished to the Securities and Exchange Commission or its staff upon request.