What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-04-28 compared with 2021-04-28 · 164 added, 180 removed, 658 unchanged (34% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Repor t of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of January 31, 202 2 and 20 21

Consolidated Statements of Operation for the Years Ended January 31, 2021 and Consolidated Statements of Operations for the Years Ended January 31, 2021 and 2020

Consolidated Statements of Operation s for the Years Ended January 31, 202 2 and 202 1

Consolidated Statements of Comprehensive Loss for the Years Ended January 31, 202 2 and 20 21

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We have audited the accompanying consolidated balance sheets of Virco Mfg.

Corporation and subsidiaries (the "Company") as of January 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows, for each of the two fiscal years in the period ended January 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (2) (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two fiscal years in the period ended January 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Corporation and subsidiaries (the "Company") as of January 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows, for each of the two years in the period ended January 31, 2022, and the related notes and the schedule listed in the Index at Item 15(2) (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventories – Valuation adjustments for slow-moving and obsolete inventories — Refer to Note 1 to the financial statements

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o Corroborating the assumptions related to slow-moving products and component stage, inventory category and forecasted consumption and sales with individuals within the Company’s production team

Deferred Income Tax Assets, net – Valuation allowance — Refer to Notes 1 and 6 to the financial statements

Critical Audit Matter Description

The Company evaluates the realizability of its deferred tax assets, and to the extent that the Company estimates that it is more likely than not that a benefit will not be realized, the carrying amounts of the Company’s deferred tax assets are reduced with a valuation allowance.

As a part of this evaluation, the Company assesses all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, the availability of tax carrybacks, tax-planning strategies, and results of recent operations, to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets.

The Company identified objective and verifiable negative evidence in the form of cumulative losses on an unadjusted basis in the preceding 12 quarters ended January 31, 2021.

Additionally, the Company has noted a decline in the volume of net sales processed for the twelve months ended January 31, 2021 compared to the prior year period, due to the impact of the COVID-19 pandemic.

The Company evaluated both its actual forecasts of future taxable income and its historical earnings over the prior twelve quarters, adjusted for certain nonrecurring items.

On the basis of this assessment, and after considering future reversals of existing taxable temporary differences and the effects of seasonality on the Company’s business, the Company determined that, with the exception of certain state deferred tax assets, it is more likely than not that its deferred tax assets will be realizable.

We identified the realizability of the Company’s U.S.

federal deferred tax assets as a critical audit matter because of the significant judgments made by management in its assessment of available positive and negative evidence, its projections of future taxable income and its conclusions regarding the realizability of such assets.

Our audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists, to evaluate the reasonableness of management’s realizability assessment.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the realizability of the Company’s U.S.

federal deferred tax assets included the following, among others:

• We evaluated the reasonableness of the methods, assumptions, and judgments used by management to determine whether a valuation allowance was necessary.

• With the assistance of our income tax specialists, we evaluated the nature of the deferred tax assets, including the expiration dates.

• We evaluated the scheduled pattern of reversals of the Company’s deferred tax assets and liabilities.

• We evaluated the Company’s historical earnings history, including the effects of seasonality, along with the Company’s identification and quantification of nonrecurring items used to adjust historical losses to determine if such amounts were reasonable and consistent with evidence obtained in other areas of the audit.

• We evaluated the reasonableness of management’s actual forecast of projected future taxable income by:

o Testing the completeness, accuracy and relevance of underlying data used in forecast

o Comparing prior year and current year-to-date results to management’s forecast

o Reviewing industry reports and internal communications to management and the board of directors

o Making inquiries of individuals outside of the accounting function, including sales and marketing

/s/ Deloitte & Touche LLP

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Selling, general and administrative expenses 61,265 54,197

(Gain) loss on sale of property, plant & equipment ( 7 ) 34

Operating income 735 5,915

Gain on sale of property, plant & equipment — ( 7 )

Operating (loss) income ( 336 ) 735

Pension expense 2,197 2,173

Interest expense, net 1,195 1,538

(Loss) income before income taxes ( 2,976 ) 2,727

Income tax (benefit) expense ( 744 ) 345

Net (loss) income $ ( 2,232 ) $ 2,382

Net (loss) income per common share:

Loss before income taxes ( 3,728 ) ( 2,976 )

Income tax expense (benefit) 11,408 ( 744 )

Net loss $ ( 15,136 ) $ ( 2,232 )

Net loss per common share:

Basic $ ( 0.95 ) $ ( 0.14 )

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(In thousands)

Net (loss) income $ ( 2,232 ) $ 2,382

Other comprehensive income (loss)

Pension adjustments (net of $257 tax expense in 2021 and $1,840 tax benefit in 2020) 726 ( 5,269 )

Net loss $ ( 15,136 ) $ ( 2,232 )

Other comprehensive income

Pension adjustments (net of $ 0 tax expense in 2022 and $ 257 tax expense in 2021)

Comprehensive loss $ ( 7,580 ) $ ( 1,506 )

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Balance at February 1, 2020 15,713,549 $ 157 $ 118,782 $ ( 49,810 ) $ ( 14,311 ) $ 54,818

Net income — 2,382 — 2,382

Pension adjustments, net of tax benefit of $ 1,840

— — — — ( 5,269 ) ( 5,269 )

Net loss — ( 2,232 ) — ( 2,232 )

Pension adjustments, net of tax expense of $257 — — — — 726 726

Shares vested 205,093 2 ( 139 ) — — ( 137 )

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Pension adjustments, net of tax expense of $0 — — — — 7,556 7,556

— — — — 726 726

Shares vested 183,381 2 ( 176 ) — — ( 174 )

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Operating activities

Net (loss) income

$ ( 15,136 ) $ ( 2,232 )

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

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

Depreciation and amortization 4,570 5,090

Non-cash lease expense 579 341

Amortization of debt issuance costs 116 —

Non-cash lease (income) expense ( 395 ) 579

Provision for doubtful accounts 53 —

(Gain) loss on sale of property, plant and equipment ( 7 ) 34

Gain on sale of property, plant and equipment — ( 7 )

Deferred income taxes 11,316 ( 742 )

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Amortization of net actuarial loss for pension plans 1,476 1,831

Surrender of life insurance policies ( 588 ) —

Changes in operating assets and liabilities:

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Accounts payable and accrued liabilities 13,858 ( 4,685 )

Net cash provided by operating activities 7,799 9,759

Net cash (used in) provided by operating activities ( 401 ) 7,799

Investing activities

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Payment on deferred financing costs ( 169 ) —

Net cash used in financing activities ( 6,412 ) ( 5,089 )

Net (decrease) increase in cash ( 748 ) 412

Net cash provided by (used in) financing activities 3,729 ( 6,412 )

Net increase (decrease) in cash 957 ( 748 )

Cash at beginning of year 402 1,150

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Supplemental disclosures of cash flow information

Cash paid during the year for:

Cash paid (received) during the year for:

Interest $ 1,195 $ 1,538

Income tax paid (received) ( 309 ) 81

Income tax 37 ( 309 )

See accompanying notes to consolidated financial statements.

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The Company operates in a seasonal business and requires significant amounts of working capital under its credit facility to fund acquisitions of inventory and finance receivables during the summer delivery season.

The educational sales market is extremely seasonal.

Historically Virco ships approximately 50 % of its annual revenue in the months of June, July, and August.

In fiscal 2022 the seasonal peak was distorted due to severe supply chain interruptions, labor shortages, and COVID-19 related employee absences.

The Company delivered a reduced proportion of sales during June, July, and August compared to the traditional seasonal concentration of sales.

The Company anticipates that the traditional seasonal peak will return when COVID and supply chain disruptions normalize.

Shipments during peak weeks in July and August can be as great as six times the level of shipments in the winter months.

Restrictions imposed by the terms of the Company’s credit facility may limit the Company’s operating and financial flexibility (see Note 3 ).

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All intercompany balances and transactions have been eliminated in consolidation.

The classification of certain prior year sales allowances of approximately $ 1.9 million, representing the replacement of damaged goods, previously presented in net sales, is presented in costs of goods sold in the accompanying prior year statement of operations, which conforms to current period presentation.

Management Use of Estimates

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These estimates and assumptions affect the reported amounts of assets and liabilities - and disclosure of contingent assets and liabilities - at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.

Significant estimates made by management include, but are not limited to, valuation of inventory;

Estimates made by management include, but are not limited to, valuation of inventory;

deferred tax assets and liabilities;

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As a result of the COVID-19 pandemic and its ongoing impact in the future may cause demand for our products to decline and competitive pricing pressures to increase, and other unforeseen effects, which makes these estimates more challenging and actual results could differ materially from these estimates.

COVID-19 Pandemic

The COVID-19 pandemic has materially adversely impacted the U.S.

economy and the education system and is expected to continue to do so for at least the next fiscal year.

In fiscal 2022 the cost of sales were volatile compared to prior years.

The Company incurred material increases in steel, plastic and other materials.

Effects of COVID-19 Pandemic

The COVID-19 pandemic had an immediate impact on the Company’s operating activities during fiscal 2021, and this impact continued through fiscal 2022.

In March 2020, most school districts that we serve closed their doors to students and initiated remote learning.

Most school districts in the United States kept campuses closed to students for the remainder of the 2019-2020 academic year, and district business officials typically operated from home offices.

During the 2020-2021 academic year many school districts and private schools successfully re-introduced in-class or hybrid learning, but the majority of students in the United States were learning remotely during the Company’s fiscal year ended January 31, 2021.

These mass closures impacted more than ten of the twelve months included in this fiscal year, including all of the traditionally busy summer season.

The demand for school furniture was adversely impacted by COVID-19 in fiscal year 2021.

School administrators were challenged by COVID-19, and purchases of furniture for empty classrooms were not a priority.

As a result, order rates declined by approximately 20 % compared to the prior year.

During the first quarter of fiscal 2022 many schools reopened and virtually all schools were reopened for the beginning of academic year beginning August 2021.

The strong rebound in order rates continued through fiscal 2022 as schools reopened.

Order rates for fiscal year 2022 increased by nearly 40 % compared to the prior year.

Going into fiscal 2022, the Company was cautious about building inventory and began the year with a reduced level of product.

The Company was able to support the first quarter increase in orders as the first quarter is a traditionally slow time of the year.

The Company experienced severe supply chain issues throughout the rest of the year.

The cost and availability of container freight adversely impacted the cost and timely delivery of components imported from China.

Domestic suppliers raised prices dramatically, with the cost of steel nearly tripling and the cost of plastic nearly doubling.

In addition to increased costs, many domestic suppliers put the Company on allocation as they did not have the production capacity to service all of their customers.

When this occurs, the supplier allocates their available capacity to existing customers based upon the customers historic purchase activity.

In addition to severe shortages of materials, the Company incurred a severe shortfall of both temporary and full-time labor.

This shortfall was exacerbated by COVID-19 related absences that caused significant portions of our workforce to be out at any time.

In order to meet required levels of production, the Company made a decision to reward our full-time workforce by paying them double-time in lieu of time and one-half for all overtime hours worked.

This successfully motivated our employees to work extended hours but cost the Company approximately $ 2 million.

Inability to hire production workers continued through the year, and in October and November the Company significantly increased the starting wages for production workers followed by raises for all hourly workers.

With these raises the Company was able to attract and retain additional workers, and as of the date of this report, the Company has an adequate workforce to support anticipated levels of business.

Factory efficiencies deteriorated as a result of these events.

Rather than execute efficient production runs, factories ran smaller less efficient production runs to utilize whatever materials were available and to fulfill urgent orders.

Customers were asked to substitute products requested for products for which materials were available.

Labor shortages and absences contributed to the inefficiencies.

The cost of materials, unavailability of materials, and labor issues adversely affected gross margins for the year.

The education system and education budgets are typically highly dependent on state and local tax revenues.

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The loss of state and local revenues may be substantially or partially offset by federal programs providing assistance to state governments, local governments and schools, although there can be no assurance that any federal funds could be used for capital expenditures or that the level of federal funding, if any, will be sufficient to maintain our historic order rates for school furniture.

In addition, while we expect the majority of schools to be in session, there can be no assurance that school systems in the United States will reopen or resume normal operations for the 2021-2022 academic year.

The Company expects the impact of supply chain constraints and COVID-19 to continue to be a challenge for the foreseeable future and believes the economy will be adversely impacted for an indeterminate period, including the demand for its products and supply of materials and labor required to manufacture products.

The extent of the impact will depend on numerous factors that are unknown, uncertain and cannot be reasonably predicted.

Fiscal Year End

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Financial instruments, which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable.

The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit

The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses.

Sales to the Company’s recurring customers are generally made on open account with terms consistent with the industry.

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A substantial percentage of the Company’s receivables come from low-risk government entities.

There was one customer who accounted for 12.3 % of the Company’s accounts receivable at January 31, 2021.

No customer accounted for more than 10 % of the Company's accounts receivable at January 31, 2020.

No customer accounted for more than 10% of the Company's accounts receivable at January 31, 2022 and January 31, 2021.

Because of the short time between shipment and collection, the net carrying value of receivables approximates the fair value for these assets.

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Valuation adjustments for slow-moving and obsolete inventory are calculated using an estimated percentage applied to inventories based on a physical inspection of the product in connection with a physical inventory, a review of slow-moving products and component stage, inventory category, historical and forecasted consumption of sales, and consideration of active marketing programs.

The market for education furniture is traditionally driven by value, not style, and the Company has not typically incurred significant obsolescence expenses.

The market for education furniture is traditionally driven by value, not style, and the Company has not typically incurred material obsolescence expenses.

If market conditions are less favorable than those anticipated by management, additional valuation adjustments may be required.

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The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation.

The following table presents an updated breakdown of the Company’s net inventory (in thousands) as of January 31 :

The following table presents an updated breakdown of the Company’s net inventory (in thousands) as of January 31, 2022 and 2021 :

Finished goods $ 16,731 $ 15,606

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Property, plant and equipment purchased during the year that remains unpaid as of January 31, 2022 and 2021 was $ 189,000 and $ 113,000 , respectively.

The Company has established asset retirement obligations related to leased manufacturing facilities in accordance with Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 410, Asset Retirement and Environmental Obligations .

The Company has established asset retirement obligations related to leased manufacturing facilities in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 410, Asset Retirement and Environmental Obligations .

Accrued asset retirement obligations are recorded at net present value and discounted over the life of the lease.

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There were no impairments for fiscal years ended January 31, 2022 and 2021.

Net (Loss) Income per Share

Basic net (loss) income per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding.

Diluted net income (loss) per share is calculated by dividing net (loss) income by the weighted-average number of common shares outstanding plus the dilutive effect of stock award grants.

Net Loss per Share

Net loss per share is calculated by dividing net loss by the basic weighted-average number of common shares outstanding.

For fiscal years 2022 and 2021, approximately 96,000 and 52,000 shares of common stock equivalents were excluded in the computation of diluted net loss per share, as the effect would be anti-dilutive since the Company reported a net loss.

The following table sets forth the computation of basic and diluted loss per share:

(In thousands, except per share)

(Loss) income

$ ( 15,136 ) $ ( 2,232 )

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Dilutive effect of common stock equivalents from equity incentive plans — —

Weighted-average shares — diluted (a) $ 15,759 $ 15,694

Net (loss) income per common share

Weighted-average shares $ 15,954 $ 15,759

Net loss per common share

Basic $ ( 0.95 ) $ ( 0.14 )

Diluted ( 0.95 ) ( 0.14 )

(a) For fiscal year 2021, approximately 52,000 shares of common stock equivalents were excluded in the computation of diluted net loss per share, as the effect would be anti-dilutive since the Company reported a net loss.

Environmental Costs

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Selling, general and administrative expenses include advertising costs for the years ended January 31, 2022 and 2021 of $ 785,000 and $ 468,000 , respectively, and are expensed as incurred.

Fiscal year 2021 reduction in advertising expenses was attributable to lack of participation in shows and exhibitions resulted from impacts of the COVID-19 pandemic.

The increase in advertising expenses during fiscal year 2022 was attributable to higher participation in shows and exhibitions as compared to fiscal 2021.

Prepaid advertising costs reported as a prepaid asset on the accompanying consolidated balance sheets at January 31, 2022 and 2021, were $ 296,000 and $ 341,000 , respectively.

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The Company determines whether replacement or repair is appropriate in each circumstance.

The Company uses historic data to estimate appropriate levels of warranty reserves.

The Company uses historical data to estimate appropriate levels of warranty reserves.

Because product mix, production methods and raw material sources change over time, historic data may not always provide precise estimates for future warranty expense.

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Self-Insurance

In fiscal 2021 and 2020, the Company was self-insured for product and general liability losses up to $ 250,000 per occurrence, workers’ compensation losses up to $ 250,000 per occurrence, and auto liability up to $ 50,000 per occurrence.

In fiscal 2022 and 2021, the Company was self-insured for product liability losses up to $ 250,000 per occurrence, workers’ compensation losses up to $ 250,000 per occurrence, general liability losses up to $ 50,000 per occurrence and auto liability losses up to $ 50,000 per occurrence.

Actuaries assist the Company in determining its liability for the self-insured component of claims, which have been discounted to their net present value utilizing a discount rate of 4.00 % in both fiscal 2022 and fiscal 2021.

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Accumulated Other Comprehensive Loss, Net of Tax

The following table summarizes the changes in accumulated balances of other comprehensive (loss) income for the years

ended January 31, 2021 and 2020:

(in thousands) 2021 2020

The following table summarizes the changes in accumulated balances of other comprehensive loss (in thousands) for the years ended January 31, 2022 and 2021:

Balance as of beginning of year $ ( 13,585 ) $ ( 14,311 )

Other comprehensive loss before reclassifications ( 1,105 ) ( 6,045 )

Other comprehensive income (loss) before reclassifications 5,782 ( 1,105 )

Amounts reclassified from AOCI 1,774 1,831

Net current period other comprehensive income (loss) 726 ( 5,269 )

Net current period other comprehensive income 7,556 726

Balance as of end of year $ ( 6,029 ) $ ( 13,585 )

The reclassifications out of accumulated other comprehensive (loss) income of $ 1,831,000 and $ 776,000 for the years ended January 31, 2021 and 2020, respectively, related to amortization of actuarial losses and settlements (See Note 4) .

The reclassifications out of accumulated other comprehensive loss of $ 1,774,000 and $ 1,831,000 for the years ended January 31, 2022 and 2021, respectively, related to amortization of actuarial losses and settlements (See Note 4) .

Revenue Recognition

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Once a product has been delivered per the shipping terms, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset.

The Company considers control to have transferred upon shipment or delivery in accordance with shipping

terms because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.

The Company considers control to have transferred upon shipment or delivery in accordance with shipping terms because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.

Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances.

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New Accounting Pronouncements

Recently Adopted Accounting Updates

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement benefits (Topic 715-20).

This ASU amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans.

The ASU eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year.

The ASU also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits.

The Company adopted the new standard effective January 31, 2021 and the adoption did not have any impact on the Company’s results of operations, cash flows or financial position.

In response to the large volume of anticipated lease concessions to be granted related to the effects of the COVID-19 pandemic, and the resultant expected cost and complexity of applying the lease modification requirements in ASC 842, the FASB issued Staff Q&A—Topic 842 and Topic 840:

Accounting For Lease Concessions Related to the Effects of the COVID-19 Pandemic , in April 2020 as interpretive guidance to provide clarity in response to the crisis.

The FASB staff indicated that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract.

Consequently, for such lease concessions, an entity will not need to reassess each existing contract to determine whether enforceable rights and obligations for concessions exist and an entity can elect to apply or not to apply the lease modification guidance in ASC 842 to those contracts.

The election is available for concessions related to the effects of the COVID-19 pandemic that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.

In accordance with this interpretive guidance, the Company elected to account for lease concessions related to the effects of the COVID-19 pandemic that resulted in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract.

Consequently, for such lease concessions, the Company did not reassess each existing contract to determine whether enforceable rights and obligations for concessions existed and elected not to apply the lease modification guidance in ASC 842 to those contracts.

During fiscal 2021, the Company accounted for COVID-19 lease abatements of $ 136,000 as reductions to variable lease expense as if no changes to the lease contract were made while continuing to recognize expense and reductions in the operating lease liability, as well as the operating lease right-of-use asset during the abatement period.

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes .

This update simplifies various aspects related to accounting for income taxes, removes certain exceptions to the general principles in ASC 740, and clarifies and amends existing guidance to improve consistent application.

The Company adopted this ASU as of February 1, 2020 and the adoption of this standard did not have a material effect on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement ( Topic 820 ) which modifies the disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement .

For public companies the ASU removes disclosure requirements for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation process for Level 3 fair value measurements.

The ASU modifies the disclosure requirements for investments in certain entities that calculate net asset value and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date.

The ASU adds the disclosure requirement for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The Company adopted this ASU as of February 1, 2020 and the adoption of this standard did not have a material effect on our consolidated financial statements.

Recently Issued Accounting Updates

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ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The adoption date, as modified by the recently issued ASU 2019-10 discussed below, will be for the fiscal year ending after December 15, 2022 and interim periods therein.

The adoption date, as modified by the recently issued ASU 2019-10, will be for the fiscal year beginning after December 15, 2022 and interim periods therein.

The Company is currently evaluating the effect the standard will have on the consolidated financial statements and related disclosures.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates .

ASU 2019-10 moves the effective date for certain previously issued amendments to later dates, depending on the filing status of the respective entity.

Specifically, due to the amendment and the Company’s status as a smaller reporting company, the new effective dates for relevant previously issued amendments not yet adopted by the Company relate to ASU 2016-13 as described above.

Other recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements.

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Non-current portion $ 14,173 $ 9,553

The Company ("the “Borrowers”) has a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”) structured to provide seasonal credit availability during the Company’s peak summer season.

The Credit Agreement has been amended twenty-two times since it’s origination in 2011 through fiscal 2021, which, among other things, extended the maturity date of the Credit Agreement for three years until March 19, 2023.

The Credit Agreement is an asset-based loan consisting of (i) a revolving line of credit with a Maximum Revolving Advance Amount of $ 65,000,000 that is subject to a borrowing base limitation and generally provides for advances of up to 85 % of eligible accounts receivable, plus a percentage equal to the lesser of 60 % of the value of eligible inventory or 85 % of the liquidation value of eligible inventory, plus $ 15,000,000 from January through July of each year, minus undrawn amounts of letters of credit and reserves, and (ii) an equipment loan of $ 2,000,000 .

The Credit Agreement is secured by substantially all of the Company's, as defined, personal property and certain of the Company's real property.

The principal amount outstanding under the Credit Agreement and any accrued and unpaid interest is due no later than March 19, 2023, and the Credit Agreement is subject to certain prepayment penalties upon earlier termination of the Credit Agreement.

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, including reduced borrowings under the revolving line to less than or equal $ 10,000,000 for a period of 30 consecutive days during the fourth quarter of each fiscal year.

The Credit Agreement also contains certain financial covenants, including a fixed charge coverage ratio beginning on February 1 st , 2020 of not less than 1.10 to 1.00, and capital expenditures not to exceed $ 8,000,000 .

The Company was in violation with its financial covenants as of July 31, 2020.

On September 8, 2020, the Company entered into Amendment No.

21 to the Credit Agreement (“Amendment No.

21”) with its lender, PNC Bank, National Association.

Amendment No.

21 provided a limited waiver of the Company’s violation of the covenant to maintain a Fixed Charge Coverage Ratio of at least 1.00 to 1.00 for the four fiscal quarter period ended July 31, 2020, and amended the Fixed Charge Coverage Ratio as follows:

(i) 1.00 to 1.00 for the consecutive four fiscal quarter period ended October 31, 2020, and (ii) 1.10 to 1.00 for each consecutive four fiscal quarter period ending thereafter.

In connection with Amendment No.

21, the Company also agreed to pay to PNC Bank a non-refundable fee of $ 75,000 .

However, the Company was not in compliance with this amended fixed-charge ratio of 1.00 :1.00 as of October 31, 2020 due to the continuing decline in net sales and net income.

The Company successfully negotiated and entered into Amendment No.

22 on December 11, 2020 to the Credit Agreement (“Amendment No.

22”) with its lender, PNC Bank, National Association.

Amendment No.

22 provided a limited waiver of the Fixed-Charge Coverage Ratio for the four fiscal quarter period ended October 31, 2020 and amended the Fixed-Charge Coverage calculation to allow for the add back of certain COVID-19 related costs incurred from May 1, 2020 through April 30, 2021 not to exceed $ 2 million to adjusted EBITDA beginning with the four fiscal quarter period ended January 31, 2021, and retains the required minimum coverage ratio of 1.10 :1.00.

In addition, the Credit Agreement also permits the Company to pay dividends or conduct stock repurchases subject to certain requirements.

In connection with Amendment No.

22, the Company also agreed to pay PNC Bank a non-refundable fee of $ 40,000 .

The Company was in compliance with the covenants as of January 31, 2021.

The Credit Agreement 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 1.25 % to 1.75 %, and the applicable margin for Eurodollar Currency Rate loans is a percentage within a range of 2.25 % to 2.75 %, in each case based on the EBITDA of the Borrower's at the end of each fiscal quarter and may be increased at PNC's option by 2.0 % during the continuance of an event of default.

The Company and Virco Inc., its wholly-owned subsidiary (the “Borrowers”) have a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”).

The Credit Agreement was amended numerous times since its origination in December 2011.

On September 28, 2021, the Borrowers entered into an Amended and Restated Revolving Credit and Security Agreement (the “Restated Credit Agreement”) with PNC Bank, which amended and restated the prior Credit Agreement and effectively incorporated all of the prior amendments into an amended and restated form of agreement.

The Restated Credit Agreement permits the Company to issue dividends or make payments with respect to the Company’s capital stock in an aggregate amount up to $ 3,000,000 during any fiscal year, provided that no default shall have occurred or is continuing or would result from any such payment, and the Company must demonstrate pro forma compliance with a 12-month trailing fixed charge coverage ratio of not less than 1.20 :1.00 as of the fiscal quarter immediately preceding the date of any such dividend or payment.

The Restated Credit Agreement also requires the Company to maintain a minimum fixed charge coverage ratio, 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, 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.

In connection with the Restated Credit Agreement, the Company also agreed to pay to

PNC Bank a non-refundable fee of $ 50,000 .

The original maturity date of the Restated Credit Agreement was March 19, 2023, which date was extended to April 15, 2027 under Amendment No.

2 to the Restated Credit Agreement discussed below.

The other material terms of the Restated Credit Agreement are substantially the same as those of the original Credit Agreement, consisting of (i) a revolving line of credit with a Maximum Revolving Advance Amount of $ 65,000,000 that is subject to a borrowing base limitation and generally provides for advances of up to 85 % of eligible accounts receivable, plus a percentage equal to the lesser of 60 % of the value of eligible inventory or 85 % of the liquidation value of eligible inventory, plus $ 15,000,000 from January through July of each year, minus undrawn amounts of letters of credit and reserves and (ii) an equipment loan of $ 2,000,000 .

The Restated Credit Agreement is secured by substantially all of the Borrowers’ personal property and certain of the Borrowers’ real property.

The Restated Credit Agreement is subject to certain prepayment penalties upon early termination of the Restated Credit Agreement.

Prior to the maturity date, principal amounts outstanding under the Restated 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, including reduced borrowings under the revolving line to less than or equal $ 10,000,000 for a period of 30 consecutive days during the fourth quarter of each fiscal year.

The Restated Credit Agreement also contains certain financial covenants, including covenants requiring a minimum fixed charge coverage ratio and limits on capital expenditures.

Prior to the changes under Amendment No.

2 discussed below, the Revolving Credit Facility bore interest, at the Borrowers’ option, at either the Alternate Base Rate (as defined in the Restated Credit Agreement) or the LIBOR Rate (as defined in the Restated Credit Agreement), in each case plus an applicable margin.

The applicable margin for Alternate Base Rate loans is a percentage within a range of 1.25 % to 1.75 %, and the applicable margin for LIBOR Rate loans is a percentage within a range of 2.25 % to 2.75 %, and may be increased at the Lender’s option by 2.0 % during the continuance of an event of default.

Accrued interest with respect to principal amounts outstanding under the Restated 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 LIBOR Rate loans.

The interest rate as of January 31, 2022 was 5.0 %.

The Company also incurs a fee on the unused portion of the revolving line of credit at a rate of 0.375 %.

To date the impact of COVID-19 on liquidity has been to moderate the seasonal increase in accounts receivable and production of inventory for summer delivery.

Both the increase in accounts receivable and inventory are traditionally financed through the Company’s revolving line of credit with PNC Bank.

Reductions in receivables and inventory were substantially offset by a reduction in borrowing under the revolving line of credit with PNC Bank.

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 Credit Agreement upon receipt by the Borrowers remittances.

Due to this automatic liquidating nature of the Credit Agreement, if the Borrowers breach any covenant, violate any representation or warranty or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion.

In addition, certain of the covenants and representations and warranties set forth in the Credit Agreement contain limited or no materiality thresholds, 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.

On December 7, 2021 the Company entered into Amendment No.

1 to the Restated Credit Agreement, which provided a limited waiver of the Company’s violation of the covenant to maintain a fixed charge coverage ratio of at least 1.10 to 1.00 for the four fiscal quarter periods ended October 31, 2021, and amended the fixed charge coverage ratio as follows:

(i) 1.00 to 1.00 for each of the consecutive four fiscal quarter periods of Borrowers ending January 31, 2022 and April 30, 2022, and (ii) 1.10 to 1.00 for each consecutive four fiscal quarter periods of Borrowers ending thereafter.

The Company was in violation of its financial covenants under the Restated Credit Agreement as of January 31, 2022, due to a decline in the Company’s net income primarily attributable to the effects of supply chain disruptions and labor shortages.

On April 15, 2022, the Company entered into Amendment No.

2 to the Credit Agreement (“Amendment No.

2”), which implemented the following changes to the Credit Agreement and Revolving Credit Facility:

extended the final maturity date of the Revolving Credit Facility from March 19, 2023 to April 15, 2027;

increased the borrowing limit from $ 65,000,000 to $ 70,000,000 in July 2022 and August 2022, and increased the borrowing limit from $ 40,000,000 to $ 45,000,000 in October 2022;

waived the Company’s violation of the covenant to maintain a fixed charge coverage ratio of at least 1.00 for the period ended January 31, 2022;

for the first and second quarters of fiscal 2023, implemented a temporary year-to-date adjusted EBITDA covenant in lieu of testing the fixed charge coverage ratio covenant as of such quarters, with quarterly testing of the fixed charge coverage ratio to resume for the third fiscal quarter and thereafter;

permits a sale and leaseback transaction of the Company’s property at 1655 Amity Road and release of the lender’s pledge on the property, with the net proceeds to be used for a proposed share repurchase;

retired LIBOR pricing on the Revolving Credit Facility and replaced with BSBY index, with pricing tiers and spreads to remain the same;

extended the P-card, ACH Credit, and ACH debit facilities for an additional year beyond their current maturities;

Borrowers to pay a $ 250,000 extension fee and $ 75,000 waiver and amendment fee, with $ 200,000 due at closing and $ 125,000 due on the first anniversary of closing.

Based on the Company’s current projections, including COVID-19 related costs, raw material costs and its ability to introduce price increases, management believes it will maintain compliance with the financial covenants within Amendment No.

2, although there are uncertainties therewithin, such as raw material costs and supply chain challenges.

In addition to the financial covenants, the Restated Credit Agreement provides for customary events of default, subject to certain cure periods and other limitations.

Substantially all of the Borrowers' accounts receivable are automatically and promptly swept to repay amounts outstanding under the Restated Credit Agreement upon receipt by the Borrowers.

Due to this automatic liquidating nature of the Restated Credit Agreement, if the Borrowers breach any covenant, violate any representation or warranty or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion.

During the fiscal year ended January 31, 2022 and 2021, the impact of COVID-19 on liquidity was to moderate the seasonal increase in accounts receivable and production of inventory for summer delivery.

Seasonal increases in accounts receivable and inventory are traditionally financed through the Company’s line of credit with PNC Bank.

The Company's revolving line of credit with PNC is structured to provide seasonal credit availability during the Company's peak summer season.

Approximately $ 20,449,000 was available for borrowing as of January 31, 2022.

As of January 31, 2021, long-term debt repayments are approximately as follows (in thousands):

The long-term debt repayments have been adjusted to reflect the terms of Amendment No.

2 and are approximately as follow as of January 31, 2022 (in thousands):

Year ending January 31,

19 unchanged sentences

The Company takes the following factors into consideration:

discount rate, assumed rate of return and rate of increase in compensation.

discount rate, assumed rate of return, and plan settlements.

The discount rate represents an estimate of the rate of return on a portfolio of high-quality, fixed-income securities that would provide cash flows that match the expected benefit payment stream from the plans.

When setting the discount rate, the Company utilizes a spot-rate yield curve developed from high-quality bonds currently available which reflects changes in rates that have occurred over the past year.

When setting the discount rate, the

Company utilizes a spot-rate yield curve developed from high-quality bonds currently available which reflects changes in rates that have occurred over the past year.

This assumption is sensitive to movements in market rates that have occurred since the preceding valuation date, and therefore, may change from year to year.

16 unchanged sentences

At January 31, 2022, accumulated other comprehensive loss of approximately $ 6.0 million, net of tax, is attributable to the pension plans.

The Company does not anticipate making any significant changes to the pension assumptions in the near future.

If the Company were to have used different assumptions in the fiscal year ended January 31, 2021, a 1% reduction in investment return would have increased expense by approximately $ 210,000 , a 1% change in the rate of compensation increase would have no impact, and a 1% reduction in discount rates would cause obligations under the Plans to increase by approximately $ 6.7 million and increase pension expense by approximately $ 800,000 .

The following tables set forth (in thousands) the combined funded status of the Company’s pension plans at January 31, 2022 and 2021:

36 unchanged sentences

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income

Net loss $ 849 $ 7,885

Net (gain) loss $ ( 5,782 ) $ 849

Prior service cost — —

2 unchanged sentences

Amortization of initial asset — —

Total recognized in other comprehensive (loss) income $ ( 982 ) $ 7,109

Total recognized in other comprehensive loss $ ( 7,556 ) $ ( 982 )

Items to be Recognized as a Component of Periodic Pension Cost for next fiscal year

23 unchanged sentences

Total $ 29,140

Weighted Average Assumptions to Determine Benefit Obligations at

Weighted Average Assumptions to Determine Benefit Obligations at Year-End

Discount rate 3.20 % 2.75 % - 2.80 %

3.00 % - 3.05 %

Rate of compensation increase N/A N/A

1 unchanged sentence

Discount rate 2.75 % - 2.80 %

3.00 % - 3.05 %

Expected return on plan assets 6.00 % 6.00 %

83 unchanged sentences

These amounts are presented as a cash outflow from financing activities in the accompanying consolidated statement of cash flows.

The income tax (benefit) expense for the last two years is reconciled to the statutory federal income tax rates of 21 % for the tax years ended January 31, respectively, as follows (in thousands):

The income tax benefit for the last two years is reconciled to the statutory federal income tax rates of 21 % for the tax years ended January 31, is as follows (in thousands):

Statutory $ ( 782 ) $ ( 625 )

7 unchanged sentences

Return to provision ( 7 ) ( 13 )

Income tax (benefit) expense $ ( 744 ) $ 345

Significant components of the (benefit) expense for income taxes attributed to continuing operations are as follows for the years ended January 31 (in thousands):

Income tax expense (benefit) $ 11,408 $ ( 744 )

Significant components of the benefit for income taxes attributed to continuing operations are as follows for the years ended January 31, is as follows (in thousands):

Federal $ — $ —

2 unchanged sentences

State ( 256 ) ( 68 )

( 987 ) ( 623 )

Change in valuation allowance 12,303 ( 119 )

Income tax (benefit) expense $ ( 744 ) $ 345

Deferred tax assets and liabilities are comprised of the following as of January 31 (in thousands):

11,316 ( 742 )

Income tax expense (benefit) $ 11,408 $ ( 744 )

Deferred tax assets and liabilities are comprised of the following as of January 31, respectively, as follows (in thousands):

Deferred tax assets

18 unchanged sentences

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.

As a part of this evaluation, the Company assesses all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, the availability of tax carrybacks, tax-planning strategies, and results of recent operations (including cumulative losses in recent years), to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets.

On the basis of this evaluation, and after considering future reversals of existing taxable temporary differences and the effects of seasonality on the Company’s business, the Company determined that its U.S.

federal deferred tax assets are more likely than not to be realizable, but that valuation allowances of $ 1,064,000 are needed for certain state NOL’s to reduce the carrying amount of deferred tax assets to an amount that is more likely than not to be realized.

As a part of this evaluation, the Company assesses all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, the availability of tax carry backs, tax-planning strategies, and results of recent operations (including cumulative losses in recent years), to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets.

During 2022 and 2021 the Company incurred operating losses and when combined with operating results from 2020, the Company has incurred a cumulative operating loss for the last three years.

As a result, the Company has identified objective and verifiable negative evidence in the form of cumulative losses in the U.S.

and in certain state jurisdictions over the preceding twelve quarters ended January 31, 2022.

While the Company has taken significant measures to return to profitability, and order rates at the beginning of the year are favorable, the short-term outlook for the school furniture market is challenging, particularly relating to ongoing supply chain difficulties.

During the fourth quarter of the year ended January 31, 2022, based on this evaluation, and after considering future reversals of existing taxable temporary differences and the effects of seasonality on the Company’s business, 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.

Valuation allowances of $ 11,412,000 are needed for federal and certain state net operating loss carryforwards to reduce the carrying amount of deferred tax assets to an amount that is more likely than not to be realized.

At January 31, 2022, the Company has net operating loss carryforwards of approximately $ 12,513,000 for U.S.

federal, with no expirations, and $ 31,222,000 for state income tax purposes, expiring at various dates through January 31, 2041.

The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended January 31 (in thousands):

At January 31, 2021, the Company recorded a partial valuation allowance of $ 1,064,000 against its net deferred tax assets.

The net change in the valuation allowance for the year ended January 31, 2022, was a n increase of $ 10,348,000 and for the year ended January 31, 2021, was a decrease of $ 119,000 .

The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended January 31, respectively, as follows (in thousands):

Balances as of February 1, $ 54 $ 60

8 unchanged sentences

The year ended January 31, 2017 and subsequent years remain open for examination by the IRS and state tax authorities.

The Company is

currently under IRS examination for fiscal year ended January 31, 2016.

The Company is currently under IRS examination for fiscal year ended January 31, 2016.

The Company is not currently under state examinations.

2 unchanged sentences

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

The Company has performed an analysis of the impact of the CARES Act and have determined that the impact would not be significant.

There were several provisions of the CARES Act that impact Company's fiscal 2020 tax filings, but were not included in the determination of the tax provision due to the date of enactment after January 31, 2020.

The CARES Act provides single-employer pension companies additional time to meet the funding obligations.

The Company has deferred the timing of funding contributions to a new due date of January 1, 2021.

Consequently, the tax deduction related to such contributions will be deferred until the funding payment is made.

The CARES Act also modifies the limitation for business interest expense deduction.

The new limitation has increased from 30 to 50 percent of adjusted taxable income.

As of the issuance of this report, the Company continues to evaluate the impact of the CARES Act.

The Company has performed an analysis of the impact of the CARES Act and determined the impact is not significant.

Leases and Commitments

7 unchanged sentences

Lease expense for our operating leases is recognized on a straight-line basis over the lease term.

The Company has an operating lease for its corporate office, manufacturing and distribution facility located in Torrance, CA, currently with a remaining lease term through April 30, 2025.

The Company has an operating lease for its corporate office, manufacturing and distribution facility located in Torrance, CA, currently with a remaining lease term through December 2025.

The Company leases equipment under a 5 -year operating lease arrangement.

10 unchanged sentences

In accordance with ASC 842, quantitative information regarding our leases is as follows:

Twelve-Months Ended Twelve-months ended

Twelve-Months Ended

1/31/2022 1/31/2021

2 unchanged sentences

Short-term lease cost 332 263

Short-term sublease income ( 40 ) ( 40 )

Sublease income ( 40 ) ( 40 )

Variable lease cost 1,033 766

20 unchanged sentences

The Company is subject to contingencies pursuant to environmental laws and regulations that in the future may require the Company to take action to correct the effects on the environment of prior disposal practices or releases of chemical or petroleum substances by the Company or other parties.

The Company has a self-insured retention for product and general liability losses up to $ 250,000 per occurrence, workers’ compensation liability losses up to $ 250,000 per occurrence and automobile liability losses up to $ 50,000 per occurrence.

The Company has a self-insured retention for product liability losses up to $ 250,000 per occurrence, workers’ compensation liability losses up to $ 250,000 per occurrence, general liability losses up to $ 50,000 and automobile liability losses up to $ 50,000 per occurrence.

The Company has purchased insurance to cover losses in excess of the retention up to a limit of $ 30,000,000 .

4 unchanged sentences

Year ending January 31,

Thereafter 75

Total $ 1,235

16 unchanged sentences

Subsequent Events

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

As discussed in Note 3, the Company executed Amendment No.

2 to the Restated Credit Agreement.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data