VIRCO MFG CORPORATION

Previous wording

Virco Mfg. Corporation is the nation’s largest domestic manufacturer and distributor of Furniture, Fixtures, and Equipment ("FF&E") for the education (K-12) market. The Company’s operating model and unique market differs in several ways from the traditional furniture industry model. The furniture industry is traditionally structured around furniture manufacturers that sell to end customers through dealership networks. These dealership networks can be aligned with one manufacturer or open to multiple manufacturers. Virco is one of the few domestic manufacturers of school furniture that call on and sell direct to school customers, with approximately 70% to 80% of sales being direct to customers.

Current wording

Virco Mfg. Corporation is the nation’s largest domestic manufacturer and distributor of Furniture, Fixtures, and Equipment ("FF&E") for the education (K-12) market. The Company’s operating model and unique market differs in several ways from the traditional furniture industry model. The furniture industry is traditionally structured around furniture manufacturers that sell to end customers through dealership networks. These dealership networks can be aligned with one manufacturer or open to multiple manufacturers. Virco is one of the few domestic manufacturers of school furniture that call on and sell direct to school customers, with approximately 75% to 85% of sales being direct to customers.

Previous wording

The markets that Virco serves include the education market (the Company's primary market), which is made up of public and private schools (preschool through 12th grade), junior and community colleges, four-year colleges and universities and trade, technical and vocational schools. Virco also serves convention centers and arenas; the hospitality industry, with respect to their banquet and meeting facilities; government facilities at the federal, state, county and municipal levels; and places of worship. In addition, the Company sells to wholesalers, distributors, retailers, catalog retailers, and internet retailers that serve these same markets. These institutions are frequently characterized by extreme seasonality and/or a bid-based purchasing function. The Company's business model, which is designed to support this strategy, is highly integrated. The Company markets and sells direct to the schools and provides project management and logistics. Approximately 75% of sales are delivered FOB destination.

Current wording

The markets that Virco serves include the education market (the Company's primary market), which is made up of public and private schools (preschool through 12th grade), junior and community colleges, four-year colleges and universities and trade, technical and vocational schools. Virco also serves convention centers and arenas; the hospitality industry, with respect to their banquet and meeting facilities; government facilities at the federal, state, county and municipal levels; and places of worship. In addition, the Company sells to wholesalers, distributors, retailers, catalog retailers, and internet retailers that serve these same markets. These institutions are frequently characterized by extreme seasonality and/or a bid-based purchasing function. The Company's business model, which is designed to support this strategy, is highly integrated. The Company markets and sells direct to the schools and provides project management and logistics. Approximately 80% of sales are delivered FOB destination.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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 - 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.

Previous wording

Virco's product offering consists primarily of items manufactured by Virco, complemented with products sourced from other furniture manufacturers to fill any gaps in product manufactured by the Company. The Company has served the education industry for over 75 years and over this time developed products to address a variety of classroom management trends, from collaborative learning to individual and combination desks facilitating distancing and classroom control. The pandemic caused a noticeable change in the types of products requested by educators. 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. 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. Finally, management continues to hone Virco's ability to forecast, finance, manufacture, warehouse, deliver and install furniture within the relatively narrow delivery window associated with the highly seasonal demand for education sales. The educational sales market is extremely seasonal. In fiscal 2024 and 2025, approximately 47% - 49% of the Company's total sales were delivered in June, July, and August. During periods of traditional seasonality, average weekly shipments during July and August can be as great as six times the level of average weekly shipments in the winter months. Virco's substantial warehouse space allows the Company to build and ship adequate inventories to service this narrow delivery window for the education market.

Current wording

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. 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, 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. Finally, management continues to hone Virco's ability to forecast, finance, manufacture, warehouse, deliver and install furniture within the relatively narrow delivery window associated with the highly seasonal demand for education sales. The educational sales market is extremely seasonal. In fiscal 2025 and 2026, approximately 50% of the Company's total sales were delivered in June, July, and August. During periods of traditional seasonality, average weekly shipments during July and August can be as great as six times the level of average weekly shipments in the winter months. Virco's substantial warehouse space allows the Company to build and ship adequate inventories to service this narrow delivery window for the education market.

Previous wording

Approximately 75% of Virco’s sales include freight to the customer facility and the cost or availability of transportation equipment can adversely impact both profitability and customer service. Significant cost increases in manufacturing or distributing products during a given contract period can adversely impact operating results and have done so during prior years. The Company typically benefits from any decreases in raw material or distribution costs under the contracts described above.

Current wording

Approximately 80% of Virco’s sales include freight to the customer facility and the cost or availability of transportation equipment can adversely impact both profitability and customer service. Significant cost increases in manufacturing or distributing products during a given contract period can adversely impact operating results and have done so during prior years. The Company typically benefits from any decreases in raw material or distribution costs under the contracts described above.

Previous wording

The disruption related to COVID-19 school closures reinforced the need for learning in classroom settings. Third, many schools have responded to the budget strains by reducing their support infrastructure. This change provides opportunities to provide services to schools, such as project management for new or renovated schools, delivery to individual school sites rather than truckload deliveries to central warehouses, and delivery of furniture into classrooms. Moreover, this change offers opportunities for Virco to promote its complete product assortment which allows one-stop shopping as opposed to sourcing furniture needs from a variety of suppliers. Fourth, many suppliers previously shut down or dramatically curtailed their domestic manufacturing capabilities, making it difficult for competitors to adapt to dynamic fluctuations in demand or provide custom colors or finishes during a narrow seasonal summer delivery window when they are reliant upon a supply chain extending to Asia or elsewhere. Meanwhile, Virco has continued to invest in automation at its domestic manufacturing facilities, adding flat metal forming processes to its manufacturing capabilities and bringing production into its factories of items formerly sourced from other suppliers (both domestic and international). Domestic production facilitates our product development process, enabling the Company to more rapidly develop new products, release extensions of product families, and offer customized variants of our product offerings. Virco views its domestic factories as a strategic resource for providing its customers with timely delivery of a broad selection of colors, finishes, laminates, and product styles. Finally, many of our domestic competitors, especially small dealerships, may be undercapitalized and less capable of supporting the significant seasonal nature of our business. We believe that our financial strength, which allows us to build material quantities of inventory in advance of the summer delivery season, is a significant competitive advantage.

Current wording

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. First, the underlying demographics of the student population are relatively stable compared to the volatility of school budgets and the related impact on furniture and equipment purchases. This volatility is attributable to the financial health of the school systems. Virco management believes that there is a pent-up demand for quality school furniture (though it is unclear when and to what extent that pent-up demand will be converted into a meaningful increase in purchases). Second, management believes that parents and voters will make quality education an ongoing priority for future government spending. The disruption related to COVID-19 school closures reinforced the need for learning in classroom settings. Third, many schools have responded to the budget strains by reducing their support infrastructure. This change provides opportunities to provide services to schools, such as project management for new or renovated schools, delivery to individual school sites rather than truckload deliveries to central warehouses, and delivery of furniture into classrooms. Moreover, this change offers opportunities for Virco to promote its complete product assortment which allows one-stop shopping as opposed to sourcing furniture needs from a variety of suppliers. Fourth, many suppliers previously shut down or dramatically curtailed their domestic manufacturing capabilities, making it difficult for competitors to adapt to dynamic fluctuations in demand or provide custom colors or finishes during a narrow seasonal summer delivery window when they are reliant upon a supply chain extending to Asia or elsewhere. Meanwhile, Virco has continued to invest in automation at its domestic manufacturing facilities, adding flat metal forming processes to its manufacturing capabilities and bringing production into its factories of items formerly sourced from other suppliers (both domestic and international). Domestic production facilitates our product development process, enabling the Company to more rapidly develop new products, release extensions of product families, and offer customized variants of our product offerings. Virco views its domestic factories as a strategic resource for providing its customers with timely delivery of a broad selection of colors, finishes, laminates, and product styles. Finally, many of our domestic competitors, especially small dealerships, may be undercapitalized and less capable of supporting the significant seasonal nature of our business. We believe that our financial strength, which allows us to build material quantities of inventory in advance of the summer delivery season, is a significant competitive advantage.

Previous wording

This discussion and analysis of Virco's financial condition and results of operations is based upon the Company's consolidated financial statements (“financial statements”), which have been prepared in accordance with U.S. generally accepted accounting principles. 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. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. This forms the basis of judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Factors that could cause or contribute to these differences include the factors discussed above under“Item 1A. Risk Factors”, and elsewhere in this Annual Report on Form 10-K. Virco's critical accounting policies and estimates are as follows:

Current wording

This discussion and analysis of Virco's financial condition and results of operations is based upon the Company's consolidated financial statements (“financial statements”), which have been prepared in accordance with U.S. generally accepted accounting principles. 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 (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. This forms the basis of judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Factors that could cause or contribute to these differences include the factors discussed above under“Item 1A. Risk Factors”, and elsewhere in this Annual Report on Form 10-K. Virco's critical accounting policies and estimates are as follows:

Previous wording

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. 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. If market conditions are less favorable than those anticipated by management, additional valuation adjustments may be required. The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation.

Current wording

Slow-Moving and Obsolete Inventories: 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, 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. The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation.

Previous wording

While we believe that adequate adjustments for inventory obsolescence have been made in the consolidated financial statements, our obsolescence adjustments calculations contain estimates that require management to make assumptions based on several factors, including market conditions, the selling environment, historical results, supply-chain environment, current inventory trends and customer behavior. 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. As of January 31, 2025 and January 31, 2024, our inventory obsolescence adjustments were $5.6 million and $6.0 million, respectively, representing 9.1% and 10.8%, respectively, of our inventories on a FIFO basis.

Current wording

While we believe that adequate adjustments for inventory obsolescence have been made in the consolidated financial statements, our obsolescence adjustments calculations contain estimates that require management to make assumptions based on several factors, including market conditions, the selling environment, historical results, supply-chain environment, current inventory trends and customer behavior. 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 $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.

Previous wording

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. The net change in the valuation allowance for the year ended January 31, 2025, was a decrease of $15,000. At January 31, 2025, the Company has no NOL for U.S. federal tax purposes and $6.3 million for state income tax purposes, expiring at various dates through January 31, 2041.

Current wording

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, 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.

Previous wording

The Company earned a pre-tax profit of $28.4 million on net sales of $266.2 million for fiscal 2025, compared to pre-tax profit of $29.2 million on net sales of $269.1 million in fiscal 2024. Net income per diluted share was $1.32 for fiscal 2025, compared to $1.34 per diluted share in the prior year. Cash flow provided by operations was $33.1 million in fiscal 2025, compared to cash provided by operations of $27.0 million in fiscal 2024.

Current wording

The Company earned a pre-tax profit of $3.5 million on net sales of $199.7 million for fiscal 2026, compared to pre-tax profit of $28.4 million on net sales of $266.2 million in fiscal 2025. Net income per diluted share was $0.16 for fiscal 2026, compared to $1.32 per diluted share in the prior year. 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.

Previous wording

The Company has effectively increased selling prices under its largest contracts to recover volatile commodity, energy, freight, and labor costs incurred in recent years. The Company does not anticipate material margin growth as recent price increases have restored profitability. As we have gone through this economic cycle, the Company continues to focus on strategies to develop and strengthen its brand with emphasis on product quality, product selection, and service. 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. Estimates of sales volume for the next year may continue to be impacted by global events.

Current wording

The Company has effectively increased selling prices under its largest contracts to recover volatile commodity, energy, freight, and labor costs incurred in recent years. The Company does not anticipate material margin growth as recent price increases have restored profitability. As we have gone through this economic cycle, the Company continues to focus on strategies to develop and strengthen its brand with emphasis on product quality, product selection, and service. 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 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.

Previous wording

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

Current wording

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 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.

Previous wording

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. The Company also anticipates continued and possibly increased supply chain disruptions from both domestic and international suppliers. Due in part to volatile transportation and energy costs, we may incur higher commodity costs in fiscal 2026. For more information, please see the section below entitled“Inflation and Future Change in Prices.”

Current wording

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. Due in part to volatile transportation and energy costs, we may incur higher commodity costs in fiscal 2027. For more information, please see the section below entitled“Inflation and Future Change in Prices.”

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Valuation allowances of $236,000 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. At January 31, 2025, the Company has no operating loss carryforwards for U.S. federal, and $6.3 million for state income tax purposes, expiring at various dates through January 31, 2041.

Current wording

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. At January 31, 2026, the Company has no operating loss carryforwards for U.S. federal, and $8.2 million for state income tax purposes, expiring at various dates through January 31, 2045.

Previous wording

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

Current wording

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

Previous wording

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.

Current wording

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 (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.

Previous wording

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, 2025.

Current wording

Investing activities. Our net investments primarily consist of investments in our factories and technology to support our business activities. There were no material commitments for capital expenditures as of January 31, 2026.

Previous wording

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.

Current wording

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

Previous wording

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. Anticipated adverse volatility for fiscal 2026 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. 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. Virco expects to incur continued pressure on employee compensation and benefit costs. The Company has renewed health insurance contracts for its employees through December 2025, but costs after that date may be adversely impacted by current legislation, claim costs and industry consolidation.

Current wording

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, 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 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. The Company has renewed health insurance contracts for its employees through December 2026, but costs after that date may be adversely impacted by current legislation, claim costs and industry consolidation.

Previous wording

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. ATS is Virco's version of mass-customization, which assembles standard, stocked components into customized configurations before shipment. The Company's ATS program reduces the total amount of inventory and working capital needed to support a given level of sales. It does this by increasing the inventory's versatility, delaying assembly until the last moment, and reducing the amount of warehouse space needed to store finished goods. In order to provide “one-stop shopping” for all FF&E needs, Virco purchases and re-sells certain finished goods from other furniture manufacturers. 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. The Company did not carry material amounts of vendor inventory during the fiscal years ended January 31, 2025 and 2024.

Current wording

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. The Company's ATS program reduces the total amount of inventory and working capital needed to support a given level of sales. It does this by increasing the inventory's versatility, delaying assembly until the last moment, and reducing the amount of warehouse space needed to store finished goods. In order to provide “one-stop shopping” for all FF&E needs, Virco purchases and re-sells certain finished goods from other furniture manufacturers. 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 products manufactured by Virco. The Company did not carry material amounts of vendor inventory during the fiscal years ended January 31, 2026 and 2025.

Previous wording

Additionally, the Company may elect to opportunistically purchase shares based on excess cash generation and share price considerations. In fiscal 2025, the Company spent $3.8 million to repurchase 342,026 shares of its common stock. As of January 31, 2025, $11.2 million was authorized and available for repurchase of shares by the Company.

Current wording

Additionally, the Company may elect to opportunistically purchase shares based on excess cash generation and share price considerations. In fiscal 2026, the Company spent $4.0 million to repurchase 348,944 shares of its common stock. As of January 31, 2026, $7.2 million was authorized and available for repurchase of shares by the Company.

Previous wording

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. The Revolving Credit Facility is secured by substantially all of the Borrowers' personal property and certain of the Borrowers' real property. The scheduled maturity date of the Restated Credit Agreement is April 15, 2027, at which point the principal amount outstanding under the Restated Credit Agreement and any accrued and unpaid interest is due and payable, subject to certain prepayment penalties upon earlier termination. 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.

Current wording

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. The scheduled maturity date of the Restated Credit Agreement is April 15, 2027, at which point the principal amount outstanding under the Restated Credit Agreement and any accrued and unpaid interest is due and payable, subject to certain prepayment penalties upon earlier termination. 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.

Previous wording

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.

Current wording

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.

Previous wording

Pursuant to the Restated Credit Agreement, substantially all of the Borrowers' accounts receivable are automatically and promptly swept to repay amounts outstanding under the Revolving Credit Facility upon receipt by the Borrowers. Due to this automatic liquidating nature of the Revolving Credit Facility, if the Borrowers breach any covenant, violate any representation or warranty, or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion. 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.

Current wording

Pursuant to the Restated Credit Agreement, substantially all of the Borrowers' accounts receivable are automatically and promptly swept to repay amounts outstanding under the Revolving Credit Facility upon receipt by the Borrowers. Due to this automatic liquidating nature of the Revolving Credit Facility, if the Borrowers breach any covenant, violate any representation or warranty, or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion. 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 there within, such as raw material costs and supply chain challenges.

Previous wording

The Company's revolving line of credit with PNC is structured to provide seasonal credit availability during the Company's peak summer season. Approximately $30.0 million was available for borrowing as of January 31, 2025 and 2024.

Current wording

The Company's revolving line of credit with PNC is structured to provide seasonal credit availability during the Company's peak summer season. Approximately $28.0 million was available for borrowing as of January 31, 2026 and 2025.

Previous wording

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. 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. 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 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. 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 $623,000 and $676,000 in fiscal 2025 and 2024, respectively.

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

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, 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.

Previous wording

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.

Current wording

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 each quarter of 2025 and 2026.

Previous wording

Virco issued a 10% stock dividend or 3/2 stock split every year beginning in 1983 through 2003. Although the stock dividend had no cash consequences to the Company, the accounting methodology required for 10% dividends has affected the equity section of the balance sheet. When the Company records a 10% stock dividend, 10% of the market capitalization of the Company on the date of the declaration is reclassified from retained earnings to additional paid-in capital. 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 majority of the accumulated deficit is a result of the accounting reclassification and is not the result of accumulated losses.

Current wording

Virco issued a 10% stock dividend or 3/2 stock split every year, beginning in 1983 through 2003. Although the stock dividend had no cash consequences to the Company, the accounting methodology required for 10% dividends has affected the equity section of the balance sheet. When the Company records a 10% stock dividend, 10% of the market capitalization of the Company on the date of the declaration is reclassified from retained earnings to additional paid-in capital. 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, 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.

Previous wording

In addition to these awards and commendations, Virco's ZUMA and ZUMAfrd product lines were the first classroom furniture collections to earn indoor air quality certification through the stringent GREENGUARD® Children & Schools Program, now known as GREENGUARD Gold certification. As a follow-up to the certification of ZUMA and ZUMAfrd models in 2006, hundreds of other Virco furniture items - including Analogy furniture models and Textameter instructor workstations - have earned GREENGUARD certification. Moreover, all Virco products covered by the Consumer Product Safety Improvement Act of 2008 are in compliance with this legislation. All affected Virco models are also in compliance with the California Air Resources Board rule and Toxic Control Substances Act rule concerning formaldehyde emissions from composite wood products. Environmental laws have changed rapidly in recent years, and Virco may be subject to more stringent environmental laws in the future. 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. It is possible that the Company's operations may result in noncompliance with, or liability for remediation pursuant to, environmental laws. Should such eventualities occur, the Company records liabilities for remediation costs when remediation costs are probable and can be reasonably estimated. See “Item 1A. 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.

Current wording

In addition to these awards and commendations, Virco's ZUMA and ZUMAfrd product lines were the first classroom furniture collections to earn indoor air quality certification through the stringent GREENGUARD® Children & Schools Program, now known as GREENGUARD Gold certification. As a follow-up to the certification of ZUMA and ZUMAfrd models in 2006, hundreds of other Virco furniture items - including Analogy™ furniture models and Textameter™ instructor workstations - have earned GREENGUARD certification. Moreover, all Virco products covered by the Consumer Product Safety Improvement Act of 2008 are in compliance with this legislation. All affected Virco models are also in compliance with the California Air Resources Board rule and Toxic Control Substances Act rule concerning formaldehyde emissions from composite wood products. Environmental laws have changed rapidly in recent years, and Virco may be subject to more stringent environmental laws in the future. 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. 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. Should such eventualities occur, the Company records liabilities for remediation costs when remediation costs are probable and can be reasonably estimated. See “Item 1A. 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."

Previous wording

In fiscal 2025 and 2024, the Company was self-insured for product liability losses of up to $250,000 per occurrence, general liability losses of up to $50,000 per occurrence, workers' compensation losses up to $250,000 per accident and auto liability up to $50,000 per accident. In prior years the Company has been partially self-insured for workers' compensation, automobile, product, and general liability losses. 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.

Current wording

In fiscal 2026 and 2025, the Company was self-insured for product liability losses of up to $250,000 per occurrence, general liability losses of up to $50,000 per occurrence, workers' compensation losses up to $250,000 per accident and auto liability up to $50,000 per accident. In prior years the Company has been partially self-insured for workers' compensation, automobile, product, and general liability losses. 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.