What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-04-08 compared with 2025-04-14 · 121 added, 115 removed, 269 unchanged (47% of the section changed)

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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.

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 75% to 85% of sales being direct to customers.

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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.

In the prior fiscal year, the Company benefited from a large series of disaster recovery orders that were received at the end of fiscal 2024 and the first quarter of fiscal 2025.

During fiscal 2025, the Company shipped and recognized revenue related to these orders of approximately $23.0 million.

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

This project was substantially completed at the end of fiscal year 2025.

The Company believes that the timing and related positive impacts of this project were non-recurring and that more typical seasonal and financial patterns are likely to return moving forward.

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.

The Company remedied this by providing significant raises to its hourly work force, and for fiscal years 2023 - 2026 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 76 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.

In fiscal 2022, demand began to return to products supporting collaborative learning.

This trend continued through fiscal 2023, 2024, and 2025.

This trend continued

through fiscal 2023, 2024, 2025 and 2026.

Our product offerings are continually enhanced with an ongoing new product development program that incorporates internally developed products as well as product lines developed with accomplished designers.

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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.

Beginning in 2025, the United States implemented and proposed significant changes to trade policies, including broad-based tariffs on imports from certain countries and product categories under the International Emergency Economic Powers Act (“IEEPA”).

These actions included tariffs on imports from Canada, Mexico, and China, as well as higher tariffs on steel, aluminum, and certain manufactured goods, including furniture.

As a result, U.S.

tariff rates increased to their highest levels in decades.

Tariffs have also been used as a policy tool in trade negotiations and in connection with broader geopolitical objectives.

These tariffs are expected to increase the cost of imported components and materials during fiscal 2027.

Although the Company increased product prices in fiscal 2026 and 2027 to offset higher costs, it may not be able to fully pass through increases in raw materials, transportation, and energy, including steel and plastics.

On February 20, 2026, the U.S.

Supreme Court issued a ruling in Learning Resources, Inc.

Trump, striking down certain tariffs previously imposed under the IEEPA.

The ultimate availability, timing, and amount of any potential refunds of such tariffs remain highly uncertain and are subject to further legal, regulatory, and administrative developments.

Following the Supreme Court’s decision, the Trump Administration implemented a 10% global tariff under Section 122 of the Trade Act of 1974, effective February 24, 2026 for a period of 150 days.

There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on our business.

continue to monitor and evaluate these developments and assess their potential impact on our business, financial condition and results of operations.

Ongoing conflict in the Middle East has contributed to volatility in crude oil and natural gas markets.

Because many plastic resins are petroleum- and natural gas-based, disruptions in these markets may reduce supply availability and increase material costs.

Energy price volatility may also increase transportation and logistics costs.

The Company is uncertain as to the impact this conflict might have on its cost of goods sold and margins.

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 included in the Company's operating results for fiscal 2026.

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

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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The preparation of these financial statements requires Virco management to make estimates and judgments that affect the Company's reported assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

Certain of these estimates are considered critical accounting estimates.

On an ongoing basis, management evaluates estimates, including those related to valuation of inventory and related excess and obsolete inventories, self-insured retention for workers' compensation insurance, liabilities under defined benefit and other compensation programs, and estimates related to deferred tax assets and liabilities.

Certain of these estimates are considered critical accounting estimates (slow-moving and obsolete inventories).

On an ongoing basis, management evaluates estimates, including those related to valuation of inventory and related slow-moving and obsolete inventories, self-insured retention for workers' compensation insurance and estimates related to deferred tax assets and liabilities.

Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.

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Slow-Moving and Obsolete Inventories :

Inventory is valued at the lower of cost or net realizable value (determined on a first-in, first-out basis (“FIFO”)) and includes material, labor, and factory overhead.

Inventories are valued at the lower of cost or net realizable value (determined on a first-in, first-out (“FIFO”) basis and include material, labor, and factory overhead.

The Company records valuation adjustments for the excess cost of the inventory over its estimated net realizable value.

Valuation adjustments for slow-moving and obsolete inventory involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the Company's financial condition or results of operations.

Valuation adjustments for slow-moving and obsolete inventory are calculated using an estimated percentage applied to inventories based on a physical inspection of the product in connection with a physical inventory, a review of slow-moving products and component stage, inventory category, historical and forecasted consumption of sales, and consideration of active marketing programs.

The market for educational furniture is traditionally driven by value, not style, and the Company has not typically incurred material obsolescence expenses.

Valuation adjustments for slow-moving and obsolete inventory are calculated using an estimated percentage applied to inventories based on a physical inspection of the product in connection

with a physical inventory, a review of slow-moving products and component stage, inventory category, historical and forecasted consumption of sales, and consideration of active marketing programs.

The market for educational furniture is traditionally driven by value, and the Company has not typically incurred material obsolescence expenses.

If market conditions are less favorable than those anticipated by management, additional valuation adjustments may be required.

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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 $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.

A 10% increase in our year-end inventory adjustments would decrease our net income by approximately $400,000, on an after-tax basis.

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

As of January 31, 2026 and January 31, 2025, our inventory obsolescence adjustments were $5.0 million and $5.6 million, respectively, representing 8.1% and 9.1%, respectively, of our inventories on a FIFO basis.

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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 2026 and fiscal 2025.

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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Self-insured retentions for fiscal 2027 will be comparable to the retention levels for fiscal 2026.

Defined Benefit Obligations :

The Company has two defined benefit plans, the Virco Employees Retirement Plan (“Employee Plan”) and the Virco Important Performers Plan (“VIP Plan”), which provide retirement benefits to employees.

Virco discounted the pension obligations for the two plans using the following discount rates for the fiscal years ended January 31:

Employee Plan 5.55% 5.15%

VIP Plan 5.60% 5.20%

Because new benefit accruals for both plans were frozen by the Company effective December 31, 2003, the assumed rate of increase in compensation has no effect on the accounting for the plans.

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

The VIP Plan is unfunded and has no plan assets.

These rate assumptions can vary due to changes in interest rates and expected returns in the stock market.

In prior years, the discount rate has decreased, causing pension expense and pension obligations to increase.

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

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.

Due to the size of the Company's pension obligations, a one percent change in discount rates can cause a material change in the pension obligations.

A one percent reduction in discount rates would cause obligations under the Plans to increase by approximately $2.7 million and increase pension expense by approximately $190,000.

A one percent decrease in return on Plan assets would increase pension expense by $180,000 and have no impact on retirement obligations.

The retirement obligations would decrease by similar amounts if discount rate were to increase by a comparable percentage.

The Company obtains annual actuarial valuations for both plans.

Deferred Tax Assets and Liabilities :

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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.

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.

At January 31, 2026, the Company recorded a partial valuation allowance of $231,000 on certain state net operating losses ("NOLs") 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, 2026, was a decrease of $5,000.

At January 31, 2025, the Company has no NOL for U.S.

At January 31, 2026, the Company has no NOLs for U.S.

federal tax purposes and $8.2 million for state income tax purposes, expiring at various dates through January 31, 2045.

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Net income per diluted share was $0.16 for fiscal 2026, compared to $1.32 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.

Cash flow used in operations was $0.8 million in fiscal 2026, compared to cash provided by operations of $33.1 million in fiscal 2025.

Virco's net sales decreased by 25.0% in fiscal 2026 to $199.7 million compared to $266.2 million in fiscal 2025.

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.

In fiscal 2025 the Company benefited from a large series of one-time, disaster recovery counter-seasonal shipments that resulted in approximately $23.0 million of additional shipments.

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.

Excluding this non-recurring event, net sales for fiscal 2026 decreased approximately 18%, driven by the current dynamic macroeconomic environment and uncertainty surrounding the government's budget and spending levels, which adversely affected the demand for the Company's products.

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

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We will continue to use our domestic factories to provide greater flexibility for custom specifications such as laminates, colors, and on-time delivery.

The Company will continue to emphasize the value, design, variety of its products, the value of its distribution, delivery, classroom delivery and project management capabilities, and the importance of timely deliveries during the peak-seasonal delivery period.

To increase or maintain market share during fiscal 2026, when market conditions warrant, the Company may selectively compete based on direct prices to build or maintain its market share.

The Company will continue to emphasize product value, design and variety;

the strength of its distribution and delivery network;

its classroom delivery and project management capabilities;

and the importance of timely delivery during peak seasonal periods.

To increase or maintain market share during fiscal 2027, when market conditions warrant, the Company may selectively compete based on direct prices.

Estimates of sales volume for the next year may continue to be impacted by global events.

Cost of Sales

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.

Cost of sales was 59.3% of net sales in fiscal 2026 and 56.9% of net sales in fiscal 2025.

Gross margin in fiscal 2026 was 40.7% compared to 43.1% in the prior year.

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

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

The material portion of our costs as a percentage of sales was 31.8% of net sales in fiscal 2026 and 33.2% of net sales in fiscal 2025.

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.

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.

This was the result of changes to product mix, as business shifted to a higher percentage of full service deliveries.

Full service delivery orders are more service oriented and as such the associated expenses are recorded in Selling, General and Administrative instead of Cost of Sales.

During fiscal 2027, 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.

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 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.

Selling, general and administrative expenses ("SG&A") for fiscal 2026 decreased by $9.2 million to $77.6 million from $86.8 million.

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

SG&A expenses as a percentage of net sales were 38.9% compared to 32.6% last year.

This was the result of changes to product mix, as business shifted to a higher percentage of full service deliveries.

Full service delivery orders are more service oriented and as such the associated expenses are recorded in SG&A instead of cost of sales.

Additionally, a certain portion of SG&A expense is fixed in nature and as such does not fluctuate with sales volume.

Pension expense decreased due to increased discount rates and higher expected return on plan assets.

Discount rates decreased from approximately 5.6% in fiscal 2025 to a range of 3.9% - 5.4% in fiscal 2026.

Expected return on plant assets increased from approximately 5.2% in fiscal 2025 to approximately 5.6% in fiscal 2026.

Interest expense was $49,000 lower in fiscal 2026 compared to fiscal 2025 because of decreased levels of borrowing.

Provision for Income Taxes

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.

The effective tax rate for 2025 is more representative of rates that will affect fiscal 2026.

Our effective tax rate was 25.8% for fiscal 2026, 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 assets.

The OBBB did not have a material impact on the Company's effective income tax rate for fiscal 2026, which the Company believes is representative of rates that will affect fiscal 2027.

Valuation allowances of $231,000 are needed for certain state net operating loss carryforwards to reduce the carrying amount of deferred tax assets to an amount that is more-likely-than-not to be realized.

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federal, and $8.2 million for state income tax purposes, expiring at various dates through January 31, 2045.

The following table shows summary cash flows information for the fiscal years ended January 31, 2025 and 2024:

Year ended January 31,

The following table summarizes cash flow information for the fiscal years ended January 31, 2026 and 2025:

(In thousands)

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

Net cash (used in) provided by operating activities $ (841) $ 33,128

Net cash used in investing activities (5,735) (5,563)

Net cash used in financing activities (5,854) (5,984)

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

Net (decrease) increase in cash $ (12,430) $ 21,581

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 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.

Net cash (used in) provided by operations was $(0.8) million in fiscal 2026 and $33.1 million in fiscal 2025.

The change in cash from operating activities was primarily attributable to the decrease in net income and the change in cash used in accounts payable and accrued liabilities.

Investing activities.

Investing activities include two distinct categories.

Financial transactions are related to the purchase or sale of investments held in the Rabbi Trust which funds and secures employee benefits related to the non-qualified VIP pension and Split Dollar Life Insurance programs.

The net investing activity from these transactions were immaterial.

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

Capital expenditures have been financed using borrowings under our line of credit with PNC Bank.

There were no material commitments for capital expenditures as of January 31, 2026.

Financing activities.

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

Our financing activities primarily consist of payment of cash dividends and repurchases of Company stock.

Due to the seasonal nature of our business, the Company maintains a line of credit to support seasonal working capital needs and typically repays seasonal borrowings at the conclusion of the peak summer season.

During fiscal 2026, the Company did not have any borrowings under the line of credit and used cash flows from operations to fund its operating and investing activities.

Inflation and Future Change in Prices

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During fiscal 2026 and 2025 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.

For fiscal 2027, the Company anticipates potential volatility in costs, particularly with respect to energy and transportation costs, as well as imported components from China, freight from China, certain raw materials including steel, and potential impacts of escalating labor costs.

Anticipated adverse volatility for fiscal 2027 could be severe in light of global supply chain and economic sanctions, tariffs imposed or threatened on imported commodities and other disruptions affecting our suppliers.

There is continued uncertainty with respect to steel and other raw material costs, including plastics, that are affected by the price of oil.

Transportation costs may be adversely affected by increased oil prices, in the form of increased operation costs for our fleet, and surcharges on freight paid to third-party carriers.

There is continued uncertainty with respect to steel and other raw material costs, including plastics, which are affected by the price of oil.

Ongoing conflict in the Middle East has contributed to volatility in crude oil and natural gas markets.

Because many plastic resins are petroleum- and natural gas-based, disruptions in these markets may reduce supply availability and increase material costs.

Energy price volatility may also increase transportation and logistics costs, in the form of increased operation costs for our fleet, and surcharges on freight paid to third-party carriers.

Virco depends upon third-party carriers for more than 90% of customer deliveries.

Recent regulation and more stringent enforcement of federal regulations governing the transportation industry (especially regarding drivers) have adversely impacted the cost and availability of freight services.

Recent regulations and more stringent enforcement of federal regulations governing the transportation industry (especially regarding drivers) have adversely impacted the cost and availability of freight services.

Virco expects to incur continued pressure on employee compensation and benefit costs.

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As a portion of Virco's business is obtained through competitive bids, the Company is carefully considering material and transportation costs as part of the bidding process.

The Company is working to control and reduce costs by improving production and distribution methodologies, investigating new packaging and shipping materials, and searching for new sources of purchased components and raw materials.

The Company is working to control and reduce costs by improving production and distribution methodologies,

investigating new packaging and shipping materials, and searching for new sources of purchased components and raw materials.

Liquidity and Capital Resources

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On an ongoing basis, management evaluates such estimates, including those related to market demand, labor costs and inventory levels, and continually strives to improve Virco's ability to correctly forecast business requirements during the peak season each year.

As part of Virco's efforts to address seasonality, financial performance, and quality without sacrificing service or market share, management has been refining the Company's ATS operating model.

As part of Virco's efforts to address seasonality, financial performance, and quality without sacrificing service or market share, management has been refining the Company's assemble-to-ship ("ATS") operating model.

ATS is Virco's version of mass-customization, which assembles standard, stocked components into customized configurations before shipment.

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When practical, these furniture items are drop shipped from the Company's supplier.

Where cost effective, the Company will bring the item into the Virco warehouse, and the third-party products will be shipped along with product manufactured by Virco.

Where cost effective, the Company will bring the item into the Virco warehouse, and the third-party products will be shipped along with products manufactured by Virco.

The Company did not carry material amounts of vendor inventory during the fiscal years ended January 31, 2026 and 2025.

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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”).

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.

In addition, the Restated Credit Agreement provides an 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 an Equipment Line for purchases of equipment of up to $2.0 million.

The Revolving Credit Facility is an asset-based line of credit that is subject to a borrowing base limitation and generally provides for advances of up to 85% of eligible accounts receivable, plus a percentage equal to the lesser of 60% of the value of eligible inventory or 85% of the liquidation value of eligible inventory, plus $15.0 million for the period from December to July of each year minus undrawn amounts of letters of credit and reserves.

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”) subject to a borrowing base limitations 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 $10.0 million from January through June of each year, minus undrawn amounts of letters of credit and reserves;

(ii) inventory sublimit of $35.0 million and ATS inventory sublimit of $15.0 million during the months of May through August;

and (iii) an equipment loan of $2.0 million.

The Revolving Credit Facility is secured by substantially all of the Borrowers' personal property and certain of the Borrowers' real property.

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Prior to the maturity date, principal amounts outstanding under the Restated Credit Agreement may be repaid and reborrowed at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments, and certain other conditions.

The Revolving Credit Facility bears interest, at the Borrowers' option, at either the Alternate Base Rate (as defined in the Restated Credit Agreement) or the Eurodollar Currency Rate (as defined in the Restated Credit Agreement), in each case plus an applicable margin.

The applicable margin for Alternate Base Rate loans is a percentage within a range of 1.25% to 1.75%, and the applicable margin for Eurodollar Currency Rate loans is a percentage within a range of 2.25% to 2.75%, in each case based on the adjusted EBITDA (as defined in the Restated Credit Agreement, “EBITDA”) of the Borrowers at the end of each fiscal quarter and may be increased at PNC's option by 2.0% during the continuance of an event of default.

Accrued interest with respect to principal amounts outstanding under the Restated Credit Agreement is payable in arrears on a monthly basis for Alternative Base Rate loans, and at the end of the applicable interest period but at most every three months for Eurodollar Currency Rate loans.

The Revolving Credit Facility interest rate is determined as a sum of the applicable margin rate, which is 3.00% from January through July and 2.50% from August through December, plus the Secured Overnight Financing Rate ("SOFR").

The Company incurred a fee on the unused portion of the revolving line of credit at a rate of 0.25%.

The Company did not have an outstanding amount under the Credit Agreement as of January 31, 2026.

The interest rate at January 31, 2026 was 8.5%.

The Restated Credit Agreement permits the Company to issue dividends or make payments with respect to the Company’s capital stock in an aggregate amount up to $3.0 million during any fiscal year, provided that no default shall have occurred or is continuing or would result from any such payment, and the Company must demonstrate pro forma compliance with a 12-month trailing fixed charge coverage ratio of not less than 1.20:1.00 as of the fiscal quarter immediately preceding the date of any such dividend or payment.

The Restated Credit Agreement permits the Company to issue dividends or make payments with respect to the Company’s capital stock in an aggregate amount up to $8.0 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 ("FCCR") 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 contains a clean-down provision that requires the Company to reduce borrowings under the line of credit to less than $10.0 million for a period of 30 consecutive days during the Company’s fourth fiscal quarter of each fiscal year.

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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, 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.

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 there within, 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.

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The Company obtains annual actuarial valuations for both retirement plans.

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.

The termination became effective on November 1, 2025.

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.

Because the plans have been frozen since 2003, there is no service cost related to the plans.

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

With the recent increase in interest rates the Company was able to purchase approximately $5.0 million of annuities in the third quarter ended October 31, 2023, resulting in a settlement charge in that quarter.

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

In an effort to de-risk the Employee Plan, the Company intends to continue to reach out to and offer lump sum benefits to terminated and retired employees, which may result in settlement costs in the future.

With the increase in interest rates during recent years, the Company was able to purchase approximately $5.0 million of annuities in the third quarter ended October 31, 2023, resulting in a settlement charge in that quarter.

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

The Company did not incur settlement costs in fiscal 2025.

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

The Company incurred $26,000 in settlement costs in fiscal 2026 and did not incur settlement costs in fiscal 2025.

It is the Company's policy to contribute adequate funds to the trust accounts to cover benefit payments under the VIP Plan and to maintain the funded status of the Employee Plan at a level which is adequate to avoid significant restrictions to the Employee Plan under the Pension Protection Act of 2006 and to minimize PBGC related expenses.

Contributions to the Qualified Plan Trust and benefit payments under the VIP Plan totaled $357,000 and $623,000 in fiscal 2026 and 2025, respectively.

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.

Contributions during fiscal 2027 will depend upon actual investment results and benefit payments;

however, the Company does not expect to make contributions during fiscal 2027.

At January 31, 2026, accumulated other comprehensive loss of $112,000, 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, 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.

If the Company were to have used different assumptions in the fiscal year ended January 31, 2026, a 1% reduction in investment return would have increased pension expense by approximately $170,000, 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 $1.9 million and pension expense would decrease by approximately $63,000.

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

The Company declared a cash dividend in each quarter of 2025 and 2026.

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

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During the period from 1983 through 2003, the cumulative effect of the stock dividends has been to reclassify over $122.0 million from retained earnings to additional paid-in capital.

The equity section of the balance sheet on January 31, 2025 reflects additional paid-in capital of approximately $117.5 million and accumulated deficit of approximately $8.9 million.

The equity section of the balance sheet on January 31, 2026 reflects additional paid-in

capital of approximately $113.8 million and accumulated deficit of approximately $7.9 million.

The majority of the accumulated deficit is a result of the accounting reclassification and is not the result of accumulated losses.

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The Company has expended, and may be expected to continue to expend, significant amounts in the future for compliance with environmental rules and regulations, for the investigation of environmental conditions, for the installation of environmental control equipment or remediation of environmental contamination.

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

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

It is possible that the Company's operations may result in noncompliance with, or liability for remediation pursuant to, environmental laws.

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Risk Factors:

We could be required to incur substantial costs to comply with environmental and other legal requirements .” Violations of, and liabilities under, these laws and regulations may increase our costs or require us to change our business practices.

We could be required to incur substantial costs to comply with environmental and other legal requirements .

Violations of, and liabilities under, these laws and regulations may increase our costs or require us to change our business practices."

Contingent Liabilities

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The Company has purchased insurance to cover losses in excess of the self-insured retention or deductible up to a limit of $30.0 million.

For the insurance year beginning April 1, 2025, the Company will be self-insured for product liability losses up to $250,000 per occurrence, general liability losses up to $50,000 per occurrence, workers' compensation losses up to $250,000 per occurrence, and auto liability up to $50,000 per occurrence.

In future years, the Company's exposure to self-insured retentions will vary depending upon the market conditions in the insurance industry and the availability of cost-effective insurance coverage.

The Company has aggressively pursued a program to improve product quality, reduce product liability claims and losses and to aggressively defend product liability cases.

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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-K

Item 7. Management’s Discussion and Analysis