What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-04-14 compared with 2024-04-12 · 97 added, 106 removed, 287 unchanged (41% of the section changed)

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, 2023, and 2024 order rates recovered.

Initially, the Company has difficulty sourcing adequate new permanent and temporary workers.

The Company remedied this by providing significant raises to its hourly work force, and for fiscal years 2023 and 2024 our ability to support the seasonal business model returned to pre-COVID capabilities.

Corporation is the nation’s largest domestic manufacturer and distributor of Furniture, Fixtures, and Equipment ("FF&E") for the education (K-12) market.

The Company’s operating model and unique market differs in several ways from the traditional furniture industry model.

The furniture industry is traditionally structured around furniture manufacturers that sell to end customers through dealership networks.

These dealership networks can be aligned with one manufacturer or open to multiple manufacturers.

Virco is one of the few domestic manufacturers of school furniture that call on and sell direct to school customers, with approximately 70% to 80% of sales being direct to customers.

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.

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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 approximately 80% of sales delivered FOB classroom destination.

Approximately 75% of sales are delivered FOB 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.

Virco's sales force is supported by a project management team which includes field-based project specialists, in-house interior designers, project management specialists, purchasing specialists, and field service supervisors.

The project management team and the sales force utilize the Company's proprietary PlanSCAPE® software in conjunction with Building Information Modeling 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, and 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.

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.

The Company has developed a comprehensive product offering for the FF&E needs of the K-12 education market, enabling a school to procure all of its FF&E requirements from one source.

China’s entry into the World Trade Organization in 2001 had a severe impact on the industry, with most furniture manufacturers closing their domestic fabrication facilities and importing components or finished goods from China.

This also enabled dealers and resellers to bypass domestic sources and purchase direct from China for domestic distribution.

During this time Virco retained its domestic fabrication facilities.

Today these facilities are substantially depreciated on our books but extremely well maintained, automated where cost effective, and fully operational.

Recent economic events, in some cases accelerated by COVID, tariffs, volatility in both cost and availability of ocean freight, and other extended supply chain challenges have made our domestic manufacturing footprint a significant competitive advantage compared to companies which import finished products.

Furniture sold into the educational market is characteristically heavy, bulky, and logistically challenging compared to other markets significantly impacted by imports.

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.

In the current fiscal year, the Company has benefited from a large series of disaster recovery orders that were received at the end of the prior fiscal year and the first quarter of the current year.

During fiscal 2025, the Company shipped and recognized revenue related to these orders of approximately $9 million in the first quarter, $4 million in the second quarter, $6 million in the third quarter and $4 million in the fourth quarter.

These shipments positively affected the Company’s traditional seasonal cycle this fiscal year, with positive impacts on production, overhead absorption, accounts receivable, collections, as well as lower borrowings to support that inventory.

The Company believes that this project was substantially completed at the end of fiscal year 2025.

The Company further believes that the timing and related positive impacts of this project are unusual and that more typical seasonal and financial patterns are likely to return after this project concludes.

Following a downturn during the COVID pandemic, order rates recovered during fiscal 2022, 2023, and 2024.

Initially, the Company had difficulty sourcing adequate new permanent and temporary workers.

The Company remedied this by providing significant raises to its hourly work force, and for fiscal years 2023, 2024, and 2025 our ability to support the seasonal business model returned to pre-COVID capabilities, with the Company delivering 47% - 49% of annual revenue during June, July, and August.

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 75 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.

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.

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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.

In fiscal 2024, approximately 49% of the Company's total sales were delivered in June, July, and August.

In fiscal 2024 and 2025, approximately 47% - 49% 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.

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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.

Distribution and service has become a more meaningful component of our business as most deliveries are to school sites, and over 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.

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Increased selling prices covered increases in commodity prices during fiscal 2023.

In 2024, the Company increased selling prices in anticipation of additional cost increases.

The cost of materials in 2024 were reasonably stable compared to the volatility in prior years – especially the years impacted by COVID.

In 2024 and 2025, the Company increased selling prices in anticipation of additional cost increases.

The cost of materials in 2024 and 2025 were reasonably stable compared to the volatility in prior years – especially the years impacted by COVID.

Approximately 75% 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.

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The Company typically benefits from any decreases in raw material or distribution costs under the contracts described above.

In early 2025, there have been significant changes and proposed changes to U.S.

trade policies.

On April 2, 2025, President Trump announced new tariffs on foreign imported goods, including a baseline duty of 10% on foreign imports and additional tariffs on imports from China of an additional 34%.

also reinstated the steel import tariff to 25% effective March 12, 2025.

These tariffs are likely to result in increased prices for imported components and materials supplied locally.

For the year ending January 31, 2026 ("fiscal 2026"), the Company anticipates continued uncertainty and volatility in commodity costs, particularly with respect to steel, plastic, and other raw materials, transportation, and energy.

The Company may be challenged in effectively increasing the prices of its products, and its business and results of operations may be adversely affected.

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.

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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.

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.

Finally, many of our domestic competitors, especially small dealerships, may be undercapitalized and less capable of supporting the significant seasonal nature of our business.

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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.

Factors that could cause or contribute to these differences include the factors discussed above under “Item 1A.

Risk Factors” , and elsewhere in this Annual Report on Form 10-K.

Virco's critical accounting policies and estimates are as follows:

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There have been no changes to our policies for establishing adjustments throughout the year, and we do not expect significant changes to our historical obsolescence levels.

A 10% increase in our year-end inventory adjustments would decrease our net income by approximately $480,000, on an after-tax basis.

A 10% increase in our year-end inventory adjustments would decrease our net income by approximately $0.4 million, on an after-tax basis.

The net income would increase by similar amounts if the inventory adjustments was to decrease by a comparable percentage.

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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 4.0% for fiscal 2025 and fiscal 2024.

Given the relatively short term over which the known losses and IBNR losses are discounted, the sensitivity to the discount rate is not significant.

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.

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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 2024 and 6.0% for fiscal 2023.

For the Employee Plan, the Company estimated a 6.0% return on plan assets for fiscal 2025 and 2024.

The VIP Plan is unfunded and has no plan assets.

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Because the plans have been frozen for many years, there is no service cost related to the plans.

In the current year, the Plan purchased approximately $5.0 million of annuities for retired employees.

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.

During fiscal year 2024, the Plan purchased approximately $5.0 million of annuities for retired employees.

The Company did not incur settlement costs in fiscal 2025.

In fiscal 2024, the Company has incurred settlement costs for the Employee Plan due to a large number of lump-sum benefits paid to retired and terminated employees.

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 2024 and the third, and fourth quarters of fiscal 2023.

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.

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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, 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 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 $17.7 million greater than the prior year ended January 31, 2022 and $34.4 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.

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.

At January 31, 2025, the Company recorded a partial valuation allowances of $236,000 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.

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Financial Highlights

The Company earned a pre-tax profit of $29.2 million on net sales of $269.1 million for fiscal 2024, compared to pre-tax profit of $8.0 million on net sales of $231.1 million in fiscal 2023, an improvement of $21.2 million.

Net income per diluted share increased to $1.34 for fiscal 2024, compared to $1.02 per diluted share in the prior year.

Cash flow provided by operations was $27.0 million in fiscal 2024, compared to cash used in operations of $3.8 million in fiscal 2023.

Virco's net sales increased by 16.5% in fiscal 2024 to $269.1 million compared to $231.1 million in fiscal 2023.

The increase in net sales was attributable to an increase in selling prices combined with a comparable increase from 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.

In fiscal 2023 the Company continued to benefit from increased order rates, with sales orders increasing by more than 13%.

In fiscal 2024 order rates increased by approximately 6%.

The Company believes that order rates have now substantially recovered from the impact of COVID.

Orders for furniture which included full service classroom delivery increased relative to total sales as schools increasingly rely on Virco to provide logistics and turn key site support.

For fiscal 2025, the lingering effect of the COVID-19 pandemic and related generosity of federal support is continuing to create uncertainty as state and local government budgets may be adversely impacted.

The Company has effectively increased selling prices under its largest contracts to recover volatile commodity, energy, freight, and labor costs.

The Company earned a pre-tax profit of $28.4 million on net sales of $266.2 million for fiscal 2025, compared to pre-tax profit of $29.2 million on net sales of $269.1 million in fiscal 2024.

Net income per diluted share was $1.32 for fiscal 2025, compared to $1.34 per diluted share in the prior year.

Cash flow provided by operations was $33.1 million in fiscal 2025, compared to cash provided by operations of $27.0 million in fiscal 2024.

Virco's net sales decreased by 1.1% in fiscal 2025 to $266.2 million compared to $269.1 million in fiscal 2024.

The small decrease in net sales was attributable to a slight increase in selling prices offset by a minimal decrease in unit volume.

In fiscal 2025, order rates increased by approximately 3.3% compared to 2024.

The Company believes that order rates have now substantially recovered from the impact of COVID and related supply chain disruptions.

The Company has effectively increased selling prices under its largest contracts to recover volatile commodity, energy, freight, and labor costs incurred in recent years.

The Company does not anticipate material margin growth as recent price increases have restored profitability.

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Cost of Sales

Cost of sales was 56.9% of net sales in fiscal 2024 and 63.1% of net sales in fiscal 2023.

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 combined with an increase in orders requiring full service.

Cost of sales was 56.9% of net sales in both fiscal 2025 and fiscal 2024.

In the current year, the composition of orders moderated slightly with a slight decrease in orders delivered with full service.

Full service orders typically generate greater margins, but also result in increased service costs which are included in selling, general, and administrative expenses.

The material portion of our costs as a percentage of sales was 33.2% of net sales in fiscal 2025 and 34.7% of net sales in fiscal 2024.

This was primarily due to price increases in 2023 and 2024 combined with relatively stable commodity costs.

Direct labor costs decreased slightly as a percentage of sales.

Overhead costs as a percentage of sales increased, primarily due to reduced levels of production.

The Company reduced production levels in order to control inventory levels and partly due to stabilized supply chain conditions.

During fiscal 2025, 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.

This was primarily due to relatively stable commodity costs in 2025 and 2024.

Direct labor costs increased slightly as a percentage of sales.

Overhead costs as a percentage of sales increased slightly.

The net result of all activity was no change in COS as a percentage of sales.

The Company also anticipates continued and possibly increased supply chain disruptions from both domestic and international suppliers.

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Selling, General and Administrative and Other Expenses

Selling, general and administrative expenses (SG&A) for fiscal 2024 increased by $9.5 million to $84.2 million from $74.7 million but decreased as a percentage of net sales to 31.3% in fiscal 2024 from 32.3% in fiscal 2023.

The increase in SG&A was primarily attributable to variable service expenses and variable selling expenses.

Pension expense increased due to Plan settlement expenses.

Interest expense was $700,000 higher in fiscal 2024 compared to fiscal 2023 because of increased levels of seasonal borrowing and higher interest rates.

Selling, general and administrative expenses ("SG&A") for fiscal 2025 increased by $2.6 million to $86.8 million from $84.2 million.

The increase in SG&A was primarily attributable to an increase in variable selling and other compensation expenses.

Pension expense decreased due to increased discount rates and because prior year included plan settlement expenses.

Interest expense was $2.3 million lower in fiscal 2025 compared to fiscal 2024 because of decreased levels of borrowing.

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.

The Company utilized a material portion of its federal and certain state net operating loss carryforwards ("NOL") in fiscal 2023 and anticipated that all federal NOL could 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.

Our effective tax rate was 23.9% for fiscal 2025, and 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 2024 the Company utilized all of its federal NOL’s and a significant portion of its state NOL’s.

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(In thousands)

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

Net cash provided by operating activities $ 33,128 $ 26,960

Net cash used in investing activities (5,563) (4,759)

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

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

Net cash used in financing activities (5,984) (17,972)

Net increase in cash $ 21,581 $ 4,229

Operating activities.

Our cash flows from operating activities are primarily collections from the sale and distribution of furniture to our customers in the education market.

Net cash provided in operations increased by $30.7 million for the fiscal year ended January 31, 2024.

This improvement is primarily attributable to improved profitability (pre-tax as prior year income included an adjustment to deferred tax valuation) combined with a reduction in inventory.

The prior year was adversely affected by an increase in inventory due to a large order received in the fourth quarter combined with a recovery from supply chain issues incurred in 2022.

Net cash provided in operations was $33.1 million in 2025 and $27.0 million in 2024.

The increase in cash provided was primarily attributable to decrease in accounts receivable offset by an increase in income tax payments.

Investing activities.

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Our net investments primarily consist of investments in our factories and technology to support our business activities.

Net investment activities were lower than typical for the fiscal year ended January 31, 2023 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.

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Financing activities.

Our financing activities primarily consist of the proceeds and repayments of borrowings under our line of credit with PNC Bank.

Our financing activities primarily consist of the proceeds and repayments of borrowings under our line of credit with PNC Bank, payment of cash dividends, and repurchases of Company stock.

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.

In fiscal 2024 the Company materially reduced its year end borrowings under the line of credit, primarily due to cash flows from operations.

In fiscal years 2025 and 2024 the Company materially reduced its year end borrowings under the line of credit, primarily due to cash flows from operations.

Inflation and Future Change in Prices

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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.

Due to the 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 2023, the cost of commodities was volatile, but not as severe as years during the peak of COVID.

During fiscal 2024 the cost of commodities was reasonably stable.

During fiscal 2025 and 2024 the cost of commodities was reasonably stable.

For fiscal 2026, 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.

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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 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, and 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.

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The Company has secured sufficient warehouse capacity to accommodate our current needs as well as anticipated future growth.

Additionally, the Company may elect to opportunistically purchase shares based on excess cash generation and share price considerations.

In fiscal 2025, the Company spent $3.8 million to repurchase 342,026 shares of its common stock.

As of January 31, 2025, $11.2 million was authorized and available for repurchase of shares by the Company.

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 (“Restated Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”).

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 (“Restated Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”).

The Restated Credit Agreement as currently in effect provides the Borrowers with a secured revolving line of credit (“Revolving Credit Facility”) of up to $65.0 million, with seasonal adjustments to the credit limit (up to $70.0 million during the months of June, July and August 2024) and subject to borrowing base limitations and includes a sub-limit of up to $3.0 million for issuances of letters of credit.

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The clean-down provision allows the Company to maintain the minimum outstanding balance of $10.0 million to be carried on an uninterrupted period extending beyond one year and ultimately due at the scheduled maturity.

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.

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.

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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.

Based on the Company’s current projections, raw material costs and its ability

to introduce price increases, management believes it will maintain compliance with these financial covenants, although there are uncertainties therewithin, such as raw material costs and supply chain challenges.

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

Approximately $30.0 million and $12.9 million were available for borrowing as of January 31, 2024 and 2023, respectively.

Approximately $30.0 million was available for borrowing as of January 31, 2025 and 2024.

Long-Term Capital Requirements

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In the future, the Company may purchase additional annuities from third parties to further de-risk the Plan.

The Company incurred settlement costs in the third and fourth quarters of fiscal 2024.

The Company did not incur settlement costs in fiscal 2025.

The Company incurred settlement costs in the third and fourth quarters of fiscal 2024.

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Contributions to the Qualified Plan Trust and benefit payments under the VIP Plan totaled $623,000 and $676,000 in fiscal 2025 and 2024, respectively.

Contributions during fiscal 2025 will depend upon actual investment results and benefit payments but are anticipated to be less than $0.5 million.

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

Contributions during fiscal 2026 will depend upon actual investment results and benefit payments but are anticipated to be less than $500,000.

At January 31, 2025, accumulated other comprehensive income of $422,000, 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, 2024, a 1% reduction in investment return would have increased expense by approximately $163,000, 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 $3.0 million and increase pension expense by approximately $352,000.

If the Company were to have used different assumptions in the fiscal year ended January 31, 2025, a 1% reduction in investment return would have increased pension expense by approximately $180,000, 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 $2.7 million and increase pension expense by approximately $190,000.

Stockholders' Equity

Historically it has been the board of directors' policy to periodically review the payment of cash and stock dividends in light of the Company's earnings and liquidity.

The Company paid four quarterly cash dividends of $0.015 per share in 2018.

The Company declared a cash dividend in the fourth quarter of 2024 and in each quarter of 2025.

Virco issued a 10% stock dividend or 3/2 stock split every year beginning in 1983 through 2003.

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In addition, the Company has active safety programs to improve plant safety and control workers' compensation losses.

As of January 31, 2024, 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.

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Financial Statements and Supplementary Data" to this Annual Report on Form 10-K.

Quantitative and Qualitative Disclosures about Market Risk

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and as such is not required to provide the information under this item.

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 7. Management’s Discussion and Analysis