##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 o
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended October 31, 2008
 OR
 o
    
    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
  Delaware
    
    95-1613718(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)2027 Harpers Way, Torrance, CA
    
    90501(Address of Principal Executive Offices)
    
    (Zip Code)
 (310) 533-0474
 
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



Part I. Financial InformationItem 1. Financial StatementsCondensed consolidated balance sheets  October 31, 2008, January 31, 2008 and October 31, 2007
    
    
    3Unaudited condensed consolidated statements of income  Three months ended October 31, 2008 and 2007
    
    
    5Unaudited condensed consolidated statements of income  Nine months ended October 31, 2008 and 2007
    
    
    6Unaudited condensed consolidated statements of cash flows  Nine months ended October 31, 2008 and 2007
    
    
    7Notes to unaudited condensed consolidated financial statements  October 31, 2008
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    18Part II. Other Information
    
    
    19Item 1A. Risk Factors
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Item 6. Exhibits
    
    
    20Exhibit 31.1  Certification of Robert A. Virtue, Principal Executive Officer, 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 2002.Exhibit 31.2  Certification of Robert E. Dose, Principal; Financial Officer, 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 2002.Exhibit 32.1  Certifications of Principal Executive Officer and Principal Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I
 
 Item 1. Financial Statements
  
  10/31/2008
    
    1/31/2008
    
    10/31/2007(In thousands, except share data)Unaudited (Note 1)
    
    
    
    
    
    Unaudited (Note 1)AssetsCurrent assets:Cash
    
    $
    3,474
    
    
    $
    2,066
    
    
    $
    4,382Trade accounts receivable
    
    
    25,805
    
    
    
    15,674
    
    
    
    24,032Less allowance for doubtful accounts
    
    
    258
    
    
    
    200
    
    
    
    209Net trade accounts receivable
    
    
    25,547
    
    
    
    15,474
    
    
    
    23,823Other receivables
    
    
    152
    
    
    
    284
    
    
    
    102Inventories:Finished goods, net
    
    
    8,953
    
    
    
    14,564
    
    
    
    10,063Work in process, net
    
    
    10,841
    
    
    
    20,653
    
    
    
    11,881Raw materials and supplies, net
    
    
    6,251
    
    
    
    7,791
    
    
    
    6,80126,045
    
    
    
    43,008
    
    
    
    28,745Deferred tax assets, net
    
    
    1,091
    
    
    
    4,189
    
    
    
    3,809Prepaid expenses and other current assets
    
    
    1,249
    
    
    
    1,493
    
    
    
    1,034Total current assets
    
    
    57,558
    
    
    
    66,514
    
    
    
    61,895Property, plant and equipment:Land and land improvements
    
    
    3,379
    
    
    
    3,612
    
    
    
    3,596Buildings and building improvements
    
    
    47,511
    
    
    
    49,558
    
    
    
    49,555Machinery and equipment
    
    
    115,518
    
    
    
    114,286
    
    
    
    112,917Leasehold improvements
    
    
    1,487
    
    
    
    1,475
    
    
    
    1,475167,895
    
    
    
    168,931
    
    
    
    167,543Less accumulated depreciation and amortization
    
    
    123,791
    
    
    
    122,598
    
    
    
    121,004Net property, plant and equipment
    
    
    44,104
    
    
    
    46,333
    
    
    
    46,539Goodwill and other intangible assets, net
    
    
    2,288
    
    
    
    2,298
    
    
    
    2,301Deferred tax assets, net
    
    
    5,652
    
    
    
    5,652
    
    
    
    6,612Other assets
    
    
    6,288
    
    
    
    6,238
    
    
    
    6,046Total assets
    
    $
    115,890
    
    
    $
    127,035
    
    
    $
    123,393
  3




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##### Table of Contents



10/31/2008
    
    1/31/2008
    
    10/31/2007(In thousands, except share data)Unaudited (Note 1)
    
    
    
    
    
    Unaudited (Note 1)LiabilitiesCurrent liabilitiesChecks released but not yet cleared bank
    
    $
    2,417
    
    
    $
    4,163
    
    
    $
    2,662Accounts payable
    
    
    10,057
    
    
    
    14,313
    
    
    
    11,205Accrued compensation and employee benefits
    
    
    4,904
    
    
    
    7,762
    
    
    
    8,796Current portion of long-term debt
    
    
    74
    
    
    
    74
    
    
    
    74Other accrued liabilities
    
    
    7,023
    
    
    
    8,206
    
    
    
    7,357Total current liabilities
    
    
    24,475
    
    
    
    34,518
    
    
    
    30,094Non-current liabilitiesAccrued self-insurance retention and other
    
    
    4,571
    
    
    
    3,848
    
    
    
    4,359Accrued pension expenses
    
    
    13,341
    
    
    
    12,749
    
    
    
    14,175Long-term debt, less current portion
    
    
    60
    
    
    
    3,772
    
    
    
    135Total non-current liabilities
    
    
    17,972
    
    
    
    20,369
    
    
    
    18,669Commitments 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 14,426,884 shares at 10/31/2008, 14,428,662
shares at 1/31/2008 and 10/31/2007
    
    
    144
    
    
    
    144
    
    
    
    144Additional paid-in capital
    
    
    114,442
    
    
    
    114,318
    
    
    
    114,119Retained deficit
    
    
    (36,053
    )
    
    
    (37,224
    )
    
    
    (32,067
    )Accumulated comprehensive loss
    
    
    (5,090
    )
    
    
    (5,090
    )
    
    
    (7,566
    )Total stockholders equity
    
    
    73,443
    
    
    
    72,148
    
    
    
    74,630Total liabilities and stockholders equity
    
    $
    115,890
    
    
    $
    127,035
    
    
    $
    123,393
  4




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##### Table of Contents



Three months ended10/31/2008
    
    10/31/2007(In thousands, except per share data)Net sales
    
    $
    74,866
    
    
    $
    76,977Costs of goods sold
    
    
    50,372
    
    
    
    49,037Gross profit
    
    
    24,494
    
    
    
    27,940Selling, general and administrative expenses and others
    
    
    18,868
    
    
    
    20,814Gain on sale of property
    
    
    (1,131
    )
    
    
    Interest expense
    
    
    370
    
    
    
    509Income before income taxes
    
    
    6,387
    
    
    
    6,617Provision for income taxes
    
    
    2,607
    
    
    
    (10,122
    )Net income
    
    $
    3,780
    
    
    $
    16,739Dividend declaredCash
    
    $
    0.05
    
    
    $
    Net income per common shareBasic
    
    $
    0.26
    
    
    $
    1.16Diluted
    
    $
    0.26
    
    
    $
    1.15Weighted average shares outstandingBasic
    
    
    14,467
    
    
    
    14,416Diluted
    
    
    14,485
    
    
    
    14,535
  5




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##### Table of Contents



Nine months ended10/31/2008
    
    10/31/2007(In thousands, except per share data)Net sales
    
    $
    184,276
    
    
    $
    197,030Costs of goods sold
    
    
    124,340
    
    
    
    123,825Gross profit
    
    
    59,936
    
    
    
    73,205Selling, general and administrative expenses and others
    
    
    52,269
    
    
    
    55,625Gain on sale of property
    
    
    (1,131
    )
    
    
    Interest expense
    
    
    1,244
    
    
    
    1,953Income before income taxes
    
    
    7,554
    
    
    
    15,627Provision for income taxes
    
    
    3,118
    
    
    
    (9,742
    )Net income
    
    $
    4,436
    
    
    $
    25,369Dividend declaredCash
    
    $
    0.10
    
    
    
    Net income per common shareBasic
    
    $
    0.31
    
    
    $
    1.76Diluted
    
    $
    0.31
    
    
    $
    1.75Weighted average shares outstandingBasic
    
    
    14,443
    
    
    
    14,388Diluted
    
    
    14,467
    
    
    
    14,503
  6




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##### Table of Contents



Nine months ended10/31/2008
    
    10/31/2007(In thousands)Operating activitiesNet income
    
    $
    4,436
    
    
    $
    25,369Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    4,309
    
    
    
    5,035Provision for doubtful accounts
    
    
    60
    
    
    
    40Gain on sale of property, plant and equipment
    
    
    (1,131
    )
    
    
    (17
    )Deferred income taxes
    
    
    3,098
    
    
    
    (10,681
    )Stock based compensation
    
    
    634
    
    
    
    479Changes in operating assets and liabilitiesTrade accounts receivable
    
    
    (10,133
    )
    
    
    (5,266
    )Other receivables
    
    
    132
    
    
    
    126Inventories
    
    
    16,962
    
    
    
    9,092Income taxes
    
    
    (335
    )
    
    
    636Prepaid expenses and other current assets
    
    
    244
    
    
    
    445Accounts payable and accrued liabilities
    
    
    (10,877
    )
    
    
    (4,086
    )Net cash provided by operating activities
    
    
    7,399
    
    
    
    21,172Investing activitiesCapital expenditures
    
    
    (3,185
    )
    
    
    (3,444
    )Proceeds from sale of property, plant and equipment
    
    
    2,392
    
    
    
    17Net investment in life insurance
    
    
    (50
    )
    
    
    (200
    )Net cash used in investing activities
    
    
    (843
    )
    
    
    (3,627
    )Financing activitiesRepayment of long-term debt
    
    
    (3,712
    )
    
    
    (15,055
    )Purchase of common stock
    
    
    (352
    )
    
    
    Cash dividend paid
    
    
    (1,084
    )
    
    
    Net cash
used in financing activities
    
    
    (5,148
    )
    
    
    (15,055
    )Net increase in cash
    
    
    1,408
    
    
    
    2,490Cash at beginning of period
    
    
    2,066
    
    
    
    1,892Cash at end of period
    
    $
    3,474
    
    
    $
    4,382Supplemental disclosureAccrual for cash dividends declared but not paid
    
    $
    361
    
    
    
    
  7




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##### Table of Contents



Note 1. Basis of Presentation
  Note 2. Seasonality
    Note 3. New Accounting Standards
 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements
 Fair Value Measurements
 Effective Date of FASB Statement No.
 8




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115.
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans
 Business Combinations Business Combinations Noncontrolling Interests in Consolidated Financial Statements  An Amendment of ARB No. 51
 Note 4. Inventories
  Note 5. Debt
     9




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Note 6. Income Taxes
    Note 7. Net Income per Share
 Three Months Ended
    
    Nine Months Ended10/31/2008
    
    10/31/2007
    
    10/31/2008
    
    10/31/2007(In thousands, except per share data)Net income
    
    $
    3,780
    
    
    $
    16,739
    
    
    $
    4,436
    
    
    $
    25,369Average shares outstanding
    
    
    14,467
    
    
    
    14,416
    
    
    
    14,443
    
    
    
    14,388Net effect of dilutive stock
options based on the treasury
stock method using average
market price
    
    
    18
    
    
    
    119
    
    
    
    24
    
    
    
    115Totals
    
    
    14,485
    
    
    
    14,535
    
    
    
    14,467
    
    
    
    14,503Net income per share  basic
    
    $
    0.26
    
    
    $
    1.16
    
    
    $
    0.31
    
    
    $
    1.76Net income per share  diluted
    
    $
    0.26
    
    
    $
    1.15
    
    
    $
    0.31
    
    
    $
    1.75
 Note 8. Stock Based Compensation
  10




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Accounting for the Plans
  UnrecognizedCompensationExpense for 3 months ended
    
    Expense for 9 months ended
    
    Cost at10/31/2008
    
    10/31/2007
    
    10/31/2008
    
    10/31/2007
    
    10/31/20082007 Stock Incentive Plan262,500 Restricted Stock Units, issued
6/19/2007, vesting over 5 years
    
    $
    89,000
    
    
    $
    91,000
    
    
    $
    266,000
    
    
    $
    149,000
    
    
    $
    1,275,00035,644 Grants of Restricted Stock,issued 6/17/2008, vesting over 1 year
    
    
    44,000
    
    
    
    
    
    
    
    73,000
    
    
    
    
    
    
    
    102,00012,887 Grants of Restricted Stock,issued 6/19/2007, vesting over 1 year
    
    
    
    
    
    
    21,000
    
    
    
    29,000
    
    
    $
    36,000
    
    
    
    1997 Stock Incentive Plan270,000 Restricted Stock Units, issued
6/30/2004, vesting over 5 years
    
    
    88,000
    
    
    
    118,000
    
    
    
    266,000
    
    
    
    265,000
    
    
    
    235,00017,640 Grants of Restricted Stock,issued 6/20/2006, vesting over 1 year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,000
    
    
    
    Totals for the period
    
    $
    221,000
    
    
    $
    230,000
    
    
    $
    634,000
    
    
    $
    479,000
    
    
    $
    1,612,000
 Stockholders Rights
  Note 9. Comprehensive Income (Loss)
  Note 10. Retirement Plans
 11




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Three Months Ended October 31,Non-Employee DirectorsPension Plan
    
    VIP Retirement Plan
    
    Retirement Plan2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007Service cost
    
    $
    
    
    
    $
    41
    
    
    $
    
    
    
    $
    50
    
    
    $
    5
    
    
    $
    6Interest cost
    
    
    388
    
    
    
    345
    
    
    
    90
    
    
    
    90
    
    
    
    8
    
    
    
    7Expected return on plan assets
    
    
    (300
    )
    
    
    (224
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of transition amount
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    138
    
    
    
    117
    
    
    
    (80
    )
    
    
    (134
    )
    
    
    
    
    
    
    6Recognized net actuarial loss or (gain)
    
    
    50
    
    
    
    49
    
    
    
    40
    
    
    
    30
    
    
    
    (8
    )
    
    
    (7
    )Settlement and curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic pension cost
    
    $
    276
    
    
    $
    319
    
    
    $
    50
    
    
    $
    36
    
    
    $
    5
    
    
    $
    12
 Nine Months Ended October 31,Non-Employee DirectorsPension Plan
    
    VIP Retirement Plan
    
    Retirement Plan2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007Service cost
    
    $
    
    
    
    $
    123
    
    
    $
    
    
    
    $
    150
    
    
    $
    15
    
    
    $
    18Interest cost
    
    
    1,164
    
    
    
    1,035
    
    
    
    270
    
    
    
    270
    
    
    
    24
    
    
    
    21Expected return on plan assets
    
    
    (900
    )
    
    
    (672
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of transition amount
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    414
    
    
    
    351
    
    
    
    (240
    )
    
    
    (402
    )
    
    
    
    
    
    
    18Recognized net actuarial loss or (gain)
    
    
    150
    
    
    
    147
    
    
    
    120
    
    
    
    90
    
    
    
    (24
    )
    
    
    (21
    )Settlement and curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic pension cost
    
    $
    828
    
    
    $
    957
    
    
    $
    150
    
    
    $
    108
    
    
    $
    15
    
    
    $
    36
 12




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Note 11. Warranty
   Three Months Ended
    
    Nine Months Ended10/31/2008
    
    10/31/2007
    
    10/31/2008
    
    10/31/2007(In thousands)Beginning Accrued Warranty Balance
    
    $
    2,000
    
    
    $
    1,800
    
    
    $
    1,750
    
    
    $
    1,800Provision
    
    
    354
    
    
    
    564
    
    
    
    1,309
    
    
    
    1,050Costs Incurred
    
    
    (354
    )
    
    
    (464
    )
    
    
    (1,059
    )
    
    
    (950
    )Ending Accrued Warranty Balance
    
    $
    2,000
    
    
    $
    1,900
    
    
    $
    2,000
    
    
    $
    1,900
 Note 12. Sale of Real Estate
  13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Results of Operations
          14




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Liquidity and Capital Resources
        15




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Off Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  Forward-Looking Statements
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  ,
     16




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17




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Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   Internal Control Over Financial Reporting
  18




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PART II
     
 Item 1A. Risk Factors
  The majority of our sales are generated under annual contracts, which limit our ability to raise
prices during a given year in response to increases in costs.
   Approximately 40% of our sales are priced through one contract, under which we are the exclusive
supplier of classroom furniture.
  Our product sales are significantly affected by education funding, which is outside of our control.
Our sales and/or growth in our sales would be adversely affected by a recessionary economy or
decreased state and local revenues, either of which in turn could cause decreased funding for
education.
   19




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##### Table of Contents



VIRCO MFG. CORPORATIONDate: December 10, 2008
    
    By:
    
    /s/ Robert E. Dose

Robert E. DoseVice President  Finance
 20