3, 2013. EX-101 INSTANCE DOCUMENT EX-101 SCHEMA DOCUMENT EX-101 CALCULATION LINKBASE DOCUMENT EX-101 LABELS LINKBASE DOCUMENT EX-101 PRESENTATION LINKBASE DOCUMENT Assets Current assets: Cash Trade accounts receivable, net Other receivables Income tax receivable Inventories: Finished goods, net Work in process, net Raw materials and supplies, net Prepaid expenses and other current assets Total current assets Property, plant and equipment: Land Land improvements Buildings and building improvements Machinery and equipment Leasehold improvements Less accumulated depreciation and amortization Net property, plant and equipment Deferred tax assets, net Other assets Total assets Liabilities Current liabilities: Accounts payable Accrued compensation and employee benefits Current portion of long-term debt Deferred tax liability Other accrued liabilities Total current liabilities Non-current liabilities: Accrued self-insurance retention Accrued pension expenses Income tax payable Long-term debt, less current portion Other accrued liabilities Total non-current liabilities Commitments and Contingencies Stockholders’ equity: Preferred stock: Authorized 3,000,000 shares, $.01 par value; none issued or outstanding Common stock: Authorized 25,000,000 shares, $.01 par value; Issued 14,550,371 shares at 7/31/2012; 14,354,046 shares at 1/31/12; and 14,354,046 shares at 7/31/2011 Additional paid-in capital Accumulated deficit Accumulated comprehensive loss Total stockholders’ equity Total liabilities and stockholders’ equity INCOME Net sales Costs of goods sold Gross profit Selling, general and administrative expenses Interest expense Income before income taxes Income tax provision Net income Net income per common share: Basic Diluted Weighted average shares outstanding: Basic Diluted INCOME Net Income Other comprehensive income (loss) Comprehensive income Net Income (loss) Other comprehensive income (loss) Comprehensive income (loss) Operating activities Net income (loss) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization Provision for doubtful accounts (Gain) loss on sale of property, plant and equipment Deferred income taxes Stock based compensation Changes in operating assets and liabilities: Trade accounts receivable Other receivables Inventories Income taxes Prepaid expenses and other current assets Accounts payable and accrued liabilities Net cash used in operating activities Investing activities Capital expenditures Proceeds from sale of property, plant and equipment Net cash used in investing activities Financing activities Proceeds from long-term debt Repayment of long-term debt Common stock issued Cash dividend paid Net cash provided by financing activities Net increase (decrease) in cash Cash at beginning of period Cash at end of period six months ended July 31, 2013. first-out method. The value of inventory includes any related production overhead costs incurred in bringing the inventory to its present location and condition. The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation. 2013 upon each borrowing, which the Borrowers expect to occur on an ongoing basis. There can be no assurance that the Borrowers will be able to comply with all such covenants and be able to continue to make such representations and warranties on an ongoing basis. 2013 examinations. Net income (loss) Average shares outstanding Net effect of dilutive stock options based on the treasury stock method using average market price Totals Net income (loss) per share - basic Net income (loss) per share - diluted Grants 2011 Stock Incentive Plan 6/19/2012 6/19/2012 2007 Stock Incentive Plan 6/19/2012 3/21/2012 6/21/2011 6/8/2010 6/16/2009 6/19/2007 Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized net actuarial loss or (gain) Net periodic pension cost (income) Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized net actuarial loss or (gain) Net periodic pension cost (income) Beginning accrued warranty balance Provision Costs incurred Ending accrued warranty balance fourth quarters. reductions. liabilities. 2013. On June 15, 2012, the Borrowers entered into Amendment No. 1 ("Amendment No. 1") to the Credit Agreement which, among other things, increased the borrowing availability thereunder by 2013 and many of the representations and warranties must be true and correct in all material respects upon each borrowing, which the Borrowers expect to occur on an ongoing basis. There can be no assurance that the Borrowers will be able to comply with all such covenants and be able to continue to make such representations and warranties on an ongoing basis. 2013 Form 10-K. /s/ Robert E. DoseFORM 10-QFORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 20122013Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 VIRCO MFG. CORPORATION(Exact Name of Registrant as Specified in its Charter)Delaware 95-1613718 2027 Harpers Way, Torrance, CA 90501 (Address of Principal Executive Offices) (Zip Code) xý No ¨xý No ¨Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer Smaller reporting company xýxý14,550,37114,730,319 shares as of September 10, 2012.1618191920202020EX-31.1 20EX-31.2 EX-10.1 EX-10.3EX-31.1EX-31.2EX-32.1 7/31/2012 1/31/2012 7/31/2011 (In thousands, except share data) Unaudited (Note 1) Unaudited (Note 1) $ 3,347 $ 2,897 $ 1,521 32,570 12,743 34,781 41 401 33 298 324 351 14,439 6,273 14,510 13,718 10,623 15,287 9,527 10,895 13,712 37,684 27,791 43,509 1,897 1,652 1,829 75,837 45,808 82,024 1,671 1,671 1,671 1,213 1,213 1,214 47,794 47,797 47,796 119,591 120,181 119,432 2,456 2,549 2,533 172,725 173,411 172,646 134,892 134,203 131,825 37,833 39,208 40,821 2,005 2,200 2,573 6,972 7,009 6,408 $ 122,647 $ 94,225 $ 131,826 7/31/2013 1/31/2013 7/31/2012 (In thousands, except share data) Unaudited (Note 1) Unaudited (Note 1) Assets Current assets: Cash $ 2,443 $ 853 $ 3,347 Trade accounts receivable, net 32,088 8,835 32,670 Other receivables 107 108 41 Income tax receivable 304 259 298 Inventories Finished goods, net 14,137 4,968 14,439 Work in process, net 12,243 11,041 13,718 Raw materials and supplies, net 10,460 9,308 9,527 36,840 25,317 37,684 Prepaid expenses and other current assets 1,724 1,665 1,897 Total current assets 73,506 37,037 75,937 Property, plant and equipment: Land 1,671 1,671 1,671 Land improvements 1,213 1,213 1,213 Buildings and building improvements 47,263 47,703 47,794 Machinery and equipment 116,335 119,407 119,591 Leasehold improvements 2,417 2,452 2,456 168,899 172,446 172,725 Less accumulated depreciation and amortization 132,204 135,564 134,892 Net property, plant and equipment 36,695 36,882 37,833 Deferred tax assets, net 1,404 1,484 2,005 Other assets 6,722 6,835 6,972 Total assets $ 118,327 $ 82,238 $ 122,747 7/31/2012 1/31/2012 7/31/2011 (In thousands, except share data) Unaudited (Note 1) Unaudited (Note 1) $ 18,596 $ 11,684 $ 18,565 4,051 3,797 4,018 20,843 5,497 28,304 1,221 1,221 1,398 7,620 4,641 8,077 52,331 26,840 60,362 2,281 1,915 2,619 25,248 25,069 17,902 505 488 740 6,000 6,011 — 2,836 3,006 2,941 36,870 36,489 24,202 — — — 145 144 143 115,388 115,060 114,706 (66,759 ) (68,980 ) (57,845 ) (15,328 ) (15,328 ) (9,742 ) 33,446 30,896 47,262 $ 122,647 $ 94,225 $ 131,826 7/31/2013 1/31/2013 7/31/2012 (In thousands, except share data) Unaudited (Note 1) Unaudited (Note 1) Liabilities Current liabilities: Accounts payable $ 17,282 $ 11,864 $ 18,596 Accrued compensation and employee benefits 4,143 3,426 4,051 Current portion of long-term debt 22,668 4,053 20,843 Deferred tax liability 572 572 1,221 Other accrued liabilities 8,110 4,596 8,120 Total current liabilities 52,775 24,511 52,831 Non-current liabilities: Accrued self-insurance retention 2,614 2,585 2,281 Accrued pension expenses 26,567 26,385 25,248 Income tax payable 98 142 505 Long-term debt, less current portion 6,000 — 6,000 Other accrued liabilities 1,372 1,595 2,436 Total non-current liabilities 36,651 30,707 36,470 Commitments and Contingencies Stockholders’ equity: Preferred stock: Authorized 3,000,000 shares, $.01 par value; none issued or outstanding — — — Common stock: Authorized 25,000,000 shares, $.01 par value; Issued 14,730,319 shares at 7/31/2013; and 14,550,371 shares at 1/31/2013 and 7/31/2012 147 146 145 Additional paid-in capital 115,817 115,670 115,388 Accumulated deficit (71,077 ) (72,810 ) (66,759 ) Accumulated comprehensive loss (15,986 ) (15,986 ) (15,328 ) Total stockholders’ equity 28,901 27,020 33,446 Total liabilities and stockholders’ equity $ 118,327 $ 82,238 $ 122,747 OPERATIONS Three months ended 7/31/2012 7/31/2011 (In thousands, except per share data) $ 60,392 $ 62,817 37,525 42,935 22,867 19,882 15,145 16,714 463 393 7,259 2,775 206 43 $ 7,053 $ 2,732 $ 0.49 $ 0.19 $ 0.49 $ 0.19 14,369 14,274 14,395 14,292 Three Months Ended 7/31/2013 7/31/2012 (In thousands, except per share data) Net sales $ 56,933 $ 60,392 Costs of goods sold 35,347 37,525 Gross profit 21,586 22,867 Selling, general and administrative expenses 14,417 15,145 Restructuring charges 412 — Interest expense 472 463 Income (loss) before income taxes 6,285 7,259 Income tax expense (benefits) 75 206 Net income (loss) $ 6,210 $ 7,053 Net income (loss) per common share: Basic $ 0.43 $ 0.49 Diluted $ 0.42 $ 0.49 Weighted average shares outstanding: Basic 14,570 14,369 Diluted 14,647 14,395 OPERATIONS(a)Net income per share for the six months ended July 31, 2012 was calculated based on diluted shares outstanding. Net loss per share for the six months ended July 31, 2011 was calculated based on basic shares outstanding due to the anti-dilutive effect on the inclusion of common stock equivalent shares. Six Months Ended 7/31/2013 7/31/2012 (In thousands, except per share data) Net sales $ 76,823 $ 84,060 Costs of goods sold 48,828 54,226 Gross profit 27,995 29,834 Selling, general and administrative expenses 24,919 26,674 Restructuring charges 475 — Interest expense 800 718 Income (loss) before income taxes 1,801 2,442 Income tax expense (benefits) 38 222 Net income (loss) $ 1,763 $ 2,220 Dividend declared: Cash $ 0.12 $ 0.15 Net income (loss) per common share: $ 0.12 $ 0.15 Basic Diluted 14,506 14,333 Weighted average shares outstanding: 14,591 14,358 Three months ended 7/31/2012 7/31/2011 (In thousands) $ 7,053 $ 2,732 — — $ 7,053 $ 2,732 Three Months Ended 7/31/2013 7/31/2012 (In thousands) Net income (loss) $ 6,210 $ 7,053 Other comprehensive income (loss) — — Comprehensive income (loss) $ 6,210 $ 7,053 Six months ended 7/31/2012 7/31/2011 (In thousands) $ 2,220 $ (2,668 ) — — $ 2,220 $ (2,668 ) Six Months Ended 7/31/2013 7/31/2012 (In thousands) Net income (loss) $ 1,763 $ 2,220 Other comprehensive income (loss) — — Comprehensive income (loss) $ 1,763 $ 2,220 Six months ended 7/31/2012 7/31/2011 (In thousands) $ 2,220 $ (2,668 ) 2,278 2,583 (20 ) 30 (1 ) — 195 49 415 381 (19,807 ) (24,349 ) 360 135 (9,894 ) (8,139 ) 43 16 (245 ) (210 ) 10,456 12,423 (14,000 ) (19,749 ) (902 ) (1,340 ) 2 1 (900 ) (1,339 ) 28,423 29,245 (13,075 ) (7,455 ) 2 — — (710 ) 15,350 21,080 450 (8 ) 2,897 1,529 $ 3,347 $ 1,521 Six Months Ended 7/31/2013 7/31/2012 (In thousands) Operating activities Net income (loss) $ 1,763 $ 2,220 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,046 2,278 Provision for doubtful accounts 50 (20 ) (Gain) loss on sale of property, plant and equipment (13 ) (1 ) Deferred income taxes — 195 Stock based compensation 275 415 Changes in operating assets and liabilities: Trade accounts receivable (23,304 ) (19,807 ) Other receivables 1 360 Inventories (11,523 ) (9,894 ) Income taxes (8 ) 43 Prepaid expenses and other current assets 53 (245 ) Accounts payable and accrued liabilities 9,477 10,456 Net cash provided by (used in) operating activities (21,183 ) (14,000 ) Investing activities Capital expenditures (1,861 ) (902 ) Proceeds from sale of property, plant and equipment 19 2 Net cash provided by (used in) investing activities (1,842 ) (900 ) Financing activities Proceeds from long-term debt 28,851 28,423 Repayment of long-term debt (4,236 ) (13,075 ) Common stock issued — 2 Cash dividend paid — — Net cash provided by (used in) financing activities 24,615 15,350 Net increase (decrease) in cash 1,590 450 Cash at beginning of period 853 2,897 Cash at end of period $ 2,443 $ 3,347 20122013and six months ended July 31, 2012,2013, are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2013.2014. The balance sheet at January 31, 2012,2013, 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 fiscal year ended January 31, 20122013 (“Form 10-K”). All references to the “Company” refer to Virco Mfg. Corporation and its subsidiaries.over approximately 50% of the Company’s total sales typically occurring from June to SeptemberAugust 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.on-goingongoing basis, management evaluates its estimates, including those related to market demand, labor costs, and stocking inventory.May 2011,January 2013, the FASBFinancial Accounting Standards Board ("FASB") issued ASU No. 2011-04, “Fair Value Measurement (Topic 820) – Amendmentsauthoritative guidance that requires an entity to Achieve Common Fair Value Measurement and Disclosure Requirementsprovide information about the amounts reclassified out of accumulated other comprehensive income (loss) by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in U.S. GAAP and IFRS”, which amends ASC 820 providing consistent guidance on fair value measurement and disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 is effective for fiscal years beginning after December 15, 2011. The adoptionthe notes, significant amounts reclassified out of ASU 2011-04 did not have a material impact on our consolidated financial statements.In June 2011,accumulated other comprehensive income (loss) by the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 requires the componentsrespective line items of net income and other comprehensive incomebut only if the amount reclassified is required under GAAP to be either presentedreclassified to net income in one continuous statement, referred to asits entirety in the statement of comprehensive income, or in two separate, consecutive statements. While ASU 2011-05 changes the presentation of comprehensive income, there are no changes to the componentssame reporting period. For other amounts that are recognizednot required under GAAP to be reclassified in their entirety to net income, oran entity is required to cross-reference to other comprehensive incomedisclosures required under current accounting guidance. This newGAAP that provide additional detail about those amounts. The Company adopted this guidance is effective February 1, 2013, but had no such reclassifications to report for the Company beginning February 1, 2012 and requires retrospective application. As this guidance only amends the presentation of the components of comprehensive income, the adoption did not have an impact on the Company’s consolidated financial positionthree months or results of operations.The(“Virco Inc.”("Virco" and, together with the Company, the “Borrowers”"Borrowers") are party toentered into a Revolving Credit and Security Agreement (as amended, the “Credit Agreement”(the "Credit Agreement"), dated as of December 22, 2011, with PNC Bank, National Association, as administrative agent and lender ( “PNC”("PNC"). On June 15, 2012, the Borrowers entered into Amendment No. 1 ("Amendment No. 1") to the Credit Agreement which, among other things, increased the borrowing availability thereunder by $3,000,000 for the period from May 1 through July 14 of each year. On July 27, 2012, the Borrowers entered into Amendment No. 2 ("Amendment No. 2") to the Credit Agreement which, among other things, reduced the minimum EBITDA financial covenant contained therein for the five consecutive months ending June 2012 from $1,600,000 to $300,000. On September 12, 2012, the Borrowers entered into Amendment No. 3 ("Amendment No. 3") to the Credit Agreement which, among other things, modified the minimum EBITDA covenant for the balance of the fiscal year. On December 6, 2012, the Borrowers entered into Amendment No. 4 ("Amendment No. 4") to the Credit Agreement which, among other things, waived the violation of the minimum EBITDA and minimum tangible net worth covenants at October 31, 2012 and eliminated the minimum EBITDA covenant at November 30, 2012. On March 1, 2013, the Borrowers entered into Amendment No. 5 ("Amendment No. 5") to the Credit Agreement, which among other things modified the minimum tangible net worth covenant for the periods from January 31, 2013 to January 31, 2014, modified the minimum EBIDTA covenant for certain periods to January 31, 2014 and waived the violation of the minimum EBITDA covenant for the eleven consecutive fiscal month period ending December 31, 2012.“Revolving"Revolving Credit Facility”Facility") of up to $60,000,000,$60,000,000, with seasonal adjustments to the credit limit and subject to borrowing base limitations, and includes a sub-limit of up to $3,000,000$3,000,000 for issuances of letters of credit. The Revolving Credit Facility is an asset-based line of credit that is subject to a borrowing base limitation and generally provides for advances of up to 85% on of eligible accounts receivable, plus a percentage equal to the lesser of 60% of the value of eligible inventory or 85% of the liquidation value of eligible inventory, plus an amount ranging from $6,000,000$4,000,000 to $12,000,000$14,000,000 from March 1February 15 through July 31August 15 of each year, minus undrawn amounts of letters of credit and reserves.reserves as per Amendment No. 5. The Revolving Credit Facility is secured by substantially all of the Borrowers’Borrowers' personal property and certain of the Borrowers’Borrowers' real property. The principal amount outstanding under the Credit Agreement and any accrued and unpaid interest is due no later than December 22, 2014, and the Revolving Credit Facility is subject to certain prepayment penalties upon earlier termination of the Revolving Credit Facility. Prior to the maturity date, principal amounts outstanding under the Credit Agreement may be repaid and reborrowed at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments and certain other conditions.Borrowers’Borrowers' option, at either the Alternate Base Rate (as defined in the Credit Agreement) or the Eurodollar Currency Rate (as defined in the Credit Agreement), in each case plus an applicable margin. The applicable margin for Alternate Base Rate loans is a percentage within a range of 0.75% to 1.75%, and the applicable margin for Eurodollar Currency Rate loans is a percentage within a range of 1.75% to 2.75%, in each case based on the EBITDA of the Borrowers at the end of each fiscal quarter, and may be increased at PNC’sPNC's option by 2.0% during the continuance of an event of default. Accrued interest with respect to principal amounts outstanding under the Credit Agreement is payable in arrears on a monthly basis for Alternative Base Rate loans, and at the end of the applicable interest period but at most every three months for Eurodollar Currency Rate loans.Company’sCompany's capital stock, and contains numerous other covenants that limit under certain circumstances the ability of the Borrowers and their subsidiaries to, among other things, merge with or acquire other entities, incur new liens, incur additional indebtedness, repurchase stock, sell assets outside of the ordinary course of business, enter into transactions with affiliates, or substantially change the general nature of the business of the Borrowers, taken as a whole. The Credit Agreement also requires the Company to maintain certainthe following financial covenants, includingmaintenance covenants: (1) a minimum tangible net worth minimum EBITDA amounts andamount, (2) a minimum fixed charge coverage ratio. ratio, and (3) a minimum EBITDA amount, in each case as of the end of the relevant monthly, quarterly or annual measurement period.there isthe Credit Agreement contains a “clean down”clean down provision that requires the Company to reduce borrowings under the line to less than $6,000,000$6,000,000 for a period of 60 consecutive days each fiscal year. The Company believes that normal operating cash flow will allow it to meet the “clean down”clean down requirement with no adverse impact on the Company’sCompany's liquidity. The Company was not in compliance with the minimum EBITDA covenantits covenants at July 31, 2012. The Company has obtained a waiver for such non compliance.$250,000,$250,000, subject to certain conditions, (vi) the failure of the Company to comply with Pension Benefit Plans (as defined in the Credit Agreement), (vii) the invalidity of loan documents pertaining to the Credit Agreement, (viii) a change of control of the Borrowers and (ix) the interruption of operations of any of the Borrowers’Borrowers' manufacturing facilities for five consecutive days during the peak season or fifteen consecutive days during any other time, subject to certain conditions.Borrowers’Borrowers' accounts receivable are automatically and promptly swept to repay amounts outstanding under the Revolving Credit Facility upon receipt by the Borrowers. Due to this automatic liquidating nature of the Revolving Credit Facility, if the Borrowers breach any specific covenants,covenant, violate any representation or warranty or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion. In addition, certain of the covenants and representations and warranties set forth in the Credit Agreement contain limited or no materiality thresholds, and many of the representations and warranties must be true and correct in all material respectsanticipatesbelieves that it will be in compliance with the minimum monthly EBITDA covenants for the balance of the year, but there can be no assurance that the Company will meet these covenants.On June 15, 2012, the Borrowers entered into Amendment No. 1 (“Amendment No. 1”) to the Credit Agreement which, among other things, increased the borrowing availability thereunder by $3,000,000 for the period from May 1st through July 14th of each year. On July 27, 2012, the Borrowers entered into Amendment No. 2 (“Amendment No. 2”) to the Credit Agreement which reduced the minimum required EBITDA amount contained therein for the five consecutive months ending June 2012 from $1,600,000 to $300,000. On September 12, 2012, the Company entered into Amendment No. 3 (“Amendment No. 3”) to the credit agreement which among other things, reduced the minimum required EBITDA amount contained therein for each measurement period from July 2012 through January 2013 and reduced the minimum required tangible net worth amount contained therein for the measurement periods ending on October 31, 2012 and January 31, 2012.At July 31, 2012, availability under the Revolving Credit Facility will provide sufficient liquidity to meet its capital requirements in the next 12 months. Approximately $20,851,000. Management believes that the carrying valueavailable for borrowing as of debt approximated fair value at July 31, 2012, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.descriptiondescriptions set forth herein of the Credit Agreement, Amendment No. 1, Amendment No. 2, Amendment No. 3, Amendment No. 4 and Amendment No. 35 are qualified in their entirety by the terms of such agreements, each of which has been filed with the Securities and Exchange Commission.2012.2013. The effective tax rate for both quartersthe quarter ended July 31, 2013 was impacted by the valuation allowance recognized against state deferred tax assets and discrete items associated with non-taxable permanent differences.The Company is currently under IRS examination for its tax return for the year ended January 31, 2011. and , January 31, 2012 and January 31, 2013 remain open for examination by the IRS. The Company is not currently under IRS examination. The years ended January 31, 20082009 through January 31, 20122013 remain open for examination by state tax authorities. The Company is currently under examination by Texas for the year ended January 31, 2009. The Company is not currently under any other state examination.2012,2013, we do not believe that there are any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.Net Income (Loss) per Share Three Months Ended Six Months Ended 7/31/2012 7/31/2011 7/31/2012 7/31/2011 (In thousands, except per share data) $ 7,053 $ 2,732 $ 2,220 $ (2,668 ) 14,369 14,274 14,333 14,240 26 18 25 — 14,395 14,292 14,358 14,240 $ 0.49 $ 0.19 $ 0.15 $ (0.19 ) $ 0.49 $ 0.19 $ 0.15 $ (0.19 ) Certain exercisable and non-exercisable stock options were not included in the computation of diluted net loss per share at July 31, 2011, because their inclusion would have been anti-dilutive. The number of stock options outstanding, which met this anti-dilutive criterion for the six months ended July 31, 2011, was 22,000. Three Months Ended Six Months Ended 7/31/2013 7/31/2012 7/31/2013 7/31/2012 (In thousands, except per share data) Net income (loss) $ 6,210 $ 7,053 $ 1,763 $ 2,220 Average shares outstanding 14,570 14,369 14,506 14,333 Net effect of dilutive stock options based on the treasury stock method using average market price 77 26 85 25 Totals 14,647 14,395 14,591 14,358 Net income (loss) per share - basic $ 0.43 $ 0.49 $ 0.12 $ 0.15 Net income (loss) per share - diluted $ 0.42 $ 0.49 $ 0.12 $ 0.15 2012, only 2013, 448,750 and 13,075 shares remained available for issuance under the 2011 Plan and 2007 Plan, respectively. Restricted stock or stock units awarded under both Plansthe 2011 Plan and 2007 Plan are expensed ratably over the vesting period of the awards. The Company determines the fair value of its restricted stock unit awards and related compensation expense as the difference between the market value of the awards on the date of grant less the exercise price of the awards granted.There were no unexercisedoutstandinghave been issued under the 2011 Plan or the 2007 Plan at July 31, 2012.2013. Stock options awarded to employees under the both Plans2011 Plan and 2007 Plan have to be granted at exercise prices equal to the fair market value of the Company’s common stock on the date of grant. Stock options generally have a maximum term of 10 years and generally become exercisable ratably over a five-year period.20122013 and 2011: Unamortized Compensation Date of Units Terms of Expense for 3 months ended Expense for 6 months ended Cost at Granted Vesting 7/31/2012 7/31/2011 7/31/2012 7/31/2011 7/31/2012 31,250 1 year $ 8,286 $ — $ 8,286 $ — $ 41,429 520,000 5 year 28,000 — 28,000 — 804,000 78,125 1 year 20,714 — 20,714 — 103,571 40,000 Immediate — — 80,000 — — 68,960 1 year 17,000 33,000 67,000 33,000 — 56,455 1 year — 15,000 — 58,000 — 382,500 5 year 56,000 58,000 113,000 125,000 414,000 262,500 5 year 24,000 75,000 98,000 165,000 — $ 154,000 $ 181,000 $ 415,000 $ 381,000 $ 1,363,000 Unamortized
Compensation Date of Units Terms of Expense for 3 months ended Expense for 6 months ended Cost at Grants Granted Vesting 7/31/2013 7/31/2012 7/31/2013 7/31/2012 7/31/2013 2011 Stock Incentive Plan 6/25/2013 83,335 1 year $ 30,000 $ — $ 30,000 $ — $ 145,000 6/19/2012 31,250 1 year 4,000 8,286 17,000 8,286 — 6/19/2012 520,000 5 year 40,000 28,000 82,000 28,000 601,000 2007 Stock Incentive Plan 6/19/2012 78,125 1 year 11,000 20,714 41,000 20,714 — 3/21/2012 40,000 Immediate — — — 80,000 — 6/21/2011 68,960 1 year — 17,000 — 67,000 — 6/16/2009 382,500 5 year 49,000 56,000 105,000 113,000 155,000 6/19/2007 262,500 5 year — 24,000 — 98,000 — $ 134,000 $ 154,000 $ 275,000 $ 415,000 $ 901,000 $50.00 ($$50.00 ($20.70, as adjusted for stock splits and stock dividends), subject to adjustment, one one-hundredth of a share of Series A Junior Participating Cumulative Preferred Stock of the Company, or under certain circumstances, shares of common stock of the Company or a successor company with a market value equal to two times the exercise price. The Rights are not exercisable, and would only become exercisable for all other persons when any person has acquired or commences to acquire a beneficial interest of at least 20% of the Company’s outstanding common stock. The Rights have no voting privileges, and may be redeemed by the Board of Directors at a price of $.001$.001 per Right at any time prior to the acquisition of a beneficial ownership of 20% of the outstanding common stock. There are 200,000 shares (483,153(483,153 shares as adjusted by stock splits and stock dividends) of Series A Junior Participating Cumulative Preferred Stock reserved for issuance upon exercise of the Rights. On July 31, 2007, the Company and Mellon Investor Services LLC entered into an amendment to the Rights Agreement governing the Rights. The amendment, among other things, extended the term of the Rights issued under the Rights Agreement to October 25, 2016, removed the dead-hand provisions from the Rights Agreement, and formally replaced the former Rights Agent, The Chase Manhattan Bank, with its successor-in-interest, Mellon Investor Services LLC.sixthree months ended July 31, 2012,2013, the Company did not repurchase any shares of its common stock. As of July 31, 2012, $1.12013, $1.1 million remained available for repurchases of the Company’s common stock pursuant to the Company’s repurchase program approved by the Board of Directors. Pursuant to the Company’s Credit Agreement with PNC however,bank, the Company is prohibited from repurchasing any shares of its stock except in cases where a repurchase is financed by a substantially concurrent issuance of new shares of the Company’s common stock.five5 years in the VIP Plan, offset by benefits earned under the Employees RetirementPension Plan. As more fully described in the Form 10-K, benefit accruals under this plan were frozen effective December 31, 2003.costscost (income) for the Employees RetirementPension Plan, the VIP Plan, and the Non-Employee Directors Retirement Plan for the three and six months ended July 31, 20122013 and 20112012 were as follows (in thousands): Three Months Ended July 31, Non-Employee Directors Pension Plan VIP Retirement Plan Retirement Plan 2012 2011 2012 2011 2012 2011 $ — $ — $ — $ — $ — $ — 325 360 88 95 5 6 (245 ) (289 ) — — — — — — — — — — 360 262 51 13 — (10 ) $ 440 $ 333 $ 139 $ 108 $ 5 $ (4 ) Six Months Ended July 31, Non-Employee Directors Pension Plan VIP Retirement Plan Retirement Plan 2012 2011 2012 2011 2012 2011 $ — $ — $ — $ — $ — $ — 650 720 176 190 10 12 (490 ) (578 ) — — — — — — — — — — 720 524 102 26 — (20 ) $ 880 $ 666 $ 278 $ 216 $ 10 $ (8 ) Three Months Ended July 31, Non-Employee Directors Pension Plan VIP Retirement Plan Retirement Plan 2013 2012 2013 2012 2013 2012 Service cost $ — $ — $ — $ — $ — $ — Interest cost 322 325 83 88 4 5 Expected return on plan assets (276 ) (245 ) — — — — Settlement cost — — — — — — Amortization of prior service cost — — — — — — Recognized net actuarial loss or (gain) 350 360 55 51 (3 ) — Net periodic pension cost (income) $ 396 $ 440 $ 138 $ 139 $ 1 $ 5 Six Months Ended July 31, Non-Employee Directors Pension Plan VIP Retirement Plan Retirement Plan 2013 2012 2013 2012 2013 2012 Service cost $ — $ — $ — $ — $ — $ — Interest cost 644 650 166 176 8 10 Expected return on plan assets (552 ) (490 ) — — — — Settlement cost — — — — — — Amortization of prior service cost — — — — — — Recognized net actuarial loss or (gain) 700 720 110 102 (6 ) — Net periodic pension cost (income) $ 792 $ 880 $ 276 $ 278 $ 2 $ 10 ten-year10-year warranty. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. The warranty liability is included in accrued liabilities in the accompanying consolidated balance sheets.20122013 and 20112012 (in thousands): Three Months Ended Six Months Ended 7/31/2012 7/31/2011 7/31/2012 7/31/2011 (In thousands) $ 1,400 $ 2,150 $ 1,400 $ 2,300 88 276 199 348 (188 ) (626 ) (299 ) (848 ) $ 1,300 $ 1,800 $ 1,300 $ 1,800 Three Months Ended Six Months Ended 7/31/2013 7/31/2012 7/31/2013 7/31/2012 (In thousands) Beginning accrued warranty balance $ 1,000 $ 1,400 $ 1,000 $ 1,400 Provision 75 88 216 199 Costs incurred (75 ) (188 ) (216 ) (299 ) Ending accrued warranty balance $ 1,000 $ 1,300 $ 1,000 $ 1,300 except for the disclosure set forth below, no subsequent events occurred that required recognition or disclosure in the financial statements.On September 12, 2012, the Company entered into Amendment No. 3 (“Amendment No. 3”) which reduced the minimum EBITDA financial covenant contained therein for the months from July 2012 through January 2013 from $6,894,000 to $5,800,000.Company’sCompany's order rates and results of operations for the first six months of 20122013 continue to be adversely impacted by economic conditions and the related impact on tax receipts and budgeted expenditures for public schools. Order rates for the first six months of 2012ended July 31, 2013 are slightly higher (<1%)5.6% lower than the corresponding period last year, butand continue to show greater than normal volatility on a month-to-month basis. When compared to 2011, however, volatility has improved. InOrder rates for the first quarter ended April and May of 2011,30, 2013 were significantly lower (24.1%) than the Company experienced a dramatic dropsame period in the prior year, with the entire reduction in orders whichoccurring in the first two months. For each of the next four months, order rates were greater than the corresponding month in the prior year. Order rates, in turn, caused significant reductions in production levels duringfor the second quarter of 2011, followed by restructuring inthree months ended July 31, 2013 were 6.1% greater than the third quarter of 2011. three months ended July 31, 2012.Company’sCompany's Annual Report on Form 10-K for the year ended January 31, 20122013 (“Form 10-K”), the Company substantially reduced its full time work force through an early retirement program and attrition, primarily during the third and fourth quarters of 2011. For 2012,In May of 2013, due to continued weakness in the economy and the resulting challenges facing the Company's business, the Company is using greater quantitiesfurther reduced its workforce by 41 employees. The second quarter results include a charge of temporary labor$412,000 related to address the seasonal production and distribution requirements of our business. During the first six months of 2012,this reduction. At July 31, 2013, the Company deferred building large quantitieshad 100 fewer permanent employees than at July 31, 2012 and 300 fewer employees than at July 31, 2011. As a result of inventory for summer deliveries until the second quarter of 2012. This operating change caused production levelsthese recent reductions in the first quarter of 2012 to be less than in the first quarter of 2011 and for production levels in the second quarter of 2012 to be greater than the second quarter of 2011. In addition to comparatively stable order rates,force, the Company has benefitedmade greater utilization of temporary employees during the summer months and expects to benefit from relatively stable commodities costs fora lower cost structure during the traditionally slow first six months of 2012. This compares favorably to 2011 when the Company experienced significant increases in the cost of steel in the second quarter of 2011 and significant increases in the cost of plastic and fuel in the second and third quarters of 2011.2012,2013, the Company earned a pre-tax profit of $6,285,000 on net sales of $56,933,000 compared to a pre-tax profit of $7,259,000 on net sales of $60,392,000 compared to a pre-tax profit of $2,775,000 on net sales of $62,817,000 in the same period last year.20122013 decreased by $2,425,000,$3,459,000, a 3.9%5.7% decrease, compared to the same period last year. This decrease was the result of a reduction in unit volume partially offset by a modestslight increase in selling prices. Unit volume declined largely as a result of general economic conditions, which negatively impacted tax receipts, the funded status of public schools, and reduced levels of school construction completions. Incoming orders for the same period increased by 6.1% compared to the prior year. Backlog at July 31, 2013 increased by less than 11.5% compared to the prior year.less than 2%5.6% compared to the prior year. Backlog at July 31, 2012 increased by less than 1% compared to the prior year.Gross margin as a percentage of sales increased to 37.9% for the three months ended July 31, 2012 compared to 31.7% in the same period last year. Gross margin was favorably affected by an increase in overhead absorption as a result of an 18% increase in production hours, stable commodity costs, a modest price increase and reduced levels of factory spending attributable to the restructuring completed in the third and fourth quarters in 2011.Selling, general and administrative expenses for the three months ended July 31, 2012 decreased by approximately $1,570,000 compared to the same period last year, and decreased as a percentage of sales by 1.5%. The decrease in selling, general and administrative expenses was attributable to a reduction in variable selling and service costs due to the reduced volume of shipments and due to cost reductions implemented in the third and fourth quarters in 2011.For the six months ended July 31, 2012, the Company earned a pre-tax profit of $2,442,000 on net sales of $84,060,000 compared to a pre-tax loss of $2,597,000 on net sales of $87,073,000 in the same period last year.Net sales for the six months ended July 31, 2012 decreased by $3,013,000, a 3.5% decrease, compared to the same period last year. This decrease was the result of a reduction in unit volume partially offset by a modest increase in selling prices. Unit volume declined largely as a result of general economic conditions, which negatively impacted tax receipts, the funded status of public schools, and reduced levels of school construction completions. Incoming orders for the same period increased by slightly (<1%) compared to the prior year.35.5%36.4% for the six months ended July 31, 20122013 compared to 30.6%35.5% in the same period last year. The improvement in gross margin was attributable to a modestslight increase in selling prices, stable commodity costs, and a reduction in factory spending, resulting from the restructuring in the third and fourth quarters of 2011 described above, offset by a decrease in overhead absorption as a result of a 4.6%7.0% reduction in production hours.20122013, which include $475,000 of severance expense, decreased by approximately $1,976,000$1,350,000 compared to the same period last year, and decreased but increased as areductions implemented in the third and fourth quarters in 2011.20122013 the Company did not record significant income tax expense / (benefit). During the fourth quarter of 2010 the Company established a valuation allowance on the majority of deferred tax assets. Because of this valuation allowance the effective income tax expense / (benefit) is expected to be relatively low, with income tax expense / (benefit) being primarily attributable to alternative minimum taxes combined with income and franchise taxes required by various states.$111,000$80,000 for the six months ended July 31, 2012,2013, compared to the same period last year. The increase was primarily due to increased borrowing costs related to the Company’sCompany's line of credit with PNC Bank National Association (“PNC Bank”).Accounts$2,100,000$582,000 lower at July 31, 20122013 than at July 31, 20112012 due to decreased sales andoffset by slightly lowerhigher days sales outstanding. Accounts receivable was $19,800,000$23,253,000 greater at July 31, 20122013 than at January 31, 20122013 due to the seasonal business cycle. As discussed in the Company’sCompany's Form 10-K, approximately 50% of the Company’sCompany's annual sales volume is shipped in June through September.August. 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 started the current fiscal year with $7,580,000 less inventory than in the prior year. For the first six months, the Company increased inventory by approximately $9,900,000$11,523,000 compared to January 31, 2012.2013. This increase was $1,700,000$1,630,000 more than the $8,200,000$9,894,000 increase in 2011, but because the Company started the year with substantially less inventory.comparable period in 2012. At the end of the second quarter inventory was approximately $5,800,000$840,000 less compared to July 31, 2011.2012. The increase in accounts receivable and inventory at July 31, 20122013 compared to the January 31, 2012,2013, was financed through the Company’sCompany's credit facility with PNC Bank.Company’sCompany's revolving line of credit with PNC Bank at July 31, 2012 decreased2013 increased by approximately $1,500,000$1,824,000 compared to the borrowings at July 31, 2011 under the Company’s prior credit facility with Wells Fargo Bank, primarily due to decreased levels of inventory and receivables.2012. The Company established a goal of limiting capital spending to less than $3,000,000 for fiscal year 2012,2013, which is less than the Company’sCompany's anticipated depreciation expense. Capital spending for the six months ended July 31, 20122013 was $902,000$1,861,000 compared to $1,340,000$902,000 for the same period last year. Capital expenditures are being financed through the Company’sCompany's credit facility with PNC Bank and operating cash flow.2012,2013, was $14,000,000$21,183,000 compared to $19,749,000$14,000,000 for the same period last year. The decreaseincrease in cash used was primarily attributable to an increase in pre-tax profitabilitycash used for the first six months of 2012, a decreasereceivables, an increase in cash used for receivables, increasesinventory, and a decrease in accounts payable and accrued liabilities, partially offset by a slight increase in cash used for inventory.Due to continued weak demand for education furniture, the Company was unable to satisfy the minimum EBITDA covenant for June and July of 2012. Effective July 27, 2012 the Company entered into Amendment No. 2 with PNC Bank to modify the minimum EBITDA covenant for June 2012 so that the Company would be in compliance with the amended covenant. Effective September 12, 2012 the Company entered into Amendment No. 3 with PNC Bank. This amendment modified the minimum monthly EBITDA covenant for the period from July 2012 through January 2013. The Company was in compliance with the amended covenant at July 31, 2012 and anticipates that it will be in compliance with the minimum monthly EBITDA covenants for the balance of the year, but there can be no assurance that the Company will meet these covenants. Approximately $20,851,000 was available for borrowing as of July 31, 2012.Company’sCompany's unused borrowing capacity with PNC Bank will be sufficient to fund the Company’sCompany's debt service requirements, capital expenditures and working capital needs for the next twelve months.2012,2013, there were no material changes in the Company’sCompany's off balance sheet arrangements or contractual obligations and commercial commitments from those disclosed in the Company’sCompany's Form 10-K.Company’sCompany's critical accounting policies are outlined in its Form 10-K. There have been no changes in the six months period ended July 31, 2012.2012,2013, the Company or its representatives have made and may make forward-looking statements, orally or in writing, including those contained herein. 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. 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’sCompany'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’sCompany'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’sCompany's Form 10-K.The Company’s10-K.The Company's forward-looking statements represent its judgment only on the dates such statements were made. By making anyThe(“Virco Inc.”("Virco" and, together with the Company, the “Borrowers”"Borrowers") are party to that certainentered into a Revolving Credit and Security Agreement (as amended, the “Credit Agreement”(the "Credit Agreement"), dated as of December 22, 2011, with PNC Bank, National Association, as administrative agent and lender (“PNC”("PNC").(the “Revolving("the Revolving Credit Facility”Facility") of up to $60,000,000,$60,000,000, with seasonal adjustments to the credit limit and subject to borrowing base limitations, and includes a sub-limit of up to $3,000,000$3,000,000 for issuances of letters of credit. The Revolving Credit Facility is an asset-based line of credit that is subject to a borrowing base limitation and generally provides for advances of up to 85% on of eligible accounts receivable, plus a percentage equal to the lesser of 60% of the value of eligible inventory or 85% of the liquidation value of eligible inventory, plus an amount ranging from $6,000,000$4,000,000 to $12,000,000$14,000,000 from March 1February 15 through July 31August 15 of each year, minus undrawn amounts of letters of credit and reserves.reserves as per Amendment No.5. The Revolving Credit Facility is secured by substantially all of the Borrowers’Borrowers' personal property and certain of the Borrowers’Borrowers' real property. The principal amount outstanding under the Credit Agreement and any accrued and unpaid interest is due no later than December 22, 2014, and the Revolving Credit Facility is subject to certain prepayment penalties upon earlier termination of the Revolving Credit Facility. Prior to the maturity date, principal amounts outstanding under the Credit Agreement may be repaid and reborrowed at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments and certain other conditions.Borrowers’Borrowers' option, at either the Alternate Base Rate (as defined in the Credit Agreement) or the Eurodollar Currency Rate (as defined in the Credit Agreement), in each case plus an applicable margin. The applicable margin for Alternate Base Rate loans is a percentage within a range of 0.75% to 1.75%, and the applicable margin for Eurodollar Currency Rate loans is a percentage within a range of 1.75% to 2.75%, in each case based on the EBITDA of the Borrowers at the end of each fiscal quarter, and may be increased at PNC’sPNC's option by 2.0% during the continuance of an event of default. Accrued interest with respect to principal amounts outstanding under the Credit Agreement is payable in arrears on a monthly basis for Alternative Base Rate loans, and at the end of the applicable interest period but at most every three months for Eurodollar Currency Rate loans.Company’sCompany's capital stock, and contains numerous other covenants that limit under certain circumstances the ability of the Borrowers and their subsidiaries to, among other things, merge with or acquire other entities, incur new liens, incur additional indebtedness, repurchase stock, sell assets outside of the ordinary course of business, enter into transactions with affiliates, or substantially change the general nature of the business of the Borrowers, taken as a whole. The Credit Agreement also requires the Company to maintain certainthe following financial covenants, includingmaintenance covenants: (1) a minimum tangible net worth minimum EBITDA amounts andamount, (2) a minimum fixed charge coverage ratio. ratio, and (3) a minimum EBITDA amount, in each case as of the end of the relevant monthly, quarterly or annual measurement period.there isthe Credit Agreement contains a “clean down”clean down provision that requires the Company to reduce borrowings under the line to less than $6,000,000$6,000,000 for a period of 60 consecutive days each fiscal year. The Company believes that normal operating cash flow will allow it to meet the “clean down”clean down requirement with no adverse impact on the Company’sCompany's liquidity. The Company was not in compliance with the minimum EBITDA covenantits covenants at July 31, 2012. The Company has obtained a waiver for such non compliance.$250,000,$250,000, subject to certain conditions, (vi) the failure of the Company to comply with Pension Benefit Plans (as defined in the Credit Agreement), (vii) the invalidity of loan documents pertaining to the Credit Agreement, (viii) a change of control of the Borrowers and (ix) the interruption of operations of any of the Borrowers’Borrowers' manufacturing facilities for five consecutive days during the peak season or fifteen consecutive days during any other time, subject to certain conditions.Borrowers’Borrowers' accounts receivable are automatically and promptly swept to repay amounts outstanding under the Revolving Credit Facility upon receipt by the Borrowers. Due to this automatic liquidating nature of the Revolving Credit Facility, if the Borrowers breach any covenant, violate any representation or warranty or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion. In addition, certain of the covenants and representations and warranties set forth in the Credit Agreement contain limited or no materiality thresholds,anticipatesbelieves that it will be in compliance with the minimum monthly EBITDA covenants for the balance of the year, but there can be no assurance that the Company will meet these covenants.On June 15, 2012, the Borrowers entered into Amendment No. 1 (“Amendment No. 1”) to the Credit Agreement which, among other things, increased the borrowing availability thereunder by $3,000,000 for the period from May 1st through July 14th of each year. On July 27, 2012, the Borrowers entered into Amendment No. 2 (“Amendment No. 2”) to the Credit Agreement which reduced the minimum required EBITDA contained therein for the five consecutive months ending June 2012 from $1,600,000 to $300,000. On September 12, 2012, the Company entered into Amendment No. 3 (“Amendment No. 3”) to the credit agreement which reduced the minimum required EBITDA amount contained therein for each measurement period from July 2012 through January 2013 and reduced the minimum required tangible net worth amount contained therein for the measurement periods ending on October 31, 2012 and January 31, 2012.At July 31, 2012, availability under the Revolving Credit Facility will provide sufficient liquidity to meet its capital requirements in the next 12 months. Approximately $20,851,000. Management believes that the carrying valueavailable for borrowing as of debt approximated fair value at July 31, 2012, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.No.2No. 2, Amendment No. 3, Amendment No. 4 and Amendment No. 35 are qualified in their entirety by the terms of such agreements, each of which has been filed with the Securities and Exchange Commission.Commission’sCommission's rules and forms, and that such information is accumulated and communicated to the Company’sCompany's management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Assessing the costs and benefits of such controls and procedures necessarily involves the exercise of judgment by management, and such controls and procedures, by their nature, can provide only reasonable assurance that management’smanagement's objectives in establishing them will be achieved.Company’sCompany'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 as of the end of the period covered by this Quarterly Report on Form 10-Q, pursuant to Exchange Act Rule 13a-15. Based upon the foregoing, the Company’sCompany's Principal Executive Officer along with the Company’sCompany's Principal Financial Officer concluded that, subject to the limitations noted in Part I, Item 4,above, the Company’sCompany's disclosure controls and procedures are effective in ensuring that (i) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’sCommission's rules and forms and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’sCompany's management, including its Principal Executive and Principal Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.Company’sCompany's internal control over financial reporting during the second fiscal quarter of 2012three months ended July 31, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.Item 5.Other InformationOn September 12, 2012, Virco Mfg. Corporation (the “Company”) and Virco Inc., a wholly owned subsidiary of the Company (“Virco”, and, together with the Company, the “Borrowers”), entered into a third amendment (the “Third Amendment”) to the Credit Agreement with PNC. The Third Amendment further amends the Credit Agreement by, among other things, reducing the minimum required EBITDA amount contained therein for each measurement period from July 2012 through January 2013 and reducing the minimum required tangible net worth amount contained therein for the measurement periods ending on October 31, 2012 and January 31, 2012.The description of the Third Amendment set forth above is qualified in its entirety by the Third Amendment, a copy of which is filed as an exhibit to this report and is incorporated by reference herein.Due to continued weak demand for education furniture, the Company was unable to satisfy the minimum EBITDA covenant for June and July of 2012. Effective July 27, 2012 the Company entered into Amendment No. 2 with PNC Bank to modify the minimum EBITDA covenant for June 2012 so that the Company would be in compliance with the amended covenant. Effective September 12, 2012 the Company entered into Amendment No. 3 with PNC Bank. This amendment modified the minimum monthly EBITDA covenantperiod from July 2012 throughyear ended January 2013. The Company was in compliance with the amended covenant at July 31, 2012 and anticipates that it will be in compliance with the minimum monthly EBITDA covenants for the balance of the year, but there can be no assurance that the Company will meet these covenants.We operate in a seasonal business, and require significant amounts of working capital through2013, we described material risk factors facing our existing credit facilitybusiness. Additional risks not presently known to fund acquisitions of inventory, fund expenses for freight and installation, and finance receivables during the summer delivery season. Restrictions imposed by the terms of our existing credit facility may limit our operating and financial flexibility.Our credit facility, among other things, largely prevents us from incurring any additional indebtedness, limits capital expenditures, restricts dividends and stock repurchases, and provides for seasonal variations in the maximum borrowing amount, including a reduced maximum level of borrowing during the fourth fiscal quarter. Our credit facility also provides for monthly financial covenants, which currently include a minimum EBITDA, a minimum tangible net worth and a minimum fixed charge coverage ratio requirement. As a result of the foregoing, our operation and financial flexibility may be limited, which may prevent us from engaging in transactions that might further our growth strategy or otherwise be considered beneficial to us.Under our credit facility, substantially all of our accounts receivable are automatically and promptly swept to repay amounts outstanding under the credit facility upon our receipt. Due to this automatic liquidating nature, if we breach any covenant, violate any representation or warranty or suffer a deterioration in our ability to borrow pursuant to the borrowing base calculation contained in the credit facility, we may not have access to cash liquidity unless provided by the lender in its discretion. If the indebtedness under our credit facility were to be accelerated, we cannot be certain that we will have sufficient funds available to pay such indebtedness or that we will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all. Any such acceleration couldcurrently deem immaterial may also result in a foreclosure on all or substantially all ofimpair our assets, which would have a negative impact on the value of our common stock and jeopardize our ability to continue as a going concern. In addition, certainbusiness operations. As of the covenants and representations and warranties set forthdate of this report, there have been no material changes to the risk factors described in our credit facility contain limited or no materiality thresholds, and many of the representations and warranties must be true and correct in all material respects upon each borrowing, which we expect to occur on an ongoing basis. There can be no assurance that we will be able to comply with all such covenants and be able to continue to make such representations and warranties on an ongoing basis.2012,2013, $1,053,000 remained available for repurchase under this program. The Company did not repurchase any shares of its stock during the second quarter of 2012.2013. Pursuant to the Company’sCompany's Credit Agreement with PNC Bank, the Company is prohibited from repurchasing any shares of its stock except in cases where a repurchase is financed by a substantially concurrent issuance of new shares of the Company’sCompany's common stock.Company’sCompany's Credit Agreement with PNC Bank, the Company is prohibited from paying dividends. Consequently, for at least as long as this covenant is included in the Company’sCompany's Credit Agreement, no dividends will be paid by the Company to its stockholders.Exhibit 10.1 — First Amendment to Revolving Credit and Securities Agreement, dated as of June 15, 2012, by and among Virco Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent.Exhibit 10.2 — Second Amendment to Revolving Credit and Security Agreement, dated as of July 27, 2012, by and among Virco Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 31, 2012).Exhibit 10.3 — Third Amendment to Revolving Credit and Security Agreement, dated as of September 12, 2012, by and among Virco Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as the lender and administrative agent . VIRCO MFG. CORPORATION Date: September 14, 201213, 2013 By: Robert E. Dose Robert E. DoseVice President — Finance 21