What changed in this filing

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Item 1. Financial Statements

2020-09-11 compared with 2020-03-13 · 101 added, 194 removed, 213 unchanged (58% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of products sold

1 unchanged sentence

Operating earnings (loss)

Other income (loss)

Interest expense, net

Pension expense

Interest expense

Earnings (loss) before income taxes

Income tax expense (benefit)

Income tax expense

Net earnings (loss)

net earnings attributable to the noncontrolling interest

net earnings (loss) attributable to the noncontrolling interest

Net earnings (loss) attributable to Kewaunee Scientific Corporation

6 unchanged sentences

Three Months Ended

Nine Months Ended January 31,

Net earnings (loss)

4 unchanged sentences

Comprehensive income (loss), net of tax

comprehensive income attributable to the noncontrolling interest

comprehensive income (loss) attributable to the noncontrolling interest

Comprehensive income (loss) attributable to Kewaunee Scientific Corporation

2 unchanged sentences

Condensed Consolidated Statements of Stockholders’ Equity

($ in thousands, except share and per share amounts)

($ in thousands, except per share amounts)

Comprehensive

Income (Loss)

Total Kewaunee Scientific Corporation

Stockholders’

Balance at April 30, 2020

Net earnings attributable to Kewaunee Scientific Corporation

Other comprehensive income

Cash dividends paid, $0.19 per share

Net loss attributable to Kewaunee Scientific Corporation

Other comprehensive loss

Stock based compensation

Balance at July 31, 2020

Net earnings (loss) attributable to Kewaunee Scientific Corporation

Other comprehensive income

Cash dividends paid, $0.19 per share

Stock based compensation

Balance at October 31, 2019

Net earnings (loss) attributable to Kewaunee Scientific Corporation

Other comprehensive income

Stock options exercised 2,300 shares

Stock based compensation

Balance at January 31, 2020

See accompanying notes to condensed consolidated financial statements.

Kewaunee Scientific Corporation

Condensed Consolidated Statements of Stockholders’ Equity

($ in thousands, except share and per share amounts)

Comprehensive

Income (Loss)

Total Kewaunee Scientific Corporation

Stockholders’

1 unchanged sentence

Net earnings attributable to Kewaunee Scientific Corporation

Other comprehensive loss

Other comprehensive income

Cash dividends paid, $0.19 per share

Stock options exercised, 9,250 shares

Stock based compensation

Cumulative adjustment for ASC 606, net of tax

Balance at July 31, 2019

Net earnings attributable to Kewaunee Scientific Corporation

Other comprehensive loss

Cash dividends paid, $0.19 per share

Stock options exercised, 5,800 shares

Stock based compensation

Balance at October 31, 2018

Net earnings attributable to Kewaunee Scientific Corporation

Other comprehensive loss

Cash dividends paid, $0.19 per share

Stock based compensation

Balance at January 31, 2019

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

($ and shares in thousands, except per share amounts)

July 31, 2020

April 30, 2020

Current Assets:

10 unchanged sentences

Deferred income taxes

Total Other Assets

Liabilities and Stockholders’ Equity

Current Liabilities:

Short-term borrowings and interest rate swaps

Current portion of long-term debt

Short-term borrowings

Current portion of capital lease liability

5 unchanged sentences

Total Current Liabilities

Long-term debt

Long-term portion of capital lease liability

1 unchanged sentence

Accrued pension and deferred compensation costs

Deferred income taxes

Other non-current liabilities

19 unchanged sentences

($ in thousands)

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

Net earnings (loss)

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

Adjustments to reconcile net earnings (loss) to net cash used in operating activities:

Depreciation and amortization

Bad debt provision

Stock based compensation expense

Provision for deferred income taxes

Deferred income taxes

Change in assets and liabilities:

1 unchanged sentence

Deferred revenue

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

3 unchanged sentences

Dividends paid

Dividends paid to noncontrolling interest in subsidiaries

Proceeds from short-term borrowings

2 unchanged sentences

Net proceeds from exercise of stock options

Net cash used in financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

7 unchanged sentences

The unaudited interim condensed consolidated financial statements of Kewaunee Scientific Corporation (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”).

Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These interim condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of these financial statements and should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2019 Annual Report on Form 10-K.

GAAP") have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These interim condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of these consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2020 Annual Report on Form 10-K.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

The condensed consolidated balance sheet as of April 30, 2019 included in this interim period filing has been derived from the audited financial statements at that date, but does not include all of the information and related notes required by generally accepted accounting principles ("GAAP") for complete financial statements.

The condensed consolidated balance sheet as of April 30, 2020 included in this interim period filing has been derived from the audited consolidated financial statements at that date, but does not include all of the information and related notes required by U.S.

GAAP for complete financial statements.

The preparation of the interim condensed consolidated financial statements requires management to make certain estimates and assumptions that affect reported amounts and disclosures.

2 unchanged sentences

Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less.

During the periods ended January 31, 2020 and April 30, 2019 , the Company had cash deposits in excess of FDIC insured limits.

During the periods ended July 31, 2020 and April 30, 2020, the Company had cash deposits in excess of FDIC insured limits.

The Company has not experienced any losses from such deposits.

Restricted cash includes bank deposits of subsidiaries used for performance guarantees against customer orders.

In accordance with ASU 2016-18, Statement of Cash Flows:

Restricted Cash, the Company includes restricted cash along with the cash balance for presentation in the condensed consolidated statements of cash flows.

The Company includes restricted cash along with the cash balance for presentation in the condensed consolidated statements of cash flows.

The reconciliation between the condensed consolidated balance sheet and the condensed consolidated statement of cash flows is as follows:

January 31, 2020

July 31, 2020

April 30, 2020

8 unchanged sentences

Disaggregated Revenue

A summary of net sales transferred to customers at a point in time and over time for the periods ended January 31, 2020 and January 31, 2019 is as follows (in thousands):

Three Months Ended January 31, 2020

Three months ended January 31, 2019

International

A summary of net sales transferred to customers at a point in time and over time for the periods ended July 31, 2020 and July 31, 2019 is as follows (in thousands):

Three Months Ended July 31, 2020

International

Point in Time

Nine Months Ended January 31, 2020

Nine Months Ended January 31, 2019

International

Three Months Ended July 31, 2019

International

1 unchanged sentence

Contract Balances

The closing and opening balances of contract assets arising from contracts with customers which were recorded as unbilled receivables were $ 4,673,000 at January 31, 2020 and $ 4,589,000 at April 30, 2019 .

The closing and opening balances of contract liabilities arising from contracts with customers were $ 1,800,000 at January 31, 2020 and $1,599,000 at April 30, 2019 .

The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, and deferred revenue which are disclosed in the condensed consolidated balance sheets and in the notes to the condensed consolidated financial statements.

The closing and opening balances of contract assets arising from contracts with customers which were recorded as unbilled receivables were $ 6,996,000 at July 31, 2020 and $ 6,131,000 at April 30, 2020 .

The closing and opening balances of contract liabilities arising from contracts with customers were $ 1,432,000 at July 31, 2020 and $2,508,000 at April 30, 2020 .

The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, and deferred revenue which are disclosed on the condensed consolidated balance sheets and in the notes to the condensed consolidated financial statements.

In general, the Company receives payments from customers based on a billing schedule established in its contracts.

Unbilled receivables represent amounts earned which have not yet been billed in accordance with contractually stated billing terms.

Receivables are recorded when the right to consideration becomes unconditional and the Company has a right to invoice the customer.

Accounts receivable are recorded when the right to consideration becomes unconditional and the Company has a right to invoice the customer.

Deferred revenue relates to payments received in advance of performance under the contract.

Deferred revenue is recognized as revenue as (or when) the Company performs under the contract.

Approximately all of the contract liability balances at April 30, 2019 and January 31, 2020 are expected to be recognized as revenue during the respective succeeding 12 months.

Approximately 100% of the contract liability balances at April 30, 2020 and July 31, 2020 are expected to be recognized as revenue during the respective succeeding 12 months.

The Company measures inventory using the first-in, first-out ("FIFO") method at the lower of cost and net realizable value.

Inventories consisted of the following (in thousands):

January 31, 2020

July 31, 2020

April 30, 2020

2 unchanged sentences

Raw materials

The Company’s International subsidiaries’ inventories were $2,012,000 at January 31, 2020 and $1,863,000 at April 30, 2019 and are included in the above tables.

The Company’s International subsidiaries’ inventories were $2,012,000 at July 31, 2020 and $2,136,000 at April 30, 2020 and are included in the above tables.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and equivalents, mutual funds, cash surrender value of life insurance policies, term loans and short-term borrowings.

The carrying value of these assets and liabilities approximates their fair value.

The following tables summarize the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of January 31, 2020 and April 30, 2019 (in thousands):

January 31, 2020

The carrying value of these assets and liabilities approximate their fair value.

The following tables summarize the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of July 31, 2020 and April 30, 2020 (in thousands):

July 31, 2020

Financial Assets

9 unchanged sentences

Non-qualified compensation plans (2)

Interest rate swap derivatives

The Company maintains two non-qualified compensation plans which include investment assets in a rabbi trust.

5 unchanged sentences

The Company does not enter into derivative instruments for speculative purposes.

In May 2013, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on $3,450,000 of outstanding long-term debt was effectively converted to a fixed interest rate of 4.875% for the period beginning May 1, 2013 and ending August 1, 2017 .

In May 2013, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on $2,600,000 of outstanding long-term debt was effectively converted to a fixed interest rate of 4.37% for the period beginning August 1, 2017 and ending May 1, 2020 .

In May 2013, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on $1,218,000 of outstanding long-term debt was effectively converted to a fixed interest rate of 3.07% for the period beginning November 3, 2014 and ending May 1, 2020 .

The Company entered into these interest rate swap arrangements to mitigate future interest rate risk associated with its long-term debt and has designated these as cash flow hedges.

In September 2019 , the Company terminated the interest rate swap arrangements in conjunction with the payoff of the outstanding long-term debt.

In May 2013, the Company entered into certain interest rate swap arrangements to mitigate future interest rate risk associated with its long-term debt and designated these as cash flow hedges.

These interest rates swaps were terminated in conjunction with the payoff of the outstanding long-term debt in September 2019.

Long-term Debt and Other Credit Arrangements

At January 31, 2020 , advances of $ 3.3 million were outstanding under the Company’s revolving credit facility, compared to advances of $ 9.5 million outstanding as of April 30, 2019 .

The Company had standby letters of credit outstanding of $ 344,000 at January 31, 2020 compared to standby letters of credit outstanding of $ 5.2 million at April 30, 2019 .

Amounts available under the revolving credit facility were $ 10.2 million and $ 5.3 million at January 31, 2020 and April 30, 2019 , respectively.

At July 31, 2020 , advances of $ 8.5 million were outstanding under the Company’s bank revolving credit facility, compared to advances of $ 4.7 million outstanding as of April 30, 2020 .

The Company had standby letters of credit outstanding of $ 512,000 at July 31, 2020 , unchanged from April 30, 2020 .

Amounts available under the revolving credit facility were $ 6.0 million and $ 8.7 million at July 31, 2020 and April 30, 2020 , respectively.

At April 30, 2020 , the Company was not in compliance with all of the financial covenants under the revolving credit facility.

The Company received a waiver from its lender with respect to this noncompliance pursuant to a waiver letter executed on June 19, 2019 ("the Waiver Letter").

In connection with the Waiver Letter, the Company entered into a Security Agreement pursuant to which the Company granted a security interest in substantially all of its assets to secure its obligations under the Loan Agreement.

On July 9, 2019 , the Company entered into an amendment to the Loan Agreement and the Line of Credit to effect a change in the financial covenants set forth in the Loan Agreement.

On July 20, 2020, the Company entered into an amendment to the Loan Agreement and Line of Credit which effected changes in certain financial covenants set forth in the Loan Agreement and included a waiver of the non-compliance described above.

This amendment did not change the amount of availability provided by the Company's Line of Credit.

In September 2019 , the Company paid off its term loan and terminated its interest rate swap agreements.

On December 13, 2019 , the Company entered into an amendment to the Loan Agreement and the Line of Credit to effect a change to an asset based lending arrangement based on eligible accounts receivable and inventory, with the available amount not to exceed $ 20 million through January 31, 2020 , and with such maximum amount reduced to $ 15 million thereafter.

This amendment replaced the prior financial covenants with new financial covenants, including minimum monthly liquidity and EBITDA requirements.

Additionally, a requirement for the repatriation of foreign cash and restrictions on the payment of dividends were added.

At January 31, 2020 , the Company was in compliance with all of the then-applicable financial covenants of the agreement.

On May 1, 2019, the Company adopted Accounting Standards Update ("ASU") No.

2016-02, Leases, and all subsequently issued clarifying guidance.

Under the new guidance, lessees are required to recognize lease assets and lease liabilities for the rights and obligations created by leased assets previously classified as operating leases.

In July 2018, the Financial Accounting Standards Board ("FASB") issued ASU No.

2018-11, which permitted entities to record the impact of adoption using a modified retrospective method with any cumulative effect as an adjustment to retained earnings (accumulated deficit) as opposed to restating comparative periods for the effects of applying the new standard.

The Company elected this transition approach;

therefore, the Company’s prior period reported results are not restated to include the impact of this adoption.

In addition, the Company elected the package of three transition practical expedients which alleviate the requirements to reassess embedded leases, lease classification and initial direct costs for leases that commenced prior to the adoption date.

The Company has elected to use the short-term lease recognition exemption for all asset classes.

This means, for those leases that qualify, the Company will not recognize right-of-use ("ROU") assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets.

The adoption of this standard did not affect the Condensed Consolidated Statements of Operations and therefore, no cumulative effect adjustment was recorded.

The adoption of this standard also did not materially affect the Condensed Consolidated Statements of Cash Flows.

At July 31, 2020, the Company was in compliance with all the financial covenants under its revolving credit facility.

In accordance with ASC 842, "ASU No.

2016-02 Leases", the Company is required to recognize lease assets and lease liabilities reflecting the rights and obligations created by leased assets previously classified as operating leases.

The Company has operating type leases for real estate and equipment in both the U.S.

and internationally and a financing lease for a truck in the U.S.

At January 31, 2020 , ROU assets totaled $ 11,130,000 .

Included in the ROU assets was a finance lease with a net value of $ 129,000 with accumulated amortization totaling $ 30,000 .

Operating cash paid to settle lease liabilities was $ 486,000 for the three months ended January 31, 2020.

The Company’s leases have remaining lease terms of up to 10 years.

In addition, some of the leases may include options to extend the leases for up to 5 years or options to terminate the leases within 1 year.

Operating lease expense was $ 645,000 for the three months ended January 31, 2020 , inclusive of period cost for short-term leases, not included in lease liabilities, of $ 215,000 .

Operating lease expense was $ 1,770,000 for the nine months ended January 31, 2020, inclusive of period cost for short-term leases, not included in lease liabilities, of $ 673,000 .

At January 31, 2020 , the weighted average remaining lease term for the capitalized operating leases was 7.0 years and the weighted average discount rate was 4.1% .

For finance leases, the weighted average remaining lease term was 5.7 years and the weighted average discount rate was 10.0% .

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The Company uses the implicit rate when readily determinable.

The table sets forth below the future minimum lease payments of non-cancelable leases as of January 31, 2020 :

At July 31, 2020 and April 30, 2020 , right-of-use assets totaled $ 8,828,000 and $ 9,312,000 , respectively.

Operating cash paid to settle lease liabilities was $ 410,000 and $ 314,000 for the periods ended July 31, 2020 and July 31, 2019, respectively.

The Company’s leases have remaining lease terms of up to 10 years, some of which may include options to extend the leases for up to 5 years or options to terminate the leases within 1 year.

Operating lease expense was $ 632,000 and $ 549,000 for the three months ended July 31, 2020 and July 31, 2019, respectively, inclusive of period cost for short-term leases, not included in lease liabilities, of $ 222,000 and $ 235,000 for the three months ended July 31, 2020 and July 31, 2019 , respectively.

At July 31, 2020 , the weighted average remaining lease term for the capitalized operating leases was 7.7 years and the weighted average discount rate was 4.0% .

For the financing lease, the weighted average remaining lease term was 5.2 years and the weighted average discount rate was 10.0% .

The Company uses the implicit rate in determining the present value of the lease payments when available, however, most of the Company's leases do not provide an implicit rate so for those leases the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Future minimum lease payments under non-cancelable leases as of July 31, 2020 :

Remainder of fiscal 2021

4 unchanged sentences

Diluted earnings per share reflects the assumed exercise of outstanding options and the conversion of restricted stock units (“RSUs”) under the Company’s various stock compensation plans, except when RSUs and options have an antidilutive effect.

There were 95,906 antidilutive RSUs and options outstanding at January 31, 2020 .

There were no antidilutive RSUs or options outstanding at January 31, 2019 .

The following is a reconciliation of basic to diluted weighted average common shares outstanding (in thousands):

Three Months Ended January 31,

Nine Months Ended January 31,

There were 118,696 and 30,360 antidilutive RSUs and options outstanding at July 31, 2020 and July 31, 2019 , respectively.

The following is a reconciliation of basic to diluted weighted average common shares outstanding at July 31 (in thousands):

Dilutive effect of stock options and RSUs

2 unchanged sentences

Compensation costs related to stock options and other stock awards granted by the Company are charged against operating expenses during their vesting period, under ASC 718, “Compensation-Stock Compensation.”

The Company granted 36,534 RSUs under the 2017 Omnibus Incentive Plan in June 2019.

The RSUs include both a service and a performance component, vesting over a three -year period.

The recognized expense is based upon the vesting period for service criteria and estimated attainment of the performance criteria at the end of the three -year period, based on the ratio of cumulative days incurred to total days over the three -year period.

The Company recorded share-based compensation expense during the three and nine months ended January 31, 2020 of $126,000 and $ 208,000 , respectively, with the remaining estimated share-based compensation expense of $478,000 to be recorded over the remaining vesting periods.

An income tax benefit of $ 350,000 and an income tax expense of $ 20,000 was recorded for the three months ended January 31, 2020 and 2019 , respectively.

Income tax expense of $ 1,822,000 and $ 803,000 was recorded for the nine months ended January 31, 2020 and 2019 , respectively.

The effective tax rates were 15.5% and 57.1% for the three months ended January 31, 2020 and 2019 , respectively.

The effective tax rates were 104.5% and 21.8% for the nine months ended January 31, 2020 and 2019 , respectively.

The decrease in the effective tax rate for the three-month period is primarily due to the reduced federal tax liability which was a result of lower foreign subsidiary income inclusions and the recognition of the impact of the Company's assertion regarding the reinvestment of foreign unremitted earnings in the second quarter.

The increase for the nine-month period is primarily due to the change in the Company’s assertion regarding the reinvestment of foreign unremitted earnings, the impact of foreign earnings, which are taxed at different tax rates than the US tax rate of 21% , and additional Global Intangible Low-Taxed Income ("GILTI") inclusion in the US.

Effective August 1, 2019 , the Company elected to amend the indefinite reinvestment of foreign unremitted earnings position set forth by ASC 740-30-25-17 and dissolve the indefinite reinvestment of unremitted earnings assertion for the Singapore, China, and Kewaunee Labway India Pvt.

international subsidiaries.

The Company recorded a Dividend Distribution Tax withholding expense, imposed by the India Income Tax Department at a rate of 20.6% , in the amounts of $ 50,000 and $ 2,214,000 for the three and nine months ended January 31, 2020 , respectively, related to the unremitted earnings of the subsidiaries paid to the parent company.

The Company continues to include a deferred tax liability of $ 1,103,000 for unremitted earnings of the international subsidiaries as of January 31, 2020 .

The Company recorded all deferred tax assets and liabilities related to its outside basis differences in its foreign subsidiaries consistent with ASC 740.

In May 2020, the Company granted 12,045 RSUs under the 2017 Omnibus Incentive Plan ("2017 Plan").

These RSUs include a service component that vests over a one -year period.

The Company granted 83,816 RSUs under the 2017 Plan in June 2020.

These RSUs include both a service and a performance component, vesting over a three -year period.

The recognized expense is based upon the vesting period for service criteria and estimated attainment of the performance criteria at the end of the three - year period, based on the ratio of cumulative days of service to total days over the three -year period.

The Company recorded

share-based compensation expense during the three months ended July 31, 2020 and 2019 of $59,000 and $ 21,000 , respectively.

The remaining estimated share-based compensation expense of $ 1,131,000 and $696,000 , respectively, will be recorded over the remaining vesting periods.

Income tax expense of $ 21,000 and $ 169,000 was recorded for the three months ended July 31, 2020 and 2019 , respectively.

The effective tax rates were (3.6)% and 25.4% for the three months ended July 31, 2020 and 2019 , respectively.

The change in the effective tax rate for the three-month period is primarily due to the impact of foreign operations which are taxed at different rates than the U.S.

tax rate of 21% .

In addition, the change in the U.S.

effective tax rate for the three months ended July 31, 2020 was unfavorably impacted by the recording of a valuation allowance against the deferred tax asset which resulted in the elimination of any income tax benefit.

Defined Benefit Pension Plans

2 unchanged sentences

no further benefits have been, or will be, earned under the plans, subsequent to the amendment date, and no additional participants will be added to the plans.

There were no Company contributions paid to the plans during the three and nine months ended January 31, 2020 , and the Company does not expect any contributions to be paid during the remainder of the fiscal year.

Contributions of $1,000,000 were paid to the plans during the nine months ended January 31, 2019 .

The Company assumed an expected long-term rate of return of 7.75% for the periods ended January 31, 2020 and January 31, 2019 .

There were no Company contributions paid to the plans during the three months ended July 31, 2020 , and July 31, 2019 .

The Company currently expects to contribute $30,000 to the plans during the remainder of the fiscal year.

The Company assumed an expected long-term rate of return of 7.75% for the periods ended July 31, 2020 and July 31, 2019 .

Pension expense consisted of the following (in thousands):

Three Months Ended January 31, 2020

Three Months Ended January 31, 2019

Interest cost

Expected return on plan assets

Recognition of net loss

Net periodic pension expense

Nine Months Ended January 31, 2020

Nine Months Ended January 31, 2019

Three Months Ended July 31, 2020

Three Months Ended July 31, 2019

Interest cost

10 unchanged sentences

Certain corporate expenses shown below have not been allocated to the business segments.

The following tables provide financial information by business segments for the periods ended January 31, 2020 and 2019 (in thousands):

International

Three months ended January 31, 2020

Revenues from external customers

Intersegment revenues

Earnings (loss) before income taxes

Three months ended January 31, 2019

Revenues from external customers

Intersegment revenues

Earnings (loss) before income taxes

The following tables provide financial information by business segments for the three months ended July 31, 2020 and 2019 (in thousands):

International

Nine months ended January 31, 2020

Three months ended July 31, 2020

Revenues from external customers

1 unchanged sentence

Earnings (loss) before income taxes

Nine months ended January 31, 2019

Three months ended July 31, 2019

Revenues from external customers

1 unchanged sentence

Earnings (loss) before income taxes

Reclassifications

During the second quarter of fiscal year 2019, the Company changed its method of accounting for its Domestic segment’s inventory from the LIFO method to the FIFO method.

The Company reclassified certain amounts in the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive income, the condensed consolidated statements of stockholders’ equity and the condensed consolidated statements of cash flows for the nine-month period ended January 31, 2019 to conform to the current period format.

New Accounting Standards

On December 18, 2019, the FASB issued Accounting Standard Update (ASU) 2019-12:

Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

Also, the amendments simplify the accounting for income taxes by requiring the following:

(1) that an entity recognize a franchise tax that is partially based on income in accordance with Topic 740 and account for any incremental amount incurred as a non-income-based tax;

and (2) that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that included the enactment date.

For public companies, these amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

We are currently evaluating the impact the adoption of this guidance may have on the Company’s condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-2, “Leases.” This guidance establishes a ROU model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.

Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018.

The Company adopted this standard effective May 1, 2019.

See Note H for a discussion of the impact of adoption of this standard.

In August 2018, the Commission adopted final rules pursuant to Commission Release No.

33-10532, “Disclosure Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.

In addition, the amendments expanded the disclosure requirements relating to the analysis of stockholders’ equity for interim financial statements.

Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement.

The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of income is required to be filed.

This final rule became effective on November 5, 2018.

The Company adopted this final rule effective for the second quarter of fiscal 2019.

The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.

In February 2018, the FASB issued ASU 2018-2, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This guidance provides the Company with an option to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the "2017 Tax Act") from accumulated other comprehensive income to retained earnings.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.

The Company adopted this standard effective May 1, 2019 and did not elect to reclassify tax effects as a result of tax reform;

therefore, the adoption did not have a significant impact on the Company’s consolidated financial position or results of operations.

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which replaces the current incurred loss method used for determining credit losses on financial assets, including trade receivables, with an expected credit loss method.

2 unchanged sentences

The Company does not expect the adoption of this standard to have a significant impact on the Company’s consolidated financial position or results of operations.

Restructuring Costs

In December 2019, the Company initiated a restructuring, which included the addition of a new Vice President of Information Technology to lead the transformation and modernization of the Company's information systems, and a reduction in workforce primarily in its domestic operations to reduce operating expenses on an ongoing basis.

This restructuring also included a plan for closure of the Company’s subsidiary in China, a commercial sales organization for the Company’s products in China.

For the three months ended January 31, 2020 , the Company incurred restructuring expenses of $ 628,000 .

The domestic restructuring expenses of $ 374,000 consisted primarily of severance and expenses related to hiring and relocation of the new Vice President of Information Technology.

For the three months ended January 31, 2020, the Company incurred expenses in its international operations related to the closure of the China subsidiary of $ 254,000 , which consisted primarily of bad debt expenses of $ 220,000 with a concurring increase in the Company’s allowance for doubtful accounts and severance expenses.

The Company reflected substantially all the expenses as operating expenses in the condensed statement of operations and recorded $ 117,000 of accrued employee compensation liabilities related to severance agreements in the condensed consolidated balance sheets.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge.

This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.

The Company adopted this standard effective May 1, 2020.

The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.

In August 2018, the FASB issued ASU 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC Topic 820.

The Company adopted this standard effective May 1, 2020.

The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.

In August 2018, the FASB issued ASU 2018-14, “Compensation -Retirement Benefits -Defined Benefit Plans -General (Subtopic 715-20) - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans" ("ASU 2018-14").

The amendments in this update remove defined benefit plan disclosures that are no longer considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant.

ASU 2018-14 is effective for fiscal years ending after December 15, 2020.

Early adoption is permitted.

The Company adopted this standard effective May 1, 2020.

The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.

In December 2019, the FASB issued ASU No.

2019-12 , "Income Taxes ("Topic 740"):

Simplifying the Accounting for Income Taxes." This update simplifies the accounting for income taxes through certain targeted improvements to various subtopics within Topic 740.

The amendments in this update are effective for fiscal years and interim periods beginning after December 15, 2020.

The Company expects to adopt this guidance when effective and is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements