##### Table of Contents



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, 2007
 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
(Address of principal executive offices)
    

90501
(Zip Code)
    þ o
  o þ o
 o þ




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##### 



Part I. Financial InformationItem 1. Financial StatementsCondensed consolidated balance sheets  July 31, 2007, January 31, 2007 and July 31, 2006Condensed consolidated statements of income  Three months ended July 31, 2007 and 2006Condensed consolidated statements of income  Six months ended July 31, 2007 and 2006Condensed consolidated statements of cash flows  Six months ended July 31, 2007 and 2006Notes to condensed consolidated financial statements  July 31, 2007Item 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 1A. Risk FactorsItem 4. Submission of Matters to a Vote of Security HoldersItem 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 2002.Exhibit 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 2002.Exhibit 32.1  Certification 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 31.1EXHIBIT 31.2EXHIBIT 32.1




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PART I
 
 Item 1. Financial Statements
  
  7/31/2007
    
    1/31/2007
    
    7/31/2006(In thousands, except share data)Unaudited (Note 1)
    
    
    
    
    
    Unaudited (Note 1)AssetsCurrent assets:Cash
    
    $
    2,048
    
    
    $
    1,892
    
    
    $
    3,054Trade accounts receivable
    
    
    51,493
    
    
    
    18,796
    
    
    
    48,396Less allowance for doubtful accounts
    
    
    233
    
    
    
    200
    
    
    
    234Net trade accounts receivable
    
    
    51,260
    
    
    
    18,596
    
    
    
    48,162Other receivables
    
    
    409
    
    
    
    228
    
    
    
    100Inventories:Finished goods, net
    
    
    21,028
    
    
    
    11,651
    
    
    
    18,105Work in process, net
    
    
    12,250
    
    
    
    19,690
    
    
    
    9,918Raw materials and supplies, net
    
    
    7,136
    
    
    
    6,496
    
    
    
    9,32940,414
    
    
    
    37,837
    
    
    
    37,352Prepaid expenses and other current assets
    
    
    1,245
    
    
    
    1,479
    
    
    
    992Total current assets
    
    
    95,376
    
    
    
    60,032
    
    
    
    89,660Property, plant and equipment:Land and land improvements
    
    
    3,596
    
    
    
    3,596
    
    
    
    3,596Buildings and building improvements
    
    
    49,555
    
    
    
    49,555
    
    
    
    49,514Machinery and equipment
    
    
    111,596
    
    
    
    109,730
    
    
    
    108,263Leasehold improvements
    
    
    1,467
    
    
    
    1,323
    
    
    
    1,289166,214
    
    
    
    164,204
    
    
    
    162,662Less accumulated depreciation and
amortization
    
    
    119,397
    
    
    
    116,116
    
    
    
    112,975Net property, plant and equipment
    
    
    46,817
    
    
    
    48,088
    
    
    
    49,687Goodwill and other intangible assets, net
    
    
    2,304
    
    
    
    2,311
    
    
    
    2,317Other assets
    
    
    5,846
    
    
    
    5,846
    
    
    
    8,728Total assets
    
    $
    150,343
    
    
    $
    116,277
    
    
    $
    150,392




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7/31/2007
    
    1/31/2007
    
    7/31/2006(In thousands, except share and per share data)Unaudited (Note 1)
    
    
    
    
    
    Unaudited (Note 1)LiabilitiesCurrent liabilitiesChecks released but not yet cleared bank
    
    $
    2,893
    
    
    $
    2,563
    
    
    $
    3,200Accounts payable
    
    
    14,850
    
    
    
    14,463
    
    
    
    16,882Accrued compensation and employee benefits
    
    
    7,945
    
    
    
    8,094
    
    
    
    5,194Current portion of long-term debt
    
    
    10,890
    
    
    
    5,074
    
    
    
    19,644Other accrued liabilities
    
    
    9,296
    
    
    
    6,844
    
    
    
    7,440Total current liabilities
    
    
    45,874
    
    
    
    37,038
    
    
    
    52,360Non-current liabilitiesAccrued self-insurance retention and other
    
    
    4,708
    
    
    
    3,962
    
    
    
    3,387Accrued pension expenses
    
    
    16,686
    
    
    
    15,949
    
    
    
    15,433Long-term debt, less current portion
    
    
    25,153
    
    
    
    10,190
    
    
    
    30,000Total non-current liabilities
    
    
    46,547
    
    
    
    30,101
    
    
    
    48,820Deferred income taxes
    
    
    260
    
    
    
    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 14,428,662 shares at
7/31/2007, 14,379,506 shares at
1/31/2007; and 14,322,051 shares at
7/31/2006
    
    
    144
    
    
    
    143
    
    
    
    144Additional paid-in capital
    
    
    113,890
    
    
    
    113,737
    
    
    
    113,677Retained deficit
    
    
    (48,806
    )
    
    
    (57,436
    )
    
    
    (60,416
    )Accumulated comprehensive loss
    
    
    (7,566
    )
    
    
    (7,566
    )
    
    
    (4,193
    )Total stockholders equity
    
    
    57,662
    
    
    
    48,878
    
    
    
    49,212Total liabilities and stockholders equity
    
    $
    150,343
    
    
    $
    116,277
    
    
    $
    150,392




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Three months ended7/31/2007
    
    7/31/2006(In thousands, except per share data)Net sales
    
    $
    88,931
    
    
    $
    78,595Costs of goods sold
    
    
    55,216
    
    
    
    50,212Gross profit
    
    
    33,715
    
    
    
    28,383Selling, general and administrative expenses
    
    
    20,825
    
    
    
    19,134Interest expense
    
    
    900
    
    
    
    1,297Income before income taxes
    
    
    11,990
    
    
    
    7,952Provision for income taxes
    
    
    380
    
    
    
    120Net income
    
    $
    11,610
    
    
    $
    7,832Net income per common shareBasic
    
    $
    0.81
    
    
    $
    0.58Diluted
    
    $
    0.80
    
    
    $
    0.58Weighted average shares outstandingBasic
    
    
    14,398
    
    
    
    13,494Diluted
    
    
    14,430
    
    
    
    13,529




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Six months ended7/31/2007
    
    7/31/2006(In thousands, except per share data)Net sales
    
    $
    120,053
    
    
    $
    113,110Costs of goods sold
    
    
    74,788
    
    
    
    73,233Gross profit
    
    
    45,265
    
    
    
    39,877Selling, general and administrative expenses
    
    
    34,811
    
    
    
    33,009Interest expense
    
    
    1,444
    
    
    
    2,183Income before income taxes
    
    
    9,010
    
    
    
    4,685Provision for income taxes
    
    
    380
    
    
    
    120Net income
    
    $
    8,630
    
    
    $
    4,565Net income per common shareBasic
    
    $
    0.60
    
    
    $
    0.34Diluted
    
    $
    0.60
    
    
    $
    0.34Weighted average shares outstandingBasic
    
    
    14,384
    
    
    
    13,318Diluted
    
    
    14,500
    
    
    
    13,353




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Six months ended7/31/2007
    
    7/31/2006(In thousands)Operating activitiesNet income
    
    $
    8,630
    
    
    $
    4,565Adjustments to reconcile net income to net cash
used in
operating activities:Depreciation and amortization
    
    
    3,414
    
    
    
    3,731Provision for doubtful accounts
    
    
    8
    
    
    
    25Loss (gain) on sale of property, plant and equipment
    
    
    (17
    )
    
    
    1Stock based compensation
    
    
    249
    
    
    
    600Changes in operating assets and liabilitiesTrade accounts receivable
    
    
    (32,672
    )
    
    
    (30,917
    )Other receivables
    
    
    (181
    )
    
    
    277Inventories
    
    
    (2,577
    )
    
    
    (5,735
    )Income taxes
    
    
    366
    
    
    
    102Prepaid expenses and other current assets
    
    
    234
    
    
    
    501Accounts payable and accrued liabilities
    
    
    4,020
    
    
    
    2,357Net cash used in operating activities
    
    
    (18,526
    )
    
    
    (24,493
    )Investing activitiesCapital expenditures
    
    
    (2,114
    )
    
    
    (1,967
    )Proceeds from sale of property, plant and equipment
    
    
    17
    
    
    
    0Net cash used in investing activities
    
    
    (2,097
    )
    
    
    (1,967
    )Financing activitiesProceeds from long-term debt
    
    
    20,816
    
    
    
    23,184Repayment of long-term debt
    
    
    (37
    )
    
    
    (6
    )Proceeds from issuance of common stock
    
    
    0
    
    
    
    4,847Net cash provided by financing activities
    
    
    20,779
    
    
    
    28,025Net increase in cash
    
    
    156
    
    
    
    1,565Cash at beginning of period
    
    
    1,892
    
    
    
    1,489Cash at end of period
    
    $
    2,048
    
    
    $
    3,054




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Three Months Ended
    
    Six Months Ended7/31/2007
    
    7/31/2006
    
    7/31/2007
    
    7/31/2006(In thousands, except per share data)
    
    (In thousands, except per share data)Net income
    
    $
    11,610
    
    
    $
    7,832
    
    
    $
    8,630
    
    
    $
    4,565Average shares outstanding
    
    
    14,398
    
    
    
    13,494
    
    
    
    14,384
    
    
    
    13,318Net effect of dilutive stock
options based on the treasury
stock method using average
market price
    
    
    32
    
    
    
    35
    
    
    
    116
    
    
    
    35Totals
    
    
    14,430
    
    
    
    13,529
    
    
    
    14,500
    
    
    
    13,353Net income per share  basic
    
    $
    0.81
    
    
    $
    0.58
    
    
    $
    0.60
    
    
    $
    0.34Net income per share  diluted
    
    $
    0.80
    
    
    $
    0.58
    
    
    $
    0.60
    
    
    $
    0.34




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UnrecognizedCompensationExpense for 3 months ended
    
    Expense for 6 months ended
    
    Cost at7/31/2007
    
    7/31/2006
    
    7/31/2007
    
    7/31/2006
    
    7/31/20072007 Incentive Stock Plan262,500 Restricted Stock Units
issued 6/19/2007, vesting over 5
years
    
    $
    58,000
    
    
    
    
    
    
    $
    58,000
    
    
    
    
    
    
    $
    1,722,00012,887 Grants of Restricted Stock
issued 6/19/2007, vesting over 1
year
    
    
    15,000
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    73,000




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UnrecognizedCompensationExpense for 3 months ended
    
    Expense for 6 months ended
    
    Cost at7/31/2007
    
    7/31/2006
    
    7/31/2007
    
    7/31/2006
    
    7/31/20071997 Incentive Stock Plan270,000 Restricted Stock Units
issued 6/30/2004, vesting over 5
years
    
    
    59,000
    
    
    
    88,000
    
    
    
    147,000
    
    
    
    176,000
    
    
    
    706,00017,640 Grants of Restricted Stock
issued 6/19/2007, vesting over 1
year
    
    
    8,000
    
    
    
    15,000
    
    
    
    29,000
    
    
    
    15,000
    
    
    
    73,881 Restricted Stock Units
issued 1/13/2006, vesting over 5
months
    
    
    
    
    
    
    137,000
    
    
    
    
    
    
    
    342,000
    
    
    
    Totals for the period
    
    $
    140,000
    
    
    $
    240,000
    
    
    $
    249,000
    
    
    $
    533,000
    
    
    $
    2,501,000




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Three Months EndedPension Plan
    
    VIP Retirement Plan
    
    Non-Employee Directors RetirementPlan2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    41
    
    
    $
    43
    
    
    $
    50
    
    
    $
    53
    
    
    $
    6
    
    
    $
    6Interest cost
    
    
    345
    
    
    
    352
    
    
    
    90
    
    
    
    85
    
    
    
    7
    
    
    
    6Expected return on
plan assets
    
    
    (224
    )
    
    
    (246
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of
transition amount
    
    
    (9
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of
prior service cost
    
    
    117
    
    
    
    117
    
    
    
    (134
    )
    
    
    (134
    )
    
    
    6
    
    
    
    22Recognized net
actuarial (Gain) or
loss
    
    
    49
    
    
    
    41
    
    
    
    30
    
    
    
    34
    
    
    
    (7
    )
    
    
    (7
    )Settlement and
curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic
pension cost
    
    $
    319
    
    
    $
    298
    
    
    $
    36
    
    
    $
    38
    
    
    $
    12
    
    
    $
    27
 Six Months EndedPension Plan
    
    VIP Retirement Plan
    
    Non-Employee Directors RetirementPlan2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Service cost
    
    $
    82
    
    
    $
    86
    
    
    $
    100
    
    
    $
    106
    
    
    $
    12
    
    
    $
    12Interest cost
    
    
    690
    
    
    
    704
    
    
    
    180
    
    
    
    170
    
    
    
    14
    
    
    
    12Expected return on
plan assets
    
    
    (448
    )
    
    
    (492
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of
transition amount
    
    
    (18
    )
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of
prior service cost
    
    
    234
    
    
    
    234
    
    
    
    (268
    )
    
    
    (268
    )
    
    
    12
    
    
    
    44Recognized net
actuarial (Gain) or
loss
    
    
    98
    
    
    
    82
    
    
    
    60
    
    
    
    68
    
    
    
    (14
    )
    
    
    (14
    )Settlement and
curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic
pension cost
    
    $
    638
    
    
    $
    596
    
    
    $
    72
    
    
    $
    76
    
    
    $
    24
    
    
    $
    54
    Three Months Ended
    
    Six Months Ended7/31/2007
    
    7/31/2006
    
    7/31/2007
    
    7/31/2006(In thousands)Beginning Accrued Warranty Balance
    
    $
    1,850
    
    
    $
    1,500
    
    
    $
    1,750
    
    
    $
    1,500Provision
    
    
    191
    
    
    
    196
    
    
    
    536
    
    
    
    402Costs Incurred
    
    
    (241
    )
    
    
    (196
    )
    
    
    (486
    )
    
    
    (402
    )Ending Accrued Warranty Balance
    
    $
    1,800
    
    
    $
    1,500
    
    
    $
    1,800
    
    
    $
    1,500




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##### Table of Contents



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




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Off Balance Sheet Arrangements
    Forward-Looking Statements
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures




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Internal Control Over Financial Reporting




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PART II
   
   
    Votes For
    
    Authority WithheldDouglas A. Virtue
    
    
    12,347,103
    
    
    
    159,040Thomas J. Schulte
    
    
    12,375,047
    
    
    
    103,127Albert J. Moyer
    
    
    11,700,800
    
    
    
    1,451,646




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VIRCO MFG. CORPORATIONDate: September 7, 2007
    By:
    /s/ Robert E. DoseRobert E. DoseVice President  Finance