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Item 8. Financial Statements and Supplementary Data

2024-04-12 compared with 2023-04-28 · 151 added, 226 removed, 617 unchanged (38% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm ( Moss Adams L L P Los Angeles, CA, PCAOB ID:

Report of Independent Registered Public Accounting Firm for the year ended January 31, 2022 (PCAOB ID:

Report of Independent Registered Public Accounting Firm (Moss Adams LLP Los Angeles, CA, PCAOB ID:

Consolidated Balance Sheets as of January 31, 202 4 and 2023

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 Income for the Years Ended January 31, 202 4 and 202 3

Consolidated Statements of Comprehensive Income for the Years Ended January 31, 202 4 and 20 23

Consolidated Statements of Stockholders' Equity for the Years Ended January 31, 202 4 and 20 23

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Report of Independent Registered Public Accounting Firm

To the stockholders and the Board of Directors of Virco Mfg.

To the Stockholders and the Board of Directors of

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.

We have audited the accompanying consolidated balance sheets of Virco Mfg.

Corporation (the “Company”) as of January 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the years 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, 2024 and 2023, and the results of its operations and its cash flows for the years 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.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our 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.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our 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.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures 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.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit 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

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of slow-moving and obsolete inventories

As described in Note 1 to the financial statements, the Company’s inventories balance was $58.4 million as of January 31, 2024.

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 valuation adjustments of 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 of slow-moving and obsolete inventories as of January 31, 2024 as a critical audit matter.

The Company’s determination of the valuation of 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:

• 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:

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◦ 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:

• Testing the reasonableness of management’s assumptions used in determining the valuation of 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.

◦ 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.

◦ Performing a sensitivity analysis to determine the percentage increase or decrease that would materially impact the value recorded.

/s/ Moss Adams LLP

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We have served as the Company's auditor since 2022.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Virco Mfg.

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.

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.

Consolidated Balance Sheets

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Cash $ 5,286 $ 1,057

Trade accounts receivables (net of allowance for doubtful accounts of $ 200 at January 31, 2023 and 2022)

Trade accounts receivables (net of allowance of $ 200 at January 31, 2024 and 2023)

23,161 18,435

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Operating lease right-of-use assets 6,508 10,120

Deferred income tax assets, net 7,800 399

Deferred income tax assets 6,634 7,800

Other assets 9,709 8,576

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Accrued compensation and employee benefits 10,880 9,554

Income tax payable 145 0

Current portion of long-term debt 248 7,360

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Total non-current liabilities 16,734 33,540

Commitments and contingencies

Commitments and contingencies (Note 8)

Stockholders’ equity

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See accompanying notes to consolidated financial statements.

Consolidated Statements of Operations

Year ended January 31,

Consolidated Statements of Income

Years ended January 31,

(In thousands, except per share data)

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Selling, general, and administrative expenses 84,181 74,697

Operating income (loss) 10,838 ( 336 )

Operating income 31,877 10,644

Unrealized gain on investment in trust account ( 1,050 ) ( 194 )

Pension expense 1,008 816

Interest expense, net 2,679 1,979

Income (loss) before income taxes 8,043 ( 3,728 )

Income tax (benefit) expense ( 8,504 ) 11,408

Net income (loss) $ 16,547 $ ( 15,136 )

Net income (loss) per common share:

Income before income taxes 29,240 8,043

Income tax expense (benefit) 7,330 ( 8,504 )

Net income $ 21,910 $ 16,547

Cash dividends declared per common share:

Net income per common share:

Basic $ 1.34 $ 1.03

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See accompanying notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

Years ended January 31,

(In thousands)

Net income (loss) $ 16,547 $ ( 15,136 )

Net income $ 21,910 $ 16,547

Other comprehensive income

Pension adjustments (net of $ 365 tax expense in 2024 and $ 1,310 tax expense in 2023)

Comprehensive income (loss) $ 20,216 $ ( 7,580 )

Comprehensive income $ 22,960 $ 20,216

See accompanying notes to consolidated financial statements.

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Loss Total Stockholders' Equity

Balance at February 1, 2021 15,918,642 $ 159 $ 119,655 $ ( 52,042 ) $ ( 13,585 ) $ 54,187

Net loss — — — ( 15,136 ) — ( 15,136 )

Pension adjustments, net of tax expense of $ 0

Balance at January 31, 2022 16,102,023 $ 161 $ 120,492 $ ( 67,178 ) $ ( 6,029 ) $ 47,446

Net income — — — 16,547 — 16,547

Pension adjustments, net of tax effect of $ 1,310

— — — — 3,669 3,669

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— — — — 1,050 1,050

Shares vested 108,962 1 ( 214 ) — — ( 213 )

Cash dividends — — — ( 327 ) — ( 327 )

Shares vested and others 136,329 2 ( 112 ) — — ( 110 )

Stock compensation expense — — 595 — — 595

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Operating activities

Net income (loss) $ 16,547 $ ( 15,136 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Net income $ 21,910 $ 16,547

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 5,097 4,542

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Provision for doubtful accounts — 56

Gain on sale of property, plant, and equipment ( 2 ) —

(Gain) loss on sale of property, plant and equipment 4 ( 2 )

Deferred income taxes 800 ( 8,711 )

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Defined benefit plan, recognized net loss due to settlements 375 70

Amortization of net actuarial loss for pension plans 437 1,476

Amortization of net actuarial (gain) loss for pension plans ( 4 ) 437

Decrease in non cash surrender value of life insurance policies ( 14 ) ( 78 )

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Accounts payable and accrued liabilities ( 4,016 ) 4,022

Net cash used in operating activities ( 3,788 ) ( 401 )

Net cash provided by (used in) operating activities 26,960 ( 3,788 )

Investing activities

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Proceeds for surrendering life insurance policies 489 2,744

Proceeds from life insurance — 664

Investments in life insurance — ( 40 )

Net cash used in investing activities ( 4,759 ) ( 3,332 )

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Payment on deferred financing costs ( 175 ) ( 200 )

Net cash provided by financing activities 6,818 3,729

Net (decrease) increase in cash ( 302 ) 957

Cash dividend paid ( 327 ) —

Net cash (used in) provided by financing activities ( 17,972 ) 6,818

Net increase (decrease) in cash 4,229 ( 302 )

Cash at beginning of year $ 1,057 $ 1,359

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Management Use of Estimates

Preparation of financial statements in conformity with U.S.

Preparation of consolidated 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.

These estimates and assumptions affect the reported amounts of assets and liabilities - and disclosure of contingent assets and liabilities - at the date of the consolidated 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;

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liabilities under pension, warranty, self-insurance, and environmental claims;

and the accounts receivable allowance for doubtful accounts.

and the accounts receivable allowance for credit losses.

Fiscal Year End

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Because of the short time between shipment and collection, the net carrying value of receivables approximates the fair value for these assets.

No customer exceeded 10% of the Company’s net sales for fiscal years

ended January 31, 2023 and 2022.

No customer exceeded 10% of the Company’s net sales for fiscal years ended January 31, 2024 and 2023.

Foreign net sales were approximately 4.7 % and 4.4 % of the Company’s net sales for fiscal years 2024 and 2023, respectively.

Cash consists of cash on hand, and the Company has no cash equivalents.

Cash consists of cash on hand, and the Company has approximately $ 5.3 million in cash and cash equivalents as of January 31, 2024.

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.

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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 ).

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 Company's Important Performers Retirement Plan (“VIP Plan”) and Split-dollar life insurance benefit program (see Note 4 ).

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.

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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.

Repair and maintenance expense were $ 1.8 million and $ 2.0 million for fiscal years ended January 31, 2024 and 2023, respectively.

Property, plant, and equipment purchased during the year that remains unpaid were $ 493,000 and $ 634,000 as of January 31, 2024 and 2023, respectively.

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Asset retirement obligations, included in other non-current liabilities were $ 212,000 and $ 205,000 at January 31, 2024 and 2023, respectively.

(In thousands)

Balance at beginning of period $ 205 $ 198

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There were no impairments for fiscal years ended January 31, 2024 and 2023.

Net Income (loss) per Share

Net Income per Share

For fiscal year 2024, 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:

The following table sets forth the computation of basic and diluted income per share:

(In thousands, except per share)

Net income (loss)

$ 16,547 $ ( 15,136 )

Net income $ 21,910 $ 16,547

Weighted-average shares — basic 16,295 16,142

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Weighted-average shares 16,388 16,192

Net income (loss) per common share

Net income per common share

Basic $ 1.34 $ 1.03

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Environmental Costs

The Company is subject to numerous environmental laws and regulations in the various jurisdictions in which it operates that (a) govern operations that may have adverse environmental effects, such as the discharge of materials into the environment, as well as handling, storage, transportation and disposal practices for solid and hazardous wastes, and (b) impose liability for response costs and certain damages resulting from past and current spills, disposals or other releases of hazardous materials.

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.

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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.

Selling, general, and administrative expenses include advertising costs for the years ended January 31, 2024 and 2023 of $ 1.4 million and $ 1.2 million, respectively, and are expensed as incurred.

Prepaid advertising costs reported as a prepaid asset on the accompanying consolidated balance sheets at January 31, 2024 and 2023, were $ 432,000 and $ 355,000 , respectively.

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The Company recorded warranty reserves of $ 350,000 as of January 31, 2024 and 2023, 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.

The current portion of the warranty reserve were $ 150,000 and $ 250,000 as of January 31, 2024 and 2023, respectively, and included in other accrued liabilities in the accompanying consolidated balance sheets.

Self-Insurance

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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 2024 and fiscal 2023.

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 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 $ 770,000 at January 31, 2024 in the accompanying consolidated balance sheets.

The current portion of the self-insurance reserve was $ 120,000 as of January 31, 2024 and included in other accrued liabilities in the accompanying consolidated balance sheets.

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The reclassifications out of accumulated other comprehensive loss of $ 371,000 and $ 507,000 for the years ended January 31, 2024 and 2023, 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.

The reclassifications were included in pension expense in the accompanying consolidated statements of income.

Revenue Recognition

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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.

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 .

For the fiscal years ended January 31, 2024 and 2023, shipping and classroom delivery costs of approximately $ 27.2 million, and $ 23.8 million, respectively, were included in selling, general and administrative expenses in the accompanying consolidated statements of income.

The Company recognizes deferred income taxes under the asset and liability method of 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.

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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.

Recently Issued Accounting Pronouncements

ASU 2023-07 "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures":

This ASU requires additional disclosures about reportable segments' expenses and other items on an interim and annual basis.

This guidance will be effective for annual periods beginning January 1, 2024, and interim periods beginning January 1, 2025.

We do not believe it will have a material impact on our future financial statements.

Accounting Standard Update 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”).

In December 2023, the FASB issued ASU 2023-09, which requires more detailed income tax disclosures.

The guidance requires entities to disclose disaggregated information about their effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction.

The disclosure requirements will be applied on a prospective basis, with the option to apply them retrospectively.

The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

We are evaluating the disclosure requirements related to the new standard.

The Company evaluates all Accounting Standards Updates ("ASUs") issued by the Financial Accounting Standards Board ("FASB") for consideration of their applicability to our condensed consolidated financial statements.

We have assessed all ASUs issued but not yet adopted and concluded that those not disclosed are not relevant to the Company or are not expected to have a material impact.

Outstanding balances (in thousands) for the Company’s long-term debt were as follows:

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Non-current portion $ 4,136 $ 14,384

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 Company and Virco Inc., its wholly-owned subsidiary (the “Borrowers”) has a Revolving Credit and Security Agreement (the “Restated 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, most recently on May 19, 2023.

The Restated Credit Agreement as currently in effect 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:

extended the final maturity date of the Revolving Credit Facility from March 19, 2023 to April 15, 2027;

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;

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;

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 (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;

extended the P-card, ACH Credit, and ACH debit facilities for an additional year beyond their current maturities;

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.

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.

Due to this 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 as currently in effect include the following:

(i) a revolving line of credit with a Maximum Revolving Advance Amount of $ 65.0 million (increasing to $ 70.0 million during the months of June through August 2024) 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;

(ii) inventory sublimit of $ 35.0 million and Assemble-to-ship (ATS) inventory sublimit of $ 15.0 million during the months of May through August 2024;

and (iii) 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.

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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 was in compliance with its debt covenants as of January 31, 2024.

The Company's revolving line of credit with PNC is structured to provide seasonal credit availability during the Company's peak summer season.

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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.

As of January 31, 2024 and 2023, the Company's outstanding debt balance on the revolving credit line were zero and 17.1 million, respectively.

In addition to 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 4.00 % per year and 20 year term.

The outstanding amount under this note was $ 4.4 million as of January 31, 2024.

The Company was in compliance with its debt covenants as of January 31, 2023.

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, 2024 (in thousands):

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The annual measurement date for both plans is January 31.

The Company and its subsidiaries cover all employees hired prior to December 31, 2003 under the Employee Plan, which is a

qualified noncontributory defined benefit retirement plan.

Benefits under the Employee Plan are based on years of service and career average earnings.

The Company and its subsidiaries cover all employees hired prior to December 31, 2003 under the Employee Plan, which is a qualified noncontributory defined benefit retirement plan.

Benefits under the Employee Plan are based on years of service and

career average earnings.

Benefit accruals under the Employee Plan were frozen effective December 31, 2003.

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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.

The cash surrender values of the life insurance policies securing the VIP Plan were $ 620,000 and $ 734,000 at January 31, 2024 and 2023, respectively.

Death benefits payable under life insurance policies held by the Plan were approximately $ 1.3 million and $ 1.6 million at January 31, 2024 and 2023, 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.

Equity investments held in the Rabbi Trust to secure retirement benefits were $ 5.8 million and $ 4.7 million as of January 31, 2024 and 2023.

Assets held in the Rabbi Trust were included in the other non-current assets 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.

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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.

Contributions to the Qualified Plan Trust and benefit payments under the VIP Plan totaled $ 676,000 in fiscal 2024 and $ 631,000 in fiscal 2023.

Contributions during fiscal 2025 will depend upon actual investment results and benefit payments but are anticipated to be approximately $ 386,000 .

At January 31, 2024, accumulated other comprehensive loss of approximately $ 1.3 million, net of tax, is attributable to the pension plans.

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Amendments — —

Actuarial losses (gains) ( 6,892 ) ( 2,373 )

Actuarial gains ( 115 ) ( 6,892 )

Plan settlement — —

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Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income

Net loss $ ( 4,472 ) $ ( 5,782 )

Net gain $ ( 1,044 ) $ ( 4,472 )

Prior service cost — —

Amortization of loss ( 507 ) ( 1,774 )

Amortization of prior service cost (credit) — —

Amortization of gain (loss) 4 ( 507 )

Recognized loss due to settlement ( 375 ) —

Amortization of initial asset — —

Total recognized in other comprehensive loss $ ( 4,979 ) $ ( 7,556 )

Total recognized in other comprehensive income $ ( 1,415 ) $ ( 4,979 )

Items to be Recognized as a Component of Periodic Pension Cost for next fiscal year

Prior service cost $ — $ —

Net actuarial loss 6 536

Net actuarial loss (gain) $ ( 141 ) $ 6

$ ( 141 ) $ 6

Supplemental Data

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Amortization of transition amount — —

Recognized (gain) loss due to settlement — —

Recognized loss due to settlement 375 —

Amortization of prior service cost — —

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Discount rate 4.85 %

2.75 % - 2.80 %

Expected return on plan assets 6.00 % 6.00 %

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Ishares S&P Index 15 483

Vanguard INTM Term Treasury 2,352 404

Vanguard LT Treasury 1,695 2,352

Vanguard INTM Term Treasury 663 921

Total Level 1 Investments $ 16,970 $ 21,473

During the third quarter ended October 2023, the Company sold approximately $ 5.3 million of the investment assets held in the Trust and the proceed from the sale was used to purchase annuities on behalf of 49 participants currently receiving monthly benefits and 89 vested terminated participants.

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.

The total fair value of this investment was $ 2.2 million as of January 31, 2024 and 2023, 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.

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At January 31, 2024 and 2023, the plan held 1,286,586 shares and 1,265,586 shares of the Company’s common stock, respectively.

Effective January 1, 2021, the Company initiated an employer match.

Effective January 1, 2022, the Company initiated a discretionary employer match, in the Company Stock Fund, limited to 100 % of first 1 % and 50 % of next 5 % of the amount deferred by the employee.

The Company may also make additional employer contributions to the Plan at its sole discretion.

Any contribution may be made in cash or in shares of Company common stock.

The total amount of Company contributions cannot exceed the amount deductible by the Company for federal income tax purposes.

For the fiscal years ended January 31, 2024 and 2023, the compensation costs incurred for employer match was $ 1.5 million and $ 1.4 million, respectively.

5 unchanged sentences

Cash surrender values of these policies, which are included in other assets in the accompanying consolidated balance sheets, were $ 1.1 million and $ 1.5 million at January 31, 2024 and 2023, 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.

Death benefits payable under the policies were approximately $ 2.8 million and $ 3.0 million at January 31, 2024 and 2023, 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.

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Stock Incentive Plans

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.

Under the Company's two stock plans are the 2019 Employee Stock Incentive Plan (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 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.

During fiscal year 2024, the Company granted zero awards to non-employee directors, vested 93,600 shares according to their terms and forfeited 0 shares under the 2019 Plan.

As of January 31, 2024, there were approximately 537,925 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 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:

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Granted 70,510 3.89 — —

Exercised ( 233,670 ) 3.82 ( 259,495 ) 3.55

Vested ( 93,600 ) 4.40 ( 233,670 ) 3.82

Forfeited — — — —

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Weighted-average fair value of restricted stock units granted during the year $ 274,284 3.89 $ — —

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.

Weighted-average fair value of restricted stock units vested during the year $ 411,840 $ 892,619

As of January 31, 2024, there was $ 229,000 of total unrecognized compensation expense related to restricted stock awards.

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In fiscal 2024 and 2023, the Company withheld 27,781 and 55,838 common shares, respectively, with a total value of approximately $ 110,000 and $ 213,000 , respectively.

These amounts are presented as a cash outflow from financing activities in the accompanying consolidated statement of cash flows.

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):

These amounts are presented as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

The income tax expense (benefit) for fiscal years ended January 31, 2024 and 2023 is reconciled to the statutory federal income tax rates of 21 % for the tax years ended January 31, is as follows (in thousands):

Statutory $ 6,140 $ 1,689

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Permanent differences 69 ( 13 )

Return to provision ( 41 ) ( 7 )

Income tax (benefit) expense $ ( 8,504 ) $ 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):

Return to provision true-up 118 ( 41 )

Income tax expense (benefit) $ 7,330 $ ( 8,504 )

Significant components of the expense (benefit) for income taxes attributed to continuing operations are as follows for the years ended January 31, is as follows (in thousands):

Federal $ 5,567 $ 82

State 963 125

Federal 301 1,524

State 1,112 311

1,835 ( 987 )

Change in valuation allowance ( 613 ) ( 10,546 )

800 ( 8,711 )

Income tax (benefit) expense $ ( 8,504 ) $ 11,408

Income tax expense (benefit) $ 7,330 $ ( 8,504 )

Deferred tax assets and liabilities are comprised of the following as of January 31, respectively, as follows (in thousands):

8 unchanged sentences

Other 536 401

12,392 16,416

Deferred tax liabilities

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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.

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.

At January 31, 2024, the Company recorded a partial valuation allowances of $ 251,000 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, 2024, was a decrease of $ 613,000 .

At January 31, 2024, the Company had no NOL for U.S.

federal tax purposes and $ 9.0 million for state income tax purposes, expiring at various dates through January 31, 2042.

During the fiscal year ended January 31, 2023, the Company was profitable and returned to a cumulative 3-year profit in the fourth quarter.

2 unchanged sentences

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.

At January 31, 2023, the Company recorded a partial valuation allowances of $ 864,000 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.

2 unchanged sentences

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, $ 57 $ 54

Beginning balances as of January 31, $ 62 $ 57

Increases related to prior year tax positions 8 —

2 unchanged sentences

Decreases related to lapsing of statute of limitations ( 11 ) ( 9 )

Balance as of January 31, $ 62 $ 57

Ending balance as of January 31, $ 92 $ 62

At January 31, 2024, the Company’s unrecognized tax benefits associated with uncertain tax positions were $ 92,000 , of which $ 73,000 if recognized, would favorably affect the effective tax rate.

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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.

Pursuant to ASC 842- Leases, 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.

1 unchanged sentence

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 has an operating lease for its corporate office, manufacturing facility 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

operating leases that include certain fleet management and maintenance services.

In addition, the Company leases trucks and automobiles under operating leases that include certain fleet management and maintenance services.

Certain of the leases contain renewal or purchase options and require payment for property taxes and insurance.

7 unchanged sentences

In accordance with ASC 842, quantitative information regarding our leases is as follows:

Twelve-Months Ended

1/31/2024 1/31/2023

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The Company and other furniture manufacturers are subject to federal, state, and local laws and regulations relating to the discharge of materials into the environment and the generation, handling, storage, transportation and disposal of waste and hazardous materials.

The Company has expended, and expects to continue to spend, significant amounts in the future to comply

with environmental laws.

The Company has expended, and expects to continue to spend, significant amounts in the future to comply with environmental laws.

Normal recurring expenses relating to operating the Company factories in a manner that meets or exceeds environmental laws are matched to the cost of producing inventory.

2 unchanged sentences

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.

$ 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.

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 $ 770,000 and $ 1.3 million at January 31, 2024 and 2023, 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.

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Subsequent Events

On February 27, 2024, Virco Mfg.

Corporation (“Virco”) declared a cash dividend for the Company’s first fiscal quarter of $ 0.02 per share on each outstanding share of common stock.

The dividend is payable on April 10, 2024 to stockholders of record of the common stock as of the close of business on March 7, 2024.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data