Virco(US:VIRC)2019-05-01 20:43Sales Performance - Virco's sales in fiscal 2019 were significantly seasonal, with approximately 52% of total sales delivered in June, July, and August[140]. - Net sales increased by 6.0% in fiscal 2019 to $200,716,000, attributed to growth in project business, which included larger and more complex orders[161]. - The Company incurred a pre-tax loss of ($1,117,000) on net sales of $200,716,000 for fiscal 2019, compared to a pre-tax profit of $2,414,000 on net sales of $189,287,000 in fiscal 2018[160]. Market Conditions - The education market has faced budgetary pressures, with approximately 80-85% of a school's operating budget allocated to salaries and benefits, limiting funds for furniture purchases[143]. - The company anticipates continued budgetary challenges for state and local governments affecting growth in net sales for fiscal 2020, along with plans to increase selling prices to recover increased commodity costs[163]. - Management believes there is pent-up demand for quality school furniture, although the timing and extent of this demand conversion remain uncertain[151]. Cost and Profitability - In fiscal 2019, commodity costs, particularly steel, were volatile due to tariffs, affecting profitability and pricing strategies[149]. - Cost of sales was 66.6% of net sales in fiscal 2019, up from 65.4% in fiscal 2018, primarily due to increased material costs and tariffs on imported steel and furniture components[165]. - Selling, general and administrative expenses increased by approximately 7.3% to $64,751,000 in fiscal 2019, representing 32.3% of sales[166]. Manufacturing and Product Development - Virco's domestic manufacturing capabilities provide a competitive advantage, allowing for rapid product development and customization[152]. - The company has developed a comprehensive product offering for K-12 education, enabling schools to procure all furniture needs from one source[139]. - The Company has identified several opportunities for capital expenditures over the next five years, focusing on automation and new product development[192]. Financial Management - The Company has a valuation allowance of $1,756,000 against certain state deferred tax assets that are not expected to be realized[167]. - The effective tax rate for fiscal 2019 was negative 44%, primarily due to a valuation allowance on certain components for the Federal and State net operating loss[168]. - The Company expects the effective tax rate for fiscal 2020 to be approximately 27%[170]. Credit and Liquidity - The Company has entered into a Revolving Credit and Security Agreement with PNC Bank, increasing maximum availability to $65,000,000 to meet seasonal cash flow requirements[180]. - The Company has a secured revolving line of credit of up to $65,000,000, with a sub-limit of $3,000,000 for letters of credit[181]. - As of January 31, 2019, approximately $11,231,000 was available for borrowing under the line of credit[189]. Compliance and Regulations - The Company is required to maintain compliance with a minimum fixed charge coverage ratio of 2.25 to 1.00 for the two fiscal quarters ending July 31, 2019[185]. - As of January 31, 2019, the Company maintained a fixed charge coverage ratio of greater than 0.96 to 1.00, below the required minimum of 1.10 to 1.00[185]. - The company is classified as a smaller reporting company and is not required to provide certain market risk disclosures[205]. Product Quality and Liability - A program to improve product quality and reduce liability claims has led to a reduction in product liability claims and litigated cases during fiscal 2019[202]. - The company has self-insured for product liability losses up to $250,000 per occurrence and general liability losses up to $50,000 per occurrence, with a total insurance coverage limit of $30,000,000 for excess losses[201]. - Virco's ZUMA and ZUMAfrd product lines received GREENGUARD Gold certification, with hundreds of other items also certified, indicating a strong commitment to indoor air quality standards[200]. Employee and Settlement Costs - The company has reduced its permanent employee headcount from nearly 2,950 in August 2000 to approximately 840 as of January 31, 2019, while significantly reducing factory overhead[148]. - The Company incurred $538,000 in settlement costs for the Employee Plan in fiscal 2019, compared to no settlement costs in fiscal 2018[194]. - The Company contributed $0.8 million and $1.4 million to the trust for retirement plans in fiscal 2019 and 2018, respectively[194]. Strategic Planning - The Company plans to address seasonality by refining its ATS operating model, which reduces inventory and working capital needs[176]. - The Company has established a goal of limiting capital spending to approximately $6,000,000 for fiscal 2020[192]. - The Company entered into Amendment No. 20, suspending its ability to pay cash dividends or repurchase stock[196].