UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended July 31, 2012
OR
¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File number 1-8777
VIRCO MFG. CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware | 95-1613718 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
2027 Harpers Way, Torrance, CA | 90501 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants Telephone Number, Including Area Code: (310) 533-0474
No change
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding for each of the registrants classes of common stock, as of the latest practicable date:
Common Stock, $.01 par value 14,550,371 shares as of September 10, 2012.
VIRCO MFG. CORPORATION
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Unaudited condensed consolidated balance sheets July 31, 2012, January 31, 2012 and July 31, 2011 |
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Unaudited condensed consolidated statements of operations Six months ended July 31, 2012 and 2011 |
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Unaudited condensed consolidated statements of cash flows Six months ended July 31, 2012 and 2011 |
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Notes to unaudited condensed consolidated financial statements July 31, 2012 |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk |
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EX-10.1 |
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EX-10.3 |
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EX-31.1 |
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EX-31.2 |
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EX-32.1 |
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EX-101 INSTANCE DOCUMENT |
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EX-101 SCHEMA DOCUMENT |
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EX-101 CALCULATION LINKBASE DOCUMENT |
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EX-101 LABELS LINKBASE DOCUMENT |
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EX-101 PRESENTATION LINKBASE DOCUMENT |
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PART I FINANCIAL INFORMATION
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
7/31/2012 | 1/31/2012 | 7/31/2011 | ||||||||||
(In thousands, except share data) | ||||||||||||
Unaudited (Note 1) | Unaudited (Note 1) | |||||||||||
Assets |
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Current assets: |
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Cash |
$ | 3,347 | $ | 2,897 | $ | 1,521 | ||||||
Trade accounts receivable, net |
32,570 | 12,743 | 34,781 | |||||||||
Other receivables |
41 | 401 | 33 | |||||||||
Income tax receivable |
298 | 324 | 351 | |||||||||
Inventories: |
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Finished goods, net |
14,439 | 6,273 | 14,510 | |||||||||
Work in process, net |
13,718 | 10,623 | 15,287 | |||||||||
Raw materials and supplies, net |
9,527 | 10,895 | 13,712 | |||||||||
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37,684 | 27,791 | 43,509 | ||||||||||
Prepaid expenses and other current assets |
1,897 | 1,652 | 1,829 | |||||||||
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Total current assets |
75,837 | 45,808 | 82,024 | |||||||||
Property, plant and equipment: |
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Land |
1,671 | 1,671 | 1,671 | |||||||||
Land improvements |
1,213 | 1,213 | 1,214 | |||||||||
Buildings and building improvements |
47,794 | 47,797 | 47,796 | |||||||||
Machinery and equipment |
119,591 | 120,181 | 119,432 | |||||||||
Leasehold improvements |
2,456 | 2,549 | 2,533 | |||||||||
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172,725 | 173,411 | 172,646 | ||||||||||
Less accumulated depreciation and amortization |
134,892 | 134,203 | 131,825 | |||||||||
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Net property, plant and equipment |
37,833 | 39,208 | 40,821 | |||||||||
Deferred tax assets, net |
2,005 | 2,200 | 2,573 | |||||||||
Other assets |
6,972 | 7,009 | 6,408 | |||||||||
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Total assets |
$ | 122,647 | $ | 94,225 | $ | 131,826 | ||||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
3
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
7/31/2012 | 1/31/2012 | 7/31/2011 | ||||||||||
(In thousands, except share data) | ||||||||||||
Unaudited (Note 1) | Unaudited (Note 1) | |||||||||||
Liabilities |
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Current liabilities: |
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Accounts payable |
$ | 18,596 | $ | 11,684 | $ | 18,565 | ||||||
Accrued compensation and employee benefits |
4,051 | 3,797 | 4,018 | |||||||||
Current portion of long-term debt |
20,843 | 5,497 | 28,304 | |||||||||
Deferred tax liability |
1,221 | 1,221 | 1,398 | |||||||||
Other accrued liabilities |
7,620 | 4,641 | 8,077 | |||||||||
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Total current liabilities |
52,331 | 26,840 | 60,362 | |||||||||
Non-current liabilities: |
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Accrued self-insurance retention |
2,281 | 1,915 | 2,619 | |||||||||
Accrued pension expenses |
25,248 | 25,069 | 17,902 | |||||||||
Income tax payable |
505 | 488 | 740 | |||||||||
Long-term debt, less current portion |
6,000 | 6,011 | | |||||||||
Other accrued liabilities |
2,836 | 3,006 | 2,941 | |||||||||
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Total non-current liabilities |
36,870 | 36,489 | 24,202 | |||||||||
Commitments and Contingencies |
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Stockholders equity: |
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Preferred stock: |
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Authorized 3,000,000 shares, $.01 par value; none issued or outstanding |
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Common stock: |
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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 |
145 | 144 | 143 | |||||||||
Additional paid-in capital |
115,388 | 115,060 | 114,706 | |||||||||
Accumulated deficit |
(66,759 | ) | (68,980 | ) | (57,845 | ) | ||||||
Accumulated comprehensive loss |
(15,328 | ) | (15,328 | ) | (9,742 | ) | ||||||
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Total stockholders equity |
33,446 | 30,896 | 47,262 | |||||||||
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Total liabilities and stockholders equity |
$ | 122,647 | $ | 94,225 | $ | 131,826 | ||||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
4
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited (Note 1)
Three months ended | ||||||||
7/31/2012 | 7/31/2011 | |||||||
(In thousands, except per share data) | ||||||||
Net sales |
$ | 60,392 | $ | 62,817 | ||||
Costs of goods sold |
37,525 | 42,935 | ||||||
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Gross profit |
22,867 | 19,882 | ||||||
Selling, general and administrative expenses |
15,145 | 16,714 | ||||||
Interest expense |
463 | 393 | ||||||
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Income before income taxes |
7,259 | 2,775 | ||||||
Income tax provision |
206 | 43 | ||||||
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Net income |
$ | 7,053 | $ | 2,732 | ||||
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Net income per common share: |
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Basic |
$ | 0.49 | $ | 0.19 | ||||
Diluted |
$ | 0.49 | $ | 0.19 | ||||
Weighted average shares outstanding: |
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Basic |
14,369 | 14,274 | ||||||
Diluted |
14,395 | 14,292 |
See Notes to Unaudited Condensed Consolidated Financial Statements
5
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited (Note 1)
(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. |
See Notes to Unaudited Condensed Consolidated Financial Statements
6
VIRCO MFG. CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited (Note 1)
Three months ended | ||||||||
7/31/2012 | 7/31/2011 | |||||||
(In thousands) | ||||||||
Net Income |
$ | 7,053 | $ | 2,732 | ||||
Other comprehensive income (loss) |
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Comprehensive income |
$ | 7,053 | $ | 2,732 | ||||
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See Notes to Unaudited Condensed Consolidated Financial Statements
7
VIRCO MFG. CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited (Note 1)
Six months ended | ||||||||
7/31/2012 | 7/31/2011 | |||||||
(In thousands) | ||||||||
Net Income (loss) |
$ | 2,220 | $ | (2,668 | ) | |||
Other comprehensive income (loss) |
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Comprehensive income (loss) |
$ | 2,220 | $ | (2,668 | ) | |||
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See Notes to Unaudited Condensed Consolidated Financial Statements
8
VIRCO MFG. CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (Note 1)
Six months ended | ||||||||
7/31/2012 | 7/31/2011 | |||||||
(In thousands) | ||||||||
Operating activities |
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Net income (loss) |
$ | 2,220 | $ | (2,668 | ) | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation and amortization |
2,278 | 2,583 | ||||||
Provision for doubtful accounts |
(20 | ) | 30 | |||||
(Gain) loss on sale of property, plant and equipment |
(1 | ) | | |||||
Deferred income taxes |
195 | 49 | ||||||
Stock based compensation |
415 | 381 | ||||||
Changes in operating assets and liabilities: |
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Trade accounts receivable |
(19,807 | ) | (24,349 | ) | ||||
Other receivables |
360 | 135 | ||||||
Inventories |
(9,894 | ) | (8,139 | ) | ||||
Income taxes |
43 | 16 | ||||||
Prepaid expenses and other current assets |
(245 | ) | (210 | ) | ||||
Accounts payable and accrued liabilities |
10,456 | 12,423 | ||||||
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Net cash used in operating activities |
(14,000 | ) | (19,749 | ) | ||||
Investing activities |
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Capital expenditures |
(902 | ) | (1,340 | ) | ||||
Proceeds from sale of property, plant and equipment |
2 | 1 | ||||||
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Net cash used in investing activities |
(900 | ) | (1,339 | ) | ||||
Financing activities |
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Proceeds from long-term debt |
28,423 | 29,245 | ||||||
Repayment of long-term debt |
(13,075 | ) | (7,455 | ) | ||||
Common stock issued |
2 | | ||||||
Cash dividend paid |
| (710 | ) | |||||
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Net cash provided by financing activities |
15,350 | 21,080 | ||||||
Net increase (decrease) in cash |
450 | (8 | ) | |||||
Cash at beginning of period |
2,897 | 1,529 | ||||||
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Cash at end of period |
$ | 3,347 | $ | 1,521 | ||||
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See Notes to Unaudited Condensed Consolidated Financial Statements.
9
VIRCO MFG. CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2012
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended July 31, 2012, are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2013. The balance sheet at January 31, 2012, 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 Companys Annual Report on Form 10-K for the fiscal year ended January 31, 2012 (Form 10-K). All references to the Company refer to Virco Mfg. Corporation and its subsidiaries.
Note 2. Seasonality
The market for educational furniture is marked by extreme seasonality, with over 50% of the Companys total sales typically occurring from June to September each year, which is the Companys peak season. Hence, the Company typically builds and carries significant amounts of inventory during and in anticipation of this peak summer season to facilitate the rapid delivery requirements of customers in the educational market. This requires a large up-front investment in inventory, labor, storage and related costs as inventory is built in anticipation of peak sales during the summer months. As the capital required for this build-up generally exceeds cash available from operations, the Company has historically relied on third-party bank financing to meet cash flow requirements during the build-up period immediately preceding the peak season. In addition, the Company typically is faced with a large balance of accounts receivable during the peak season. This occurs for two primary reasons. First, accounts receivable balances typically increase during the peak season as shipments of products increase. Second, many customers during this period are government institutions, which tend to pay accounts receivable more slowly than commercial customers.
The Companys working capital requirements during and in anticipation of the peak summer season require management to make estimates and judgments that affect assets, liabilities, revenues and expenses, and related contingent assets and liabilities. On an on-going basis, management evaluates its estimates, including those related to market demand, labor costs, and stocking inventory.
Note 3. New Accounting Standards
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements 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 adoption of ASU 2011-04 did not have a material impact on our consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. ASU 2011-05 requires the components of net income and other comprehensive income to be either presented in one continuous statement, referred to as 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 components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective 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 Companys consolidated financial position or results of operations.
Note 4. Inventories
Inventories primarily consist of raw materials, work in progress, and finished goods of manufactured products. In addition, the Company maintains an inventory of finished goods purchased for resale. Inventories are stated at lower of cost or market and consist of materials, labor, and overhead. The Company determines the cost of inventory by the first-in,
10
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.
Management continually monitors production costs, material costs and inventory levels to determine that interim inventories are fairly stated.
Note 5. Debt
The Company and Virco Inc., a wholly owned subsidiary of the Company (Virco Inc. and, together with the Company, the Borrowers) are party to a Revolving Credit and Security Agreement (as amended, the Credit Agreement), dated as of December 22, 2011, with PNC Bank, National Association, as administrative agent and lender ( PNC). The Credit Agreement provides the Borrowers with a secured revolving line of credit (the Revolving Credit Facility) of up to $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 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 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 to $12,000,000 from March 1 through July 31 of each year, minus undrawn amounts of letters of credit and reserves. The Revolving Credit Facility is secured by substantially all of the Borrowers personal property and certain of the 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.
The Revolving Credit Facility bears interest, at the 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 PNCs 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.
The Credit Agreement contains a covenant that forbids the Company from issuing dividends or making payments with respect to the Companys 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 certain financial covenants, including a minimum tangible net worth, minimum EBITDA amounts and a minimum fixed charge coverage ratio. In addition, there is a clean down provision that requires the Company to reduce borrowings under the line to less than $6,000,000 for a period of 60 days each fiscal year. The Company believes that normal operating cash flow will allow it to meet the clean down requirement with no adverse impact on the Companys liquidity. The Company was not in compliance with the minimum EBITDA covenant at July 31, 2012. The Company has obtained a waiver for such non compliance.
Events of default (subject to certain cure periods and other limitations) under the Credit Agreement include, but are not limited to, (i) non-payment of principal, interest or other amounts due under the Credit Agreement, (ii) the violation of terms, covenants, representations or warranties in the Credit Agreement or related loan documents, (iii) any event of default under agreements governing certain indebtedness of the Borrowers and certain defaults by the Borrowers under other agreements that would materially adversely affect the Borrowers, (iv) certain events of bankruptcy, insolvency or liquidation involving the Borrowers, (v) judgments or judicial actions against the Borrowers in excess of $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 manufacturing facilities for five consecutive days during the peak season or fifteen consecutive days during any other time, subject to certain conditions.
Pursuant to the Credit Agreement, substantially all of the 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, violate any representation or warranty or suffer 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 respects
11
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. The Company 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.
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 was $20,851,000. Management believes that the carrying value 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.
The description set forth herein of the Credit Agreement, Amendment No. 1, Amendment No. 2 and Amendment No. 3 are qualified in their entirety by the terms of such agreements, each of which has been filed with the Securities and Exchange Commission.
Note 6. Income Taxes
The Company recognizes deferred income taxes under the asset and liability method of accounting for income taxes in accordance with the provisions of ASC No. 740, Accounting for Income Taxes. Deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred tax assets, the Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. Based on this consideration, the Company determined the realization of a majority of the net deferred tax assets no longer met the more likely than not criteria and a valuation allowance was recorded against the majority of the net deferred tax assets at July 31, 2012. The effective tax rate for both quarters 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. The years ended January 31, 2010 and January 31, 2012 remain open for examination by the IRS. The years ended January 31, 2008 through January 31, 2012 remain open for examination by state tax authorities. The Company is not currently under state examination.
The specific timing of when the resolution of each tax position will be reached is uncertain. As of July 31, 2012, 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
Note 7. 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) | ||||||||||||||||
Net income (loss) |
$ | 7,053 | $ | 2,732 | $ | 2,220 | $ | (2,668 | ) | |||||||
Average shares outstanding |
14,369 | 14,274 | 14,333 | 14,240 | ||||||||||||
Net effect of dilutive stock options based on the treasury stock method using average market price |
26 | 18 | 25 | | ||||||||||||
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Totals |
14,395 | 14,292 | 14,358 | 14,240 | ||||||||||||
Net income (loss) per share - basic |
$ | 0.49 | $ | 0.19 | $ | 0.15 | $ | (0.19 | ) | |||||||
Net income (loss) per share - diluted |
$ | 0.49 | $ | 0.19 | $ | 0.15 | $ | (0.19 | ) |
12
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.
Note 8. Stock Based Compensation
Stock Incentive Plans
The Companys two stock plans are the 2011 Stock Incentive Plan (the 2011 Plan) and the 2007 Stock Incentive Plan (the 2007 Plan). Under the 2011 Plan, the Company may grant an aggregate of 1,000,000 shares to its employees and non-employee directors in the form of stock options or awards. The 2007 Plan similarly allows for the issuance of up to 1,000,000 shares. As of July 31, 2012, only 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 Plans 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 unexercised options outstanding under the 2011 Plan or the 2007 Plan at July 31, 2012. Stock options awarded to employees under the both Plans have to be at exercise prices equal to the fair market value of the Companys 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.
The shares of common stock issued upon exercise of a previously granted stock option are considered new issuances from shares reserved for issuance upon adoption of the various plans. While the Company does not have a formal written policy detailing such issuance, it requires that the option holders provide a written notice of exercise to the stock plan administrator and payment for the shares prior to issuance of the shares.
Restricted Stock and Stock Unit Awards
Accounting for the Plans
The following table presents a summary of restricted stock and stock unit awards at July 31, 2012 and 2011:
Unamortized | ||||||||||||||||||||||||
Compensation | ||||||||||||||||||||||||
Date of | Units | Terms of | Expense for 3 months ended | Expense for 6 months ended | Cost at | |||||||||||||||||||
Grants |
Granted | Vesting | 7/31/2012 | 7/31/2011 | 7/31/2012 | 7/31/2011 | 7/31/2012 | |||||||||||||||||
2011 Stock Incentive Plan |
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6/19/2012 |
31,250 | 1 year | $ | 8,286 | $ | | $ | 8,286 | $ | | $ | 41,429 | ||||||||||||
6/19/2012 |
520,000 | 5 year | 28,000 | | 28,000 | | 804,000 | |||||||||||||||||
2007 Stock Incentive Plan |
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6/19/2012 |
78,125 | 1 year | 20,714 | | 20,714 | | 103,571 | |||||||||||||||||
3/21/2012 |
40,000 | Immediate | | | 80,000 | | | |||||||||||||||||
6/21/2011 |
68,960 | 1 year | 17,000 | 33,000 | 67,000 | 33,000 | | |||||||||||||||||
6/8/2010 |
56,455 | 1 year | | 15,000 | | 58,000 | | |||||||||||||||||
6/16/2009 |
382,500 | 5 year | 56,000 | 58,000 | 113,000 | 125,000 | 414,000 | |||||||||||||||||
6/19/2007 |
262,500 | 5 year | 24,000 | 75,000 | 98,000 | 165,000 | | |||||||||||||||||
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$ | 154,000 | $ | 181,000 | $ | 415,000 | $ | 381,000 | $ | 1,363,000 | |||||||||||||||
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13
Stockholders Rights
On October 15, 1996, the Board of Directors declared a dividend of one preferred stock purchase right (the Rights) for each outstanding share of the Companys common stock. Each of the Rights entitles a stockholder to purchase for an exercise price of $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 Companys outstanding common stock. The Rights have no voting privileges, and may be redeemed by the Board of Directors at a price of $.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 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.
Note 9. Stockholders Equity
During the six months ended July 31, 2012, the Company did not repurchase any shares of its common stock. As of July 31, 2012, $1.1 million remained available for repurchases of the Companys common stock pursuant to the Companys repurchase program approved by the Board of Directors. Pursuant to the Companys Credit Agreement with PNC, however, 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 Companys common stock.
Note 10. Retirement Plans
The Company and its subsidiaries cover employees under a noncontributory defined benefit retirement plan, entitled the Virco Employees Retirement Plan (the Pension Plan). Benefits under the Employees Retirement Plan are based on years of service and career average earnings. As more fully described in the Form 10-K, benefit accruals under the Employees Retirement Plan were frozen effective December 31, 2003.
The Company also provides a supplementary retirement plan for certain key employees, the VIP Retirement Plan (the VIP Plan). The VIP Plan provides a benefit of up to 50% of average compensation for the last five years in the VIP Plan, offset by benefits earned under the Employees Retirement Plan. As more fully described in the Form 10-K, benefit accruals under this plan were frozen effective December 31, 2003.
The Company also provides a non-qualified plan for non-employee directors of the Company (the Non-Employee Directors Retirement Plan). The Non-Employee Directors Retirement Plan provides a lifetime annual retirement benefit equal to the directors annual retainer fee for the fiscal year in which the director terminates his or her position with the Board, subject to the director providing 10 years of service to the Company. As more fully described in the Form 10-K, benefit accruals under this plan were frozen effective December 31, 2003.
The net periodic pension costs (income) for the Employees Retirement Plan, the VIP Plan, and the Non-Employee Directors Retirement Plan for the three and six months ended July 31, 2012 and 2011 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 | |||||||||||||||||||
Service cost |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Interest cost |
325 | 360 | 88 | 95 | 5 | 6 | ||||||||||||||||||
Expected return on plan assets |
(245 | ) | (289 | ) | | | | | ||||||||||||||||
Amortization of prior service cost |
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Recognized net actuarial loss or (gain) |
360 | 262 | 51 | 13 | | (10 | ) | |||||||||||||||||
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Net periodic pension cost (income) |
$ | 440 | $ | 333 | $ | 139 | $ | 108 | $ | 5 | $ | (4 | ) | |||||||||||
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Six Months Ended July 31, | ||||||||||||||||||||||||
Non-Employee Directors | ||||||||||||||||||||||||
Pension Plan | VIP Retirement Plan | Retirement Plan | ||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Service cost |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
Interest cost |
650 | 720 | 176 | 190 | 10 | 12 | ||||||||||||||||||
Expected return on plan assets |
(490 | ) | (578 | ) | | | | | ||||||||||||||||
Amortization of prior service cost |
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Recognized net actuarial loss or (gain) |
720 | 524 | 102 | 26 | | (20 | ) | |||||||||||||||||
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Net periodic pension cost (income) |
$ | 880 | $ | 666 | $ | 278 | $ | 216 | $ | 10 | $ | (8 | ) | |||||||||||
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Note 11. Warranty Accrual
The Company accrues an estimate of its exposure to warranty claims based upon both current and historical product sales data and warranty costs incurred. The Companys products carry a ten-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.
The following is a summary of the Companys warranty claim activity for the three and six months ended July 31, 2012 and 2011 (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
7/31/2012 | 7/31/2011 | 7/31/2012 | 7/31/2011 | |||||||||||||
(In thousands) | ||||||||||||||||
Beginning accrued warranty balance |
$ | 1,400 | $ | 2,150 | $ | 1,400 | $ | 2,300 | ||||||||
Provision |
88 | 276 | 199 | 348 | ||||||||||||
Costs incurred |
(188 | ) | (626 | ) | (299 | ) | (848 | ) | ||||||||
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Ending accrued warranty balance |
$ | 1,300 | $ | 1,800 | $ | 1,300 | $ | 1,800 | ||||||||
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Note 12. Subsequent Events
We have evaluated subsequent events to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q. Such events were evaluated through the date these financial statements were issued. Based upon this evaluation, it was determined that, 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.
15
VIRCO MFG. CORPORATION
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The Companys order rates and results of operations for the first six months of 2012 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 2012 are slightly higher (<1%) than the corresponding period last year, but continue to show greater than normal volatility on a month-to-month basis. When compared to 2011, however, volatility has improved. In April and May of 2011, the Company experienced a dramatic drop in orders, which in turn caused significant reductions in production levels during the second quarter of 2011, followed by restructuring in the third quarter of 2011. As discussed more thoroughly in the Companys Annual Report on Form 10-K for the year ended January 31, 2012 (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, the Company is using greater quantities of temporary labor to address the seasonal production and distribution requirements of our business. During the first six months of 2012, the Company deferred building large quantities of inventory for summer deliveries until the second quarter of 2012. This operating change caused production levels 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, the Company has benefited from relatively stable commodities costs for the 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.
As a result of operating losses incurred during 2010 and 2011, the Company has established a substantial valuation allowance for deferred tax assets. For this reason, the discussion below will focus on pre-tax operating results.
For the three months ended July 31, 2012, the Company earned 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.
Net sales for the three months ended July 31, 2012 decreased by $2,425,000, a 3.9% 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 decreased by less than 2% 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.
Gross margin as a percentage of sales improved to 35.5% for the six months ended July 31, 2012 compared to 30.6% in the same period last year. The improvement in gross margin was attributable to a modest 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% reduction in production hours.
Selling, general and administrative expenses for the six months ended July 31, 2012 decreased by approximately $1,976,000 compared to the same period last year, and decreased as a percentage of sales by 1.2%. 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 shipment and due to cost reductions implemented in the third and fourth quarters in 2011.
16
In the first six months of 2012 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.
Liquidity and Capital Resources
Interest expense increased by approximately $111,000 for the six months ended July 31, 2012, compared to the same period last year. The increase was primarily due to increased borrowing costs related to the Companys line of credit with PNC Bank National Association (PNC Bank).
Accounts receivable was $2,100,000 lower at July 31, 2012 than at July 31, 2011 due to decreased sales and slightly lower days sales outstanding. Accounts receivable was $19,800,000 greater at July 31, 2012 than at January 31, 2012 due to the seasonal business cycle. As discussed in the Companys Form 10-K, approximately 50% of the Companys annual sales volume is shipped in June through September. 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 compared to January 31, 2012. This increase was $1,700,000 more than the $8,200,000 increase in 2011, but because the Company started the year with substantially less inventory. At the end of the second quarter inventory was approximately $5,800,000 less compared to July 31, 2011. The increase in accounts receivable and inventory at July 31, 2012 compared to the January 31, 2012, was financed through the Companys credit facility with PNC Bank.
Borrowings under the Companys revolving line of credit with PNC Bank at July 31, 2012 decreased by approximately $1,500,000 compared to the borrowings at July 31, 2011 under the Companys prior credit facility with Wells Fargo Bank, primarily due to decreased levels of inventory and receivables. The Company established a goal of limiting capital spending to less than $3,000,000 for fiscal year 2012, which is less than the Companys anticipated depreciation expense. Capital spending for the six months ended July 31, 2012 was $902,000 compared to $1,340,000 for the same period last year. Capital expenditures are being financed through the Companys credit facility with PNC Bank and operating cash flow.
Net cash used in operating activities for the six months ended July 31, 2012, was $14,000,000 compared to $19,749,000 for the same period last year. The decrease in cash used was primarily attributable to an increase in pre-tax profitability for the first six months of 2012, a decrease in cash used for receivables, increases 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.
The Company believes that cash flows from operations, together with the Companys unused borrowing capacity with PNC Bank will be sufficient to fund the Companys debt service requirements, capital expenditures and working capital needs for the next twelve months.
Off Balance Sheet Arrangements
During the six months ended July 31, 2012, there were no material changes in the Companys off balance sheet arrangements or contractual obligations and commercial commitments from those disclosed in the Companys Form 10-K.
Critical Accounting Policies and Estimates
The Companys critical accounting policies are outlined in its Form 10-K. There have been no changes in the six months period ended July 31, 2012.
Forward-Looking Statements
From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2012, 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 Companys 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 Companys 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 Companys Form 10-K.
17
The Companys 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company and Virco Inc., a wholly owned subsidiary of the Company (Virco Inc. and, together with the Company, the Borrowers) are party to that certain Revolving Credit and Security Agreement (as amended, the Credit Agreement), dated as of December 22, 2011, with PNC Bank, National Association, as administrative agent and lender (PNC).
The Credit Agreement provides the Borrowers with a secured revolving line of credit (the Revolving Credit Facility) of up to $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 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 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 to $12,000,000 from March 1 through July 31 of each year, minus undrawn amounts of letters of credit and reserves. The Revolving Credit Facility is secured by substantially all of the Borrowers personal property and certain of the 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.
The Revolving Credit Facility bears interest, at the 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 PNCs 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.
The Credit Agreement contains a covenant that forbids the Company from issuing dividends or making payments with respect to the Companys 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 certain financial covenants, including a minimum tangible net worth, minimum EBITDA amounts and a minimum fixed charge coverage ratio. In addition, there is a clean down provision that requires the Company to reduce borrowings under the line to less than $6,000,000 for a period of 60 days each fiscal year. The Company believes that normal operating cash flow will allow it to meet the clean down requirement with no adverse impact on the Companys liquidity. The Company was not in compliance with the minimum EBITDA covenant at July 31, 2012. The Company has obtained a waiver for such non compliance.
Events of default (subject to certain cure periods and other limitations) under the Credit Agreement include, but are not limited to, (i) non-payment of principal, interest or other amounts due under the Credit Agreement, (ii) the violation of terms, covenants, representations or warranties in the Credit Agreement or related loan documents, (iii) any event of default under agreements governing certain indebtedness of the Borrowers and certain defaults by the Borrowers under other agreements that would materially adversely affect the Borrowers, (iv) certain events of bankruptcy, insolvency or liquidation involving the Borrowers, (v) judgments or judicial actions against the Borrowers in excess of $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 manufacturing facilities for five consecutive days during the peak season or fifteen consecutive days during any other time, subject to certain conditions.
Pursuant to the Credit Agreement, substantially all of the 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 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,
18
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. The Company 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.
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 was $20,851,000. Management believes that the carrying value 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.
The descriptions set forth herein of the Credit Agreement, Amendment No. 1, Amendment No.2 and Amendment No. 3 are qualified in their entirety by the terms of such agreements, each of which has been filed with the Commission.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed with the Securities and Exchange Commission (the Commission) pursuant to the Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms, and that such information is accumulated and communicated to the Companys 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 managements objectives in establishing them will be achieved.
The Company carried out an evaluation, under the supervision and with the participation of the Companys 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 Companys Principal Executive Officer along with the Companys Principal Financial Officer concluded that, subject to the limitations noted in Part I, Item 4, the Companys 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 Commissions 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 Companys management, including its Principal Executive and Principal Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
There was no change in the Companys internal control over financial reporting during the second fiscal quarter of 2012 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
On 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.
19
VIRCO MFG. CORPORATION
The Company has various legal actions pending against it arising in the ordinary course of business, which in the opinion of the Company, are not material in that management either expects that the Company will be successful on the merits of the pending cases or that any liabilities resulting from such cases will be substantially covered by insurance. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to these suits and claims, management believes that the aggregate amount of such liabilities will not be material to the results of operations, financial position, or cash flows of the Company.
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.
We operate in a seasonal business, and require significant amounts of working capital through our existing credit facility 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 could also result in a foreclosure on all or substantially all of 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, certain of the covenants and representations and warranties set forth 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.
Item 2. Unregistered Sales of Equity Securities; Use of Proceeds and Issuer Purchases of Equity Securities
On June 6, 2008, the Board of Directors approved a $3,000,000 share repurchase program. As of July 31, 2012, $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. Pursuant to the Companys Credit Agreement with PNC, 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 Companys common stock.
In addition, pursuant to the terms of the Companys Credit Agreement with PNC, the Company is prohibited from paying dividends. Consequently, for at least as long as this covenant is included in the Companys 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 Companys 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 .
Exhibit 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 101.INS XBRL Instance Document.
Exhibit 101.SCH XBRL Taxonomy Extension Schema Document.
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document.
Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
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VIRCO MFG. CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VIRCO MFG. CORPORATION | ||||||
Date: September 14, 2012 | By: | /s/ Robert E. Dose | ||||
Robert E. Dose | ||||||
Vice President Finance |
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Exhibit 10.1
FIRST AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT
This FIRST AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT (this Amendment) is entered into as of June 15, 2012, by and among VIRCO MFG. CORPORATION, a Delaware corporation (VMC), VIRCO INC., a Delaware corporation (Virco, and together with VMC, Borrowers and, each individually, a Borrower), the financial institutions from time to time party to the Credit Agreement (as defined below) as lenders (collectively, Lenders), and PNC BANK, NATIONAL ASSOCIATION (PNC), as administrative agent for Lenders (PNC, in such capacity, Agent), with respect to the following:
A. Borrowers, Lenders and Agent have previously entered into that certain Revolving Credit and Security Agreement, dated as of December 22, 2011 (as amended, restated or otherwise modified from time to time, the Credit Agreement).
B. Borrowers have requested that the Credit Agreement be amended in certain respects and Agent and Lenders have agreed to amend the Credit Agreement pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in the Credit Agreement, the Loan Documents and this Amendment, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Definitions Incorporated. Initially capitalized terms used but not otherwise defined in this Amendment have the respective meanings set forth in the Credit Agreement, as amended hereby.
2. Amendments to the Credit Agreement. The Credit Agreement is hereby amended as follows:
(a) The following new definitions are hereby added to Section 1.2 of the Credit Agreement in proper alphabetical order to read as follows:
First Amendment shall mean the First Amendment to Revolving Credit and Security Agreement dated as of June 15, 2012, among Borrowers, the Lenders party thereto and Agent.
First Amendment Date shall mean June 15, 2012.
(b) The definition of Peak Season as set forth in Section 1.2 of the Credit Agreement is hereby amended and restated to read as follows:
Peak Season means the period from March 1 through August 31 of each fiscal year of the Borrowers.
(c) The text of clause (g) of the definition of Eligible Finished Goods Inventory as set forth in Section 1.2 of the Credit Agreement is hereby amended and restated to read as follows:
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(g) is situated at a location not owned by a Borrower unless (i) the owner or occupier of such location has executed a Lien Waiver Agreement or (ii) Agent, in its sole discretion, establishes a reserve, in lieu of a Lien Waiver Agreement, against the Formula Amount equal to three months rent for such location; provided, that for Borrowers leased location at 2027 Harpers Way, Torrance, California, in lieu of a Landlord Waiver Agreement, Agent will implement a rent reserve equal to (a) one months rent for such location for the month of September 2012, (b) two months rent for such location for the month October 2012, and (c) three months rent for such location for the month of November 2012 and each month thereafter.
(d) The text of clause (a)(y)(iii) of Section 2.1 of the Credit Agreement is hereby amended and restated to read as follows:
(iii) with respect to each fiscal year of the Borrowers, during the respective period set forth below for such fiscal year, the amount applicable to such period
Period |
Amount | |||
March |
$ | 6,000,000 | ||
April |
$ | 10,000,000 | ||
May |
$ | 12,000,000 | ||
June 1st through and including July 14th |
$ | 9,000,000 | ||
July 15th though and including July 31st |
$ | 6,000,000 |
minus
(e) The reference to January 31, 2012 in the last row of the table set forth in clause (a) of Section 6.5 of the Credit Agreement is hereby deleted and replaced with January 31, 2013.
(f) The notice address for McGuireWoods LLP as set forth in Schedule A to the Credit Agreement is hereby amended and restated to read as follows:
with an additional copy (which shall not constitute notice) to:
McGuireWoods LLP
1800 Century Park East, 8th Floor
Los Angeles, California 90067
Attention: |
Gary Samson, Esq. | |||||
Telephone: | (310) 315-8248 | |||||
Facsimile: | (310) 956-3148 | |||||
Email: | gsamson@mcguirewoods.com |
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3. Landlord Subordination.
(a) On or before August 15, 2012 (or such later date as Agent may agree in its discretion), Borrowers shall use commercially reasonable efforts to cause to be delivered to Agent a Landlords Subordination Agreement, in form and substance acceptable to Agent, for the leased premises located at 2027 Harpers Way, Torrance, California whereby the landlord agrees to subordinate its Lien in the Collateral of Borrowers located at such location to the Lien of Agent and Lenders and provide Agent adequate access to such location.
(b) Upon Agents receipt of an executed copy of a Landlord Subordination Agreement described in clause (a) above at any time during the term of the Credit Agreement, Agent will remove the existing rent reserve established by Agent under the definition of Eligible Finished Goods Inventory as set forth in the Credit Agreement for the leased premises located at 2027 Harpers Way, Torrance, California.
4. Amendment Fee. On the date hereof, Borrowers shall pay to Agent, in addition to all other fees and charges set forth in the Credit Agreement, a non-refundable amendment fee of $15,000, which fee may be charged to the Borrowers Account as a Revolving Advance (the Amendment Fee).
5. Conditions Precedent. The obligations of Agent and Lenders hereunder, and this Amendment, will be effective on the date (the First Amendment Effective Date) of satisfaction of each of the following conditions precedent, each in a manner in form and substance acceptable to Agent:
(a) Representations and Warranties. The representations and warranties contained herein and in the Credit Agreement, as amended hereby, shall be true and correct in all material respects as of the date hereof as if made on the date hereof, except for such representations and warranties limited by their terms to a specific date, in which case each such representation and warranty shall be true and correct in all material respects as of such specific date;
(b) No Default. No Default or Events of Default shall have occurred and be continuing;
(c) Amendment. Borrowers shall have delivered to Agent an executed original of this Amendment;
(d) Company Proceedings of Borrowers. Agent shall have received a copy of the resolutions in form and substance reasonably satisfactory to Agent, of the Board of Directors of each Borrower authorizing the execution, delivery and performance of this Amendment certified by the Secretary or an Assistant Secretary of each Borrower as of the First Amendment Date; and, such certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded as of the date of such certificate;
(e) Fees. Borrowers shall have paid the Amendment Fee, or in Agents discretion, Agent shall have charged the Amendment Fee to the Borrowers Account as a Revolving Advance ; and
(f) Other. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated hereby shall be satisfactory in form and substance to Agent and its counsel.
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6. Representations and Warranties. To induce Lenders and Agent to enter into this Amendment, each Borrower represents and warrants to Lenders and Agent as of the date hereof as follows:
(a) Such Borrower has full power, authority and legal right to enter into this Amendment and to perform all its respective Obligations hereunder. This Amendment has been duly executed and delivered by such Borrower and the Credit Agreement, as amended by this Amendment constitutes the legal, valid and binding obligation of such Borrower enforceable in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors rights generally. The execution, delivery and performance of this Amendment (i) are within such Borrowers powers, have been duly authorized by all necessary company action, are not in contravention of law or the terms of such Borrowers by-laws, certificate of incorporation, or other applicable documents relating to such Borrowers formation or to the conduct of such Borrowers business or of any material agreement or undertaking to which such Borrower is a party or by which such Borrower is bound, (ii) will not conflict with or violate any law or regulation, or any judgment, order, writ, injunction or decree of any court or Governmental Body, (iii) will not require the Consent of any Governmental Body or any other Person, except those Consents which will have been duly obtained, made or compiled prior to date hereof and which are in full force and effect, and (iv) will not conflict with, nor result in any breach in any of the provisions of or constitute a default under or result in the creation of any Lien except Permitted Encumbrances upon any asset of such Borrower under the provisions of any material agreement, charter document, instrument, by-law or other instrument to which such Borrower is a party or by which it or its property is a party or by which it may be bound.
(b) After giving effect to this Amendment, the representations and warranties contained in the Credit Agreement are true and correct in all material respects except to the extent any such representation or warranty is expressly stated to have been made as of a specific date, in which case each such representation and warranty is true and correct in all material respects as of such specific date, and no Default or Event of Default has occurred and is continuing.
7. Reaffirmation. Except as specifically modified by this Amendment, the Credit Agreement and the other Loan Documents remain in full force and effect in accordance with their respective terms and are hereby ratified, reaffirmed and confirmed by Borrowers.
8. Events of Default. Any failure to comply with the terms of this Amendment will constitute an Event of Default under the Credit Agreement.
9. Integration. This Amendment, together with the Credit Agreement and the Loan Documents, incorporates all negotiations of the parties hereto with respect to the subject matter hereof and is the final expression and agreement of the parties hereto with respect to the subject matter hereof.
10. Severability. If any part of this Amendment is contrary to, prohibited by, or deemed invalid under Applicable Laws, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.
11. Submission of Amendment. The submission of this Amendment to the parties or their agents or attorneys for review or signature does not constitute a commitment by Agent or Lenders to amend or otherwise modify any of the provisions of the Credit Agreement and this Amendment shall have no binding force or effect until the First Amendment Effective Date.
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12. Counterparts; Facsimile Signatures. This Amendment may be executed in any number of and by different parties hereto on separate counterparts, all of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto.
13. Governing Law. THIS AMENDMENT IS A LOAN DOCUMENT AND IS GOVERNED BY THE APPLICABLE LAW PERTAINING IN THE STATE OF NEW YORK, OTHER THAN THOSE CONFLICT OF LAW PROVISIONS THAT WOULD DEFER TO THE SUBSTANTIVE LAWS OF ANOTHER JURISDICTION. THIS GOVERNING LAW ELECTION HAS BEEN MADE BY THE PARTIES IN RELIANCE ON, AMONG OTHER THINGS, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED (AS AND TO THE EXTENT APPLICABLE), AND OTHER APPLICABLE LAW.
14. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of Borrowers, Lenders, Agent, and all future holders of the Obligations and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Amendment without the prior written consent of Agent.
15. Attorneys Fees; Costs. Borrowers agree to promptly pay, upon written demand, all reasonable and documented attorneys fees and costs incurred in connection with the negotiation, documentation and execution of this Amendment. If any legal action or proceeding shall be commenced at any time by any party to this Amendment in connection with its interpretation or enforcement, the prevailing party or parties in such action or proceeding shall be entitled to reimbursement of its reasonable attorneys fees and costs in connection therewith, in addition to all other relief to which the prevailing party or parties may be entitled.
16. Jury Trial Waiver. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, EACH PARTY TO THIS AMENDMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION A) ARISING UNDER THIS AMENDMENT OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AMENDMENT OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HERETO HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AMENDMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. WITHOUT LIMITING THE APPLICABILITY OF ANY OTHER PROVISION OF THIS AMENDMENT, THE TERMS OF ARTICLE XII OF THE CREDIT AGREEMENT SHALL APPLY TO THIS AMENDMENT.
17. Total Agreement. This Amendment, the Credit Agreement, and the other Loan Documents contain the entire understanding among Borrowers, Lenders and Agent and supersede all prior agreements and understandings, if any, relating to the subject matter hereof. Any promises, representations, warranties, or guarantees not herein contained and hereinafter made have no force and effect unless in writing, signed by Borrowers and Agents respective officers. Neither this Amendment nor any portion or provisions hereof may be changed, modified, amended, waived, supplemented, discharged, cancelled, or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing, signed by the party to be charged. Each Borrower acknowledges that it has been advised by counsel in connection with the execution of this Amendment and the other Loan Documents and is not relying upon oral representations or statements inconsistent with the terms and provisions of this Amendment.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first written above.
VIRCO MFG. CORPORATION, a Delaware corporation, as a Borrower | ||
By: | /s/ Robert Dose | |
Name: | Robert Dose | |
Title: | VP Finance | |
VIRCO INC., a Delaware corporation, as a Borrower | ||
By: | /s/ Robert Dose | |
Name: | Robert Dose | |
Title: | VP Finance |
PNC BANK, NATIONAL ASSOCIATION, | ||
as Lender and as Agent | ||
By: | /s/ Jeanette Vandenbergh | |
Name: | Jeanette Vandenbergh | |
Title: | Vice President |
Exhibit 10.3
THIRD AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT
This THIRD AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT (this Amendment) is entered into as of September 12, 2012, by and among VIRCO MFG. CORPORATION, a Delaware corporation (VMC), VIRCO INC., a Delaware corporation (Virco, and together with VMC, Borrowers and, each individually, a Borrower), the financial institutions from time to time party to the Credit Agreement (as defined below) as lenders (collectively, Lenders), and PNC BANK, NATIONAL ASSOCIATION (PNC), as administrative agent for Lenders (PNC, in such capacity, Agent), with respect to the following:
A. Borrowers, Lenders and Agent have previously entered into that certain Revolving Credit and Security Agreement, dated as of December 22, 2011 (as amended, restated or otherwise modified from time to time, the Credit Agreement).
B. Borrowers have failed to maintain minimum EBITDA for the six consecutive fiscal months ended July 2012 as required under Section 6.5(c) of the Credit Agreement (the July Covenant Default). The July Covenant Default constitutes an Event of Default under the Credit Agreement.
C. Borrowers have requested that Agent and Lenders waive the July Covenant Default and amend the Credit Agreement in certain respects and Agent and Lenders have agreed to waive the July Covenant Default and amend the Credit Agreement pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in the Credit Agreement, the Loan Documents and this Amendment, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Definitions Incorporated. Initially capitalized terms used but not otherwise defined in this Amendment have the respective meanings set forth in the Credit Agreement, as amended hereby.
2. Amendments to the Credit Agreement. The Credit Agreement is hereby amended as follows:
(a) The following new definitions are hereby added to Section 1.2 of the Credit Agreement in proper alphabetical order to read as follows:
Landlord Reserve shall mean, as to each location at which a Borrower has Inventory or books and records located and as to which a Lien Waiver Agreement has not been received by Agent, a reserve in an amount equal to three months rent or expense, as applicable, for such location; provided, that for Borrowers leased location at 2027 Harpers Way, Torrance, California, in lieu of a Landlord Waiver Agreement, Agent will implement an immediate three month rent reserve.
Third Amendment shall mean the Third Amendment to Revolving Credit and Security Agreement dated as of September 12, 2012, among Borrowers, the Lenders party thereto and Agent.
Third Amendment Date shall mean September 12, 2012.
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(b) The following definitions set forth in Section 1.2 of the Credit Agreement are hereby amended and restated to read in their entirety as follows:
Limited Purpose Deposit Account means the deposit account of VMC maintained with Wells Fargo Bank, National Association on the Closing Date to the extent such deposit account (a) is subject to Agents control on the Closing Date and sole control after notice by Agent to such account bank and (b) on and after November 15, 2012 (or such later date as Agent shall agree in its sole discretion), does not contain amounts on deposit therein in excess of (i) amounts solely used by VMC to make employee payroll and (ii) amounts not in excess of $100,000 per calendar month solely used to pay charge backs and fees in connection with merchant card services provided by Wells Fargo Bank, National Association to Borrowers.
Reserves means reserves against the Formula Amount, including the Dilution Reserve and the Landlord Reserve, established and adjusted by Agent from time to time in its Permitted Discretion.
(c) The text of clause (g) of the definition of Eligible Finished Goods Inventory as set forth in Section 1.2 of the Credit Agreement is hereby amended and restated to read as follows:
(g) is situated at a location not owned by a Borrower unless (i) the owner or occupier of such location has executed a Lien Waiver Agreement or (ii) Agent, in its sole discretion, establishes a Landlord Reserve in lieu of a Lien Waiver.
(d) The text of Section 2.1(a) of the Credit Agreement is hereby amended by adding the following sentence to the end of that Section to read as follows:
As information only, the Inventory Advance Rate is and will continue to be adjusted by high and low seasons based on results from time to time of the Inventory appraisals.
(e) The text of Section 4.21 of the Credit Agreement is hereby amended and restated to read as follows:
4.21 Deposit and Investment Accounts. Borrowers agree not to maintain any deposit or investment accounts other than accounts held at or through Agent, except that Borrowers may maintain the accounts set forth on Schedule 4.15(h) (as so updated from time to time) that are (a) deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrowers employees (including any rabbi trust account used in connection with such purposes) and identified to Agent by Borrowers as such, or (b) subject to a control agreement in favor of Agent from the holder of such account, giving Agent a first-priority security interest in such account, in form and substance satisfactory to Agent; provided, that, notwithstanding the foregoing, all deposit accounts of the Credit Parties (other than (x) deposit accounts of the type described in the foregoing clause (a), (y) the Limited Purpose Deposit Account to the extent such deposit account is in compliance with the requirements set forth in the definition thereof and (z) deposit accounts at Comerica Bank that comply with the foregoing clause (b)) shall be maintained at PNC no later than
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November 15, 2012 (or such later date as Agent shall agree in its sole discretion). On each Business Day that amounts received in the Limited Purpose Deposit Account (other amounts of the type described in clause (b) of the definition thereof deposited therein by VMC) since the last date of transfer required by this sentence (or the Closing Date, in the case of the first such transfer) are equal to or in excess of $250,000 in the aggregate, the Borrowers shall transfer on such Business Day all such amounts to the collection account of VMC maintained at PNC.
(f) The text of the table set forth in clause (a) of Section 6.5 of the Credit Agreement with respect to the Fiscal Quarter End and the Minimum Tangible Net Worth is hereby amended and restated to read as follows:
Fiscal Quarter End |
Minimum Tangible Net Worth | |||
January 31, 2012 |
$ | 28,177,000 | ||
April 30, 2012 |
$ | 24,654,000 | ||
July 31, 2012 |
$ | 32,351,000 | ||
October 31, 2012 |
$ | 37,007,500 | ||
January 31, 2013 |
$ | 30,748,000 |
In all other respects, Section 6.5(a) of the Credit Agreement remains in full force and effect in accordance with its terms.
(g) The text of the table set forth in clause (c) of Section 6.5 of the Credit Agreement with respect to the Fiscal Month Period and Fiscal Month End and EBITDA is hereby amended and restated to read as follows:
Fiscal Month Period and Fiscal Month End |
EBITDA | |||
Fiscal month ending December 2011 |
$ | (2,268,000 | ) | |
Two consecutive fiscal months ending January 2012 |
$ | (6,006,000 | ) | |
Fiscal month ending February 2012 |
$ | (1,896,000 | ) | |
Two consecutive fiscal months ending March 2012 |
$ | (2,970,000 | ) | |
Three consecutive fiscal months ending April 2012 |
$ | (3,294,000 | ) | |
Four consecutive fiscal months ending May 2012 |
$ | (2,588,000 | ) |
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Five consecutive fiscal months ending June 2012 |
$ | 300,000 | ||
Six consecutive fiscal months ending July 2012 |
$ | 5,800,000 | ||
Seven consecutive fiscal months ending August 2012 |
$ | 9,900,000 | ||
Eight consecutive fiscal months ending September 2012 |
$ | 9,800,000 | ||
Nine consecutive fiscal months ending October 2012 |
$ | 10,300,000 | ||
Ten consecutive fiscal months ending November 2012 |
$ | 8,469,500 | ||
Eleven consecutive fiscal months ending December 2012 |
$ | 6,364,000 | ||
Twelve consecutive fiscal months ending January 2013 |
$ | 5,232,000 |
In all other respects, Section 6.5(c) of the Credit Agreement remains in full force and effect in accordance with its terms.
(h) The text of Section 7.21 of the Credit Agreement is hereby amended and restated to read as follows:
7.21 Clean Down. Commencing in calendar year 2012, permit Revolving Advances in the aggregate to exceed $6,000,000 at any time for a period of 60 consecutive days during the last fiscal quarter of each fiscal year of Borrowers.
(i) The text of Section 9.2 of the Credit Agreement is hereby amended and restated to read as follows:
9.2 Schedules. During the Peak Season, deliver to Agent on or before Wednesday of each week (or as frequently as Agent shall require during the existence of a Default) as and for the prior week (a) accounts receivable ageings inclusive of reconciliations to the general ledger, (b) accounts payable schedules inclusive of reconciliations to the general ledger, (c) Inventory reports, and (d) a Borrowing Base Certificate in form and substance satisfactory to Agent (which shall be calculated as of the last day of the prior week and which shall not be binding upon Agent or restrictive of Agents rights under this Agreement). At all times other than during the Peak Season, deliver to Agent on or before the fifteenth (15th) day of each month (or as frequently as Agent shall require during the existence of a Default) as and for the prior month (a) accounts receivable ageings inclusive of reconciliations to the general ledger, (b) accounts payable schedules inclusive of reconciliations to the general ledger, (c) Inventory reports, (d) current do not mail planscape accounts receivable detail and (e) a
4
Borrowing Base Certificate in form and substance satisfactory to Agent (which shall be calculated as of the last day of the prior month and which shall not be binding upon Agent or restrictive of Agents rights under this Agreement). Borrowers shall also deliver to Agent on or before Wednesday of each week (or as frequently as Agent shall require during the existence of a Default) as and for the prior week, a report of the sales and collections activity for such week. In addition, each Borrower will deliver to Agent at such intervals as Agent may require: (i) confirmatory assignment schedules, (ii) copies of Customers invoices, (iii) evidence of shipment or delivery, and (iv) such further schedules, documents and/or information regarding the Collateral as Agent may require including trial balances and test verifications. Agent shall have the right to confirm and verify all Receivables by any manner and through any medium it considers advisable and may do whatever it deems reasonably necessary to protect its interests hereunder. The items to be provided under this Section 9.2 are to be in form satisfactory to Agent and executed by Borrowing Agent and delivered to Agent from time to time solely for Agents convenience in maintaining records of the Collateral, and any Borrowers failure to deliver any of such items to Agent shall not affect, terminate, modify or otherwise limit Agents Lien with respect to the Collateral.
3. Landlord Subordination.
(a) On or before November 30, 2012 (or such later date as Agent may agree in its discretion), Borrowers shall use commercially reasonable efforts to cause to be delivered to Agent a Landlords Subordination Agreement, in form and substance acceptable to Agent, for the leased premises located at 2027 Harpers Way, Torrance, California whereby the landlord agrees to subordinate its Lien in the Collateral of Borrowers located at such location to the Lien of Agent and Lenders and provide Agent adequate access to such location.
(b) Upon Agents receipt of an executed copy of a Landlord Subordination Agreement described in clause (a) above at any time during the term of the Credit Agreement, Agent will remove the existing Landlord Reserve established by Agent under the definition of Landlord Reserve as set forth in the Credit Agreement for the leased premises located at 2027 Harpers Way, Torrance, California.
4. Limited Waiver. Agent and Lenders hereby waive the July Covenant Default. This waiver shall be narrowly construed and shall neither extend to any other violations under, or default of, the Credit Agreement, including, but not limited to, a violation of the financial covenant set forth in Section 6.5(c) of the Credit Agreement for any future period of time, nor shall this waiver prejudice any rights or remedies which Agent or any Lender may have or be entitled to with respect to such future violation or default.
5. Amendment Fee. On the date hereof, Borrowers shall pay to Agent, in addition to all other fees and charges set forth in the Credit Agreement, a non-refundable amendment fee of $15,000, which fee may be charged to the Borrowers Account as a Revolving Advance (the Amendment Fee).
6. Conditions Precedent. The obligations of Agent and Lenders hereunder, and this Amendment, will be effective on the date (the Third Amendment Effective Date) of satisfaction of each of the following conditions precedent, each in a manner in form and substance acceptable to Agent:
(a) Representations and Warranties. The representations and warranties contained herein and in the Credit Agreement, as amended hereby, shall be true and correct in all material
5
respects as of the date hereof as if made on the date hereof, except for such representations and warranties limited by their terms to a specific date, in which case each such representation and warranty shall be true and correct in all material respects as of such specific date;
(b) No Default. After giving effect to this Amendment, no Default or Events of Default shall have occurred and be continuing;
(c) Amendment. Borrowers shall have delivered to Agent an executed original of this Amendment;
(d) Company Proceedings of Borrowers. Agent shall have received a copy of the resolutions in form and substance reasonably satisfactory to Agent, of the Board of Directors of each Borrower authorizing the execution, delivery and performance of this Amendment certified by the Secretary or an Assistant Secretary of each Borrower as of the Third Amendment Date; and, such certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded as of the date of such certificate;
(e) Fees. Borrowers shall have paid the Amendment Fee, or in Agents discretion, Agent shall have charged the Amendment Fee to the Borrowers Account as a Revolving Advance; and
(f) Other. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated hereby shall be satisfactory in form and substance to Agent and its counsel.
7. Representations and Warranties. To induce Lenders and Agent to enter into this Amendment, each Borrower represents and warrants to Lenders and Agent as of the date hereof as follows:
(a) Such Borrower has full power, authority and legal right to enter into this Amendment and to perform all its respective Obligations hereunder. This Amendment has been duly executed and delivered by such Borrower and the Credit Agreement, as amended by this Amendment constitutes the legal, valid and binding obligation of such Borrower enforceable in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors rights generally. The execution, delivery and performance of this Amendment (i) are within such Borrowers powers, have been duly authorized by all necessary company action, are not in contravention of law or the terms of such Borrowers by-laws, certificate of incorporation, or other applicable documents relating to such Borrowers formation or to the conduct of such Borrowers business or of any material agreement or undertaking to which such Borrower is a party or by which such Borrower is bound, (ii) will not conflict with or violate any law or regulation, or any judgment, order, writ, injunction or decree of any court or Governmental Body, (iii) will not require the Consent of any Governmental Body or any other Person, except those Consents which will have been duly obtained, made or compiled prior to date hereof and which are in full force and effect, and (iv) will not conflict with, nor result in any breach in any of the provisions of or constitute a default under or result in the creation of any Lien except Permitted Encumbrances upon any asset of such Borrower under the provisions of any material agreement, charter document, instrument, by-law or other instrument to which such Borrower is a party or by which it or its property is a party or by which it may be bound.
6
(b) After giving effect to this Amendment, the representations and warranties contained in the Credit Agreement are true and correct in all material respects except to the extent any such representation or warranty is expressly stated to have been made as of a specific date, in which case each such representation and warranty is true and correct in all material respects as of such specific date, and no Default or Event of Default has occurred and is continuing.
8. Reaffirmation. Except as specifically modified by this Amendment, the Credit Agreement and the other Loan Documents remain in full force and effect in accordance with their respective terms and are hereby ratified, reaffirmed and confirmed by Borrowers.
9. Events of Default. Any failure to comply with the terms of this Amendment will constitute an Event of Default under the Credit Agreement.
10. Integration. This Amendment, together with the Credit Agreement and the Loan Documents, incorporates all negotiations of the parties hereto with respect to the subject matter hereof and is the final expression and agreement of the parties hereto with respect to the subject matter hereof.
11. Severability. If any part of this Amendment is contrary to, prohibited by, or deemed invalid under Applicable Laws, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.
12. Submission of Amendment. The submission of this Amendment to the parties or their agents or attorneys for review or signature does not constitute a commitment by Agent or Lenders to amend or otherwise modify any of the provisions of the Credit Agreement and this Amendment shall have no binding force or effect until the Third Amendment Effective Date.
13. Counterparts; Facsimile Signatures. This Amendment may be executed in any number of and by different parties hereto on separate counterparts, all of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto.
14. Governing Law. THIS AMENDMENT IS A LOAN DOCUMENT AND IS GOVERNED BY THE APPLICABLE LAW PERTAINING IN THE STATE OF NEW YORK, OTHER THAN THOSE CONFLICT OF LAW PROVISIONS THAT WOULD DEFER TO THE SUBSTANTIVE LAWS OF ANOTHER JURISDICTION. THIS GOVERNING LAW ELECTION HAS BEEN MADE BY THE PARTIES IN RELIANCE ON, AMONG OTHER THINGS, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, AS AMENDED (AS AND TO THE EXTENT APPLICABLE), AND OTHER APPLICABLE LAW.
15. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of Borrowers, Lenders, Agent, and all future holders of the Obligations and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Amendment without the prior written consent of Agent.
16. Attorneys Fees; Costs. Borrowers agree to promptly pay, upon written demand, all reasonable and documented attorneys fees and costs incurred in connection with the negotiation, documentation and execution of this Amendment. If any legal action or proceeding shall be commenced at any time by any party to this Amendment in connection with its interpretation or enforcement, the prevailing party or parties in such action or proceeding shall be entitled to reimbursement of its reasonable attorneys fees and costs in connection therewith, in addition to all other relief to which the prevailing party or parties may be entitled.
7
17. Jury Trial Waiver. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, EACH PARTY TO THIS AMENDMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (A) ARISING UNDER THIS AMENDMENT OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AMENDMENT OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HERETO HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AMENDMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. WITHOUT LIMITING THE APPLICABILITY OF ANY OTHER PROVISION OF THE CREDIT AGREEMENT, THE TERMS OF ARTICLE XII OF THE CREDIT AGREEMENT SHALL APPLY TO THIS AMENDMENT.
18. Total Agreement. This Amendment, the Credit Agreement, and the other Loan Documents contain the entire understanding among Borrowers, Lenders and Agent and supersede all prior agreements and understandings, if any, relating to the subject matter hereof. Any promises, representations, warranties, or guarantees not herein contained and hereinafter made have no force and effect unless in writing, signed by Borrowers and Agents respective officers. Neither this Amendment nor any portion or provisions hereof may be changed, modified, amended, waived, supplemented, discharged, cancelled, or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing, signed by the party to be charged. Each Borrower acknowledges that it has been advised by counsel in connection with the execution of this Amendment and the other Loan Documents and is not relying upon oral representations or statements inconsistent with the terms and provisions of this Amendment.
[Remainder of Page Intentionally Left Blank]
8
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first written above.
VIRCO MFG. CORPORATION, | ||
a Delaware corporation, as a Borrower | ||
By: | /s/ Robert E. Dose | |
Name: | Robert E. Dose | |
Title: | VP Finance | |
VIRCO INC., a Delaware corporation, as a Borrower | ||
By: | /s/ Robert E. Dose | |
Name: | Robert E. Dose | |
Title: | VP Finance |
PNC BANK, NATIONAL ASSOCIATION, | ||
as Lender and as Agent | ||
By: | /s/ Jeanette Vandenbergh | |
Name: | Jeanette Vandenbergh | |
Title: | Vice President |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Robert A. Virtue, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Virco Mfg. Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 14, 2012 | /s/ Robert A. Virtue | |||||
Robert A. Virtue President and Chief Executive Officer of Virco Mfg. Corporation (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Robert E. Dose, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Virco Mfg. Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: September 14, 2012 | /s/ Robert E.Dose | |||||
Robert E. Dose Vice President of Finance of Virco Mfg. Corporation (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Virtue, President and Chief Executive Officer of Virco Mfg. Corporation (the Company), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Quarterly Report of the Company on Form 10-Q for the quarter ended July 31, 2012, as filed with the Securities and Exchange Commission (the Report), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: September 14, 2012 | /s/ Robert A. Virtue | |||||
Robert A. Virtue President and Chief Executive Officer of Virco Mfg. Corporation (Principal Executive Officer) |
I, Robert E. Dose, Vice President of Finance of Virco Mfg. Corporation (the Company), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Quarterly Report of the Company on Form 10-Q for the quarter ended July 31, 2012, as filed with the Securities and Exchange Commission (the Report), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: September 14, 2012 | /s/ Robert E.Dose | |||||
Robert E. Dose Vice President of Finance of Virco Mfg. Corporation (Principal Financial Officer) |
These certifications accompany the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject the Company to the liability of that section.
Warranty (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 31, 2012
|
Jul. 31, 2011
|
Jul. 31, 2012
|
Jul. 31, 2011
|
|
Warranty claim activity | ||||
Beginning accrued warranty balance | $ 1,400 | $ 2,150 | $ 1,400 | $ 2,300 |
Provision | 88 | 276 | 199 | 348 |
Costs incurred | (188) | (626) | (299) | (848) |
Ending accrued warranty balance | $ 1,300 | $ 1,800 | $ 1,300 | $ 1,800 |
Debt (Details) (USD $)
|
6 Months Ended | 6 Months Ended | 6 Months Ended | 6 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2012
|
Jun. 15, 2012
|
Jul. 31, 2012
Accounts receivable [Member]
|
Jul. 31, 2012
Maximum [Member]
|
Jul. 27, 2012
Maximum [Member]
|
Jul. 31, 2012
Maximum [Member]
inventory [Member]
|
Jul. 31, 2012
Minimum [Member]
|
Jul. 27, 2012
Minimum [Member]
|
Jul. 31, 2012
Minimum [Member]
inventory [Member]
|
Jul. 31, 2012
Alternate Base Rate loans [Member]
Maximum [Member]
|
Jul. 31, 2012
Alternate Base Rate loans [Member]
Minimum [Member]
|
Jul. 31, 2012
Eurodollar Currency Rate loans [Member]
Maximum [Member]
|
Jul. 31, 2012
Eurodollar Currency Rate loans [Member]
Minimum [Member]
|
|
Debt (Textual) [Abstract] | |||||||||||||
Credit Agreement which reduced the minimum EBITDA financial covenant | $ 6,894,000 | $ 1,600,000 | $ 5,800,000 | $ 300,000 | |||||||||
Revolving Credit Facility borrowing base limitation | 85.00% | 85.00% | 60.00% | ||||||||||
Revolving Credit Facility, range | 60,000,000 | 12,000,000 | 6,000,000 | ||||||||||
Revolving Credit Facility bears interest, range | 1.75% | 0.75% | 2.75% | 1.75% | |||||||||
Debt (Additional Textual) [Abstract] | |||||||||||||
Revolving Credit Facility, Amended | 3,000,000 | ||||||||||||
Revolving Credit and Security Agreement | Dec. 22, 2011 | ||||||||||||
Secured revolving line of credit | 60,000,000 | 12,000,000 | 6,000,000 | ||||||||||
Sub-limit for issuances of letters of credit | 3,000,000 | ||||||||||||
Revolving Credit Facility due date | Dec. 22, 2014 | ||||||||||||
Revolving Credit Facility bears interest increased | 2.00% | ||||||||||||
Provision to reduce borrowings under the line | 6,000,000 | ||||||||||||
Provision to reduce borrowings under the line, Period | 60 days | ||||||||||||
Judgments or judicial actions against the Borrowers in excess | 250,000 | ||||||||||||
Revolving Credit Facility | $ 20,851,000 |
New Accounting Standards
|
6 Months Ended |
---|---|
Jul. 31, 2012
|
|
New Accounting Standards [Abstract] | |
New Accounting Standards |
Note 3. New Accounting Standards In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements 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 adoption of ASU 2011-04 did not have a material impact on our consolidated financial statements. In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 requires the components of net income and other comprehensive income to be either presented in one continuous statement, referred to as 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 components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective 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 position or results of operations. |