What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-12-08 compared with 2025-09-05 · 79 added, 57 removed, 45 unchanged (75% of the section changed)

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Incoming orders follow a similar cycle, with the bulk of orders arriving approximately 4-6 weeks preceding the summer delivery season.

On July 4, 2025, the OBBB Act, which includes a broad range of tax reform provisions, was signed into law in the United States.

On July 4, 2025, the One Big Beautiful Bill (“OBBB”) Act, which includes a broad range of tax reform provisions, was signed into law in the United States.

FASB Topic 740, Income Taxes , requires the effects of tax law changes to be recognized in the period of enactment.

As the legislation was signed into law before the close of the second quarter, the impacts are contemplated in our operating results for the six months ended July 31, 2025.

Among other provisions, the OBBB repealed the capitalization of domestic research and development expenditures, extended bonus depreciation on fixed assets, and includes a reduced deduction rate on foreign-derived deduction eligible income and income from non-U.S.

As the legislation was signed into law before the close of the second quarter, the impacts are contemplated in the Company's operating results for the nine months ended October 31, 2025.

Among other provisions, the OBBB repealed the capitalization of domestic research and development expenditures, extended bonus depreciation on fixed assets, and reduced the deduction rate on foreign-derived deduction eligible income and income from non-U.S.

subsidiaries.

These provisions are not expected to have a material impact to our effective tax rate and deferred tax assets in fiscal year ending January 31, 2026 and future periods.

During the three months and six months ended July 31, 2025, the Company experienced a decrease in net revenue of approximately 15.1% and 18.9%, respectively, compared to last year.

In the same periods last year, the Company benefited from a large series of one-time, disaster recovery counter-seasonal shipments that resulted in approximately $4 million of additional shipments for the three months ended July 31, 2024 and approximately $13 million for the six months ended July 31, 2024.

These provisions are not expected to have a material impact to the Company's effective tax rate and deferred tax assets in fiscal year ending January 31, 2026 and future periods.

During the three months and nine months ended October 31, 2025, the Company experienced a decrease in net sales of approximately 42.3% and 27.0%, respectively, compared to the same periods in the prior fiscal year.

In the same periods last year, the Company benefited from a large series of one-time, disaster recovery counter-seasonal shipments that resulted in approximately $6 million of additional shipments for the three months ended October 31, 2024 and approximately $19 million for the nine months ended October 31, 2024.

These deliveries positively affected the Company’s traditional cycle in the prior year, with positive impacts on production, overhead absorption, accounts receivable, collections, and reductions in inventory, as well as lower borrowings to support that inventory.

The current dynamic macroeconomic environment and uncertainty surrounding the government’s budget and spending levels have adversely affected the demand for our products.

Reflecting the absence of these unusual disaster recovery counter-seasonal orders as of July 31, 2025, the Company’s shipments plus backlog was approximately 25.8% lower than last year.

Excluding this one-time event, net sales for the three months and nine months ended October 31, 2025 decreased approximately 38.3% and 22.1%, respectively.

Management believes that the traditional seasonal cycle for school furniture and the Company's ability to service that seasonal cycle have returned to its pre-pandemic normal.

The current dynamic macroeconomic environment and uncertainty surrounding the government’s budget and spending levels have adversely affected the demand for the Company's school furniture.

Reflecting the absence of last year's unusual disaster recovery counter-seasonal orders as of October 31, 2025, the Company’s shipments plus backlog was approximately 25% lower than as of the same date last year.

Management has moderated production levels and will continue to monitor incoming order rates in pursuit of an appropriate balance between on-time summer deliveries and inventory investment.

The Company believes that the majority of the current backlog will be delivered and recognized as revenue during the third quarter of the current fiscal year.

Order backlog at October 31, 2025 declined slightly to approximately $26 million compared to $27 million in the prior year.

The Company believes that the majority of the current backlog will be delivered and recognized as revenue during the fourth quarter of the current fiscal year.

As discussed in the Risk Factors section of the Company’s Form 10-K for the fiscal year ended January 31, 2025, the Company’s recent revenue growth in fiscal 2025 and 2024 was partly a result of the delayed recovery from COVID-related school closures and subsequent supply-chain disruptions.

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The short- and mid-term impacts of trade uncertainties could adversely affect the Company’s operating results and financial condition.

For more information on risks to the Company’s business caused by the recent changes in macro-economic conditions, please see Part 1, Item 1A.

For more information on risks to the Company’s business caused by the recent changes in macro-economic

conditions, please see Part 1, Item 1A.

“Risk Factors—Industry and Economic Risks” included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2025.

Three Months Ended July 31, 2025

For the three months ended July 31, 2025, the Company earned a net income of $10.2 million on sales of $92.1 million, compared to net income of $16.8 million on sales of $108.4 million in the same period of the prior year.

Sales for the three months ended July 31, 2025 decreased by approximately $16.3 million or 15.1%, compared to the prior year.

Second quarter revenue in the prior year was boosted by the previously-noted disaster recovery order, which contributed approximately $4 million in shipments in the prior year.

The remaining decrease was driven by the current dynamic macroeconomic environment and uncertainty surrounding the government’s budget and spending levels, which adversely affected the demand for our products.

Cost of sales was 55.6% for the quarter ended July 31, 2025, compared to 53.7% for the same quarter ended last year.

Gross margin for the second quarter was 44.4% compared to 46.3% in the prior year.

The decrease in gross margin was attributable to a slight decline in the proportion of orders delivered with full service.

These orders carry higher margins than orders with simple delivery.

Selling, general and administrative expenses ("SG&A") as a percentage of sales for the three months ended July 31, 2025 was 27.7% compared to 26.1% the same period last year.

The increase in SG&A was primarily due to higher delivery costs.

The Company holds equity securities in a Rabbi Trust to fund benefits under its VIP Pension Plan.

The Company recorded approximately $1.0 million of unrealized loss and $0.6 million of unrealized gain during the three months ended July 31, 2025 and 2024, respectively.

Net interest expense was $0.2 million for the three months ended July 31, 2025, compared to $0.3 million for the same period last year.

The decrease was attributable to less demand for seasonal working capital and related lower borrowings under the Company’s credit facility with PNC Bank.

For the three months ended July 31, 2025 and 2024, the effective income tax rates were 28.1% and 23.7%, respectively.

Three Months Ended October 31, 2025

For the three months ended October 31, 2025, the Company incurred a net loss of $1.3 million on sales of $47.6 million, compared to net income of $8.4 million on sales of $82.6 million in the same period of the prior year.

Sales for the three months ended October 31, 2025 decreased by approximately $35.0 million or 42.3%, compared to the prior year.

Third quarter sales in the prior year was boosted by the previously-noted disaster recovery order, which contributed approximately $6 million in shipments.

Cost of goods sold was 62.0% of net sales for the quarter ended October 31, 2025, compared to 55.6% for the same quarter ended last year.

Gross margin for the third quarter was 38.0% compared to 44.4% in the prior year.

Gross margin declined in the current period primarily due to lower sales volume combined with a decline in production levels, partially offset by a slight reduction in manufacturing spending.

The Company reduced production levels in order to maintain control over inventory levels.

Selling, general and administrative expenses ("SG&A") for the three months ended October 31, 2025 decreased by $5.8 million.

The decrease in SG&A expenses was primarily due to lower variable selling expenses related to the overall decline in sales volume.

SG&A expenses as a percentage of sales for the three months ended October 31, 2025 were 41.5% compared to 30.9% in the same period last year.

This was primarily due to lower sales volume in relation to fixed SG&A costs.

Since a significant portion of SG&A expense does not fluctuate with sales volume, SG&A increased as a percentage of sales.

The Company holds equity securities in a rabbi trust to fund benefits under its VIP Retirement Plan (the "VIP Plan").

The Company recorded approximately $49,000 of unrealized loss and $246,000 of unrealized gain during the three months ended October 31, 2025 and 2024, respectively.

For the three months ended October 31, 2025 and 2024, the effective income tax rates were 26.8% and 25.5%, respectively.

The change in effective tax rates was due to a change in the forecasted mix of income before actual federal and state income taxes and estimated permanent differences.

The OBBB did not have a material impact on our effective income tax rate for the three months ended July 31, 2025.

Six Months Ended July 31, 2025

For the six months ended July 31, 2025, the Company earned a net income of $10.9 million on sales of $125.8 million, compared to net income of $19.0 million on sales of $155.2 million in the same period of the prior year.

The OBBB did not have a material impact on the Company's effective income tax rate for the three months ended October 31, 2025.

Nine Months Ended October 31, 2025

For the nine months ended October 31, 2025, the Company earned a net income of $9.6 million on sales of $173.5 million, compared to net income of $27.4 million on sales of $237.8 million in the same period of the prior year.

Sales for the fiscal year decreased by approximately $64.3 million or 27.0% compared to the prior year.

Fiscal year to date revenue in the prior year was boosted by the previously-noted disaster recovery order, which contributed approximately $13 million in shipments in the prior year.

Cost of sales was 54.8% for the six months ended July 31, 2025, compared to 54.5% for the same period ended last year.

Gross margin for the six months ended July 31, 2025 was 45.2% compared to 45.5% in the prior year.

The decrease in gross margin was attributable to a slight decline in the proportion of orders delivered with full service.

These orders carry higher margins than orders with simple delivery.

SG&A for the six months ended July 31, 2025 was 33.1% compared to 29.5% the same period last year.

The increase in SG&A was primarily due to higher delivery costs.

The Company holds equity securities in a Rabbi Trust to fund benefits under its VIP Pension Plan.

The Company recorded approximately $0.2 million and $0.8 million of unrealized gain during the six months ended July 31, 2025 and 2024, respectively.

Net interest expense was $0.3 million for the six months ended July 31, 2025, compared to $0.5 million for the same period last year.

The decrease was attributable to less demand for seasonal working capital and related lower borrowings under the Company’s credit facility with PNC Bank.

For the six months ended July 31, 2025 and 2024, the effective income tax rates were 28.0% and 23.9%, respectively.

Fiscal year to date sales in the prior year was boosted by the previously-noted disaster recovery order, which contributed approximately $19 million in shipments.

Cost of goods sold was 56.8% for the nine months ended October 31, 2025, compared to 54.9% for the same period ended last year.

Gross margin for the nine months ended October 31, 2025 was 43.2% compared to 45.1% in the prior year.

Gross margin declined in the current period primarily due to lower sales volume combined with a decline in production levels, partially offset by a slight reduction in manufacturing spending.

The Company reduced production levels in order to maintain control over inventory levels.

SG&A for the nine months ended October 31, 2025 decreased by $9.9 million.

The decrease in SG&A expenses was primarily due to lower variable selling expenses related to the overall decline in sales volume.

SG&A expenses as a percentage of sales for the nine months ended October 31, 2025 were 35.4% compared to 30.0% in the same period last year.

This was primarily due to lower sales volume in relation to fixed SG&A costs.

Since a significant portion of SG&A expense does not fluctuate with sales volume, SG&A increased as a percentage of sales.

The Company holds equity securities in a rabbi trust to fund benefits under its VIP Plan.

The Company recorded approximately $0.2 million and $1.1 million of unrealized gain during the nine months ended October 31, 2025 and 2024, respectively.

For the nine months ended October 31, 2025 and 2024, the effective income tax rates were 28.2% and 24.4%, respectively.

The change in effective tax rates was due to a change in the forecasted mix of income before actual federal and state income taxes and estimated permanent differences.

The OBBB did not have a material impact on our effective income tax rate for the six months ended July 31, 2025.

The OBBB did not have a material impact on the Company's effective income tax rate for the nine months ended October 31, 2025.

Liquidity and Capital Resources

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In addition, the Company finances a large balance of accounts receivable during the peak season.

Accounts Receivable decreased by $9.2 million at July 31, 2025 compared to last year.

The change is primarily due to a decrease in shipments (as discussed above under “Overview”) and offset slightly by improved collections.

Inventory increased by $1.3 million at July 31, 2025 compared to last year.

The slight increase is primarily driven by higher material costs and offset slightly by decreased production hours during the year.

Accrual basis capital expenditures for the six months ended July 31, 2025 were $2.8 million compared to $3.1 million for the same period last year.

Accounts Receivable decreased by $14.4 million at October 31, 2025 compared to last year.

The change is primarily due to a decrease in shipments (as discussed above under “Overview”).

Inventory increased by $4.1 million at October 31, 2025 compared to last year.

The increase is primarily driven by increased costs, offset slightly by decreased production levels during the year.

Accrual basis capital expenditures for the nine months ended October 31, 2025 were $3.7 million compared to $5.4 million for the same period last year.

Capital expenditures are being financed through the Company's operating cash flow and restricted to not exceed $8.0 million per year by covenant.

On April 9, 2025, the Company entered into Amendment No.

6 to the Credit Agreement with PNC Bank, which established a new category of permitted share repurchases in an amount up to $7.5 million, which is in addition to the dollar limits on permitted share repurchases under the Credit Agreement discussed above.

The share repurchases under the new category must occur during the fiscal year ending January 31, 2026, may not occur while any Default or Event of Default exists or would result from such repurchases, and must be made solely from cash on hand and not from the proceeds of advances under the Credit Facility.

The permitted share repurchases under this new category are also not counted as “Restricted Payments” when calculating the Company’s compliance with the Fixed Charge Coverage Ratio covenants in the Credit Agreement.

For the six months ended July 31, 2025, the Company spent $4.0 million to repurchase 348,944 shares of its common stock.

As of July 31, 2025, $7.2 million was authorized by the Board and available for repurchase of shares by the Company, subject to the restrictions on repurchases under its Credit Agreement with PNC Bank.

As a result of materially improved profitability in recent years, the Company had approximately $26.5 million and $38.9 million in cash at October 31, 2025 and 2024, respectively.

The Company uses its cash flow generated from operations to fund capital expenditures, quarterly cash dividends and stock repurchases.

For the nine months ended October 31,2025, the Company spent $5.1 million in capital expenditures, issued $1.2 million of cash dividends and spent $4.0 million to repurchase 348,944 shares of its common stock.

As of October 31, 2025, $7.2 million was authorized by the Board and available for repurchase of shares by the Company, subject to the restrictions on repurchases under its Credit Agreement with PNC Bank, National Association ("PNC").

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

During the quarter ended October 31, 2025, the Company’s Board of Directors approved the termination of the VIP Plan, a supplemental retirement plan for certain key employees.

This decision was part of the Company's ongoing efforts to reduce benefit obligations and ongoing administrative costs.

The termination is expected to be settled through lump sum distributions to participants funded by the liquidation of assets held in a rabbi trust, which are expected to occur during the fourth quarter of fiscal year 2027.

Management anticipates these distributions will not materially impact the Company's current and long-term liquidity and that the termination will not materially impact the Company's consolidated financial statements.

On April 9, 2025, the Company entered into Amendment No.

6 to the Credit Agreement with PNC, which established a new category of permitted share repurchases in an amount up to $7.5 million, which was a new category in addition to the share repurchases under the Credit Agreement.

The share repurchases under the new category were required to occur during the fiscal year ending January 31, 2026, may not occur while any Default or Event of Default exists or would result from such repurchases, and must be made solely from cash on hand and not from the proceeds of advances under the Credit Agreement.

The permitted share repurchases under this new category were also not counted as “Restricted Payments” when calculating the Company’s compliance with the Fixed Charge Coverage Ratio ("FCCR") covenants in the Credit Agreement.

On December 5, 2025, the Company entered into Amendment No.

7 to the Credit Agreement with PNC.

Amendment No.

7 amended the Credit Agreement and the secured revolving line of credit provided to the Company by PNC to reflect the following material changes:

Modify the repurchase window, originally from February 1, 2025 to January 31, 2026, changed to November 1, 2024 to October 31, 2025 for the $ 7.5 million of permitted share repurchases that are excluded from a) the FCCR testing, b) the Payment Conditions governing stock repurchases, and c) the trailing twelve months ("TTM") $ 8 million aggregate limit on stock repurchases and dividends.

Commencing with respect to the fiscal quarter ending October 31, 2025, modify the definition of Earnings Before Interest, Taxes, Depreciation, and Amortization as it relates to the FCCR testing to add back non-cash lease expense or subtract non-cash lease income for each TTM reporting period.

Reduce the Revolving Line of Credit limit by $ 10 million, except for the months of October, December, and January.

The maximum Revolving Line of Credit limit during June through August was reduced from $ 70 million to $ 60 million.

Reduce the $ 15 million seasonal over-advance to $ 10 million and limit to the months of January through June (removing access in the month of July).

In connection with this amendment, the Company incurred fees totaling $20,000 which will be capitalized as deferred financing costs when paid.

Based on the Company’s current projections, raw material costs and its ability to introduce price increases, management believes it will maintain compliance with its financial covenants under the Credit Agreement, although risks and uncertainties remain, such as changes in economic conditions, changing raw material costs and supply chain challenges.

The Company was in compliance with its debt covenants as of July 31, 2025.

The Company believes that cash flows from operations, together with the Company's unused borrowing capacity with PNC Bank will be sufficient to fund the Company's debt service requirements, capital expenditures and working capital needs for the next twelve months.

The Company did not have an outstanding amount under the Credit Agreement as of October 31, 2025.

The Company believes that cash flows from operations and cash on hand, together with the Company's unused borrowing capacity with PNC, will be sufficient to fund the Company's debt service requirements, capital expenditures and working capital needs for the next twelve months.

Off Balance Sheet Arrangements

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Forward-Looking Statements

From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2025, the Company or its representatives have made and may make forward-looking statements, orally or in writing.

From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2025, the Company or its representatives have made and may make forward-looking statements, orally or in writing.

Such forward-looking statements may be included in, without limitation, reports to stockholders, press releases, oral statements made with the approval of an authorized executive officer of the Company and filings with the Securities and Exchange Commission ("SEC").

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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-Q

Item 2. Management’s Discussion and Analysis