##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the quarterly period ended July 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(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



Part I. Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3Condensed consolidated balance sheets  July 31, 2008, January 31, 2008 and July 31, 2007
    
    
    3Unaudited condensed consolidated statements of income  Three months ended July 31, 2008 and 2007
    
    
    5Unaudited condensed consolidated statements of income  Six months ended July 31, 2008 and 2007
    
    
    6Unaudited condensed consolidated statements of cash flows  Six months ended July 31, 2008 and 2007
    
    
    7Notes to unaudited condensed consolidated financial statements  July 31, 2008
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    18Part II. Other Information
    
    
    19Item 1A. Risk Factors
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 6. Exhibits
    
    
    19Exhibit 10.1  First Amendment to Lease, dated as of August 20, 2008, by and between AMB Property,
L.P., a Delaware limited partnership (Lessor) and the Company (Lessee).Exhibit 10.2  Amendment No. 1 to the Second Amended and Restated Credit Agreement, dated as of
July 31, 2008, between the Company and Wells Fargo Bank, National Association.Exhibit 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.EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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##### Table of Contents



PART I
 
 Item 1. Financial Statements
  
  7/31/2008
    
    1/31/2008
    
    7/31/2007(In thousands, except share data)Unaudited (Note 1)
    
    Unaudited (Note 1)AssetsCurrent assets:Cash
    
    $
    1,851
    
    
    $
    2,066
    
    
    $
    2,048Trade accounts receivable
    
    
    43,314
    
    
    
    15,674
    
    
    
    51,493Less allowance for doubtful accounts
    
    
    258
    
    
    
    200
    
    
    
    233Net trade accounts receivable
    
    
    43,056
    
    
    
    15,474
    
    
    
    51,260Other receivables
    
    
    80
    
    
    
    284
    
    
    
    409Inventories:Finished goods, net
    
    
    14,759
    
    
    
    14,564
    
    
    
    21,028Work in process, net
    
    
    18,641
    
    
    
    20,653
    
    
    
    12,250Raw materials and supplies, net
    
    
    12,791
    
    
    
    7,791
    
    
    
    7,13646,191
    
    
    
    43,008
    
    
    
    40,414Deferred tax assets, net
    
    
    3,698
    
    
    
    4,189
    
    
    
    Prepaid expenses and other current assets
    
    
    1,295
    
    
    
    1,493
    
    
    
    1,245Total current assets
    
    
    96,171
    
    
    
    66,514
    
    
    
    95,376Property, plant and equipment:Land and land improvements
    
    
    3,630
    
    
    
    3,612
    
    
    
    3,596Buildings and building improvements
    
    
    49,558
    
    
    
    49,558
    
    
    
    49,555Machinery and equipment
    
    
    116,686
    
    
    
    114,286
    
    
    
    111,596Leasehold improvements
    
    
    1,487
    
    
    
    1,475
    
    
    
    1,467171,361
    
    
    
    168,931
    
    
    
    166,214Less accumulated depreciation and amortization
    
    
    125,398
    
    
    
    122,598
    
    
    
    119,397Net property, plant and equipment
    
    
    45,963
    
    
    
    46,333
    
    
    
    46,817Goodwill and other intangible assets, net
    
    
    2,291
    
    
    
    2,298
    
    
    
    2,304Deferred tax assets, net
    
    
    5,652
    
    
    
    5,652
    
    
    
    Other assets
    
    
    6,238
    
    
    
    6,238
    
    
    
    5,846Total assets
    
    $
    156,315
    
    
    $
    127,035
    
    
    $
    150,343
  3




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##### Table of Contents



7/31/2008
    
    1/31/2008
    
    7/31/2007(In thousands, except share data)Unaudited (Note 1)
    
    Unaudited (Note 1)LiabilitiesCurrent liabilitiesChecks released but not yet cleared bank
    
    $
    4,006
    
    
    $
    4,163
    
    
    $
    2,893Accounts payable
    
    
    13,710
    
    
    
    14,313
    
    
    
    14,850Accrued compensation and employee benefits
    
    
    5,012
    
    
    
    7,762
    
    
    
    7,445Current portion of long-term debt
    
    
    14,671
    
    
    
    74
    
    
    
    10,890Other accrued liabilities
    
    
    9,869
    
    
    
    8,206
    
    
    
    9,796Total current liabilities
    
    
    47,268
    
    
    
    34,518
    
    
    
    45,874Non-current liabilitiesAccrued self-insurance retention and other
    
    
    4,866
    
    
    
    3,848
    
    
    
    4,708Accrued pension expenses
    
    
    13,647
    
    
    
    12,749
    
    
    
    16,686Long-term debt, less current portion
    
    
    20,079
    
    
    
    3,772
    
    
    
    25,153Total non-current liabilities
    
    
    38,592
    
    
    
    20,369
    
    
    
    46,547Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    260Commitments 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 14,522,701 shares at 7/31/2008, 14,428,662
shares at 1/31/2008; and 14,428,662
shares at 7/31/2007
    
    
    145
    
    
    
    144
    
    
    
    144Additional paid-in capital
    
    
    114,509
    
    
    
    114,318
    
    
    
    113,890Retained deficit
    
    
    (39,109
    )
    
    
    (37,224
    )
    
    
    (48,806
    )Accumulated comprehensive loss
    
    
    (5,090
    )
    
    
    (5,090
    )
    
    
    (7,566
    )Total stockholders equity
    
    
    70,455
    
    
    
    72,148
    
    
    
    57,662Total liabilities and stockholders equity
    
    $
    156,315
    
    
    $
    127,035
    
    
    $
    150,343
  4




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##### Table of Contents



Three months ended7/31/2008
    
    7/31/2007(In thousands, except per share data)Net sales
    
    $
    80,216
    
    
    $
    88,931Costs of goods sold
    
    
    54,327
    
    
    
    55,216Gross profit
    
    
    25,889
    
    
    
    33,715Selling, general and administrative expenses
    
    
    19,610
    
    
    
    20,825Interest expense
    
    
    565
    
    
    
    900Income before income taxes
    
    
    5,714
    
    
    
    11,990Provision for income taxes
    
    
    2,202
    
    
    
    380Net income
    
    $
    3,512
    
    
    $
    11,610Dividend declaredCash
    
    $
    0.025
    
    
    $
    Net income per common shareBasic
    
    $
    0.24
    
    
    $
    0.81Diluted
    
    $
    0.24
    
    
    $
    0.80Weighted average shares outstandingBasic
    
    
    14,423
    
    
    
    14,398Diluted
    
    
    14,451
    
    
    
    14,430
  5




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##### Table of Contents



Six months ended7/31/2008
    
    7/31/2007(In thousands, except per share data)Net sales
    
    $
    109,410
    
    
    $
    120,053Costs of goods sold
    
    
    73,968
    
    
    
    74,788Gross profit
    
    
    35,442
    
    
    
    45,265Selling, general and
administrative expenses
    
    
    33,401
    
    
    
    34,811Interest expense
    
    
    874
    
    
    
    1,444Income before income taxes
    
    
    1,167
    
    
    
    9,010Provision for income taxes
    
    
    511
    
    
    
    380Net income
    
    $
    656
    
    
    $
    8,630Dividend declaredCash
    
    $
    0.05
    
    
    $
    Net income per common shareBasic
    
    $
    0.05
    
    
    $
    0.60Diluted
    
    $
    0.05
    
    
    $
    0.60Weighted average shares outstandingBasic
    
    
    14,426
    
    
    
    14,384Diluted
    
    
    14,443
    
    
    
    14,500
  6




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##### Table of Contents



Six months ended7/31/2008
    
    7/31/2007(In thousands)Operating activitiesNet income
    
    $
    656
    
    
    $
    8,630Adjustments to reconcile net income to net cash used in
operating activities:Depreciation and amortization
    
    
    2,885
    
    
    
    3,414Provision for doubtful accounts
    
    
    58
    
    
    
    8Gain on sale of property, plant and equipment
    
    
    (1
    )
    
    
    (17
    )Deferred income taxes
    
    
    491
    
    
    
    Stock based compensation
    
    
    413
    
    
    
    249Changes in operating assets and liabilitiesTrade accounts receivable
    
    
    (27,640
    )
    
    
    (32,672
    )Other receivables
    
    
    204
    
    
    
    (181
    )Inventories
    
    
    (3,183
    )
    
    
    (2,577
    )Income taxes
    
    
    14
    
    
    
    366Prepaid expenses and other current assets
    
    
    198
    
    
    
    234Accounts payable and accrued liabilities
    
    
    (1,944
    )
    
    
    4,020Net cash used in operating activities
    
    
    (27,849
    )
    
    
    (18,526
    )Investing activitiesCapital expenditures
    
    
    (2,487
    )
    
    
    (2,114
    )Proceeds from sale of property, plant and equipment
    
    
    1
    
    
    
    17Net cash used in investing activities
    
    
    (2,486
    )
    
    
    (2,097
    )Financing activitiesProceeds from long-term debt
    
    
    30,941
    
    
    
    20,816Repayment of long-term debt
    
    
    (37
    )
    
    
    (37
    )Purchase of treasury stock
    
    
    (63
    )
    
    
    Cash dividend paid
    
    
    (721
    )
    
    
    Net cash provided by financing activities
    
    
    30,120
    
    
    
    20,779Net (decrease) increase  in cash
    
    
    (215
    )
    
    
    156Cash at beginning of period
    
    
    2,066
    
    
    
    1,892Cash at end of period
    
    $
    1,851
    
    
    $
    2,048
  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
 8




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##### Table of Contents



Fair Value Measurements
 Effective Date of FASB Statement No.
 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
 9




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Note 5. Debt
       Note 6. Income Taxes
   10




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##### Table of Contents



Note 7. Net Income per Share
 Three Months Ended
    
    Six Months Ended7/31/2008
    
    7/31/2007
    
    7/31/2008
    
    7/31/2007(In thousands, except per share data)
    
    (In thousands, except per share data)Net income
    
    $
    3,512
    
    
    $
    11,610
    
    
    $
    656
    
    
    $
    8,630Average shares outstanding
    
    
    14,423
    
    
    
    14,398
    
    
    
    14,426
    
    
    
    14,384Net effect of dilutive stock options based on
the treasury stock method using average
market price
    
    
    32
    
    
    
    32
    
    
    
    17
    
    
    
    116Totals
    
    
    14,451
    
    
    
    14,430
    
    
    
    14,443
    
    
    
    14,500Net income per share  basic
    
    $
    0.24
    
    
    $
    0.81
    
    
    $
    0.05
    
    
    $
    0.60Net income per share  diluted
    
    $
    0.24
    
    
    $
    0.80
    
    
    $
    0.05
    
    
    $
    0.60
 11




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##### Table of Contents



Note 8. Stock Based Compensation
   Accounting for the Plans
  UnrecognizedCompensationExpense for 3 months ended
    
    Expense for 6 months ended
    
    Cost at7/31/2008
    
    7/31/2007
    
    7/31/2008
    
    7/31/2007
    
    7/31/20082007 Stock Incentive Plan262,500 Restricted Stock Units,
issued 6/19/2007, vesting over 5
years
    
    $
    89,000
    
    
    $
    58,000
    
    
    $
    177,000
    
    
    $
    58,000
    
    
    $
    1,364,00035,644 Grants of Restricted
Stock, issued 6/17/2008, vesting
over 1 year
    
    
    29,000
    
    
    
    
    
    
    $
    29,000
    
    
    
    
    
    
    
    146,00012,887 Grants of Restricted
Stock, issued 6/19/2007, vesting
over 1 year
    
    
    7,000
    
    
    
    15,000
    
    
    $
    29,000
    
    
    $
    15,000
    
    
    
    1997 Employee Incentive Stock Plan270,000 Restricted Stock Units,
issued 6/30/2004, vesting over 5
years
    
    
    89,000
    
    
    
    59,000
    
    
    
    178,000
    
    
    
    147,000
    
    
    
    323,00017,640 Grants of Restricted
Stock, issued 6/20/2006, vesting
over 1 year
    
    
    
    
    
    
    8,000
    
    
    
    
    
    
    
    29,000
    
    
    
    Totals for the period
    
    $
    214,000
    
    
    $
    140,000
    
    
    $
    413,000
    
    
    $
    249,000
    
    
    $
    1,833,000
 Stockholders Rights
  12




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##### Table of Contents



Note 9. Comprehensive Income (Loss)
  Note 10. Retirement Plans
     Three Months EndedNon-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
 Six Months EndedNon-Employee DirectorsPension Plan
    
    VIP Retirement Plan
    
    Retirement Plan2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007Service cost
    
    $
    
    
    
    $
    82
    
    
    $
    
    
    
    $
    100
    
    
    $
    10
    
    
    $
    12Interest cost
    
    
    776
    
    
    
    690
    
    
    
    180
    
    
    
    180
    
    
    
    16
    
    
    
    14Expected return on plan assets
    
    
    (600
    )
    
    
    (448
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of transition amount
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    276
    
    
    
    234
    
    
    
    (160
    )
    
    
    (268
    )
    
    
    
    
    
    
    12Recognized net actuarial loss or (gain)
    
    
    100
    
    
    
    98
    
    
    
    80
    
    
    
    60
    
    
    
    (16
    )
    
    
    (14
    )
 13




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Six Months EndedNon-Employee DirectorsPension Plan
    
    VIP Retirement Plan
    
    Retirement Plan2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007Settlement and curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic pension cost
    
    $
    552
    
    
    $
    638
    
    
    $
    100
    
    
    $
    72
    
    
    $
    10
    
    
    $
    24
 Note 11. Warranty
   Three Months Ended
    
    Six Months Ended7/31/2008
    
    7/31/2007
    
    7/31/2008
    
    7/31/2007(In thousands)Beginning Accrued Warranty Balance
    
    $
    1,950
    
    
    $
    1,850
    
    
    $
    1,750
    
    
    $
    1,750Provision
    
    
    412
    
    
    
    191
    
    
    
    955
    
    
    
    536Costs Incurred
    
    
    (362
    )
    
    
    (241
    )
    
    
    (705
    )
    
    
    (486
    )Ending Accrued Warranty Balance
    
    $
    2,000
    
    
    $
    1,800
    
    
    $
    2,000
    
    
    $
    1,800
 Note 12. Subsequent Events
  14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Results of Operations
       15




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Liquidity and Capital Resources
       16




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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
     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
   
     
    Votes For
    
    Authority WithheldDonald S. Friesz
    
    
    10,337,051
    
    
    
    2,612,430Glen D. Parish
    
    
    10,334,387
    
    
    
    2,615,094James R. Wilburn
    
    
    10,337,225
    
    
    
    2,612,257
  
       19




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##### Table of Contents



VIRCO MFG. CORPORATIONDate: September 9, 2008
    By:
    /s/ Robert E. DoseRobert E. DoseVice President  Finance 20