##### 



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
    
    April 30, 2006
    
    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
  o þ o
 þ o
 o þ




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##### 



Part I. Financial InformationItem 1. Financial StatementsCondensed consolidated balance sheets  April 30, 2006, January 31, 2006 and April 30, 2005Condensed consolidated statements of operations  Three months ended April 30, 2006 and 2005Condensed consolidated statements of cash flows  Three months ended April 30, 2006 and 2005Notes to condensed consolidated financial statements  April 30, 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 6. ExhibitsExhibit 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.
 2




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##### 



PART I
 
 Item 1. Financial Statements
 
   4/30/2006
    
    
    1/31/2006
    
    
    4/30/2005(In thousands, except share data)Unaudited (Note 1)
    
    
    
    
    
    
    Unaudited (Note 1)AssetsCurrent assets:Cash
    
    $
    752
    
    
    $
    1,489
    
    
    $
    495Trade accounts receivable
    
    
    18,247
    
    
    
    17,470
    
    
    
    16,112Less allowance for doubtful accounts
    
    
    234
    
    
    
    200
    
    
    
    262Net trade accounts receivable
    
    
    18,013
    
    
    
    17,270
    
    
    
    15,850Other receivables
    
    
    224
    
    
    
    377
    
    
    
    179Inventories:Finished goods, net
    
    
    19,641
    
    
    
    11,070
    
    
    
    12,611Work in process, net
    
    
    22,816
    
    
    
    13,796
    
    
    
    24,546Raw materials and supplies, net
    
    
    9,194
    
    
    
    6,751
    
    
    
    8,43851,651
    
    
    
    31,617
    
    
    
    45,595Prepaid expenses and other current assets
    
    
    1,041
    
    
    
    1,493
    
    
    
    1,153Total current assets
    
    
    71,681
    
    
    
    52,246
    
    
    
    63,272Property, plant and equipment:Land and land improvements
    
    
    3,591
    
    
    
    3,591
    
    
    
    3,253Buildings and building improvements
    
    
    49,581
    
    
    
    49,581
    
    
    
    49,542Machinery and equipment
    
    
    106,981
    
    
    
    106,475
    
    
    
    104,319Leasehold improvements
    
    
    1,302
    
    
    
    1,289
    
    
    
    1,289161,455
    
    
    
    160,936
    
    
    
    158,403Less accumulated depreciation and amortization
    
    
    111,374
    
    
    
    109,513
    
    
    
    103,535Net property, plant and equipment
    
    
    50,081
    
    
    
    51,423
    
    
    
    54,868Goodwill and other intangible assets, net
    
    
    2,323
    
    
    
    2,324
    
    
    
    2,334Other assets
    
    
    8,727
    
    
    
    8,727
    
    
    
    8,889Total assets
    
    $
    132,812
    
    
    $
    114,720
    
    
    $
    129,363
  3




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##### 



4/30/2006
    
    
    1/31/2006
    
    
    4/30/2005(In thousands, except share data)Unaudited (Note 1)
    
    
    
    
    
    
    Unaudited (Note 1)LiabilitiesCurrent liabilities:Checks released but not yet cleared bank
    
    $
    2,276
    
    
    $
    2,030
    
    
    $
    2,909Accounts payable
    
    
    23,474
    
    
    
    17,504
    
    
    
    19,350Accrued compensation and employee benefits
    
    
    5,063
    
    
    
    6,047
    
    
    
    5,094Current portion of long-term debt
    
    
    5,012
    
    
    
    5,012
    
    
    
    5,012Other accrued liabilities
    
    
    5,974
    
    
    
    6,165
    
    
    
    5,073Total current liabilities
    
    
    41,799
    
    
    
    36,758
    
    
    
    37,438Non-current liabilities:Accrued self-insurance retention and other
    
    
    3,104
    
    
    
    2,703
    
    
    
    3,723Accrued pension expenses
    
    
    15,024
    
    
    
    14,618
    
    
    
    13,288Long-term debt, less current portion
    
    
    36,511
    
    
    
    21,541
    
    
    
    31,327Total non-current liabilities
    
    
    54,639
    
    
    
    38,862
    
    
    
    48,338Commitments and contingenciesStockholders equity:Preferred stockAuthorized 3,000,000 shares, $.01 par
value; none issued or outstandingCommon stockAuthorized 25,000,000 shares, $.01 par
value; issued 13,137,288 shares at
4/30/2006 and 1/31/2006, and 13,099,825
shares at 4/30/2005
    
    
    131
    
    
    
    131
    
    
    
    131Additional paid-in capital
    
    
    108,684
    
    
    
    108,143
    
    
    
    107,888Retained deficit
    
    
    (68,248
    )
    
    
    (64,981
    )
    
    
    (61,090
    )Accumulated comprehensive loss
    
    
    (4,193
    )
    
    
    (4,193
    )
    
    
    (3,342
    )Total stockholders equity
    
    
    36,374
    
    
    
    39,100
    
    
    
    43,587Total liabilities and stockholders equity
    
    $
    132,812
    
    
    $
    114,720
    
    
    $
    129,363
  4




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##### 



Three months ended4/30/2006
    
    
    4/30/2005(In thousands, except share data)Net sales
    
    $
    34,515
    
    
    $
    33,254Costs of goods sold
    
    
    23,021
    
    
    
    23,847Gross profit
    
    
    11,494
    
    
    
    9,407Selling, general and administrative expenses
    
    
    13,875
    
    
    
    14,557Interest expense
    
    
    886
    
    
    
    533Loss before income taxes
    
    
    (3,267
    )
    
    
    (5,683
    )Provision for income taxes
    
    
    
    
    
    
    Net loss
    
    $
    (3,267
    )
    
    $
    (5,683
    )Net loss per common shareBasic
    
    $
    (0.25
    )
    
    $
    (0.43
    )Weighted average shares outstandingBasic
    
    
    13,137
    
    
    
    13,100
  5




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##### 



Three months ended4/30/2006
    
    
    4/30/2005(In thousands)Operating activitiesNet loss
    
    $
    (3,267
    )
    
    $
    (5,683
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    1,861
    
    
    
    2,406Provision for doubtful accounts
    
    
    25
    
    
    
    37Loss on sale of property, plant and equipment
    
    
    
    
    
    
    20Changes in assets and liabilitiesTrade accounts receivable
    
    
    (768
    )
    
    
    110Other receivables
    
    
    153
    
    
    
    (14
    )Inventories
    
    
    (20,034
    )
    
    
    (19,548
    )Income taxes
    
    
    10
    
    
    
    2,244Prepaid expenses and other current assets
    
    
    452
    
    
    
    187Accounts payable and accrued liabilities
    
    
    6,380
    
    
    
    6,826Other
    
    
    
    
    
    
    (91
    )Net cash used in operating activities
    
    
    (15,188
    )
    
    
    (13,506
    )Investing activitiesCapital expenditures
    
    
    (519
    )
    
    
    (437
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    32Net cash used in investing activities
    
    
    (519
    )
    
    
    (405
    )Financing activitiesIssuance of long-term debt
    
    
    14,970
    
    
    
    13,209Proceeds from issuance of common stock
    
    
    
    
    
    
    5Net cash provided by financing activities
    
    
    14,970
    
    
    
    13,214Net decrease in cash
    
    
    (737
    )
    
    
    (697
    )Cash at beginning of year
    
    
    1,489
    
    
    
    1,192Cash at end of year
    
    $
    752
    
    
    $
    495Supplemental disclosures of cash flow informationCash paid (received) during the year for:Interest, net of amounts capitalized
    
    $
    886
    
    
    $
    533Income tax, net
    
    
    5
    
    
    
    (2,254
    )Non-cash activitiesAccrued asset retirement obligations
    
    $
    11
    
    
    $
    11Deferred compensation
    
    
    541
    
    
    
    
  6




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##### 



Note 1.
    
    Basis of PresentationThe accompanying unaudited condensed consolidated
financial statements have been prepared in
accordance with accounting principles generally
accepted in the United States for interim
financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the
information and footnotes required by generally
accepted accounting principles for complete
financial statements. In the opinion of
management, all adjustments (consisting of normal
recurring accruals) considered necessary for a
fair presentation have been included. Operating
results for the three months ended April 30, 2006, are not necessarily indicative of the
results that may be expected for the year ending
January 31, 2007. The balance sheet at January 31,
2006, has been derived from the audited financial
statements at that date, but does not include all
of the information and footnotes required by
accounting principles generally accepted in the
United States for complete financial statements.
For further information, refer to the consolidated
financial statements and footnotes thereto
included in the Companys annual report on
Form 10-K for the year ended January 31, 2006.Note 2.
    
    SeasonalityThe market for educational furniture is marked by
extreme seasonality, with over 50% of the
Companys total sales typically occurring from
June to September each year, which is the
Companys peak season. Hence, the Company
typically builds and carries significant amounts
of inventory during and in anticipation of this
peak summer season to facilitate the rapid
delivery requirements of customers in the
educational market. This requires a large up-front
investment in inventory, labor, storage and
related costs as inventory is built in
anticipation of peak sales during the summer
months. As the capital required for this build-up
generally exceeds cash available from operations,
the Company has historically relied on third-party
bank financing to meet cash flow requirements
during the build-up period immediately preceding
the peak season.In addition, the Company typically is faced with a
large balance of accounts receivable during the
peak season. This occurs for two primary reasons.
First, accounts receivable balances typically
increase during the peak season as shipments of
products increase. Second, many customers during
this period are government institutions, which
tend to pay accounts receivable more slowly than
commercial customers.The Companys working capital requirements during
and in anticipation of the peak summer season
require management to make estimates and judgments
that affect assets, liabilities, revenues and
expenses, and related contingent assets and
liabilities. On an on-going basis, management
evaluates its estimates, including those related
to market demand, labor costs, and stocking
inventory.Note 3.
    
    New Accounting StandardsIn February 2006, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 155,
Accounting for Certain Hybrid Financial Instruments (SFAS
155). SFAS 155 establishes, among other things, the accounting
for certain derivatives embedded in other financial
instruments. This statement permits fair value remeasurement
for any hybrid financial instrument containing an embedded
derivative that would otherwise require bifurcation. It also
requires that beneficial interests in securitized financial
assets be accounted for in accordance with SFAS No. 133. SFAS
155 is effective for fiscal years beginning after September 15,
2006, and is not expected to have a material impact on the
Companys financial operations or financial positions.Note 4.
    
    InventoriesYear end financial statements at January 31, 2006
reflect inventories verified by physical counts
with the material content valued by the LIFO
method. At April 30, 2006 and 2005, there was no
physical verification of inventory quantities.
Cost of sales is recorded at current cost. The
effect of penetrating LIFO layers is not recorded
at interim dates unless the reduction in inventory
is expected to be permanent. No such adjustments
have been made for the periods ended April 30,
2006 and 2005. LIFO reserves at April 30, 2006 and
January 31, 2006 were $6,423,000. LIFO reserves at
April 30, 2005 were $6,201,000. Management
continually monitors production costs, material
costs and inventory levels to determine that
interim inventories are fairly stated.
 7




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##### 



Note 5.
    
    DebtThe Company has entered into a revolving credit
facility with Wells Fargo Bank, amended and
restated in December 2005, which provides a term
loan of $20,000,000 and a secured revolving line
of credit that varies as a percentage of inventory
and receivables, up to a maximum of $40,000,000.
The revolving line of credit increases to
$50,000,000 between May and September. The term
note is a two-year loan amortizing at $5,000,000
per year with interest payable monthly at a
fluctuating rate equal to the Banks prime rate
(7.50% at April 30, 2006) plus a 2% margin.The revolving line has a 24-month maturity with
interest payable monthly at a fluctuating rate
equal to the banks prime rate plus a fluctuating
margin similar to the term note. The revolving
line typically provides for advances of 80% on
eligible accounts receivable and 20%  60% on
eligible inventory. The advance rates fluctuate
depending on the time of the year and the types of
assets. The agreement has an unused commitment fee
of 0.375%. Approximately $15,656,000 was available
for borrowing as of April 30, 2006.The revolving credit facility with Wells Fargo
Bank is subject to various financial covenants
including a minimum re requirement, minimum EBITDA
and an annual cleandown. The agreement also places
certain restrictions on capital expenditures, new
operating leases, dividends and the repurchase of
the Companys common stock. The revolving credit
facility is secured by the Companys accounts
receivable, inventories, equipment and property.
The Company is in compliance with its covenants at
April 30, 2006, January 31, 2006 and April 30,
2005. The $21,421,000 due under Wells Fargo Banks
line of credit will be payable on February 15,
2008, if the agreement is not renewed. The Company
currently intends to renew the agreement.Note 6.
    
    Income TaxesThe Company recognizes deferred income taxes under
the asset and liability method of accounting for
income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. Deferred
income taxes are recognized for differences
between the financial statement and tax basis of
assets and liabilities at enacted statutory tax
rates in effect for the years in which the
differences are expected to reverse. The effect on
deferred taxes of a change in tax rates is
recognized in income in the period that includes
the enactment date. In assessing the realizability
of deferred tax assets, we consider whether it is
more likely than not that some portion or all of
the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is
dependent upon the generation of future taxable
income or reversal of deferred tax liabilities
during the periods in which those temporary
differences become deductible. We consider the
scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning
strategies in making this assessment. Based on
this consideration, we believe it is more likely
than not that the net deferred tax assets will not
be realized, and a valuation allowance has been
recorded against the net deferred tax assets at
April 30, 2006, January 31, 2006 and April 30,
2005.Note 7.
    
    Net Loss per ShareFor the three months ended April 30, 2006, net
loss per share was calculated based on basic
            shares outstanding due to the anti-dilutive effect
of the inclusion of common stock equivalent
            shares. The following table sets forth the
computation of loss per share:
 Three Months Ended4/30/2006
    
    
    4/30/2005(In thousands, except per share data)Net loss
    
    $
    (3,267
    )
    
    $
    (5,683
    )Average
shares outstanding  basic
    
    
    13,137
    
    
    
    13,100Net effect of dilutive
stock options based on
the treasury stock method
using average market
price
    
    
    68
    
    
    
    281Totals
 Assuming dilution
    
    
    13,205
    
    
    
    13,381Net loss per share  basic
    
    $
    (0.25
    )
    
    $
    (0.43
    )
 8




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##### 



Note 8.
    
    Stock Based CompensationStock Option PlansThe Companys two stock plans are the 1997 Employee Incentive Plan (the 1997 Plan) and
the 1993 Employee Incentive Stock Plan (the 1993 Plan). Under the 1993 Plan, the Company may
grant an aggregate of 707,384 shares (as adjusted for stock splits and stock dividends) to
its employees in the form of stock options. The 1993 Plan expired in 2003 and had 47,182
unexercised options outstanding at April 30, 2006. Under the 1997 Plan, the Company may grant
an aggregate of 724,729 shares (as adjusted for stock splits and stock dividends) to its
employees in the form of stock options or awards. As of April 30, 2006, the 1997 Plan had
234,594 unexercised option outstanding. Options granted under the plans have an exercise
price equal to the market price at the date of grant, have a maximum term of 10 years and
generally become exercisable ratably over a five-year period. The Company did not grant any
stock options to any of the employees during the quarter ended April 30, 2006.The shares of common stock issued upon exercise of a previously granted stock option are
considered new issuances from shares reserved for issuance upon adoption of the various
plans. While the Company does not have a formal written policy detailing such issuance, it
requires that the option holders provides a written notice of exercise to the stock plan
administrator and payment for the shares prior to issuance of the shares.Accounting for the PlansPrior to February 1, 2006, the Company accounted for incentive stock plans in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), and related Interpretations, as permitted by FASB
Statement No. 123, Accounting for Stock Based Compensation. No stock based employee
compensation was reflected in net income, as all options granted under those plans had
an exercise price equal to the fair value of the underlying common stock on the date
of grant. Effective February 1, 2006 the Company adopted the fair value recognition
provisions of FASB Statement No. 123(R), Share-Based Payment, using the modified
prospective-transition. The modified prospective method will be applied to those
unvested options issued prior to the Companys adoption that have historically been
accounted for under the Intrinsic Value Method. All outstanding options were 100%
vested prior to the adoption. Accordingly, no compensation expense was recorded on
the Companys options during the quarter ended April 30, 2006. For the three months
ended April 30, 2005 we accounted for stock based compensation plans under APB Opinion
No. 25 Accounting for Stock Issued to Employees. The following table illustrates the
impact on net earnings and earnings per common share if the fair value method had been
applied.
 Three Months Ended4/30/2006
    
    
    4/30/2005(In thousands, except per share data)Net loss, as reported
    
    $
    (3,267
    )
    
    $
    (5,683
    )Total stock-based employee compensation
expense determined under the fair value
based method for all awards, net of
related tax effects
    
    
    
    
    
    
    13Pro forma net loss
    
    $
    (3,267
    )
    
    $
    (5,696
    )Net loss per share  basic, as reported
    
    $
    (0.25
    )
    
    $
    (0.43
    )Weighted average shares outstanding  basic
    
    
    13,137
    
    
    
    13,100
 The Company has estimated the fair value of all stock option awards as of the
date of grant by applying the Black-Scholes pricing valuation model. The
application of this valuation model involves assumptions that are judgmental and
sensitive in the determination of compensation expense. Historical information
was the primary basis for the selection of the expected volatility and life of
the option. The risk-free interest rate was selected based upon the yield of the
U.S. Treasury issue with a term equal to the expected life of the option being
valued.
 9




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##### 



Stock option activity during the three months ended April 30, 2006 is as follows:
 Weighted AverageRemaining
    
    
    AggregateNumber of
    
    
    Weighted Average
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (in yrs.)
    
    
    ValueOutstanding at February 1, 2006
    
    
    292,571
    
    
    $
    11.56
    
    
    
    2.49Lapsed
    
    
    (10,795
    )
    
    
    13.30Exercised
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    Outstanding at April 30, 2006
    
    
    281,776
    
    
    
    11.50
    
    
    
    2.25
    
    
    $
    Exercisable at April 30, 2006
    
    
    281,776
    
    
    
    11.50
    
    
    
    2.25
    
    
    $
    
 As all options had vested prior to February 1, 2006, there was no effect on the
statement of operations or cash flows due to the adoption of FASB Statement No. 123(R).Restricted Stock Unit AwardsOn June 30, 2004, the Company granted a total of 270,000 restricted stock
units, with an estimated fair value of $6.92 per unit and exercise price of
$0.01 per unit, to eligible employees under the 1997 Plan. Participants vest
their interest in notional stock units ratably over five years, with such units
being 20% vested at each anniversary date. As such, 204,000 of the units remain
outstanding as of April 30, 2006. Compensation expense is recognized based on
the estimated fair value of restricted stock units and vesting provisions.
Compensation expense incurred in connection with this award was $88,000 and
$99,000 for quarters ended April 30, 2006 and 2005, respectively. As of April
30, 2006, there was approximately $1,118,000 of unrecognized compensation cost
related to non-vested restricted stock unit award, which is expected to be
recognized through June 30, 2009.On January 13, 2006, the Company granted a total of 73,881 restricted stock
units, with an estimated fair value of $5.21 per unit and exercise price of
$0.01 per unit, to non-employee directors under the 1997 Plan. Participants
vest their interest in notional stock units ratably over the vesting period,
with such units being 100% vested at July 5, 2006. Compensation expense is
recognized based on the estimated fair value of restricted stock units and
vesting provisions. For the quarter ended April 30, 2006, compensation expense
incurred in connection with this award was $206,000. As of April 30, 2006,
there was approximately $137,000 of unrecognized compensation cost related to
non-vested restricted stock unit Awards. The cost is expected to be recognized
during the second quarter ending July 31, 2006. All units granted remain
outstanding at April 30, 2006.As the compensation cost for the restricted stock units was measured using the estimated
fair value on the date of grant and recognized over the vesting period, there was no effect on the
statements of operations, due to the adoption of FASB Statement
No. 123(R).  At  February 1, 2006, the Company recorded a transitional reclassification
of $247,000 from current liabilities to additional paid-in capital.Note 9.
    
    Comprehensive LossComprehensive loss for the three and nine months ended April 30,
2006 and 2005 was the same as net loss reported on the statements of
operations. Accumulated comprehensive loss at April 30, 2006 and
2005 and January 31, 2006 is composed of minimum pension liability
adjustments.Note 10.
    
    Retirement PlansThe Company and its subsidiaries cover all employees under a
noncontributory defined benefit retirement plan, the Virco
Employees Retirement Plan (the Plan). Benefits under the Plan are
based on years of service and career average earnings. As more fully
described in the Form 10-K for the period ending January 31, 2006,
benefit accruals under this plan were frozen effective December 31,
2003.The Company also provides a supplementary retirement plan for
certain key employees, the VIP Retirement Plan (the VIP Plan). The
VIP Plan provides a benefit of up to 50% of average compensation for
the last five years in the VIP Plan, offset by benefits earned under
the Plan. As more fully described in the Form 10-K for the period
ending January 31, 2005, benefit accruals under this plan were
frozen effective December 31, 2003.The Company also provides a non-qualified plan for non-employee
directors of the Company (the Non-Employee Directors retirement
Plan). The Non-Employee Directors Retirement Plan provides a
lifetime annual retirement benefit equal to the directors annual
retainer fee for the fiscal year in which the director terminates
his or her position with the Board, subject to the director
providing 10 years of service to the Company. As more fully
described in the Form 10-K for the period ending January 31, 2006,
benefit accruals under this plan were frozen effective December 31,
2003.
 10




---



##### 



The net periodic pension costs for the Plan, the VIP Plan, and the
Non-Employee Directors Retirement Plan for the three months each
ended April 30, 2006 and 2005 were as follows (in thousands):
 Non-Employee DirectorsPension Plan
    
    
    VIP Retirement Plan
    
    
    Retirement 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
 Note 11.
    
    WarrantyThe Company provides a product warranty on most products. It
generally warrants that customers can return a defective product
during the specified warranty period following purchase in exchange
for a replacement product or that the Company can repair the product
at no charge to the customer. The Company determines whether
replacement or repair is appropriate in each circumstance. The
Company uses historic data to estimate appropriate levels of
warranty reserves. Because product mix, production methods, and raw
material sources change over time, historic data may not always
provide precise estimates for future warranty expense. The
following is a summary of the Companys warranty claim activity for
the three months each ended April 30, 2006 and 2005:
 Three Months Ended4/30/2006
    
    
    4/30/2005(In thousands)Beginning Accrued Warranty Balance
    
    $
    1,500
    
    
    $
    1,500Provision
    
    
    206
    
    
    
    219Costs Incurred
    
    
    (206
    )
    
    
    (219
    )Ending Accrued Warranty Balance
    
    $
    1,500
    
    
    $
    1,500
 Note 12.
    
    Subsequent EventsOn June 6, 2006, the Company sold 1,072,041 shares of its common
stock (the Shares), and warrants to purchase 268,010 shares of its
common stock, to Wedbush, Inc. and Wedbush Morgan Securities, Inc.
for an aggregate purchase price of $5 million, or $4.66 per Share
(the Per Share Purchase Price). The warrants may be exercised for
120% of the Per Share Purchase Price for the first three years after
the sale, and for 130% of the Per Share Purchase Price for the
fourth and fifth year after the sale, and expire on the fifth
anniversary of the sale. The Company has agreed to file a
registration statement registering the resale of the Shares as soon
as practicable, but in any event no later than 30 days after the
sale. A follow-on investment by Directors and management of
approximately $300,000, under substantially the same terms, is
expected to close during the week ended June 16, 2006.
 11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
             12




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##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
 Item 4. Controls and Procedures
      13




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PART II
   
 Item 6. Exhibits
    14




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VIRCO MFG. CORPORATIONDate: June 9, 2006
    By:
    /s/ Robert E. DoseRobert E. DoseVice President  Finance 15