# Virco MFG Corporation: Form 10-Q for the period ended Apr 30, 2018

- Company: [Virco MFG Corporation](/companies/virc.md) (CIK 751365)
- Form: 10-Q
- Filed: 2018-06-08
- Accepted by EDGAR: Jun 8, 2018, 16:54 ET
- Period: 2018-04-30
- Accession: 0001628280-18-007766
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/751365/000162828018007766/virc-20180430x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/751365/000162828018007766/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-04-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Gross profit | 3 months, 2018-02-01 to 2018-04-30 | $7.7m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2018-02-01 to 2018-04-30 | $12.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2018-02-01 to 2018-04-30 | −$4.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-02-01 to 2018-04-30 | $446.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-02-01 to 2018-04-30 | −$1.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-02-01 to 2018-04-30 | −$3.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-02-01 to 2018-04-30 | −$0.23 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-02-01 to 2018-04-30 | −$0.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-02-01 to 2018-04-30 | 15,317,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2018-02-01 to 2018-04-30 | −$17.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2018-02-01 to 2018-04-30 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2018-02-01 to 2018-04-30 | $230.0k | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2018-02-01 to 2018-04-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2018-04-30 | $3.4m | us-gaap:Cash |
| Current assets | at 2018-04-30 | $77.8m | us-gaap:AssetsCurrent |
| Total assets | at 2018-04-30 | $139.5m | us-gaap:Assets |
| Current liabilities | at 2018-04-30 | $51.4m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2018-04-30 | $14.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2018-04-30 | $24.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2018-04-30 | $55.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 8,267 characters.

For the three months ended April 30, 2018, the Company incurred a pre-tax loss of $5,034,000 on net sales of $22,569,000 compared to a pre-tax loss of $3,560,000 on net sales of $23,235,000 in the same period in 2017.

Net sales for the three months ended April 30, 2018 decreased by $666,000, a 2.9% decrease, compared to the same period last year. The Company incurred approximately 6% decrease in volume offset by a price increase. Order rates for the quarter increased by approximately 12.8% compared to the prior year period. Substantially all of the increase in order rate was attributable to larger, typically bond-funded customer orders. Because these larger orders are more likely to be delivered in the summer months when school is not in session, order backlog at April 30, 2018 increased by approximately 27.0%. The Company began the quarter ended April 30, 2018 with a backlog that was approximately $3.6 million more than at the start of the first quarter last year. Backlog at April 30, 2018 increased by over 27.0% to $50,136,000 compared to $39,553,000 at April 30, 2017.

While this increase in order rates is welcome, the month by month trends continue to be volatile, especially when there is an increase in larger, typically bond-funded customer orders. This increase in business contributes to the monthly volatility in orders as well as contributes to heightened seasonality for sales, as these orders are likely to be delivered in the summer when school is out of session. These larger, typically bond-funded customer orders, also tend to be more complex, and can exacerbate the seasonal work load during the summer.

Gross margin for the three months ended April 30, 2018 decreased as a percentage of sales to 34.1% in the current year compared to 36.3% in the prior year. This decrease was primarily attributable to three components. First, the Company increased compensation for factory employees, in large part because of pressures from increases in minimum wage and other pressures in employee compensation. Second, the Company has incurred increased material costs for certain commodities, particularly steel. Steel costs increased during of 2018, and again in the first quarter of 2019. Third, while the Company has increased selling prices to recover these cost increases, a significant portion for shipments in the first quarter were from orders placed in 2018, prior to the price increase. Factory production levels were stable for the first quarter of 2019 compared to the prior year.

Selling, general and administrative expenses increased compared to the prior year, and increased as a percentage of sales. The increase is in part due to raises to employees at the beginning of the year, and staffing in preparation for an anticipated significant increase in the summer delivery season.

Income tax benefit for the quarter ended April 30, 2018 is not comparable to the prior year. The first quarter of 2019 reflects the reduced federal tax rate passed into law effective January 1, 2018 and resulted in an effective tax rate of 29% compare to 37.9% for the first quarter of 2018.

Interest expense was more for the three months ended April 30, 2018 compared to the same period last year. There are four components of the increase. First, the quarter includes interest expense on a mortgage related to the purchase of a building in Conway, Arkansas that was completed in the third quarter last year. Second, the Company has borrowed more money to finance production of inventory in anticipation of increased summer shipping activity. Third, the Company increased production of inventory in the fourth quarter last year utilizing permanent Virco employees to reduce the need to hire temporary workers during this coming summer. Finally, expense increased as a result of higher interest rates.

### Liquidity and Capital Resources

Accounts receivable were slightly lower at April 30, 2018 than at April 30, 2017 due to decreased sales during the quarter. The Company traditionally builds large quantities of inventory during the first quarter of each fiscal year in anticipation of seasonally high summer shipments. The Company is intentionally building additional inventory during the slow season in an effort to improve efficiency and improve the level of on time delivery. During the first quarter, the Company increased inventory by approximately $20.4 million compared to January 31, 2018, approximately $1.3 million more than what was added in the first quarter of the prior year. When combined with the $6.4 million of additional inventory held at the beginning of the year, the Company is carrying nearly $8 million more at April 30, 2018 compared to the prior year. The increase in inventory during the first quarter of this year was financed through the Company's credit facility with PNC Bank, National Association ("PNC").

Borrowing under the Company's revolving line of credit with PNC at April 30, 2018 is $7 million higher compared to the same quarter last year. The increase in borrowing is primarily attributable to increased inventory production in preparation for an anticipated significant increase in the summer delivery season.

Capital expenditures were $1,144,000 for the three months ended April 30, 2018 compared to $1,896,000 for the same period last year. Capital expenditures are being financed through the Company's credit facility with PNC.

Net cash used in operating activities for the three months ended April 30, 2018 was $16,992,000 compared to $17,543,000 for the same period last year. The slight decrease in cash used was primarily attributable to improved collection of accounts receivables.

The Company believes that cash flows from operations, together with the Company's unused borrowing capacity under its revolving line of credit with PNC will be sufficient to fund the Company's debt service requirements, capital expenditures and working capital needs for at least the next twelve months. Approximately $5,790,000 was available for borrowing as of April 30, 2018.

### Off Balance Sheet Arrangements

None.

### Critical Accounting Policies and Estimates

The Company's critical accounting policies are outlined in its Annual Report on Form 10-K for the fiscal year ended January 31, 2018. There have been no significant changes in the quarter ended April 30, 2018, except as disclosed in “Recently Adopted Accounting Updates” in Note 3. New Accounting Pronouncements in the Notes to unaudited Condensed Consolidated Financial Statements in Item 1 to this Quarterly Report on Form 10-Q.

### Forward-Looking Statements

From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2018, the Company or its representatives have made and may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, without limitation, reports to stockholders, press releases, oral statements made with the approval of an authorized executive officer of the Company and filings with the Securities and Exchange Commission ("SEC"). The words or phrases “anticipates,” “expects,” “will continue,” “believes,” “estimates,” “projects,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The results contemplated by the Company's forward-looking statements are subject to certain risks and uncertainties that could cause actual results to vary materially from anticipated results, including without limitation, availability of funding for educational institutions, availability and cost of materials, especially steel, availability and cost of labor, demand for the Company's products, competitive conditions affecting selling prices and margins, capital costs and general economic conditions. Such risks and uncertainties are discussed in more detail in the Company's Form 10-K for the fiscal year ended January 31, 2018 under the caption "Risk Factors".

The Company's forward-looking statements represent its judgment only on the dates such statements were made. By making any forward-looking statements, the Company assumes no duty to update them to reflect new, changed or unanticipated events or circumstances.

## Market risk

As filed, 641 characters.

The Company is subject to interest rate risk related to its seasonal borrowings used to finance additional inventory and receivables. Rising interest rates may adversely affect the Company's results of operations and cash flows related to its variable-rate bank borrowings under its credit line with PNC. Accordingly, a 100-basis point upward fluctuation in PNC's base rate would have caused the Company to incur additional interest charges of approximately $61,000 for the three months ended April 30, 2018. The Company would have benefited from a similar interest savings if the base rate were to have fluctuated downward by a like amount.

## Controls and procedures

As filed, 2,513 characters.

### Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Principal Executive Officer along with its Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of April 30, 2018. Based upon the foregoing, the Company's Principal Executive Officer along with the Company's Principal Financial Officer concluded that the Company's disclosure controls and procedures as of such date were effective to ensure that the information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Company management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Company management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

### Changes in Internal Control Over Financial Reporting

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Principal Executive Officer along with its Principal Financial Officer, of the effectiveness of the design and operation of disclosure controls and procedures. Based upon the foregoing, the Company's Principal Executive Officer along with the Company's Principal Financial Officer concluded that the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

There have been no changes in the Company's internal control over financial reporting during the fiscal quarter covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

## Risk factors

As filed, 431 characters.

You should carefully consider and evaluate the information in this Quarterly Report and the risk factors set forth under the caption “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2018 (the “Form 10-K”), which was filed with the SEC on April 27, 2018. The risk factors associated with our business have not materially changed compared to the risk factors disclosed in the Form 10-K.

Filed Jun 8, 2018.
Source: SEC EDGAR, the filing index for accession 0001628280-18-007766. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.