UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 þ Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the fiscal year ended January 31, 2020. ¨ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-8777 VIRCO MFG. CORPORATION (Exact name of registrant as specified in its charter) | DELAWARE | 95-1613718 | | --- | --- | | (State or other jurisdiction of ...

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements show a decrease in total assets, an increase in liabilities due to ASC 842, and improved net income despite lower sales [Unaudited Condensed Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $139.9 million from January 2019 due to ASC 842, while total liabilities also rose to $75.3 million Consolidated Balance Sheet Highlights (in thousands) | Account | 10/31/2019 | 1/31/2019 | 10/31/2018 | | :--- | :--- | :--- | :--- | | **Total current assets** | $63,270 | $63,111 | $71,476 | | **Net property, plant and equipment** | $40,023 | $41,920 | $42,065 | | **Operating lease right-of-use assets** | $22,251 | $— | $— | | **Total assets** | $139,865 | $123,113 | $130,526 | | **Total current liabilities** | $25,392 | $32,125 | $34,361 | | **Total non-current liabilities** | $49,924 | $33,961 | $32,881 | | **Total stockholders' equity** | $64,549 | $57,027 | $63,284 | | **Total liabilities and stockholders' equity** | $139,865 | $123,113 | $130,526 | - The company adopted the new lease accounting standard ASC 842 on February 1, 2019, resulting in the initial recording of Right-of-Use (ROU) assets of approximately **$23.9 million** and lease liabilities of **$25.6 million**[42](index=42&type=chunk) [Unaudited Condensed Consolidated Statements of Income](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Income) Despite decreased net sales for both the three and nine months ended October 31, 2019, net income increased due to improved gross profit margins Three Months Ended October 31 (in thousands, except per share data) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net sales | $66,998 | $76,809 | -12.8% | | Gross profit | $26,845 | $26,430 | +1.6% | | Operating Income | $6,369 | $4,961 | +28.4% | | Net income | $3,892 | $2,932 | +32.7% | | Diluted EPS | $0.25 | $0.19 | +31.6% | Nine Months Ended October 31 (in thousands, except per share data) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net sales | $164,250 | $174,180 | -5.7% | | Gross profit | $64,668 | $61,247 | +5.6% | | Operating income | $12,951 | $9,348 | +38.5% | | Net lncome | $6,692 | $4,835 | +38.4% | | Diluted EPS | $0.43 | $0.31 | +38.7% | [Unaudited Condensed Consolidated Statements of Comprehensive Income](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Net comprehensive income for the three months ended October 31, 2019, decreased to $4.0 million, while for the nine-month period, it increased to $7.1 million Comprehensive Income Summary (in thousands) | Period | 10/31/2019 | 10/31/2018 | | :--- | :--- | :--- | | **Three Months Ended** | | | | Net income | $3,892 | $2,932 | | Net comprehensive income | $4,022 | $4,308 | | **Nine Months Ended** | | | | Net income | $6,692 | $4,835 | | Net comprehensive income | $7,082 | $4,862 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly improved to $10.2 million for the nine months ended October 31, 2019, driven by higher net income and favorable working capital changes Cash Flow Summary - Nine Months Ended Oct 31 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,223 | $2,819 | | Net cash used in investing activities | ($2,963) | ($3,316) | | Net cash (used in) provided by financing activities | ($7,301) | $2,444 | | **Net (decrease) increase in cash** | **($41)** | **$1,947** | [Unaudited Condensed Consolidated Statements of Changes in Equity](index=11&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Total stockholders' equity increased to $64.5 million by October 31, 2019, primarily due to net income and stock-based compensation, with no cash dividends paid - Stockholders' equity increased to **$64.5 million** at October 31, 2019, from **$57.0 million** at February 1, 2019, mainly due to net income of **$6.7 million**[34](index=34&type=chunk) - The company paid no cash dividends in the first nine months of fiscal 2020, compared to **$697,000** in the same period of fiscal 2019[35](index=35&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the business's seasonality, adoption of ASC 842, revenue recognition, debt covenants, stock-based compensation, and retirement plans - The educational furniture market is highly seasonal, with about **50% of total sales** typically occurring from June to August, requiring significant upfront investment in inventory and reliance on bank financing[39](index=39&type=chunk) - The company's revolving credit facility with PNC Bank matures in March 2023, with an April 2019 amendment waiving a prior covenant violation and restricting dividend payments and stock repurchases through January 31, 2020[64](index=64&type=chunk)[71](index=71&type=chunk) - As of October 31, 2019, the company had **$3.1 million** of unrecognized compensation expense related to unvested restricted stock units, expected to be recognized over approximately **3 years**[82](index=82&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Despite a 5.7% decrease in net sales, pre-tax profit significantly increased due to improved gross margins, supported by price increases to offset rising costs Results of Operations - Nine Months Ended Oct 31 | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Sales | $164,250,000 | $174,180,000 | | Pre-tax Profit | $10,177,000 | $6,594,000 | | Gross Margin % | 39.4% | 35.2% | - Sales for the first nine months decreased by **5.7%** due to a **14% decline** in order rates in the first six months, partially mitigated by a **27% increase** in order rates in the third quarter[102](index=102&type=chunk) - The company raised selling prices at the beginning of the year to compensate for increased costs of commodities (steel), imported components, labor, and freight, with no product price increased by less than **10%**[99](index=99&type=chunk) - Capital expenditures for the nine months were **$3.0 million**, down from **$3.3 million** in the prior year, financed through the credit facility and operating cash flow[109](index=109&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its variable-rate bank borrowings, with a 100-basis point increase estimated to add $272,000 in interest charges - The company's main market risk is interest rate fluctuations on its variable-rate bank borrowings[118](index=118&type=chunk) - A hypothetical **100-basis point increase** in interest rates would have increased interest expense by approximately **$77,000** for the third quarter and **$272,000** for the nine months ended October 31, 2019[118](index=118&type=chunk) [Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed effective as of October 31, 2019, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of October 31, 2019[119](index=119&type=chunk) - No changes in internal control over financial reporting occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[121](index=121&type=chunk) [Part II. Other Information](index=28&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) Ongoing legal proceedings are not expected to materially affect the company's financial position, results of operations, or cash flows - Ongoing legal proceedings are not expected to be material to the company's financial condition[124](index=124&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - The risk factors associated with the business have not materially changed from those disclosed in the Form 10-K filed on May 1, 2019[125](index=125&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company reported no unregistered sales of equity securities or issuer purchases of equity securities during the period - The company reported no unregistered sales of equity securities or issuer purchases of equity securities during the period[126](index=126&type=chunk) [Defaults Upon Senior Securities](index=28&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - The company reported no defaults upon senior securities[127](index=127&type=chunk) [Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable to the company[128](index=128&type=chunk) [Other Information](index=28&type=section&id=Item%205.%20Other%20Information) The company reported no other information required to be disclosed under this item - The company reported no other information required to be disclosed under this item[129](index=129&type=chunk) [Exhibits](index=28&type=section&id=Item%206.%20Exhibits) The report lists filed exhibits, including CEO and CFO certifications as required by the Sarbanes-Oxley Act - Exhibits filed with the report include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[130](index=130&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended July 31, 2019 OR ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File number 1-8777 VIRCO MFG. CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 95-1613718 (State or Other Jurisdiction of Incorpo ...

Part I. Financial Information [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for the three months ended April 30, 2019, show increased net sales, a reduced net loss, and the impact of seasonal inventory build-up and ASC 842 adoption Condensed Consolidated Balance Sheets Selected Balance Sheet Data (in thousands) | Account | April 30, 2019 | Jan 31, 2019 | April 30, 2018 | | :--- | :--- | :--- | :--- | | **Total current assets** | $79,298 | $63,111 | $77,822 | | Inventories | $63,511 | $47,289 | $62,498 | | Net property, plant and equipment | $41,353 | $41,920 | $41,638 | | Operating lease right-of-use assets | $23,295 | $— | $— | | **Total assets** | **$163,308** | **$123,113** | **$139,507** | | **Total current liabilities** | $53,702 | $32,125 | $51,412 | | Total long-term debt | $16,508 | $15,910 | $13,990 | | **Total liabilities** | **$109,032** | **$66,086** | **$84,243** | | **Total stockholders' equity** | **$54,276** | **$57,027** | **$55,264** | - The adoption of the new lease standard (ASC 842) resulted in the recognition of **$23.3 million** in Operating lease right-of-use assets and corresponding lease liabilities as of April 30, 2019[8](index=8&type=chunk)[11](index=11&type=chunk)[28](index=28&type=chunk) - Inventories increased significantly to **$63.5 million** from **$47.3 million** at the end of the prior fiscal year, reflecting the seasonal build-up for the peak summer sales period[8](index=8&type=chunk)[24](index=24&type=chunk) Condensed Consolidated Statements of Operations Statements of Operations Highlights (in thousands, except per share data) | Metric | Three months ended April 30, 2019 | Three months ended April 30, 2018 | | :--- | :--- | :--- | | Net sales | $26,893 | $22,569 | | Gross profit | $9,084 | $7,685 | | Operating loss | $(3,597) | $(4,468) | | Net loss | $(3,067) | $(3,572) | | Net loss per share (Basic & Diluted) | $(0.20) | $(0.23) | - Net sales increased by **19.2%** year-over-year for the three months ended April 30, 2019[13](index=13&type=chunk)[81](index=81&type=chunk) - The company reported a reduced net loss of **$3.07 million** compared to a net loss of **$3.57 million** in the same period of the prior year, primarily due to higher sales[13](index=13&type=chunk) Condensed Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Cash Flow Activity | Three months ended April 30, 2019 | Three months ended April 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(18,286) | $(16,992) | | Net cash used in investing activities | $(1,219) | $(1,141) | | Net cash provided by financing activities | $19,320 | $20,971 | | **Net (decrease) increase in cash** | **$(185)** | **$2,838** | - The significant cash outflow from operations was primarily driven by a **$16.2 million** increase in inventories, a typical seasonal trend for the company[19](index=19&type=chunk)[24](index=24&type=chunk) - Financing activities provided **$19.3 million** in cash, mainly from net proceeds from long-term debt, which was used to fund the seasonal inventory build-up and operating cash shortfall[19](index=19&type=chunk) Notes to Financial Statements Key notes detail the business's extreme seasonality, the adoption of ASC 842 for leases, amendments to the revolving credit facility, and dividend restrictions - The educational furniture market is highly seasonal, with approximately **50%** of total sales typically occurring from June to August, requiring a large up-front investment in inventory[24](index=24&type=chunk) - Effective February 1, 2019, the company adopted lease accounting standard ASC 842, resulting in the recording of right-of-use (ROU) assets of approximately **$23.8 million** and lease liabilities of **$25.6 million**[27](index=27&type=chunk)[28](index=28&type=chunk) - The company's revolving credit agreement was amended in March 2019 to increase the maximum amount to **$65 million** and in April 2019 to waive a prior covenant violation and amend future covenants[55](index=55&type=chunk)[57](index=57&type=chunk) - The credit agreement with PNC Bank restricts the company from issuing dividends or repurchasing stock through **January 31, 2020**[57](index=57&type=chunk)[66](index=66&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the 19.2% sales increase driven by backlog and price adjustments, offset by declining new order rates and a slight gross margin decrease due to higher costs and lower efficiency, with financing primarily from the revolving credit facility Q1 FY2020 vs Q1 FY2019 Performance | Metric | Q1 FY2020 (ended 4/30/19) | Q1 FY2019 (ended 4/30/18) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $26,893,000 | $22,569,000 | +19.2% | | Pre-tax Loss | $(4,485,000) | $(5,034,000) | Improvement | | Gross Margin % | 33.8% | 34.1% | -0.3 ppt | | Order Rates | N/A | N/A | -18.2% YoY | | Order Backlog | $39,254,000 | $50,136,000 | -22.0% | - The company significantly increased selling prices at the beginning of the fiscal year to compensate for cost increases from steel tariffs, tariffs on Chinese products, and other costs, with full impact expected in Q2 and Q3[82](index=82&type=chunk) - Gross margin decreased due to higher factory employee compensation, increased material costs (steel, Chinese imports), selling from older, lower-priced backlog, and reduced factory efficiency from **13%** lower production levels[84](index=84&type=chunk) - The company believes cash flow from operations and its revolving line of credit, with **$4.0 million** available, will be sufficient to fund its needs for the next twelve months[90](index=90&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its variable-rate bank borrowings, with a 100-basis point increase impacting interest expense by approximately **$74,000** - The company's main market risk is interest rate fluctuations on its variable-rate debt[99](index=99&type=chunk) - A **100-basis point** upward fluctuation in the base interest rate would have increased interest expense by approximately **$74,000** for the three months ended April 30, 2019, and **$61,000** for the same period in 2018[99](index=99&type=chunk) [Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of April 30, 2019, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of **April 30, 2019**[100](index=100&type=chunk) - No changes in the company's internal control over financial reporting occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, its internal controls[102](index=102&type=chunk) Part II. Other Information [Legal Proceedings](index=24&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal actions, none of which are expected to materially impact its financial position, results of operations, or cash flows - The company states that pending legal proceedings are not expected to be material to its financial condition or results[104](index=104&type=chunk) [Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 31, 2019 - The risk factors associated with the business have not materially changed from those disclosed in the Annual Report on Form 10-K for the fiscal year ended **January 31, 2019**[105](index=105&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company reported no unregistered sales of equity securities or issuer purchases of equity securities during the period - The company reported no unregistered sales of equity securities or issuer purchases of equity securities during the period[106](index=106&type=chunk) [Exhibits](index=24&type=section&id=Item%206.%20Exhibits) The report includes CEO and CFO certifications as required by Sarbanes-Oxley, along with XBRL-related documents - Exhibits filed with the report include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections **302** and **906**, and XBRL data files[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)

Sales Performance - Virco's sales in fiscal 2019 were significantly seasonal, with approximately 52% of total sales delivered in June, July, and August[140]. - Net sales increased by 6.0% in fiscal 2019 to $200,716,000, attributed to growth in project business, which included larger and more complex orders[161]. - The Company incurred a pre-tax loss of ($1,117,000) on net sales of $200,716,000 for fiscal 2019, compared to a pre-tax profit of $2,414,000 on net sales of $189,287,000 in fiscal 2018[160]. Market Conditions - The education market has faced budgetary pressures, with approximately 80-85% of a school's operating budget allocated to salaries and benefits, limiting funds for furniture purchases[143]. - The company anticipates continued budgetary challenges for state and local governments affecting growth in net sales for fiscal 2020, along with plans to increase selling prices to recover increased commodity costs[163]. - Management believes there is pent-up demand for quality school furniture, although the timing and extent of this demand conversion remain uncertain[151]. Cost and Profitability - In fiscal 2019, commodity costs, particularly steel, were volatile due to tariffs, affecting profitability and pricing strategies[149]. - Cost of sales was 66.6% of net sales in fiscal 2019, up from 65.4% in fiscal 2018, primarily due to increased material costs and tariffs on imported steel and furniture components[165]. - Selling, general and administrative expenses increased by approximately 7.3% to $64,751,000 in fiscal 2019, representing 32.3% of sales[166]. Manufacturing and Product Development - Virco's domestic manufacturing capabilities provide a competitive advantage, allowing for rapid product development and customization[152]. - The company has developed a comprehensive product offering for K-12 education, enabling schools to procure all furniture needs from one source[139]. - The Company has identified several opportunities for capital expenditures over the next five years, focusing on automation and new product development[192]. Financial Management - The Company has a valuation allowance of $1,756,000 against certain state deferred tax assets that are not expected to be realized[167]. - The effective tax rate for fiscal 2019 was negative 44%, primarily due to a valuation allowance on certain components for the Federal and State net operating loss[168]. - The Company expects the effective tax rate for fiscal 2020 to be approximately 27%[170]. Credit and Liquidity - The Company has entered into a Revolving Credit and Security Agreement with PNC Bank, increasing maximum availability to $65,000,000 to meet seasonal cash flow requirements[180]. - The Company has a secured revolving line of credit of up to $65,000,000, with a sub-limit of $3,000,000 for letters of credit[181]. - As of January 31, 2019, approximately $11,231,000 was available for borrowing under the line of credit[189]. Compliance and Regulations - The Company is required to maintain compliance with a minimum fixed charge coverage ratio of 2.25 to 1.00 for the two fiscal quarters ending July 31, 2019[185]. - As of January 31, 2019, the Company maintained a fixed charge coverage ratio of greater than 0.96 to 1.00, below the required minimum of 1.10 to 1.00[185]. - The company is classified as a smaller reporting company and is not required to provide certain market risk disclosures[205]. Product Quality and Liability - A program to improve product quality and reduce liability claims has led to a reduction in product liability claims and litigated cases during fiscal 2019[202]. - The company has self-insured for product liability losses up to $250,000 per occurrence and general liability losses up to $50,000 per occurrence, with a total insurance coverage limit of $30,000,000 for excess losses[201]. - Virco's ZUMA and ZUMAfrd product lines received GREENGUARD Gold certification, with hundreds of other items also certified, indicating a strong commitment to indoor air quality standards[200]. Employee and Settlement Costs - The company has reduced its permanent employee headcount from nearly 2,950 in August 2000 to approximately 840 as of January 31, 2019, while significantly reducing factory overhead[148]. - The Company incurred $538,000 in settlement costs for the Employee Plan in fiscal 2019, compared to no settlement costs in fiscal 2018[194]. - The Company contributed $0.8 million and $1.4 million to the trust for retirement plans in fiscal 2019 and 2018, respectively[194]. Strategic Planning - The Company plans to address seasonality by refining its ATS operating model, which reduces inventory and working capital needs[176]. - The Company has established a goal of limiting capital spending to approximately $6,000,000 for fiscal 2020[192]. - The Company entered into Amendment No. 20, suspending its ability to pay cash dividends or repurchase stock[196].