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, 2023
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 ☑ 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 ☐ Noþ
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on July 31, 2022
(the last business day of the registrant’s second fiscal quarter in 2022), was approximately $68 million (based upon the closing
price of the registrant’s common stock on such day, as reported by NASDAQ.
As of April 24, 2023, there were 16,210,985 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 2023 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. [Reserved]
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 Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
PART III
Item 10. Directors, Executive Officers 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 Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
Page
Numbers
3
14
22
22
23
23
24
24
24
36
37
66
66
67
67
68
68
68
68
68
69
71
71
2
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: 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 control costs and inventory levels; supply chain
issues and the 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; the ongoing effects of the COVID-19 pandemic; transportation costs;
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™,
I.Q®, Virtuoso®, Classic Series™, Martest® 21, Lunada®, Plateau®, Core-a-Gator®, Future Access®, Sigma®, Metaphor®,
Telos®, TEXT®, Parameter®, Tetra™, Sage™, Analogy® and Civitas®, Topaz™, PlanSCAPE®, Room to Move®, Sure
Edge®, 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 2024, 2023, and 2022 relate to the fiscal years ending January 31,
2024, 2023, and 2022, respectively.
Item 1. Business
Introduction
Designing, producing, and distributing high-value furniture for a diverse family of customers is a 73-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. As the market for school furniture
has evolved, the Company has developed significant selling and service capabilities. The Company employs interior designers,
CAD layout specialists, and project management specialists to support its direct sales force. These resources utilize proprietary
PlanSCAPE® software which enables our selling and service professionals to provide project management from design and
layout to full-service classroom delivery and set up. The Company manufactures a wide assortment of products, including
mobile tables, mobile storage equipment, student and teacher desks, technology tables, chairs, activity tables, folding chairs and
3
folding tables. Virco has worked with accomplished designers - such as Peter Glass and Bob Mills - to develop additional
products for contemporary applications. These include the best-selling ZUMA Series; Analogy and Civitas furniture
collections; Metaphor and Sage Series items for educational settings; the wide-ranging Plateau and Text Series; and the new
Topaz 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 1.2 million square feet of manufacturing, warehousing, distribution, 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 few years, Virco has continued to leverage our most
popular classroom products while also launching new products.
Many of today’s modern classrooms are focusing on creating more dynamic, active, and flexible environments for their 21st
Century learners. Virco has continued to innovate around its line of Healthy Movement furniture with flexible seating that takes
movement and choice to a new level. The Room to Move ("R2M") Collection, introduced in Fiscal 2018, is based on the idea
that today’s classrooms are active, dynamic places where students are often given room to move - empowering them with
choices of where to sit, how to sit and even when to sit. The Floor Rocker (available in Analogy, Sage, and ZUMA styles)
provides a safe, durable, and ergonomic option for floor seating. The Choose to Move ("C2M") 4-Leg Chair won the EDspaces
Innovation in Seating Award and offers an empowering new twist on flexible seating with a patent-pending mode selector that
allows the same chair to easily transform from fixed to active seating. Like the C2M chair, the R2M Mobile Task Chair offers
movement in all directions - front-to-back and side-to-side - as well as the mobility and adjustability of a task chair. All these
products enable healthy movement and flexibility in the classroom while blending with existing Virco furniture. Given the
success of our R2M products, we continue to support the collection with additions such as the Sage Floor Rocker with a padded
seat which adds additional comfort and design appeal to the Virco Floor Rocker line. Our newest addition, the R2M Series Sit-
to-Stand Workstation, adjusts up and down with a pneumatic height adjustment lever, easily transitioning from a sitting to
standing position. Available in 3 styles - including Rectangle, Wedge, and Corner – along with multiple storage accessories,
these mobile workstations open the classroom to new possibilities.
Virco’s 4000 and 5000 Series collaborative activity tables continue to fill the need for active, flexible spaces now offering
expanded shapes and sizes as well as a Floor Table Conversion Kit for the 4000 Series tables. The floor table provides a
solution for allowing students to select flexible seating, including having a stable surface while sitting low to the ground. The
5000 Series also now includes stand-up height options to meet the need of more flexibility and choice in today’s classrooms.
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
4
can easily exchange ideas and share content. The Plateau Series was also expanded to include more popular shapes and
additional leg options including stand-up, low legs, and casters to broaden height ranges and mobility.
Our newest collection, the Topaz SeriesTM , was designed by Peter Glass and Bob Mills with teachers in mind. Combining sleek
design with intelligent functionality to support modern learning environments, the collection offers a full classroom line that
includes a teacher desk and accessory table, classroom cart, mobile bookcases, mobile storage, and two new sit-to-stand
workstations ideal for both teachers and students.
As of January 31, 2023, the Company employed approximately 800 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 Freight On Board ("FOB") 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.
Sales, 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 supported by a project management team which includes interior designers, CAD layout specialists,
project management specialists, purchasing specialists, and field service supervisors. The project management team and the
sales force utilize the Company's proprietary PlanSCAPE® software when preparing complete package solutions for the FF&E
segment of bond-funded public-school construction projects. The PlanSCAPE® software supports classroom by classroom
product selection, product specification, pricing, furniture delivery including delivery to and turnkey classroom setup.
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.
5
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 no single customer represented more than 10 percent of the Company's
consolidated net sales in fiscal 2023. 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: The majority of our sales are priced through one
contract, under which we are the exclusive supplier of classroom furniture.” Sales priced under this contract represented
approximately 64% of sales in fiscal 2023 and 69% of sales in fiscal 2022. 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-year extensions at the sole discretion of the purchasing organization extending through 2026
if both options are exercised. The Company is currently in the first of the available two-year extensions. 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 approximately 80% of sales are FOB
destination and include freight to customer. Approximately 50% of sales are “full service” and are FOB classroom and include
turnkey set-up. Sales of furniture that are sold FOB factory are typically made to resellers of our product who in turn provide
logistics and service 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. Virco has a seasoned team of installation and project
management professionals located throughout the country. These resources work with local agencies to provide classroom
delivery and set up as required by customers.
Manufacturing and Distribution
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 the years subsequent to China entering the World Trade Organization in 2001, many U.S. furniture manufacturers closed
their domestic manufacturing facilities and began importing increasing quantities of furniture from international sources. The
Company’s primary competition evolved from manufacturers of furniture to importers and distributers of furniture. 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. As recent global supply chain challenges have
led to “reshoring, nearshoring, and friendshoring” of production or other modifications to supply chains, Virco has a
comprehensive, established, and fully functioning manufacturing footprint in the United States. 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. Domestic assembly
allows the Company to use standard ATS components to assemble customer-specific product and color combinations shortly
prior to delivery.
6
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. Historically, Virco ships
approximately 50% of its annual revenue in the months of June, July, and August. In fiscal 2022, the seasonal peak was
distorted due to severe supply chain interruptions, labor shortages, and COVID-19 related employee absences and the Company
delivered less than 40% of sales during June, July, and August. In fiscal 2023, the Company started to return to the traditional
seasonality and delivered approximately 47% of annual sales in June, July, and August. In fiscal 2021, approximately 52% of
the Company's total sales were delivered in June, July, and August. The Company anticipates that the traditional seasonal peak
will return when COVID-19 and global supply chain disruptions normalize. 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 school 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 ongoing 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. Virco has continued to innovate around its line of healthy movement
furniture with the Room to Move ("R2M") collection of flexible seating that take movement and choice to a new level. The
R2M Collection is based on the idea that today’s classrooms are active, dynamic places where students are often given room to
move – empowering them with choices of where to sit, how to sit and even when to sit. The Floor Rocker provides a safe,
durable and ergonomic option for floor seating. The Choose to Move ("C2M") 4-leg Chair, winner of the EDspaces Innovation
in Seating Award, offers an empowering new twist on flexible seating with a mode selector that allows the same chair to easily
transform from fixed to active seating. Like the C2M Chair, the R2M Mobile Task Chair offers movement in all directions –
front-to-back and side-to-side – as well as the mobility and adjustability of a task Chair. All R2M seating is offered in our
ZUMA®, Sage™ and Analogy® Series. 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 include the Parison Series for business, dining, and higher education; 120, 121 and 122
Series stools; the N2 Series, which was designed 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
7
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 media 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
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.
Designed for modern learning environments, Virco Butcher Block Tables feature thick-profile legs and a durable, hard maple
surface with an easy to clean finish. Virco also carries traditional folding tables and office tables, as well as the technology
tables and mobile tables described below.
TECHNOLOGY TABLES - 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 Hinged
Wire Trough ("HWT") Technology tables also deliver popular computer furniture solutions. 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. Plateau Media Tables feature a TV mount for adding a TV screen as well
as built-in USB and Power Ports so students and colleagues can easily exchange ideas and share content. 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,
Agile Combo models and Analogy™ Series combo chair desks. Selected models are available with durable, colorfast Martest
21® or Fortified Recycled Wood™ hard plastic components. Many of our student desks offer stand-up height and adjustable
height options to accommodate flexible classroom set-ups. 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. Designed with teachers in
mind, the Topaz Series Teacher Desks combine sleek design with intelligent functionality to support modern learning
environments.
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
8
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.
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®, and 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. None of the products from
vendor partners accounted for more than 10% of consolidated net sales in fiscal 2022 or 2023.
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. The Company has a staff of interior designers to assist in designing engaging school environments, CAD
layouts, our proprietary PlanSCAPE® software prepares detailed quotations and product specification along with detailed
room-by-room installation plans, and project management for the delivery and set up of all capital acquisitions that fall under
the FF&E line item of new school budget. Approximately 50% of the Company’s revenues in fiscal 2023 included this level of
service and support. In addition to giving customers the option of purchasing Virco products utilizing our full-service offering,
Virco provides two additional 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). The
Company will sell furniture to dealers, distributors, and other resellers on FOB factory terms where the reseller provides service
to the customer.
Customers
In the United States there are approximately 55,000,000 students along with approximately 7,000,000 teachers and support staff
that can utilize Virco’s product offering. Virco's major customers include public and private educational institutions, charter
schools, 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, 2023 and January 31, 2022.
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 2023, the cost of commodities remained volatile, but the
volatility dampened noticeably compared to fiscal 2022. Some commodities decreased in cost, but others increased, resulting in
a net modest increase in costs. In fiscal 2022, the cost of commodities was extremely volatile and unfavorably impacted the
results of operations. The cost of steel nearly tripled, and the cost of plastic doubled. Other material costs increased, but not as
severely. In fiscal 2021, the cost of commodities was relatively stable. Subsequent to fiscal year end 2023, the Company is
anticipating that the global sanctions on Russia and other geopolitical challenges may impact steel, plastic and fuel-related
costs.
9
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 fiscal 2022, the Company has experienced supply chain disruption caused
primarily by availability of freight from China to the United States. During fiscal 2022, freight costs for containers from China
increased by a factor of nearly eight. Cost for ocean freight moderated during fiscal 2023, and by the end of the year had
returned to more normal levels. While we currently don’t believe there will be a recurrence of material supply chain disruptions,
our suppliers in China may 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 may 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.
Seasonality
Historically, Virco ships approximately 50% of its annual revenue in the months of June, July, and August, and shipments of
furniture during peak weeks in July and August can be six times greater than in the seasonally slow winter months. In fiscal
2022, due primarily to the COVID-19 pandemic, the seasonal peak was distorted due to severe supply chain interruptions, labor
shortages, and employee absences, and the Company delivered less than 40% of sales during June, July, and August. In fiscal
2023, the Company started to return to the traditional seasonality and delivered approximately 47% of annual sales in June,
July, and August.
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
10
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 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 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.
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 ongoing 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 Assemble-to-Ship ("ATS") 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 Artcobell, KI Inc., Steel Case, Smith System
(owned by Steelcase), V/S America, Scholarcraft, Academia, Alumni, Columbia, Moore Co., Paragon, SICO, Learniture
(owned by School Outfitters) and Hon ("HNI"). Our competitors that purchase and re-sell 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
11
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, 2023 totaled approximately $58.6 million. The sales order backlog was markedly higher at
January 31, 2023, compared to the same date in prior years due in large part to a significant number of orders received in
January 2023 for delivery in the Company’s second quarter ending July 31, 2023. Sales order backlog at January 31, 2022,
totaled approximately $40.8 million. Order backlog at January 31, 2022 was greater than normal due in part to supply chain
disruptions that occurred during fiscal 2022. The average order backlog as of January 31 for the prior five fiscal years was
approximately $18.8 million. Substantially all of the current backlog is expected to ship during the fiscal year ending January
31, 2024.
Patents and Trademarks
In the last 15 years, the United States Patent and Trademark Office (“USPTO”) has issued to Virco more than 35 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.
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 18 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 73 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 Resources
As of January 31, 2023, Virco and its subsidiaries employed approximately 800 full-time employees across our facilities. Of
this number, approximately 630 are involved in manufacturing and distribution, approximately 110 in sales and marketing and
approximately 60 in administration. None of our employees are 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 through August with smaller numbers immediately preceding and following these
months.
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
12
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.
Environmental Compliance and Government Regulation
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.
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 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.”
In addition to environmental laws, we are also required to comply with federal, state, and local law and regulation in the areas
of workplace health and safety, payroll and other labor and employment matters, and consumer product safety. We believe that
we are in material compliance with all such applicable laws and regulations.
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 2023, Virco derived approximately 4.4% of its revenues from customers located outside of the United States
(primarily Canada).
During fiscal 2022, Virco derived approximately 3.6% 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.
13
During fiscal 2023 and 2022, the Company did not have any long-lived assets outside of the United States.
Executive Officers of the Registrant
As of April 1, 2023, 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)
Robert E. Dose (3)
Office
Chairman of the Board and Chief Executive Officer
President
Senior Vice President of Finance, Chief Financial Officer and
Secretary and Treasurer
________________________
Age at
January 31, 2023
90
64
66
Has Held
Office Since
1990
2014
1995
(1)
(2)
(3)
Appointed Chairman in 1990; has been employed by the Company for 66 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 37 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 32 years and has served as the Corporate Controller, and
currently as Senior Vice President of Finance, Chief Financial Officer and Secretary and Treasurer.
None of the Company’s executive officers have written employment contracts.
Available Information
Virco files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements
and other information with the Securities and Exchange Commission (“SEC”). Stockholders may read and copy this
information at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. 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 such as
Virco that file electronically with the SEC. The address of that website 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. The
inclusion of our website address in this report does not include or incorporate by reference into this report any information on,
or accessible through, our website.
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 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
14
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, public health emergencies such as 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, 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
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 a global network of outside suppliers for raw materials and components, who may be unable to meet our
volume and quality requirements on a timely basis, 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 a
global network of third-party suppliers. 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 and global supply chain disruptions, many of the Company's suppliers may experience difficulty obtaining
15
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.
In fiscal 2022, the cost of raw materials and components, including steel and plastic, was extremely volatile and unfavorably
impacted our results of operations. In addition, the current conflict in Ukraine and global sanctions recently placed on Russia
have increased the cost and negatively impacted the availability of fuel, plastic and other materials. In fiscal 2023, the cost of
commodities remained volatile, but the volatility dampened noticeably compared to fiscal 2022. Some commodities decreased
in cost, but others increased, resulting in a net modest increase in costs.
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 and deliver products ordered by our customers in a timely
fashion and increase our cost of obtaining raw materials and components in excess of our ability to pass along such costs to
customers, any of which could have a negative impact on our reputation, sales and profitability.
Cost and availability of third-party freight can adversely affect our profitability and results of operations.
Approximately 80% 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. 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). During fiscal 2022, freight costs for
containers from China increased by a factor of nearly eight. The cost of ocean freight declined during fiscal 2023, nearly
returning to more typical levels. Ongoing 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 on a cost-effective basis to support
sales, particularly in the busy summer season, which could have an adverse effect on our sales and profitability. 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 majority 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
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 64% of Virco's sales in fiscal 2023 and 69% of Virco's sales
in fiscal 2022 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 has limited 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
16
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, and we are required to meet financial covenants under our credit facility.
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 includes 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 all 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 we 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
The COVID-19 pandemic may continue to adversely affect our operations and financial performance.
The COVID-19 pandemic and the actions taken by various governments and third parties to combat the spread of COVID-19,
including mandatory quarantines and other suspensions of non-essential business operations, caused significant disruptions in
our product sales and marketing, manufacturing and distribution operations, and supply chains during fiscal 2021 and 2022.
While the disruption to demand for our products from the COVID-19 pandemic is currently expected to be temporary, there
remains a great deal of uncertainty around the long-term structural effects of the pandemic on in-person learning in the United
States.
In addition, the resurgence of COVID-19 or its variants, as well as an outbreak of other widespread public health epidemics or
pandemics, could cause new disruptions to our product sales, manufacturing and distribution operations, supply chains and
demand for our products by our customers, which could adversely affect our business, financial condition, and results of
operations.
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
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
17
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 2022, the Company incurred material increases in commodity costs and shortages in commodity availability that were
material and adversely impacted the results of operations. Both availability and volatility in cost moderated in fiscal 2023.
Total material costs for fiscal 2024, as a percentage of sales, could be higher than in fiscal 2023. The Company has increased
list prices for its products in fiscal 2023 and 2024 in an effort to recover 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 or, the price of petroleum-based products and cost of operating our manufacturing facilities increase and we are unable
to pass a material portion of these increased costs to our customers, our gross margins and profitability would be adversely
affected.
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 was originally scheduled to mature on March 19, 2023. Subsequent to fiscal 2022, the Company
extended the final maturity date of the credit line with PNC Bank to April 2027. At various times during the COVID-19
pandemic, we were in non-compliance with certain financial covenants under our credit facility with PNC Bank, and in each
case, we received a waiver of such violations from PNC Bank. In addition, 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 2027
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, or we are in violation of our financial covenants in the
future and do not receive a waiver, 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 lingering
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
18
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.
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 an adverse
effect 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 recent economic environment was
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 affecting market interest rates.
LEGAL AND REGULATORY RISKS
An inability to protect our intellectual property could have an adverse effect 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 the infringing products.
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.
19
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 an adverse effect 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 30% 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. In addition, provisions in our certificate of incorporation require the affirmative vote of
the holders of at least 75% of our outstanding shares for any business combination with a shareholder who beneficially holds,
directly or indirectly, 5% or more of our outstanding stock, except where such transaction is approved by the Board of Directors
of the Company prior to the acquisition of the 5% ownership position.
20
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
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.
We may be affected by climate change and new regulations and requirements relating to climate issues.
Various aspects of our business, including our manufacturing operations, suppliers, and customers, may be negatively affected
by severe weather events tied to climate change, including extreme storms, flooding, wildfires, extreme temperatures, and
chronic changes in meteorological patterns. The frequency and severity of severe weather conditions affecting our business
may be impacted by climate change, although it is currently impossible to predict with accuracy the scale of such impact.
These impacts could have a material adverse effect on our business, results of operations and financial condition.
In addition, a number of state, federal and municipal governments are considering a variety of mandatory legal or regulatory
requirements or voluntary initiatives in relation to climate change or environmental issues. Many entities in private industry are
also considering and introducing climate change and environmental criteria as a factor or commercial term in decisions relating
to activities, including purchasing, lending, insurance and investing. The Company is unable to predict what climate change or
environmental criteria, or requirements may be adopted or supported by governments and private sector entities in the future, or
the impacts of such initiatives on its financial condition, results of operations, access to and cost of capital and cash flows.
In addition, the SEC has published proposed rules that would require companies to provide significantly expanded climate-
related disclosures in their periodic reporting, which may require us to incur significant additional costs to comply, including
the implementation of significant additional internal controls processes and procedures regarding matters that have not been
subject to such controls in the past, and impose increased oversight obligations on our management and Board of Directors.
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 or cybersecurity incidents could adversely affect 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 cyberattacks, 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. Cybersecurity incidents or other unauthorized access to systems may result in
disruption to our operations, corruption or theft of critical data, confidential information, or intellectual property. As reliance on
technology continues to grow and more business activities have shifted online, the risk associated with any cybersecurity
incidents have grown. While we and our third-party vendors have implemented security systems and infrastructure to prevent,
detect and/or mitigate the risk of unauthorized access to technology systems or platforms, there can be no assurance that these
measures will be effective. 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. In addition, any cybersecurity or data breach involving
confidential information of our business, or our customers could result in negative publicity, damage to our reputation, loss of
revenues, disruption of our business, litigation, and regulatory actions. Additional capital investments or expenditures may also
be required to remediate any problems, infringements, misappropriations, or other third-party claims.
21
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;
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 with two renewal options to extend the lease term
for an additional term of five (5) years. This facility also includes the corporate headquarters, the West Coast showroom, and
all West Coast distribution operations.
22
Table of Contents
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.
23
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 stock (trading symbol VIRC) is traded.
As of April 21, 2023, there were approximately 150 registered stockholders according to the Company's transfer agent records.
As of such date, there were approximately 1,540 beneficial stockholders.
Dividend Policy
Our future dividend policy will be determined from time to time by our board of directors, taking into account the Company’s
earnings and liquidity, among other factors. In addition, our Amended and Restated Credit Agreement with PNC Bank limits
our ability to pay cash dividends to $3,000,000 in the aggregate during any fiscal year, provided that no default or event or
default shall have occurred or be continuing under the Credit Agreement or result from any such dividend. In addition, under
the Credit Agreement we must demonstrate pro forma compliance with a fixed charge coverage ratio of not less than 1.20:1.00
for the most recent twelve-month period ending as of the fiscal quarter immediately preceding the date of such dividend.
Stock Repurchases
The Company did not repurchase any shares of its stock during fiscal 2023 and fiscal 2022.
Item 6. [Reserved]
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Effects of COVID-19 Pandemic
The COVID-19 pandemic had an immediate impact on the Company’s operating activities. In March 2020, most school
districts that we serve closed their doors to students and initiated remote learning. As a result, order rates in fiscal year 2021
declined by approximately 20% compared to the prior year.
During the first quarter of fiscal 2022, many schools reopened and virtually all schools were reopened for the beginning of
academic year beginning August 2021. Order rates for fiscal year 2022 increased by nearly 40% compared to the prior year.
The Company experienced severe supply chain issues and dramatically increased commodity costs during this year. In addition
to severe shortages of materials, the Company incurred a severe shortfall of both temporary and full-time labor. In October and
November of fiscal 2022, the Company significantly increased the starting wages for production workers followed by raises for
all hourly workers. With these raises the Company was able to attract and retain additional workers.
In fiscal 2023, the Company was able to substantially resolve supply chain challenges and labor shortages. Order rates
increased by over 13% and sales increased by 25%, enabling the Company to return to profitable operations.
Executive Overview of Operating Results
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, order rates declined by 20%, 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. During fiscal 2022 order rates recovered, increasing by nearly
40% compared to fiscal 2021. The Company was unable to hire adequate new permanent workers or temporary labor to meet
the traditional summer delivery needs and supply chain challenges exacerbated deliveries of furniture. In fiscal 2023, order
rates continued to improve, increasing by more than 13%. The Company was able to substantially resolve most supply chain
challenges and sales increase by approximately 25%.
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
24
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 the 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 nearly 80% 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. The Company’s direct sales force is supported by interior designers, project managers and
field service professionals. 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 73 years and over this time developed products to address a variety of 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 products requested by educators. In fiscal 2021 we experienced an increase in the demand
for individual desks. In fiscal 2022, demand began to return to products supporting collaborative learning. This trend
continued through fiscal 2023. 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. The educational
sales market is extremely seasonal. Historically, Virco ships approximately 50% of its annual revenue in the months of June,
July, and August. In fiscal 2022, the seasonal peak was distorted due to severe supply chain interruptions, labor shortages, and
COVID-19 related employee absences and the Company delivered slightly less than 40% of sales during June, July, and
August. In fiscal 2023, approximately 47% of the Company's total sales were delivered in June, July, and August.
During periods of traditional seasonality, 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.
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.
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 and service
has become a more meaningful component of our business as most deliveries are to school sites, and nearly 50% 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. The majority of the Company's sales are generated under annual contracts in which the Company can raise
the price of its products once every six months and only on future orders. 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
25
quantities of finished goods and component parts during the first and second quarters. In fiscal 2023, the cost of commodities
was volatile but substantially less volatile compared to fiscal 2022. Increased selling prices covered increases in commodity
prices during fiscal 2023.
Nearly 80% 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.
For the year ending January 31, 2024 ("fiscal 2024"), the Company anticipates continued uncertainty and volatility in
commodity costs, particularly with respect to steel, plastic, and other raw materials, transportation, and energy. The lingering
effects of the global pandemic related to COVID-19 and global sanctions are 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 relatively stable compared to the volatility of
school budgets and the related impact on 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.
The disruption related to COVID-19 school closures reinforced the need for learning in classroom settings. 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 offerings. 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.
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 ongoing 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 material obsolescence expenses. If market conditions are less favorable
26
than those anticipated by management, additional valuation adjustments may be required. 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 2023 and 2022, the Company was self-insured for product liability losses up to $250,000 per
occurrence, workers' compensation losses up to $250,000 per occurrence, and auto and general liability losses 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 2023 and fiscal 2022.
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 and auto losses (including IBNR) 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 2024 will be comparable to the retention levels for fiscal 2023.
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 two plans using the following discount rates for the fiscal years ended January 31:
Employee Plan
VIP Plan
2023
4.85%
4.85%
2022
3.20%
3.20%
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 2023 and 6.0% for fiscal 2022. 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 the current and 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
incurred settlement costs in the third and fourth quarters of fiscal 2023 and the second, third, and fourth quarters of fiscal 2022.
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 $4.0 million and increase pension expense by approximately $750,000. A one percent decrease in return on Plan
assets would increase pension expense by $220,000 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: 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 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 carry backs, 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.
During the fiscal year ended January 31, 2022, the Company incurred operating losses primarily related to COVID-19 and
COVID-19 related supply chain disruptions. During the fourth quarter of the fiscal year ended January 31, 2022, the Company
identified objective and verifiable negative evidence in the form of cumulative losses in the U.S. and in certain state
jurisdictions over the preceding 12 quarters. Based on 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 the realization of a
majority of the net deferred tax assets no longer met the more-likely-than-not criteria and a valuation allowance was recorded
against the majority of the net deferred tax assets.
During the fiscal year ended January 31, 2023, the Company was profitable and returned to a cumulative 3-year profit in the
fourth quarter. During the fourth quarter of the fiscal year ended January 31, 2023, the Company concluded a fiscal year that
27
demonstrated strong growth in order rates, revenue, pricing, and gross margin. In addition, a very strong level of sales orders
received in the fourth quarter ended January 31, 2023, for shipment in the fiscal year ending January 31, 2024, resulted in a
backlog of unshipped sales orders that was approximately $18 million greater than the prior year ended January 31, 2022 and
approximately $40 million more than the average year-end backlog for the prior 5 years. Based on 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 the realization of a majority of the net deferred tax assets met the more-likely-than-not criteria and the
valuation allowance against the majority of the net deferred tax assets was reversed.
The amount of the deferred tax asset considered realizable could be adjusted if the Company’s actual results in the future do not
generate taxable income that is sufficient to allow the Company to utilize its deferred tax assets. 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 2023 vs. 2022)
Financial Highlights
The Company earned a pre-tax profit of $8.0 million on net sales of $231.1 million for fiscal 2023, compared to pre-tax loss of
$3.7 million on net sales of $184.8 million in fiscal 2022, an improvement of $11.8 million. Net income per diluted share
increased to $1.02 for fiscal 2023, compared to a loss of $0.95 per diluted share in the prior year. Cash flow used in operations
was $3.8 million in fiscal 2023, compared to cash used in operations of $0.4 million in fiscal 2022.
Net Sales
Virco's net sales increased by 25% in fiscal 2023 to $231.1 million compared to $184.8 million in fiscal 2022. The increase in
net sales was primarily attributable to an increase in selling prices with a minor increase in unit volume.
Virco’s order rates and sales volume were severely impacted by COVID-19. In fiscal 2021, the Company incurred
approximately a 20% reduction in sales orders and sales volume. This reduction was in large part due to the closure of schools
throughout the nation. In fiscal year 2022, many schools reopened during the Company’s first quarter, and virtually all schools
reopened by the beginning of the Company’s third quarter. During fiscal 2022 order rates increased by approximately 40%
compared to the prior year. However, due to severe supply chain issues and labor shortages, we were not able to increase
deliveries at the same rate and net sales increased by only 21%. The Company ended the fiscal year with an order backlog that
was approximately $18 million higher than the prior year. In fiscal 2023 the Company continued to benefit from increased
order rates, with sales orders increasing by more than 13%. During the fiscal year 2023, the Company was able to substantially
address supply chain issues and sales of furniture increased by approximately 25%. The Company ended the year with another
increase in year-end backlog of sales orders. This increase was attributable to a 48% increase sales orders in our traditionally
slow fourth quarter, much of which is planned for delivery in the second quarter of fiscal 2024.
For fiscal 2024, the lingering effect of the COVID-19 pandemic is continuing to create uncertainty as state and local
government budgets may be adversely impacted. The potential government revenue shortfall may be offset significantly or in
part by a variety of federal government programs. The Company increased selling prices under its largest contracts to recover
volatile commodity, energy, freight, and labor costs. As we have gone through this economic cycle, the Company continues to
focus on strategies to develop and strengthen its brand with emphasis on product quality, product selection, and service. 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. To increase or maintain market share during fiscal 2024, 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 global events.
Cost of Sales
Cost of sales was 63.1% of net sales in fiscal 2023 and 67.0% of net sales in fiscal 2022. The decrease in cost of sales as a
percentage of sales was attributable to a variety of factors, but primarily due to increased selling prices. In fiscal 2022, the
Company incurred severe increases in the cost of steel, plastic, and ocean freight. Other costs increased but not as severely.
These events adversely affected gross margin. At the beginning of fiscal 2023 the Company increased selling prices for orders
received after January 1, 2022, and increased prices again for orders received after July 1, 2022. The cumulative effect of these
28
price increases allowed margins to recover from the adverse events of fiscal 2022. As the Company’s backlog of sales orders at
prior year pricing and margins was delivered, new orders at more favorable pricing raised margins for the second, third, and
fourth quarters.
In fiscal 2022, in addition to increased costs the Company was unable to obtain desired quantities of many materials on a timely
basis. Finally, the Company experienced labor shortages, both due to COVID-19 related absences and a lack of available
temporary labor. The Company incurred material overtime expenses for its existing employees in effort to meet demand. At
the beginning of the fourth quarter of fiscal 2022, the Company significantly increased the beginning wage rate for all hourly
workers and gave meaningful raises to all other hourly workers. During fiscal 2023, the increase in wages substantially
resolved staffing issue and the Company made significant improvements in supply chain challenges. As the lower margin sales
backlog at January 31, 2022 was delivered, sales orders received after January 1, 2022 enabled the Company to return margins
to more profitable levels.
During fiscal 2024, 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 global economic
sanctions and the lingering effect of 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 2024. 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 (SG&A) for fiscal 2023 increased by $13,238,000 to $74,503,000 from
$61,265,000 but decreased as a percentage of net sales to 32.2% in fiscal 2023 from 33.1% in fiscal 2022. The increase in
SG&A was primarily attributable to variable freight expenses, variable classroom delivery expenses, variable portion of
warehousing expense and variable selling expenses. Pension expense declined due to favorable actuarial changes to AOCI. An
increase in discount rates caused the pension obligation to decline, which had a favorable impact on settlement expenses.
Interest expense was $784,000 higher in fiscal 2023 compared to fiscal 2022 because of increased levels of borrowing and
higher 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.
During fiscal 2022, the Company incurred net operating losses, due primary to adverse economic conditions due to COVID-19
and related business interruptions while emerging from the effects of the pandemic. During the fourth quarter of the fiscal year
ended January 31, 2022, based on 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 the realization of a majority of
the net deferred tax assets no longer met the more-likely-than-not criteria and a valuation allowance was recorded against the
majority of the net deferred tax assets.
During fiscal 2023, the Company was profitable and benefited from continued growth in order rates, growth in sales volume,
and improvements in gross margin. Strong order activity in the fourth quarter indicates the trends experienced in fiscal 2023
may continue through fiscal 2024. The Company utilized a material portion of its federal and certain state net operating loss
carryforwards ("NOL") in fiscal 2023 and anticipates that all federal NOL may be utilized by the end of fiscal 2024. During the
fourth quarter of the fiscal year ended January 31, 2023, based on 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 the
realization of a majority of the net deferred tax assets met the more-likely-than-not criteria and a valuation allowance was
reversed against the majority of the net deferred tax assets, resulting in a net change in valuation allowance of $10.5 million.
Valuation allowances of $864,000 are needed for certain state net operating loss carryforwards to reduce the carrying amount of
deferred tax assets to an amount that is more-likely-than-not to be realized. At January 31, 2023, the Company has net
operating loss carryforwards of approximately $2,742,000 for U.S. federal, with no expirations, and $25,074,000 for state
income tax purposes, expiring at various dates through January 31, 2041.
Cash Flows
The following table shows summary cash flows information for the fiscal years ended January 31, 2023 and 2022:
29
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net (decrease) increase in cash
Year ended January 31,
2022
2023
(In thousands)
$
$
$
$
(3,788) $
(3,332) $
6,818 $
(302) $
(401)
(2,371)
3,729
957
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 used in operations increased by $3,387 for the fiscal year ended
January 31, 2023. The increase was substantially due to the timing of order receipt in the fourth quarter of fiscal 2023. In the
fourth quarter of fiscal 2023 orders increased by more than 48%, resulting in a year-end sales order backlog that was more than
$58 million. This is nearly $20 million greater than the prior year and more than $40 million more than the average order
backlog for the preceding five years. The Company increased inventory levels at January 31, 2023 in order to facilitate
deliveries of furniture in the first and seasonally higher second quarters of fiscal 2024.
Investing activities. Investing activities include two distinct categories. Financial transactions are related to the purchase or
sale of investments held in the Rabbi Trust which funds and secures employee benefits related to the non-qualified VIP pension
and Split Dollar Life Insurance programs. The net investment activity from these transactions were immaterial. Our net
investments primarily consist of investments in our factories and technology to support our business activities. Net investment
activities were lower than depreciation expense and lower than typical for the fiscal years ended January 31, 2023 and January
31, 2022 due to reduced business activity related to the COVID-19 pandemic and the related time lag in receiving new
machinery. Capital expenditures have been financed using borrowings under our line of credit with PNC Bank. There were no
material commitments for capital expenditures as of January 31, 2023.
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 six months 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 may 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 2022, the cost of commodities, especially steel and plastic were extremely volatile, with the cost of some gauges of
steel nearly tripled during the fiscal year. In fiscal 2023, the cost of commodities continued to be volatile, but not as severe as
in fiscal 2022. The cost of steel and plastic declined during the year, but other commodity and component cost continued to
increase.
For fiscal 2024, 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 escalating labor
costs. Anticipated adverse volatility for fiscal 2024 could be severe in light of global supply chain and economic sanctions,
tariffs imposed or threatened on imported commodities and other disruptions affecting 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. 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 compensation and benefit costs. The Company has renewed health insurance contracts for its
employees through December 2023, but costs after that date may be adversely impacted by current legislation, claim costs and
30
industry consolidation. Virco has aggressively addressed these costs by controlling headcount 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 2024. Due to
current economic conditions, the Company anticipates modestly increased price competition in fiscal 2024 and may not be able
to raise prices further in response to increased commodity costs without risk of losing market share. As a 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. The Company is working to control and reduce costs by improving production and distribution
methodologies, investigating new packaging and shipping materials, and searching for new sources of purchased components
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 production 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 ongoing 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, 2023 and 2022.
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.
31
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
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, 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”). On September 28, 2021, the Borrowers entered into an Amended and Restated Credit Agreement (the “Restated
Credit Agreement”) with PNC that effectively incorporated all of the prior amendments to the Credit Agreement into an
amended and restated form of agreement.
The Restated 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 Restated 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 original termination date of the Restated Credit Agreement was March 19, 2023, which date was extended to
April 15, 2027, at which point the principal amount outstanding under the Restated Credit Agreement and any accrued and
unpaid interest is due and payable, subject to certain prepayment penalties upon earlier termination. Prior to the maturity date,
principal amounts outstanding under the Restated 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
Restated Credit Agreement) or the Eurodollar Currency Rate (as defined in the Restated 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 Restated 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 Restated 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, 2023 was 9.25%.
The Restated Credit Agreement permits the Company to issue dividends or make payments with respect to the Company’s
capital stock in an aggregate amount up to $3,000,000 during any fiscal year, provided that no default shall have occurred or is
continuing or would result from any such payment, and the Company must demonstrate pro forma compliance with a 12-month
trailing fixed charge coverage ratio of not less than 1.20:1.00 as of the fiscal quarter immediately preceding the date of any such
dividend or payment.
After execution of the Restated Credit Agreement in September 2021, on December 7, 2021 the Company entered into
Amendment No. 1 to the Restated Credit Agreement, which provided a limited waiver of the Company’s violation of the
covenant to maintain a fixed charge coverage ratio of at least 1.10 to 1.00 for the four fiscal quarter periods ended October 31,
2021, and amended the fixed charge coverage ratio as follows: (i) 1.00 to 1.00 for each of the consecutive four fiscal quarter
periods of Borrowers ending January 31, 2022 and April 30, 2022, and (ii) 1.10 to 1.00 for each consecutive four fiscal quarter
periods of Borrowers ending thereafter.
The Company was in violation of its financial covenants under the Restated Credit Agreement as of January 31, 2022, due to a
decline in the Company’s net income primarily attributable to the effects of supply chain disruptions and labor shortages. On
April 15, 2022, the Company entered into Amendment No. 2 to the Credit Agreement, which implemented the following
changes to the Restated Credit Agreement and Revolving Credit Facility:
32
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
extended the final maturity date of the Revolving Credit Facility from March 19, 2023 to April 15, 2027;
increased the borrowing limit from $65,000,000 to $70,000,000 in July 2022 and August 2022, and increased
the borrowing limit from $40,000,000 to $45,000,000 in October 2022;
waived the Company’s violation of the covenant to maintain a fixed charge coverage ratio of at least 1.00 for
the period ending January 31, 2022;
for the first and second quarters of fiscal 2023, implemented a temporary year-to-date adjusted EBITDA
covenant in lieu of testing the fixed charge coverage ratio covenant as of such quarters, with quarterly testing
of the fixed charge coverage ratio to resume for the third fiscal quarter and thereafter;
permits a sale and leaseback transaction of the Company’s property at 1655 Amity Road and release of the
lender’s pledge on the property, with the net proceeds to be used for a proposed share repurchase;
retired LIBOR pricing on the Revolving Credit Facility and replace with BSBY index, with pricing tiers and
spreads to remain the same;
extended the P-card, ACH Credit, and ACH debit facilities for an additional year beyond their current
maturities; and
Borrowers to pay a $250,000 extension fee and $75,000 waiver and amendment fee, with $200,000 due at
closing and $125,000 due on the first anniversary of closing.
The Restated Credit Agreement 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 the scheduled maturity. 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 Restated Credit Agreement include, but are
not limited to, (i) non-payment of principal, interest or other amounts due under the Restated Credit Agreement, (ii) the
violation of terms, covenants, representations or warranties in the Restated 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 Restated Credit
Agreement), (vii) the invalidity of loan documents pertaining to the Restated 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 Restated 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 Restated 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. Based on the Company’s current projections, including COVID-19 related
costs, raw material costs and its ability to introduce price increases, management believes it will maintain compliance with the
financial covenants within Amendment No. 2, although there are uncertainties therewithin, such as raw material costs and
supply chain challenges.
The Company's line of credit with PNC is structured to provide seasonal credit availability during the Company's peak summer
season. Approximately $12,878,000 was available for borrowing as of January 31, 2023.
Long-Term Capital Requirements
33
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
million for fiscal 2024. Our Revolving Credit Facility with PNC Bank provides a $2 million line for equipment and covenants
allow for anticipated capital expenditures for fiscal 2024.
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
marketable 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. With the recent increase in interest rates
the Company may purchase annuities from third parties to further de-risk the Plan. The Company incurred settlement costs in
the third and fourth quarters of fiscal 2023. The Company incurred settlement costs in the second, third, and fourth quarters of
fiscal 2022. 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 and to minimize PBGC related expenses. Contributions to the
Qualified Plan Trust and benefit payments under the VIP Plan totaled $595,000 in fiscal 2023 and $654,000 in fiscal 2022.
Contributions during fiscal 2024 will depend upon actual investment results and benefit payments but are anticipated to be
approximately $500,000. At January 31, 2023, accumulated other comprehensive loss of approximately $2.4 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, 2023, a 1% reduction in investment
return would have increased expense by approximately $221,000, 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 $4.0
million and increase pension expense by approximately $744,000.
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.
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, 2023 reflects additional paid-in
capital of approximately $121 million and accumulated deficit of approximately $51 million. The majority of the accumulated
deficit is a result of the accounting reclassification and is not the result of accumulated losses.
Environmental and Contingent Liabilities
Environmental Compliance and Government Regulation
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
34
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
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.
Contingent Liabilities
In fiscal 2023 and 2022, 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, 2023, 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 2023 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. As of January 31, 2023, 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
The Company did not enter into any material off-balance sheet arrangements during fiscal 2023, nor did the Company have any
material off-balance sheet arrangements outstanding at January 31, 2023.
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.
35
Table of Contents
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
2023 and are not required to provide the information under this item.
36
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (Moss Adams LLP Los Angeles, CA, PCAOB ID: 659)
Report of Independent Registered Public Accounting Firm for the year ended January 31, 2022 (PCAOB ID: 34)
Consolidated Balance Sheets as of January 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended January 31, 2023 and 2022
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended January 31, 2023 and 2022
Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended January 31, 2023 and 2022
Notes to Consolidated Financial Statements
Page
Numbers
38
41
42
44
45
46
47
48
37
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 sheet of Virco Mfg. Corporation (the “Company”) as of January 31,
2023, the related consolidated statement of operations, comprehensive income, stockholders’ equity and cash flows for the year
then ended, and the related notes and schedules (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, 2023, and
the results of its operations and its cash flows for the year then ended, 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 audit. 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 audit 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 audit, 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 audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audit 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 audit provides a reasonable basis for our opinion.
Critical Audit Matter
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 a separate opinion on the critical audit matters or on
the accounts or disclosures to which they relate.
Inventories – Valuation adjustments for slow-moving and obsolete inventories
As described in Note 1 to the financial statements, the Company’s inventories balance was $67.4 million as of January 31,
2023. Inventories are 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. 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.
We identified the auditing of the inventory valuation adjustments for slow-moving and obsolete inventories as of January 31,
2023 as a critical audit matter. The Company’s determination of the valuation adjustments for slow-moving and obsolete
inventory required a high degree of management judgment and subjectivity, which in turn led to especially challenging and
subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.
The primary procedures we performed to address this critical audit matter included:
38
•
•
Testing the design and operating effectiveness of internal controls over the valuation of slow-moving and obsolete
inventories, including those related to the Company’s methodology for valuing slow-moving and obsolete inventories.
Testing management’s process for determining the valuation of inventories, including:
◦
◦
◦
◦
◦
Evaluating management’s methodology to determine the net realizable value of inventories.
Evaluating the reasonableness of the significant assumptions used by management including those related to
forecasted inventory usage and backlog.
Testing the completeness, accuracy, and relevance of the underlying data of the system-generated reports
used by management.
Testing the mathematical accuracy and calculations related to the application of Company policies specific to
inventory write-down methodologies and percentages by inventory categories.
Performing inquiries with non-financial personnel, including sales and production employees, regarding
obsolete or discontinued inventory models, cancelled sales orders and other factors to corroborate
management’s assumptions regarding qualitative judgments about discontinued, slow moving and obsolete
inventories.
•
Testing the reasonableness of management’s assumptions used in determining valuation adjustments for slow-moving
and obsolete inventories by:
◦
◦
Performing a retrospective review to assess management’s estimated percentages by comparing the prior
years’ inventories to current year’s consumption and sales.
Performing sensitivity analysis to determine the percentage increase or decrease that would materially impact
the value recorded.
Valuation of Deferred Tax Assets
As described in Note 6 to the financial statements, 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 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. During the fourth quarter of the year ended January 31, 2023,
the Company determined the realization of a majority of the net deferred tax assets met the more-likely-than-not criteria and
reversed a majority of its valuation allowance against its net deferred tax assets. The net change in the valuation allowance for
the year ended January 31, 2023, was a decrease of $10.5 million.
We identified the auditing of the valuation of deferred tax assets as of January 31, 2023 as a critical audit matter because of the
significant judgment required by management and high degree of subjectivity involved in the determination of the realizability
of the net deferred tax assets, which in turn led to especially challenging and subjective auditor judgment when performing
audit procedures and evaluating the results of those procedures.
The primary procedures we performed to address this critical audit matter included:
•
•
Evaluating the positive and negative evidence in assessing the realizability of deferred tax assets, including the
evidence supporting the determination of a three-year cumulative income position as of January 31, 2023.
Assessing the reasonableness of management’s significant assumptions by:
◦
◦
◦
◦
Evaluating whether assumptions used are consistent with recent and historical results.
Evaluating the methods used and the reasonableness of assumptions and judgments underlying management’s
analysis with the assistance of our income tax specialists.
Testing the completeness and accuracy of data used by management.
Testing the amounts of unshipped sales orders by testing a selection of orders for existence as of January 31,
2023.
39
◦
Testing the amount of backlog disclosed as of the end of the prior year and comparing the amounts to fulfilled
sales orders during the current year.
/s/ Moss Adams LLP
Los Angeles, California
April 28, 2023
We have served as the Company's auditor since 2022.
40
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 sheet of Virco Mfg. Corporation and subsidiaries (the "Company") as
of January 31, 2022, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows
for the year then ended, 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, 2022, and the results of its operations and its cash flows for the year then ended, 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 audit. 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 audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
April 28, 2022
We began serving as the Company's auditor in 2018. In 2022 we became the predecessor auditor.
41
Virco Mfg. Corporation
Consolidated Balance Sheets
January 31,
2023
2022
(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, 2023 and 2022)
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.
$
1,057
$
18,435
68
19
67,406
2,083
89,068
3,731
686
51,310
113,662
983
170,372
135,810
34,562
10,120
7,800
8,576
1,359
17,769
118
152
47,373
2,076
68,847
3,731
653
51,334
113,315
1,009
170,042
134,715
35,327
13,870
399
8,002
$
150,126
$
126,445
42
Virco Mfg. Corporation
Consolidated Balance Sheets
January 31,
2023
2022
(In thousands, except share and par value data)
$
19,448
$
19,785
9,554
7,360
5,082
7,081
48,525
1,050
10,676
79
14,384
6,796
555
33,540
5,596
340
4,734
5,829
36,284
965
15,430
71
14,173
11,437
639
42,715
Liabilities
Current liabilities
Accounts payable
Accrued compensation and employee benefits
Current portion of long-term debt
Current portion of 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 16,210,985
shares in 2023 and 16,102,023 shares in 2022
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.
162
120,890
(50,631)
(2,360)
68,061
$
150,126
$
161
120,492
(67,178)
(6,029)
47,446
126,445
43
Virco Mfg. Corporation
Consolidated Statements of Operations
Net sales
Costs of goods sold
Gross profit
Selling, general, and administrative expenses
Operating income (loss)
Pension expense
Interest expense, net
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Net income (loss) per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
See accompanying notes to consolidated financial statements.
Year ended January 31,
2022
2023
(In thousands, except per share data)
231,064 $
145,723
85,341
74,503
10,838
816
1,979
8,043
(8,504)
16,547 $
1.03 $
1.02 $
16,142
16,192
184,828
123,899
60,929
61,265
(336)
2,197
1,195
(3,728)
11,408
(15,136)
(0.95)
(0.95)
15,954
15,954
$
$
$
$
44
Virco Mfg. Corporation
Consolidated Statements of Comprehensive Income (Loss)
Years ended January 31,
2022
2023
(In thousands)
Net income (loss)
Other comprehensive income
Pension adjustments (net of $1,310 tax expense in 2023 and $0 tax expense in
2022)
Comprehensive income (loss)
$
$
16,547 $
(15,136)
3,669
20,216 $
7,556
(7,580)
See accompanying notes to consolidated financial statements.
45
Virco Mfg. Corporation
Consolidated Statements of Stockholders’ Equity
Common Stock
In thousands, except share data
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
(52,042) $
(13,585) $
54,187
Balance at February 1, 2021
Net loss
Pension adjustments, net of tax expense of $0
Shares vested
Stock compensation expense
Balance at January 31, 2022
Net income
Pension adjustments, net of tax effect of $1,310
Shares vested
Stock compensation expense
Balance at January 31, 2023
15,918,642 $
159 $
—
—
183,381
—
—
—
2
—
119,655 $
—
—
(176)
1,013
(15,136)
—
—
—
16,102,023
161
120,492
(67,178)
—
—
108,962
—
—
—
1
—
—
—
(214)
612
16,547
—
—
—
—
7,556
—
—
(6,029)
—
3,669
—
—
(15,136)
7,556
(174)
1,013
47,446
16,547
3,669
(213)
612
16,210,985 $
162 $
120,890 $
(50,631) $
(2,360) $
68,061
See accompanying notes to consolidated financial statements.
46
Virco Mfg. Corporation
Consolidated Statements of Cash Flows
Year Ended January 31,
2022
2023
(In thousands)
$
16,547 $
(15,136)
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization
Amortization of debt issuance costs
Non-cash lease income
Provision for doubtful accounts
Gain 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
Decrease in non cash surrender value of life insurance policies
Non cash gain on investment
Surrender of life insurance policies
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 used in operating activities
Investing activities
Purchases of property, plant and equipment
Purchases of marketable securities in trust accounts
Proceeds from sale of marketable securities in trust accounts
Proceeds for surrendering life insurance policies
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 provided by financing activities
4,542
122
(543)
56
(2)
(8,711)
612
70
437
(78)
(194)
—
(720)
50
(20,033)
141
(106)
4,022
(3,788)
(3,332)
(7,280)
4,536
2,744
—
—
(3,332)
49,579
(42,348)
(213)
(200)
6,818
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
Property, plant and equipment acquired and not yet paid at end of year
See accompanying notes to consolidated financial statements.
(302)
1,359
1,057 $
1,979 $
67 $
634 $
$
$
$
$
47
4,570
116
(395)
53
—
11,316
1,013
298
1,476
—
—
(588)
(8,063)
(92)
(9,103)
55
221
13,858
(401)
(2,995)
—
—
—
664
(40)
(2,371)
29,750
(25,676)
(176)
(169)
3,729
957
402
1,359
1,195
37
189
VIRCO MFG. CORPORATION
Notes to Consolidated Financial Statements
January 31, 2023
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 73 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. The educational sales market is extremely seasonal.
Historically Virco ships approximately 50% of its annual revenue in the months of June, July, and August. In fiscal 2022, the
seasonal peak was distorted due to severe supply chain interruptions, labor shortages, and COVID-19 related employee
absences and the Company delivered less than 40% of sales during June, July, and August. In fiscal 2023, the Company started
to return to the traditional seasonality and delivered approximately 47% of annual sales in June, July, and August.
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.
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. Estimates made by management include, but are not limited to, valuation of
inventory; recoverability of 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.
Fiscal Year End
Fiscal years 2023 and 2022 refer to the fiscal years ended January 31, 2023 and 2022, 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
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. No customer accounted for more than 10% of the Company's accounts
receivable at January 31, 2023 and 2022. 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
48
ended January 31, 2023 and 2022. Foreign net sales were approximately 4.4% and 3.6% of the Company’s net sales for fiscal
years 2023 and 2022, 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 current portion of 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,
and assets held in the Rabbi Trust securing the VIP Pension (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 material obsolescence expenses. If market conditions are less favorable than those
anticipated by management, additional valuation adjustments may be required. 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, 2023 and
2022:
Finished goods
Work in Process
Raw materials
Inventories
Property, Plant, and Equipment
January 31,
2023
2022
$
$
25,740
$
25,303
16,363
67,406
$
16,731
14,732
15,910
47,373
Property, plant, and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and
amortization are computed on the straight-line method for financial reporting purposes based upon the following estimated
useful lives:
49
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 $2,049,000 and $1,959,000 for fiscal years
ended January 31, 2023 and 2022, respectively. Property, plant, and equipment purchased during the year that remains unpaid
were $634,000 and $189,000 as of January 31, 2023 and 2022, respectively.
The Company has established asset retirement obligations related to leased manufacturing facilities. 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 $205,000 and $198,000 at January 31, 2023 and 2022, respectively.
Balance at beginning of period
Decrease in obligation
Accretion expense
Balance at end of period
Impairment of Long-Lived Assets
January 31,
2023
2022
$
$
198,000 $
—
7,000
205,000 $
192,000
—
6,000
198,000
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, 2023 and 2022.
Net Income (loss) per Share
For fiscal year 2023, net income per share is calculated by dividing net income by the diluted weighted-average number of
common shares outstanding. There were zero anti-dilutive shares in fiscal 2023. For fiscal year 2022, approximately 96,000
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. The following table sets forth the computation of basic and diluted loss per
share:
January 31,
2023
2022
(In thousands, except per share)
$
16,547 $
(15,136)
16,142
50
16,192
15,954
—
15,954
$
$
1.03 $
1.02 $
(0.95)
(0.95)
Numerator
Net income (loss)
Denominator
Weighted-average shares — basic
Dilutive effect of common stock equivalents from equity incentive plans
Weighted-average shares
Net income (loss) per common share
Basic
Diluted
Environmental Costs
50
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, 2023 and 2022, the Company had not capitalized any remediation costs and had
not recorded any amortization expense in fiscal years 2023 and 2022.
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, 2023 and 2022 of $1,209,000 and $785,000, respectively,
and are expensed as incurred. Prepaid advertising costs reported as a prepaid asset on the accompanying consolidated balance
sheets at January 31, 2023 and 2022, were $355,000 and $296,000, respectively.
Product Warranty Expense
The Company provides a product warranty on most products. Products sold prior to January 31, 2013 are out of warranty.
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 historical 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 $600,000 as of January 31, 2023
and 2022, as other long-term liabilities in the accompanying consolidated balance sheets. The current portion of the warranty
reserve were $250,000 as of January 31, 2023 and 2022, and included in other accrued liabilities in the accompanying
consolidated balance sheets.
Self-Insurance
In fiscal 2023 and 2022, the Company was self-insured for product liability losses up to $250,000 per occurrence, workers’
compensation losses up to $250,000 per occurrence, general liability losses up to $50,000 per occurrence and auto liability
losses 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 2023 and fiscal
2022. 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 $1.3 million at January 31, 2023 in the accompanying consolidated balance sheets. The
current portion of the self-insurance reserve was $200,000 as of January 31, 2023 and included in other accrued liabilities in the
accompanying consolidated balance sheets.
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. Between 1983 and 2003, the Company issued approximately $122 million in stock
dividends for which the reductions in retained earnings were offset by increases to additional paid-in capital.
Accumulated Other Comprehensive Loss, Net of Tax
The following table summarizes the changes in accumulated balances of other comprehensive loss (in thousands) for the years
ended January 31, 2023 and 2022:
51
January 31,
2023
2022
Balance as of beginning of year
$
(6,029) $
(13,585)
Other comprehensive income before reclassifications
Amounts reclassified from accumulated comprehensive loss
Net current period other comprehensive income
3,162
507
3,669
5,782
1,774
7,556
Balance as of end of year
$
(2,360) $
(6,029)
The reclassifications out of accumulated other comprehensive loss of $507,000 and $1,774,000 for the years ended January 31,
2023 and 2022, respectively, related to amortization of actuarial losses and settlements (See Note 4). The reclassifications were
included in pension expense in the accompanying consolidated statements of operations.
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
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, 2023 and 2022, shipping and classroom delivery costs of approximately $23.8 million,
and $18.8 million, respectively, were included in selling, general and administrative expenses in the accompanying consolidated
statements of operations.
52
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 Issued Accounting Updates
In June 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2022-03,
“Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.”
This ASU clarifies that a contractual restriction on the sale of an equity security is not considered in measuring fair value. The
ASU also requires certain disclosures for equity securities subject to contractual sale restrictions. The new guidance is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted.
As of January 31, 2023, the Company holds equity securities in the Rabbi Trust. We do not currently expect that this guidance
will have a material impact on our financial position and results of operations.
In March 2022, the FASB issued ASU No. 2022-02 – Financial Instruments – Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures, to address certain concerns identified in the Post-Implementation Review process for
ASU Topic 326. The amendments in ASU 2022-02 eliminate the accounting guidance for troubled debt restructurings by
creditors in ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure
requirements for certain loan refinancing and restructuring by creditors when a borrower is experiencing financial difficulty. In
addition, for public business entities, the amendments in ASU 2022-02 require that an entity disclose current-period gross
write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic
326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost. The amendments in ASU 2022-02 will become
effective for us as of the beginning of our 2024 fiscal year. Early adoption is permitted. We do not expect that this guidance will
have a material impact on our financial position and results of operations.
In March 2020, the FASB issued ASU 2020-04 "Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference
Rate Reform on Financial Reporting" ("ASU 2020-04"). ASU 2020-04 provides optional expedients and exceptions for
applying GAAP to debt instruments, derivatives, and other contracts that reference London Interbank Offered Rate ("LIBOR")
or other reference rates expected to be discontinued as a result of reference rate reform. In December 2022, the FASB issued
ASU 2022-06 "Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848" ("ASU 2022-06"), which defers
the expiration of ASC 848 from December 31, 2022, to December 31, 2024. We have loan agreements, debt agreements, and an
interest rate cap that incorporate LIBOR as a referenced interest rate. It is difficult to predict what effect, if any, the phase-out of
LIBOR and the use of alternative benchmarks may have on our business or on the overall financial.
The FASB regularly issues updates to the FASB Accounting Standards Codification that are communicated through issuance of
an ASU. None of the accounting guidance issued by the FASB effective for current and future periods has had a material
impact on the Company's current financial statements, and we do not believe it will have a material impact on our future
financial position and results of operations.
3. Debt
Outstanding balances (in thousands) for the Company’s long-term debt were as follows:
53
Revolving credit line
Other
Total debt
Less current portion
Non-current portion
January 31,
2023
2022
$
17,122 $
4,622
21,744
7,360
9,551
4,962
14,513
340
$
14,384 $
14,173
The Company has a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association,
as administrative agent and lender (“PNC”). The Credit Agreement was amended numerous times since its origination in
December 2011. On September 28, 2021, the Borrowers entered into an Amended and Restated Revolving Credit and Security
Agreement (the “Restated Credit Agreement”) with PNC Bank, which amended and restated the prior Credit Agreement and
effectively incorporated all of the prior amendments into an amended and restated form of agreement.
The Restated Credit Agreement permits the Company to issue dividends or make payments with respect to the Company’s
capital stock in an aggregate amount up to $3.0 million during any fiscal year, provided that no default shall have occurred or is
continuing or would result from any such payment, and the Company must demonstrate pro forma compliance with a 12-month
trailing fixed charge coverage ratio of not less than 1.20:1.00 as of the fiscal quarter immediately preceding the date of any such
dividend or payment. The Restated Credit Agreement also requires the Company to maintain a minimum fixed charge coverage
ratio, and 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. In connection with the Restated Credit Agreement, the Company also agreed to pay to
PNC Bank a non-refundable fee of $50,000.
The Company was in violation of its financial covenants under the Restated Credit Agreement as of January 31, 2022, due to a
decline in the Company’s net income primarily attributable to the effects of supply chain disruptions and labor shortages. On
April 15, 2022, the Company entered into Amendment No. 2 to the Credit Agreement (“Amendment No. 2”), which
implemented the following changes to the Credit Agreement and Revolving Credit Facility:
i.
extended the final maturity date of the Revolving Credit Facility from March 19, 2023 to April 15, 2027;
ii.
increased the borrowing limit from $65.0 million to $70.0 million in July 2022 and August 2022, and increased the
borrowing limit from $40.0 million to $45.0 million in October 2022;
iii. waived the Company’s violation of the covenant to maintain a fixed charge coverage ratio of at least 1.00 for the
period ended January 31, 2022;
iv.
for the first and second quarters of fiscal 2023, implemented a temporary year-to-date adjusted EBITDA covenant in
lieu of testing the fixed charge coverage ratio covenant as of such quarters, with quarterly testing of the fixed charge
coverage ratio to resume for the third fiscal quarter and thereafter;
v.
permits a sale and leaseback transaction of the Company’s property at 1655 Amity Road and release of the lender’s
pledge on the property, with the net proceeds to be used for a proposed share repurchase;
vi.
retired LIBOR (London Inter-Bank Offered Rate) pricing on the Revolving Credit Facility and replaced with BSBY
(Bloomberg Short-Term Bank Yield) index, with pricing tiers and spreads to remain the same;
vii. extended the P-card, ACH Credit, and ACH debit facilities for an additional year beyond their current maturities; and
viii. Borrowers to pay a $250,000 extension fee and $75,000 waiver and amendment fee, with $200,000 due at closing and
$125,000 due on the first anniversary of closing.
In addition to the financial covenants, the Restated Credit Agreement provides for customary events of default, subject to
certain cure periods and other limitations. Substantially all of the Borrowers' accounts receivable are automatically and
promptly swept to repay amounts outstanding under the Restated Credit Agreement upon receipt by the Borrowers. Due to this
54
automatic liquidating nature of the Restated 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.
The other material terms of the Restated Credit Agreement are substantially the same as those of the original Credit Agreement,
consisting of (i) a revolving line of credit with a Maximum Revolving Advance Amount of $65.0 million 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 $15.0
million from January through July of each year, minus undrawn amounts of letters of credit and reserves and (ii) an equipment
loan of $2.0 million. The Restated Credit Agreement is secured by substantially all of the Borrowers’ personal property and
certain of the Borrowers’ real property. The Restated Credit Agreement is subject to certain prepayment penalties upon early
termination of the Restated Credit Agreement. Prior to the maturity date, principal amounts outstanding under the Restated
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 $10.0 million for a period of 30 consecutive days during the fourth quarter of each fiscal
year. The Restated Credit Agreement also contains certain financial covenants, including covenants requiring a minimum fixed
charge coverage ratio and limits on capital expenditures.
The Company's revolving line of credit with PNC is structured to provide seasonal credit availability during the Company's
peak summer season. Approximately $12.9 million and $20.4 million were available for borrowing as of January 31, 2023 and
2022, respectively. Interest rates were 9.25% and 5.00% as of January 31, 2023 and 2022, respectively. The Company also
incurs a fee on the unused portion of the revolving line of credit at a rate of 0.375%.
In addition to the outstanding debt balance of $17.1 million on the Company's revolving credit line, the Company also carries a
mortgage on a manufacturing building in Conway Arkansas. The original note was dated August 2017 for $5.8 million, at a
fixed rate of 4% per year and 20 years term. The outstanding amount under this note was $4.6 million as of January 31, 2023.
The Company was in compliance with its debt covenants as of January 31, 2023. The Company was in violation of its financial
covenants under the Restated Credit Agreement as of January 31, 2022, due to a decline in the Company’s net income primarily
attributable to the effects of supply chain disruptions and labor shortages. On April 15, 2022, the Company entered into
Amendment No. 2 to the Credit Agreement (“Amendment No. 2”), which waived the Company’s violation of the covenant to
maintain a fixed charge coverage ratio of at least 1.00 for the period ended January 31, 2022.
The long-term debt repayments are approximately as follow as of January 31, 2023 (in thousands):
Year ending January 31,
2024
2025
2026
2027
2028
Thereafter
$
$
7,360
248
258
269
10,280
3,329
21,744
Management believes that the carrying value of debt approximated fair value at January 31, 2023 and 2022, as majority of the
long-term debt bears interest at variable rates based on prevailing market conditions. The Company also carries a mortgage on a
manufacturing building in Conway Arkansas at an annual fixed rate of 4%.
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
55
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, 2023 and 2022.
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, equity investments, 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 $0.7 million
and $3.5 million at January 31, 2023 and 2022, respectively. Death benefits payable under life insurance policies held by the
Plan were approximately $1.6 million and $8.8 million at January 31, 2023 and 2022, respectively. Equity investments held in
the Rabbi Trust to secure retirement benefits were $4.7 million as of January 31, 2023. Assets held in the Rabbi Trust were
included in the other non-current asset of the accompanying consolidated balance sheets.
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 plan settlements.
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 rates for the Employee Plan and the VIP Plan
were 4.85% and 3.20% at January 31, 2023 and 2022, respectively.
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 years
ended January 31, 2023 or 2022.
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 50% 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, 2023, approximately 28% 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, 2023 and 2022, the amount of the plan assets
invested in bond or short-term investment funds was 29% and 13%, 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 $0.6 million in fiscal 2023 and $0.7 million in fiscal 2022. Contributions during fiscal 2024 will depend upon
actual investment results and benefit payments but are anticipated to be approximately $0.5 million. At January 31, 2023,
accumulated other comprehensive loss of approximately $2.4 million, net of tax, is attributable to the pension plans.
The following tables set forth (in thousands) the combined funded status of the Company’s pension plans at January 31, 2023
and 2022:
56
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
Combined Employee Retirement Plans
1/31/2023
1/31/2022
$
$
$
$
$
$
$
$
40,586 $
—
1,295
—
—
(6,892)
—
(2,004)
32,985
26,429
(1,428)
631
—
(2,004)
23,628
44,178
—
1,113
—
—
(2,373)
—
(2,332)
40,586
23,972
4,099
690
—
(2,332)
26,429
(9,357) $
(14,157)
(324) $
(9,033)
(9,357) $
(9,357) $
1,910
(7,447) $
1,910 $
—
—
1,910 $
(344)
(13,813)
(14,157)
(14,157)
6,889
(7,268)
6,889
—
—
6,889
57
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Combined Employee Retirement Plans
1/31/2023
1/31/2022
Net loss
Prior service cost
Amortization of loss
Amortization of prior service cost (credit)
Amortization of initial asset
Total recognized in other comprehensive loss
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 01-31-2024
FYE 01-31-2025
FYE 01-31-2026
FYE 01-31-2027
FYE 01-31-2028
FYE 01-31-2029 to 2033
Total
$
$
$
$
$
$
$
$
$
$
$
(5,782)
—
(1,774)
—
—
(7,556)
—
536
536
40,586
40,586
26,429
—
1,113
(690)
—
—
—
1,774
2,197
(4,472) $
—
(507)
—
—
(4,979) $
— $
6
6 $
32,985 $
32,985 $
23,628 $
— $
1,295
(1,000)
—
—
—
521
816 $
6,234
3,272
2,581
2,449
2,397
10,289
27,222
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
4.85%
N/A
3.20%
6.00%
N/A
3.20%
N/A
2.75% - 2.80%
6.00%
N/A
58
The Employee Plan held no Level 2 or 3 investments at January 31, 2023 and 2022. The following table sets for the fair value
of the Level 1 investments for the Employee Plan as of January 31, 2023 and 2022 (in thousands):
Fair Value Measurements of Plan Assets
Employee Plan
Level 1 Measurement
Common Stock
Principal Money Market
Federated Herme Gove Oblig
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
1/31/2023
1/31/2022
$
9,389 $
14,094
233
722
—
930
2,382
718
738
748
1,857
483
2,352
921
$
21,473 $
523
—
204
394
983
1,457
1,958
1,091
1,713
781
404
1,036
24,638
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 $2.2 million and $1.9 million as of
January 31, 2023 and 2022, 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. The plan continues to include Virco stock as one of the investment
options. At January 31, 2023 and 2022, the plan held 1,265,586 shares and 1,077,995 shares of the Company’s common stock,
respectively. Effective January 1, 2021, the Company initiated an employer match. For the fiscal years ended January 31, 2023
and 2022, the compensation costs incurred for employer match was $1.4 million and $0.9 million, 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 $1.8 million. Cash surrender values of these policies, which are included in other assets in the accompanying
consolidated balance sheets, were $1.5 million and $1.4 million at January 31, 2023 and 2022, respectively. Death benefits
payable under the policies were approximately $3.0 million at January 31, 2023 and 2022, 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 securing assets held in the rabbi trust were included in the other assets of the accompanying consolidated
balance sheets.
The following sets forth the Company's change in death benefits payable during the years ended January 31, 2023 and 2022 (in
thousands):
59
Liability beginning of year
Accretion expense
Death benefits paid
Liability end of year
5. Stock-Based Compensation
Stock Incentive Plans
1/31/2023
1/31/2022
$
$
1,616 $
27
—
1,643 $
2,034
60
(478)
1,616
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 2023, the Company granted 0 awards
to non-employee directors, vested 114,470 shares according to their terms and forfeited 0 shares under the 2019 Plan. As of
January 31, 2023, there were approximately 608,435 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. The 2011 Plan expired in 2021 and no new awards may
be made under the 2011 Plan. During fiscal year 2023, the Company vested 119,200 stock awards according to their terms and
forfeited 0 stock units under the 2011 Plan.
The following table summarizes the stock-based compensation expense related to restricted stock awards recognized in the
Company's statement of operations during fiscal years ended January 31, is as follows:
Cost of goods sold
Selling, general and administrative expenses
Total stock-based compensation expense
2023
2022
(in thousands)
$
$
148
464
612
$
$
219
794
1,013
The following table summarizes the Company’s restricted stock unit awards activity, and related information for fiscal years
ended January 31,:
60
2023
2022
Restricted stock
units
Weighted-
Average Exercise
Price
Restricted stock
units
Weighted- Average
Exercise Price
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
420,870 $
—
(233,670)
—
187,200
611,495 $
68,870
(259,495)
—
420,870
4.37
—
3.82
—
4.40
—
4.26
3.63
3.55
—
4.37
3.63
The aggregate fair value of restricted stock unit awards vested during fiscal years 2023 and 2022 was $892,619 and $921,207,
respectively. The Company recognized compensation expense, net of forfeitures, for the restricted stock awards of $612,000
and $1,013,000 for fiscal 2023 and 2022, respectively. The Company records forfeitures as incurred.
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. There were no awards granted in fiscal 2023. The weighted-average
grant-date fair value of restricted stock awards granted in fiscal 2022 was $3.63 per share.
As of January 31, 2023, there was $549,000 of total unrecognized compensation expense related to restricted stock awards.
That expense is expected to be recognized over a weighted-average period of 1.3 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 2023 and 2022,
the Company withheld 55,838 and 50,289 common shares, respectively, with a total value of approximately $213,000 and
$176,000, 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, is 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
2023
2022
$
$
1,689 $
746
(10,546)
(397)
6
35
17
(13)
(41)
(8,504) $
(782)
14
12,303
(197)
5
48
55
(31)
(7)
11,408
Significant components of the (benefit) expense for income taxes attributed to continuing operations are as follows for the years
ended January 31, is as follows (in thousands):
61
Current
Federal
State
Deferred
Federal
State
Change in valuation allowance
Income tax (benefit) expense
2023
2022
$
$
82 $
125
207
1,524
311
1,835
(10,546)
(8,711)
(8,504) $
—
92
92
(731)
(256)
(987)
12,303
11,316
11,408
Deferred tax assets and liabilities are comprised of the following as of January 31, respectively, as follows (in thousands):
Deferred tax assets
Accrued vacation and sick leave
Retirement plans
Insurance reserves
Warranty
Net operating loss carryforwards
Right of use liability
Inventory
Other
Deferred tax liabilities
Tax in excess of book depreciation
Right of use assets
Other
Valuation allowance
Net long term deferred tax asset
2023
2022
$
$
1,925 $
2,729
325
156
1,949
3,087
1,820
401
12,392
(987)
(2,630)
(111)
(3,728)
(864)
7,800 $
943
3,930
300
154
4,445
4,159
2,124
361
16,416
(984)
(3,567)
(54)
(4,605)
(11,412)
399
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 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 carry backs, tax-
planning strategies, and results of recent operations (including cumulative income (losses) in recent years), to determine
whether sufficient future taxable income will be generated to realize existing deferred tax assets.
During fiscal 2022, the Company incurred operating losses, and when combined with operating results from fiscal 2021 and
2020, the Company incurred a cumulative operating loss for the last three years. As a result, the Company identified objective
and verifiable negative evidence in the form of cumulative losses in the U.S. and in certain state jurisdictions over the preceding
twelve quarters ended January 31, 2022. While the Company had taken significant measures to return to profitability, and order
rates at the beginning of the year are favorable, the short-term outlook for the school furniture market is challenging,
particularly relating to ongoing supply chain difficulties. During the fourth quarter of the year ended January 31, 2022, based on
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 the realization of a majority of the net deferred tax assets no longer met the
more-likely-than-not criteria and a valuation allowance was recorded against the majority of the net deferred tax assets. At
62
January 31, 2022, the Company recorded a valuation allowance of $11.4 million against its net deferred tax assets. At
January 31, 2022, the Company has NOL of approximately $12.5 million for U.S. federal tax purposes, with no expirations, and
$31.2 million for state income tax purposes, expiring at various dates through January 31, 2041.
During the fiscal year ended January 31, 2023, the Company was profitable and returned to a cumulative 3-year profit in the
fourth quarter. The Company benefited from continued growth in order rates, growth in sales volume, and improvements in
gross margin. The Company utilized a material portion of its federal and certain state net operating loss carryforwards (“NOL”)
in fiscal 2023 and anticipates that all federal NOL may be utilized by the end of fiscal 2024. During the fourth quarter of the
year ended January 31, 2023, based on 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 the realization of a majority of
the net deferred tax assets met the more-likely-than-not criteria and reversed a majority of its valuation allowances against its
net deferred tax assets. At January 31, 2023, the Company recorded a partial valuation allowances of $0.9 million on certain
state NOL to reduce the carrying amount of deferred tax assets to an amount that is more-likely-than-not to be realized. The net
change in the valuation allowance for the year ended January 31, 2023, was a decrease of $10.5 million. At January 31, 2023,
the Company has NOL of approximately $2.7 million for U.S. federal tax purposes, with no expirations, and $25.1 million for
state income tax purposes, expiring at various dates through January 31, 2041.
The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended January 31,
respectively, as follows (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,
2023
2022
$
$
57 $
—
(5)
19
(9)
62 $
54
—
(1)
10
(6)
57
At January 31, 2023, the Company’s unrecognized tax benefits associated with uncertain tax positions were $62,000, of which
$49,000 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 $16,000 at January 31, 2023, and $13,000 at January 31, 2022. The year ended
January 31, 2018 and subsequent years remain open for examination by the IRS and state tax authorities. The Company is not
currently under IRS or state examination.
The specific timing of when the resolution of each tax position will be reached is uncertain. As of January 31, 2023, it is
reasonably possible that unrecognized tax benefits will decrease by $11,000 within the next 12 months due to the expiration of
the statute of limitations.
7. Leases and Commitments
The Company has operating leases on real property, equipment, and automobiles, expiring at various dates through 2026. 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. 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 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 and automobiles under
63
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:
Operating lease cost
Short-term lease cost
Sublease income
Variable lease cost
Total lease cost
Other operating leases information:
Cash paid for amounts included in the measurement of lease liabilities (in thousands)
Right-of-use assets obtained in exchange for new lease liabilities (in thousands)
Weighted-average remaining lease term (years)
Weighted-average discount rate
Twelve-Months Ended
1/31/2023
1/31/2022
(in thousands)
$
$
$
$
$
$
$
$
5,174
388
(40)
883
6,405
5,716
545
2.20
6.30 %
5,086
332
(40)
1,033
6,411
5,482
599
3.10
6.40 %
Minimum future lease payments (in thousands) for operating leases in effect as of January 31, 2023, are as follows:
Operating Lease
Year ending January 31,
2024
2025
2026
2027
2028
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
8. Contingencies
$
$
5,679
5,674
1,432
—
—
—
12,785
5,082
6,796
11,878
907
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
64
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.
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 liability losses up to $250,000 per occurrence, workers’ compensation
liability losses up to $250,000 per occurrence, general liability losses up to $50,000 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 $30.0
million. 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 $1.3 million and $1.2 million at January 31, 2023 and 2022, respectively, based upon
the Company’s estimated payout period of five years using a 4.0% discount rate for both years.
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,
2024
2025
2026
2027
2028
Thereafter
Total
Discount to net present value
Less current portion
Non-current portion
$
$
225
275
275
275
275
—
1,325
(75)
1,250
(200)
1,050
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. 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):
65
Beginning balance
Provision for current year
Benefits from prior years
Costs incurred
Ending balance
Less current portion
Non-current portion
10. Subsequent Events
None.
2023
2022
$
600 $
350
(140)
(210)
600
(250) $
350 $
$
700
370
(340)
(130)
600
(250)
350
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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
66
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, 2023, 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, 2023.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting during the fourth fiscal quarter ended
January 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
67
Item 10. Directors, Executive Officers and Corporate Governance
PART III
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, 2023.
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, 2023.
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, 2023.
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, 2023.
Item 14. Principal Accountant 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, 2023.
68
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 (Moss Adams LLP Los Angeles, CA PCAOB
ID: 659)
Report of Independent Registered Public Accounting Firm for the year ended January 31, 2022 (PCAOB ID:
34)
Consolidated Balance Sheets as of January 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended January 31, 2023 and 2022
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended January 31, 2023 and 2022
Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended January 31, 2023 and 2022
Notes to Consolidated Financial Statements
38
41
42
44
45
46
47
48
Page numbers
69
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, 2023 and 2022
(In Thousands)
Col. A
Allowance for doubtful accounts for the
period ended:
January 31, 2023
January 31, 2022
Product, general, workers’ compensation and
automobile liability reserves for the period
ended:
January 31, 2023
January 31, 2022
$
$
$
$
Col. B
Beginning Balance
Col. C
Charged to
(Reduced from)
Expenses
Col. E
Deductions from
Reserves
Col. F
Ending Balance
200 $
200 $
— $
— $
— $
— $
200
200
1,165 $
1,135 $
1,300 $
1,168 $
1,215 $
1,138 $
1,250
1,165
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 Consolidated 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.
70
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, 2023
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, Chief Financial Officer and
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)
71
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/ Robert Lind
Robert Lind
/s/ Kathy Virtue Young
Kathy Virtue Young
/s/ Agnieszka Winkler
Agnieszka Winkler
April 28, 2023
April 28, 2023
April 28, 2023
April 28, 2023
April 28, 2023
April 28, 2023
April 28, 2023
April 28, 2023
April 28, 2023
Chairman of the Board, Chief Executive Officer,
Director (Principal Executive Officer)
President, Director
Sr. Vice President, Finance, Chief Financial Officer
and Secretary and Treasurer (Principal Financial
Officer)
Vice President, Accounting, Corporate Controller,
Assistant Secretary and Assistant Treasurer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
72
VIRCO MFG. CORPORATION
EXHIBITS TO FORM 10-K ANNUAL REPORT
for the Year Ended January 31, 2023
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
(incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K filed with the SEC on April 28,
2021).
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).
Amended and Restated Revolving Credit and Security Agreement, dated September 28, 2021, by and among Virco Mfg.
Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as 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
October 1, 2021).
Amendment No. 1 to Amended and Restated Revolving Credit and Security Agreement and Limited Waiver, dated
December 7, 2021, by and among Virco Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National
Association, as lender and administrative agent (incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q filed with the Commission on December 13, 2021).
Amendment No. 2 to Amended and Restated Revolving Credit and Security Agreement and Limited Waiver, dated April 15,
2022, by and among Virco Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as lender
and administrative agent (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with
the Commission on April 21, 2022).
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)
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
10.4†
10.4.1†
10.4.2†
73
10.4.3†
10.4.4†
10.4.5†
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*
23.2*
31.1*
31.2*
Consent of Independent Registered Public Accounting Firm (PCAOB ID No. 659)
Consent of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
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.
74
LIST OF SUBSIDIARIES
Exhibit 21.1
Virco Inc. (Delaware corporation)
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 Statements on Form S-3 (No. 333-135618) and on Form S-8 (No.
333-175638, No. 333-198723 and No. 333-232248) of Virco Mfg. Corporation (the “Company”), of our report dated April 28,
2023, relating to the consolidated financial statements as of and for the year ended January 31, 2023 of the Company, appearing
in this Annual Report on Form 10-K for the year ended January 31, 2023.
/s/ Moss Adams LLP
Los Angeles, California
April 28, 2023
Exhibit 23.2
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 and 333-232248 on Form S-8 of our report dated April 28, 2022, relating to the
financial statements of Virco Mfg. Corporation appearing in this Annual Report on Form 10-K for the year ended January 31,
2023.
/s/ Deloitte & Touche LLP
Los Angeles, California
April 28, 2023
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, 2023
/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, 2023
/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, 2023, 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, 2023
/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.
This Page Intentionally Left Blank
This Page Intentionally Left Blank