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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
 FORM 10-Q
 For Quarter Ended July 31, 2006
 Commission File Number 1-8777
 VIRCO MFG. CORPORATION
  Delaware
    
    95-1613718(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)2027 Harpers Way, Torrance, CA
    
    90501(Address of principal executive offices)
    
    (Zip Code)
 (310) 533-0474
   þ o
  o þ o
 o þ




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Part I. Financial InformationItem 1. Financial StatementsCondensed consolidated balance sheets  July 31, 2006, January 31, 2006 and July 31, 2005Condensed consolidated statements of income  Three months ended July 31, 2006 and 2005Condensed consolidated statements of income  Six months ended July 31, 2006 and 2005Condensed consolidated statements of cash flows  Six months ended July 31, 2006 and 2005Notes to condensed consolidated financial statements  July 31, 2006Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 2. Changes in Securities and Use of ProceedsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsExhibit 10.1  Stock Purchase Agreement, dated as of June 6, 2006, by and among Virco Mfg.
Corporation, Wedbush, Inc. and Wedbush Morgan Securities, Inc., filed June 8, 2006 as Exhibit 10.1
to the Companys Current Report on Form 8-K, and incorporated herein by reference.Exhibit 10.2  Warrant Agreement, dated as of June 6, 2006, by and among Virco Mfg. Corporation and
Wedbush, Inc., filed June 8, 2006 as Exhibit 10.2 to the Companys Current Report on Form 8-K, and
incorporated herein by reference.Exhibit 10.3  Warrant Agreement, dated as of June 6, 2006, by and among Virco Mfg. Corporation and
Wedbush Morgan Securities, Inc., filed June 8, 2006 as Exhibit 10.3 to the Companys Current Report
on Form 8-K, is incorporated herein by reference.Exhibit 31.1  Certification of Robert A. Virtue, President, pursuant to Rules 13a-14 and 15d-14 of
the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2  Certification of Robert E. Dose, Vice President, Finance, pursuant to Rules 13a-14
and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley
Act of 2002Exhibit 32.1  Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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PART I
 
 Item 1. Financial Statements
  
  7/31/2006
    
    1/31/2006
    
    7/31/2005(In thousands)Unaudited (Note 1)
    
    
    
    
    
    Unaudited (Note 1)AssetsCurrent assetsCash
    
    $
    3,054
    
    
    $
    1,489
    
    
    $
    964Trade accounts receivable
    
    
    48,396
    
    
    
    17,470
    
    
    
    44,912Less allowance for doubtful accounts
    
    
    234
    
    
    
    200
    
    
    
    286Net trade accounts receivable
    
    
    48,162
    
    
    
    17,270
    
    
    
    44,626Other receivables
    
    
    100
    
    
    
    377
    
    
    
    114InventoriesFinished goods, net
    
    
    18,105
    
    
    
    11,070
    
    
    
    19,544Work in process, net
    
    
    9,918
    
    
    
    13,796
    
    
    
    16,762Raw materials and supplies, net
    
    
    9,329
    
    
    
    6,751
    
    
    
    7,74737,352
    
    
    
    31,617
    
    
    
    44,053Prepaid expenses and other current assets
    
    
    992
    
    
    
    1,493
    
    
    
    772Total current assets
    
    
    89,660
    
    
    
    52,246
    
    
    
    90,529Property, plant and equipmentLand and land improvements
    
    
    3,596
    
    
    
    3,591
    
    
    
    3,255Buildings and building improvements
    
    
    49,514
    
    
    
    49,581
    
    
    
    49,581Machinery and equipment
    
    
    108,263
    
    
    
    106,475
    
    
    
    104,397Leasehold improvements
    
    
    1,289
    
    
    
    1,289
    
    
    
    1,289162,662
    
    
    
    160,936
    
    
    
    158,522Less accumulated depreciation and amortization
    
    
    112,975
    
    
    
    109,513
    
    
    
    105,331Net property, plant and equipment
    
    
    49,687
    
    
    
    51,423
    
    
    
    53,191Goodwill and other intangible assets, net
    
    
    2,317
    
    
    
    2,324
    
    
    
    2,331Other assets
    
    
    8,728
    
    
    
    8,727
    
    
    
    8,816Total assets
    
    $
    150,392
    
    
    $
    114,720
    
    
    $
    154,867




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7/31/2006
    
    1/31/2006
    
    7/31/2005(In thousands, except share and per share data)Unaudited (Note 1)
    
    
    
    
    
    Unaudited (Note 1)LiabilitiesCurrent liabilitiesChecks released but not yet cleared bank
    
    $
    3,200
    
    
    $
    2,030
    
    
    $
    2,587Accounts payable
    
    
    16,882
    
    
    
    17,504
    
    
    
    25,042Accrued compensation and employee benefits
    
    
    5,194
    
    
    
    6,047
    
    
    
    5,227Current portion of long-term debt
    
    
    19,644
    
    
    
    5,012
    
    
    
    13,844Other accrued liabilities
    
    
    7,440
    
    
    
    6,165
    
    
    
    6,787Total current liabilities
    
    
    52,360
    
    
    
    36,758
    
    
    
    53,487Non-current liabilitiesAccrued self-insurance retention and other
    
    
    3,387
    
    
    
    2,703
    
    
    
    3,113Accrued pension expenses
    
    
    15,433
    
    
    
    14,618
    
    
    
    13,340Long-term debt, less current portion
    
    
    30,000
    
    
    
    21,541
    
    
    
    35,000Total non-current liabilities
    
    
    48,820
    
    
    
    38,862
    
    
    
    51,453Commitments and contingenciesStockholders equityPreferred stockAuthorized 3,000,000 shares, $.01 par
value; none issued or outstanding
    
    
    
    
    
    
    
    
    
    
    Common stockAuthorized 25,000,000 shares, $.01 par
value; issued 14,322,051 shares at
7/31/2006, 14,137,288 shares at
1/31/2006; and 13,155,286 shares at
7/31/2005
    
    
    144
    
    
    
    131
    
    
    
    131Additional paid-in capital
    
    
    113,677
    
    
    
    108,143
    
    
    
    108,143Retained deficit
    
    
    (60,416
    )
    
    
    (64,981
    )
    
    
    (55,005
    )Accumulated comprehensive loss
    
    
    (4,193
    )
    
    
    (4,193
    )
    
    
    (3,342
    )Total stockholders equity
    
    
    49,212
    
    
    
    39,100
    
    
    
    49,927Total liabilities and stockholders equity
    
    $
    150,392
    
    
    $
    114,720
    
    
    $
    154,867




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Three months ended7/31/2006
    
    7/31/2005(In thousands, except per share data)Net sales
    
    $
    78,595
    
    
    $
    75,906Costs of goods sold
    
    
    50,212
    
    
    
    49,402Gross profit
    
    
    28,383
    
    
    
    26,504Selling, general and administrative expenses
    
    
    19,134
    
    
    
    19,492Interest expense
    
    
    1,297
    
    
    
    896Income before income taxes
    
    
    7,952
    
    
    
    6,116Provision for income taxes
    
    
    120
    
    
    
    31Net income
    
    $
    7,832
    
    
    $
    6,085Net income per common shareBasic
    
    $
    0.58
    
    
    $
    0.46Diluted
    
    $
    0.58
    
    
    $
    0.46Weighted average shares outstandingBasic
    
    
    13,494
    
    
    
    13,119Diluted
    
    
    13,529
    
    
    
    13,343




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Six months ended7/31/2006
    
    7/31/2005(In thousands, except per share data)Net sales
    
    $
    113,110
    
    
    $
    109,160Costs of goods sold
    
    
    73,233
    
    
    
    73,249Gross profit
    
    
    39,877
    
    
    
    35,911Selling, general and administrative expenses
    
    
    33,009
    
    
    
    34,049Interest expense
    
    
    2,183
    
    
    
    1,429Income before income taxes
    
    
    4,685
    
    
    
    433Provision for income taxes
    
    
    120
    
    
    
    31Net income
    
    $
    4,565
    
    
    $
    402Net income per common shareBasic
    
    $
    0.34
    
    
    $
    0.03Diluted
    
    $
    0.34
    
    
    $
    0.03Weighted average shares outstandingBasic
    
    
    13,318
    
    
    
    13,104Diluted
    
    
    13,353
    
    
    
    13,359




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Six months ended7/31/2006
    
    
    7/31/2005(In thousands)Operating activitiesNet income
    
    $
    4,565
    
    
    $
    402Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    3,731
    
    
    
    4,672Provision for doubtful accounts
    
    
    25
    
    
    
    60Loss on sale of property, plant and equipment
    
    
    1
    
    
    
    77Stock based compensation
    
    
    600
    
    
    
    Changes in operating assets and liabilitiesTrade accounts receivable
    
    
    (30,917
    )
    
    
    (28,689
    )Other receivables
    
    
    277
    
    
    
    51Inventories
    
    
    (5,735
    )
    
    
    (18,006
    )Income taxes
    
    
    102
    
    
    
    2,278Prepaid expenses and other current assets
    
    
    501
    
    
    
    568Accounts payable and accrued liabilities
    
    
    2,357
    
    
    
    13,681Net cash used in operating activities
    
    
    (24,493
    )
    
    
    (24,906
    )Investing activitiesCapital expenditures
    
    
    (1,967
    )
    
    
    (1,059
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    15Net cash used in investing activities
    
    
    (1,967
    )
    
    
    (1,044
    )Financing activitiesIssuance of long-term debt
    
    
    23,184
    
    
    
    25,714Repayment of long-term debt
    
    
    (6
    )
    
    
    Proceeds from issuance of common stock
    
    
    4,847
    
    
    
    8Net cash provided by financing activities
    
    
    28,025
    
    
    
    25,722Net increase (decrease) in cash
    
    
    1,565
    
    
    
    (228
    )Cash at beginning of year
    
    
    1,489
    
    
    
    1,192Cash at end of year
    
    $
    3,054
    
    
    $
    964Supplemental disclosures of cash flow informationCash paid (received) during the period for:Interest, net of amounts capitalized
    
    $
    2,183
    
    
    $
    1,429Income tax, net
    
    
    18
    
    
    
    (2,254
    )




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Three Months Ended
    
    Six Months Ended7/31/2006
    
    7/31/2005
    
    7/31/2006
    
    7/31/2005(In thousands, except per share data)
    
    (In thousands, except per share data)Net income
    
    $
    7,832
    
    
    $
    6,085
    
    
    $
    4,565
    
    
    $
    402Average shares outstanding
    
    
    13,494
    
    
    
    13,119
    
    
    
    13,318
    
    
    
    13,104Net effect of dilutive stock options
based on the treasury stock method
using average market price
    
    
    35
    
    
    
    224
    
    
    
    35
    
    
    
    254Totals
    
    
    13,529
    
    
    
    13,343
    
    
    
    13,353
    
    
    
    13,358Net income per share  basic
    
    $
    0.58
    
    
    $
    0.46
    
    
    $
    0.34
    
    
    $
    0.03Net income per share  diluted
    
    $
    0.58
    
    
    $
    0.46
    
    
    $
    0.34
    
    
    $
    0.03
       Three Months Ended
    
    Six Months Ended7/31/2006
    
    7/31/2005
    
    7/31/2006
    
    7/31/2005(In thousands, except per share data)
    
    (In thousands, except per share data)Net income, as reported
    
    $
    7,832
    
    
    $
    6,085
    
    
    $
    4,565
    
    
    $
    402Total stock-based employee compensation
expense determined under the fair value
based method for all awards, net of related
tax effects
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    27Pro forma net income
    
    $
    7,832
    
    
    $
    6,071
    
    
    $
    4,565
    
    
    
    375Net income per share  basic, as reported
    
    $
    0.58
    
    
    $
    0.46
    
    
    $
    0.34
    
    
    $
    0.03Net income per share  diluted, as reported
    
    $
    0.58
    
    
    $
    0.47
    
    
    $
    0.34
    
    
    $
    0.03Weighted average shares outstanding  basic
    
    
    13,494
    
    
    
    13,119
    
    
    
    13,318
    
    
    
    13,104Weighted average shares outstanding  diluted
    
    
    13,529
    
    
    
    13,343
    
    
    
    13,353
    
    
    
    13,358




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Weighted
    
    Weighted AverageAverage
    
    Remaining
    
    AggregateNumber of
    
    Exercise
    
    Contractual Term
    
    Intrinsic ValueShares
    
    Price
    
    (in yrs.)
    
    (in thousands)Outstanding at February 1, 2006
    
    
    292,571
    
    
    $
    11.56
    
    
    
    2.49
    
    
    $
    Lapsed
    
    
    (10,795
    )
    
    
    13.30Exercised
    
    
    Granted
    
    
    Outstanding at April 30, 2006
    
    
    281,776
    
    
    
    11.50
    
    
    
    2.25
    
    
    $
    Lapsed
    
    
    Exercised
    
    
    Granted
    
    
    Outstanding at July 31, 2006
    
    
    281,776
    
    
    
    11.50
    
    
    
    1.99
    
    
    $
    




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Three Months EndedNon-EmployeeDirectors RetirementPension Plan
    
    VIP Retirement Plan
    
    Plan2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Service cost
    
    $
    43
    
    
    $
    55
    
    
    $
    53
    
    
    $
    58
    
    
    $
    6
    
    
    $
    6Interest cost
    
    
    352
    
    
    
    337
    
    
    
    85
    
    
    
    89
    
    
    
    6
    
    
    
    6Expected return on plan assets
    
    
    (246
    )
    
    
    (248
    )
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0Amortization of transition amount
    
    
    (9
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0Amortization of prior service cost
    
    
    117
    
    
    
    107
    
    
    
    (134
    )
    
    
    (125
    )
    
    
    22
    
    
    
    22Recognized net actuarial (Gain) or loss
    
    
    41
    
    
    
    33
    
    
    
    34
    
    
    
    27
    
    
    
    (7
    )
    
    
    (7
    )Settlement and curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic pension cost
    
    $
    298
    
    
    $
    275
    
    
    $
    38
    
    
    $
    49
    
    
    $
    27
    
    
    $
    27
 Six Months EndedNon-EmployeeDirectors RetirementPension Plan
    
    VIP Retirement Plan
    
    Plan2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Service cost
    
    $
    86
    
    
    $
    110
    
    
    $
    106
    
    
    $
    116
    
    
    $
    12
    
    
    $
    12Interest cost
    
    
    704
    
    
    
    674
    
    
    
    170
    
    
    
    178
    
    
    
    12
    
    
    
    12Expected return on plan assets
    
    
    (492
    )
    
    
    (496
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of transition amount
    
    
    (18
    )
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    234
    
    
    
    214
    
    
    
    (268
    )
    
    
    (250
    )
    
    
    44
    
    
    
    44Recognized net actuarial (Gain) or loss
    
    
    82
    
    
    
    66
    
    
    
    68
    
    
    
    54
    
    
    
    (14
    )
    
    
    (14
    )Settlement and curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic pension cost
    
    $
    596
    
    
    $
    550
    
    
    $
    76
    
    
    $
    98
    
    
    $
    54
    
    
    $
    54




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Three Months Ended
    
    Six Months Ended7/31/2006
    
    7/31/2005
    
    7/31/2006
    
    7/31/2005(In thousands)
    
    (In thousands)Beginning Accrued Warranty Balance
    
    $
    1,500
    
    
    $
    1,500
    
    
    $
    1,500
    
    
    $
    1,500Provision
    
    
    196
    
    
    
    213
    
    
    
    402
    
    
    
    432Costs Incurred
    
    
    (196
    )
    
    
    (213
    )
    
    
    (402
    )
    
    
    (432
    )Ending Accrued Warranty Balance
    
    $
    1,500
    
    
    $
    1,500
    
    
    $
    1,500
    
    
    $
    1,500




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations




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Item 3. Quantitative and Qualitative Disclosures about Market Risk




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Item 4. Controls and Procedures




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PART II
   
      
    Votes For
    
    Authority WithheldRobert A. Virtue
    
    
    10,625,077
    
    
    
    356,154Robert K. Montgomery
    
    
    9,724,015
    
    
    
    1,257,216Donald A. Patrick
    
    
    10,625,029
    
    
    
    312,261




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VIRCO MFG. CORPORATIONDate: September 8, 2006
    By:
    /s/ Robert E. DoseRobert E. DoseVice President  Finance