Annual Report (10-k)

Date : 07/11/2019 @ 9:23PM
Source : Edgar (US Regulatory)
Stock : Kewaunee Scientific Corporation (KEQU)
Quote : 15.8905  0.4905 (3.19%) @ 3:51PM

Annual Report (10-k)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-K
__________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-5286
__________________________

KLOGOCOLOR256X256K.JPG
KEWAUNEE SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
__________________________
Delaware
 
38-0715562
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
 
2700 West Front Street
Statesville, North Carolina
 
28677-2927
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (704) 873-7202
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Exchange on which  registered
Common Stock $2.50 par value
KEQU
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: None
__________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act: (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
☐  (Do not check if a smaller reporting company)
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).    Yes  ☐    No  ☒
The aggregate market value of shares of voting stock held by non-affiliates of the registrant was approximately $71,664,159 based on the last reported sale price of the registrant’s Common Stock on October 31, 2018, the last business day of the registrant’s most recently completed second fiscal quarter. Only shares beneficially owned by directors of the registrant (excluding shares subject to options) and each person owning more than 10% of the outstanding Common Stock of the registrant were excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of July 8, 2019 , the registrant had outstanding 2,750,009 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: Those portions of the Company’s proxy statement for use in connection with Kewaunee Scientific Corporation’s annual meeting of stockholders to be held on August 28, 2019, indicated in this report are incorporated by reference into Part III hereof.
 




Table of Contents
 
Page or
Reference
 
 
 
 
 
 
 
 

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PART I
Item 1. Business
GENERAL
Kewaunee Scientific Corporation was founded in 1906, incorporated in Michigan in 1941, became publicly-held in 1968, and was reincorporated in Delaware in 1970. Our principal business is the design, manufacture, and installation of laboratory, healthcare, and technical furniture and infrastructure products. Our products include steel, wood, and laminate furniture, fume hoods, biological safety cabinets, laminar flow and ductless hoods, adaptable modular and column systems, moveable workstations and carts, epoxy resin worksurfaces, sinks, and accessories and related design services.
Our products are sold primarily through purchase orders and contracts submitted by customers through our dealers and commissioned agents and a national distributor, as well as through competitive bids submitted by us and our subsidiaries in Singapore, India and China. Products are sold principally to pharmaceutical, biotechnology, industrial, chemical and commercial research laboratories, educational institutions, healthcare institutions, governmental entities, and manufacturing facilities. We consider the markets in which we compete to be highly competitive, with a significant amount of the business involving competitive public bidding.
It is common in the laboratory and healthcare furniture industries for customer orders to require delivery at extended future dates, as products are frequently to be installed in buildings yet to be constructed. Changes or delays in building construction may cause delays in delivery of the orders and our recognition of the sale. Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor and material costs between quotation of an order and delivery of the product. The impact of such possible increases is considered when determining the sales price. The principal raw materials and products manufactured by others and used by us in our products are cold-rolled carbon and stainless steel, hardwood lumber and plywood, paint, chemicals, resins, hardware, plumbing and electrical fittings. Such materials and products are purchased from multiple suppliers and are typically readily available.
Our need for working capital and our credit practices are comparable to those of other companies manufacturing, selling and installing similar products in similar markets. Since our products are used in building construction projects, in many cases payments for our products are received over longer periods of time than payments for many other types of manufactured products, thus requiring increased working capital. In addition, payment terms associated with certain projects provide for a retention amount until final completion of the project, thus also increasing required working capital. On average, payments for our products are received during the quarter following shipment, with the exception of the retention amounts which are collected at the final completion of the project.
We hold various patents and patent rights, but do not consider that our success or growth is dependent upon our patents or patent rights. Our business is not dependent upon licenses, franchises, concessions, trademarks, royalty agreements, or labor contracts.
Our business is not generally cyclical, although domestic sales are sometimes lower during our third quarter because of slower construction activity in certain areas of the country during the winter months. Sales for three of the Company’s domestic dealers represented in the aggregate approximately 34% and 33%, of the Company’s sales in fiscal years 2019 and 2018, respectively. Loss of all or part of our sales to a large customer would have a material effect on our revenues and profits.
Our order backlog at April 30, 2019 was $100.8 million, as compared to $116.3 million at April 30, 2018 . Based on scheduled shipment dates and past experience, we estimate that not less than 90% of our order backlog at April 30, 2019 will be shipped during fiscal year 2020 . However, it may reasonably be expected that delays in shipments will occur because of customer rescheduling or delay in completion of projects which involve the installation of our products.
SEGMENT INFORMATION
See Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for information concerning our Domestic and International business segments.
COMPETITION
We consider the industries in which we participate to be highly competitive and believe that the principal deciding factors are price, product performance, and customer service. A significant portion of our business is based upon competitive public bidding.

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RESEARCH AND DEVELOPMENT
The amount spent and expensed by us during the fiscal year ended April 30, 2019 on research and development activities related to new or redesigned products was $1,550,000. The amounts spent for similar purposes in the fiscal year ended April 30, 2018 was $1,537,000.
ENVIRONMENTAL COMPLIANCE
In the last two fiscal years, compliance with federal, state, or local provisions enacted or adopted regulating the discharge of materials into the environment has had no material effect on us. There is no material capital expenditure anticipated for such purposes, and accordingly, such regulation is not expected to have a material effect on our earnings or competitive position.
EMPLOYEES
At April 30, 2019 , the Company had the following number of full-time employees:
593 (Domestic); 263 (International).
OTHER INFORMATION
Our Internet address is www.kewaunee.com . We make available, free of charge through this website, our annual report to stockholders. Our Form 10-K and 10-Q financial reports may be obtained by stockholders by writing the Secretary of the Company, Kewaunee Scientific Corporation, P.O. Box 1842, Statesville, NC 28687-1842. The public may also obtain information on our reports, proxy, and information statements at the SEC Internet site www.sec.gov . The reference to our website does not constitute incorporation by reference of any information contained at that site.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements included and referenced in this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that could significantly impact results or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices, as well as prices for certain raw materials and energy. The cautionary statements made by us pursuant to the Reform Act herein and elsewhere should not be construed as exhaustive. We cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. In addition, readers are urged to consider statements that include the terms “believes,” “belief,” “expects,” “plans,” “objectives,” “anticipates,” “intends” or the like to be uncertain and forward-looking.
EXECUTIVE OFFICERS OF THE REGISTRANT
Included in Part III, Item 10(b) of this Annual Report on Form 10-K.
Item 1A. Risk Factors
You should carefully consider the following risks before you decide to buy shares of our common stock. If any of the following risks actually occur, our business, results of operations, or financial condition would likely suffer. In such case, the trading price of our common stock would decline, and you may lose all or part of the money you paid to buy our stock.
This and other public reports may contain forward-looking statements based on current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those forward-looking statements as a result of many factors, including those more fully described below and elsewhere in our public reports. We do not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Disruptions in the financial markets have historically created, and may continue to create, uncertainty in economic conditions that may adversely affect our customers and our business.
The financial markets in the United States, Europe and Asia have in the past been, and may in the future be, volatile. The tightening of credit in financial markets, worsening of economic conditions, a prolonged global, national or regional economic recession or other similar events could have a material adverse effect on the demand for our products and on our sales, pricing and profitability. We are unable to predict the likely occurrence or duration of these adverse economic conditions and the impact these events may have on our operations and the laboratory furniture industry in general.

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If we fail to compete effectively, our revenue and profit margins could decline.
We face a variety of competition in all of the markets in which we participate. Competitive pricing, including price competition or the introduction of new products, could have material adverse effects on our revenues and profit margins.
Our ability to compete effectively depends to a significant extent on the specification or approval of our products by architects, engineers, and customers. If a significant segment of those communities were to decide that the design, materials, manufacturing, testing, or quality control of our products is inferior to that of any of our competitors, our sales and profits would be materially and adversely affected.
If we lose a large customer, our sales and profits would decline.
We have substantial sales to three of our domestic dealers. The combined sales to these three dealers accounted for approximately 34% of our sales in fiscal year 2019 . Loss of all or a part of our sales to a large customer would have a material effect on our revenues and profits.
An increase in the price of raw materials and energy could negatively affect our sales and profits.
It is common in the laboratory and healthcare furniture industries for customers to require delivery at extended future dates, as products are frequently to be installed in buildings yet to be constructed. Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor, material and energy costs between the quotation of an order and the delivery of the products. Our principal raw materials are steel, including stainless steel, wood and epoxy resin. Numerous factors beyond our control, such as general economic conditions, competition, worldwide demand, labor costs, energy costs, and import duties and other trade restrictions, influence prices for our raw materials. We have not always been able, and in the future we might not be able, to increase our product prices in amounts that correspond to increases in costs of raw materials, without materially and adversely affecting our sales and profits. Where we are not able to increase our prices, increases in our raw material costs will adversely affect our profitability.
Our future growth may depend on our ability to penetrate new international markets.
International laws and regulations, construction customs, standards, techniques and methods differ from those in the United States. Significant challenges of conducting business in foreign countries include, among other factors, geopolitical tensions, local acceptance of our products, political instability, currency controls, changes in import and export regulations, changes in tariff and freight rates and fluctuations in foreign exchange rates.
Events outside our control may affect our operating results.
We have little control over the timing of shipping customer orders, as customers’ required delivery dates are subject to change by the customer. Construction delays and customer changes to product designs are among the factors that may delay the start of manufacturing and shipments of orders. Shipments that we anticipate in one quarter may occur in another quarter, affecting both quarters’ results. Weather conditions, such as unseasonably warm, cold, or wet weather, can also affect and sometimes delay projects. Political and economic events can also affect our revenues. When sales do not meet our expectations, our operating results will be reduced for the relevant quarters.
Our principal markets are in the laboratory building construction industry. This industry is subject to significant volatility due to various factors, none of which is within our control. Declines in construction activity or demand for our products could materially and adversely affect our business and financial condition.
We depend on key management and technical personnel, the loss of whom could harm our business.
We depend on certain key management and technical personnel. The loss of one or more key employees may materially and adversely affect us. Our success also depends on our ability to attract and retain additional highly qualified technical, marketing, and management personnel necessary for the maintenance and expansion of our activities. We might not be able to attract or retain such personnel.
Our stock price is likely to be volatile and could drop.
The trading price of our Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variation in operating results, announcement of technological innovations or new products by us or our competitors, general conditions in the construction and construction materials industries, relatively low trading volume in our common stock and other events or factors. In addition, in recent years, the stock market has experienced extreme price fluctuations. This volatility has had a substantial effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of those companies. Securities market fluctuations may adversely affect the market price of our common stock.

5


The Patient Protection and Affordable Care Act may increase the cost of providing medical benefits to employees, which could have a significant adverse impact on our results of operations.
We maintain a self-insured healthcare plan for our employees. We have insurance coverage in place for aggregate claims above a specified amount in any year. The Patient Protection and Affordable Care Act, and state legislation in the states in which we operate, may cause the cost of providing medical insurance to our employees to increase. We have experienced increased costs related to the health care reform legislation.
We are subject to other risks that might also cause our actual results to vary materially from our forecasts, targets, or projections, including:
Failing to anticipate the need for, appropriately invest in and effectively manage the human, information technology and logistical resources necessary to support our business, including managing the costs associated with such resources;
Increased costs, and the need to devote additional resources to comply with more stringent SEC reporting requirements if we become an “accelerated filer” under applicable SEC rules;
Failing to generate sufficient future positive operating cash flows and, if necessary, secure adequate external financing to fund our growth; and
Interruptions in service by common carriers that ship goods within our distribution channels.
Cybersecurity incidents could expose us to liability and damage our reputation and our business.
We collect, process, store, and transmit large amounts of data, and it is critical to our business strategy that our facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Our information technology systems are essential to our efforts to manufacture our products, process customer sales transactions, manage inventory levels, conduct business with our suppliers and other business partners, and record, summarize and analyze the results of our operations. These systems contain, among other things, material operational, financial and administrative information related to our business. As with most companies there will always be some risk of physical or electronic break-ins, computer viruses, or similar disruptions.
In addition, we, like all entities, are the target of cybercriminals who attempt to compromise our systems. From time to time, we experience threats and intrusions that may require remediation to protect sensitive information, including our intellectual property and personal information, and our overall business. Any physical or electronic break-in, computer virus, cybersecurity attack or other security breach or compromise of the information handled by us or our service providers may jeopardize the security or integrity of information in our computer systems and networks or those of our customers and cause significant interruptions in our and our customers’ operations.
Any systems and processes that we have developed that are designed to protect customer, associate and vendor information, and intellectual property, and to prevent data loss and other security attacks, cannot provide absolute security. In addition, we may not successfully implement remediation plans to address all potential exposures. It is possible that we may have to expend additional financial and other resources to address these problems. Failure to prevent or mitigate data loss or other security incidents could expose us or our customers, associates and vendors to a risk of loss or misuse of such information, cause customers to lose confidence in our data protection measures, damage our reputation, adversely affect our operating results or result in litigation or potential liability for us. While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, this insurance coverage is subject to a retention amount and may not be applicable to a particular incident or otherwise may be insufficient to cover all our losses beyond any retention. Similarly, we expect to continue to make continued investments in our information technology infrastructure. The implementation of these investments may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact our financial position, results of operations or cash flows.
Internal Controls Over Financial Reporting.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect material misstatements in the Company's financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.
The U.S. government has indicated its intent to adopt a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements, such as the North American Free Trade

6


Agreement (“NAFTA”). It has also initiated tariffs on certain foreign goods and has raised the possibility of imposing significant, additional tariff increases or expanding the tariffs to capture other types of goods. In response, certain foreign governments have imposed retaliatory tariffs on goods that their countries import from the U.S. Changes in U.S. trade policy could result in one or more foreign governments adopting responsive trade policies making it more difficult or costly for us to import our products or raw materials from those countries. This, together with tariffs already imposed, or that may be imposed in the future, by the U.S., could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on products sold.
We cannot predict the extent to which the U.S. or other countries will impose quotas, duties, tariffs, taxes or other similar restrictions upon the import or export of our products or raw materials in the future, nor can we predict future trade policy or the terms of any renegotiated trade agreements and their impact on our business. The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material adverse effect on our business, financial condition and results of operations.
Item 2. Properties
We own and operate three adjacent manufacturing facilities in Statesville, North Carolina. These facilities also house our corporate offices, as well as sales and marketing, administration, engineering and drafting personnel. These facilities together comprise 413,000 square feet and are located on 20 acres of land. In addition, we lease our primary distribution facility and other warehouse facilities totaling 376,000 square feet in Statesville, North Carolina. We lease sales offices in Naperville, Illinois; Branchburg, New Jersey; Shanghai, China; and Singapore. In Bangalore, India we lease and operate a manufacturing facility comprising 83,000 square feet and a facility comprising 17,000 square feet that houses sales and administrative offices. We believe our facilities are suitable for their respective uses and are adequate for our current needs.
Item 3. Legal Proceedings
From time to time, we are involved in disputes and litigation relating to claims arising out of our operations in the ordinary course of business. Further, we are periodically subject to government audits and inspections. We believe that any such matters presently pending will not, individually or in the aggregate, have a material adverse effect on our results of operations or financial condition.
Item 4. Mine Safety Disclosures
Not Applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the NASDAQ Global Market, under the symbol KEQU. The following table sets forth the quarterly high and low prices reported on the NASDAQ Global Market for our stock over the last two fiscal years.
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
2019
 
 
 
 
 
 
 
High
$38.80
 
$35.05
 
$34.84
 
$32.70
Low
$30.50
 
$25.97
 
$22.00
 
$20.21
Close
$31.60
 
$29.21
 
$32.16
 
$22.63
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
High
$25.75
 
$31.20
 
$30.67
 
$34.95
Low
$22.75
 
$25.10
 
$24.56
 
$25.15
Close
$25.37
 
$28.50
 
$28.80
 
$34.95
As of July 8, 2019, we estimate there were approximately 2,000 holders of our common shares, of which 128 were stockholders of record. We paid cash dividends per share of $0.74 and $0.66 for fiscal years 2019 and 2018, respectively. We expect to pay a dividend in the future in line with our actual and anticipated future operating results. The declaration and payment of future dividends under the quarterly dividend policy will be at the discretion of the Board of Directors and will depend upon

7


many factors, including the Company’s earnings, capital requirements, financial conditions, the terms of the Company’s indebtedness and other factors that the Board of Directors may deem to be relevant.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
See Item 12 in this Form 10-K for a discussion of securities authorized for issuance under our equity compensation plans.

Item 6. Selected Financial Data
The following tables set forth selected historical consolidated financial and other data for the periods indicated. The consolidated financial data should be read in conjunction with Item 8, Financial Statements and Supplementary Data, and with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Information for 2018 has been adjusted, as explained in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
 
 
$ and shares in thousands, except per share amounts
2019
 
2018 As Adjusted
 
 
OPERATING STATEMENT DATA:
 
 
 
 
 
Net sales
$
146,550

 
$
158,050

 
 
Cost of products sold
121,231

 
125,891

 
 
Gross profit
25,319

 
32,159

 
 
Operating expenses
23,207

 
22,240

 
 
Operating earnings
2,112

 
9,919

 
 
Other income (expense), net
389

 
(1
)
 
 
Interest expense
(367
)
 
(299
)
 
 
Earnings before income taxes
2,134

 
9,619

 
 
Income tax expense
446

 
4,161

 
 
Net earnings
1,688

 
5,458

 
 
Less: net earnings attributable to noncontrolling interest
159

 
177

 
 
Net earnings attributable to Kewaunee Scientific Corporation
$
1,529

 
$
5,281

 
 
Weighted average shares outstanding:
 
 
 
 
 
Basic
2,742

 
2,720

 
 
Diluted
2,794

 
2,777

 
 
PER SHARE DATA:
 
 
 
 
 
Net earnings attributable to Kewaunee Scientific Corporation stockholders
 
 
 
 
 
Basic
$
0.56

 
$
1.94

 
 
Diluted
$
0.55

 
$
1.90

 
 
Cash dividends
$
0.74

 
$
0.66

 
 
Year-end book value
$
17.15

 
$
17.46

 
 

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As of April 30
$ in thousands
2019
 
2018  As Adjusted  
 
BALANCE SHEET DATA:
 
 
 
 
Current assets
$
65,357

 
$
64,391

 
Current liabilities
32,733

 
27,616

 
Net working capital
32,624

 
36,775

 
Net property, plant and equipment
16,462

 
14,661

 
Total assets
87,223

 
85,083

 
Total borrowings/long-term debt
10,926

 
6,316

 
Kewaunee Scientific Corporation stockholders’ equity
$
47,100

 
$
47,730

 
OTHER DATA:
 
 
 
 
Capital expenditures
$
4,213

 
$
3,395

 
Year-end stockholders of record
128

 
139

 
Year-end full-time employees (Domestic)
593

 
588

 
Year-end full-time employees (International)
263

 
232

 



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this document constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). All statements other than statements of historical fact included in this Annual Report, including statements regarding the Company’s future financial condition, results of operations, business operations and business prospects, are forward-looking statements. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “predict,” “believe” and similar words, expressions and variations of these words and expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions, and other important factors that could significantly impact results or achievements expressed or implied by such forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to, competitive and general economic conditions, both domestically and internationally; changes in customer demands; technological changes in our operations or in our industry; dependence on customers’ required delivery schedules; risks related to fluctuations in the Company’s operating results from quarter to quarter; risks related to international operations, including foreign currency fluctuations; changes in the legal and regulatory environment; changes in raw materials and commodity costs; and acts of terrorism, war, governmental action, natural disasters and other Force Majeure events. The cautionary statements made pursuant to the Reform Act herein and elsewhere by us should not be construed as exhaustive. We cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. Over time, our actual results, performance, or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and harmful to our stockholders’ interest. Many important factors that could cause such a difference are described under the caption “Risk Factors,” in Item 1A of this Annual Report, which you should review carefully.
MANAGEMENT’S DISCUSSION AND ANALYSIS
INTRODUCTION
Kewaunee Scientific Corporation is a recognized leader in the design, manufacture and installation of laboratory, healthcare and technical furniture products. The Company’s corporate headquarters are located in Statesville, North Carolina. Direct sales offices are located in the United States, India, Singapore, and China. Three manufacturing facilities are located in Statesville serving the domestic and international markets, and one manufacturing facility is located in Bangalore, India serving the Indian, Middle East and Asian markets. Kewaunee Scientific Corporation’s website is located at www.kewaunee.com .
Our products are primarily sold through purchase orders and contracts submitted by customers through our dealers and commissioned agents, a national distributor, and through competitive bids submitted by us and our subsidiaries. Products are sold

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principally to pharmaceutical, biotechnology, industrial, chemical and commercial research laboratories, educational institutions, healthcare institutions, governmental entities, manufacturing facilities and users of networking furniture. We consider the markets in which we compete to be highly competitive, with a significant amount of the business involving competitive public bidding.
It is common in the laboratory and healthcare furniture industries for customer orders to require delivery at extended future dates, as products are frequently to be installed in buildings yet to be constructed. Changes or delays in building construction may cause delays in delivery of the orders and our recognition of the sale. Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor and material costs between quotation of an order and delivery of the product. The impact of such possible increases is considered when determining the sales price. The principal raw materials and products manufactured by others used in our products are cold-rolled carbon and stainless steel, hardwood lumbers and plywood, paint, chemicals, resins, hardware, plumbing and electrical fittings. Such materials and products are purchased from multiple suppliers and are typically readily available.
CRITICAL ACCOUNTING POLICIES
In the ordinary course of business, we have made estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America. Actual results could differ significantly from those estimates. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations, and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition
The Company recognizes revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The majority of the Company’s revenues are recognized over time as the customer receives control as the Company performs work under a contract. However, a portion of the Company’s revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract.
Allowance for Doubtful Accounts
Evaluation of the allowance for doubtful accounts involves management judgments and estimates. We evaluate the collectability of our trade accounts receivable based on a number of factors. In circumstances where management is aware of a customer’s inability to meet its financial obligations to us, or a project dispute makes it unlikely that all of the receivable owed by a customer will be collected, a specific reserve for bad debts is estimated and recorded to reduce the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, a general reserve for bad debts is estimated and recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding.
Inventories
The Company’s inventories are valued at the lower of cost or net realizable value. Prior to August 1, 2018, the Company’s Domestic segment’s inventories were valued under the last-in, first-out (“LIFO”) valuation method. On August 1, 2018, the Company changed its method of valuing inventory for the Domestic segment from LIFO to first-in, first-out (“FIFO”). The Company believes that this method change to FIFO will improve financial reporting by better reflecting the current value of inventory on the consolidated balance sheet, more closely aligning the flow of physical inventory with the accounting for the inventory, and providing better matching of revenues and expenses. Inventories at our International subsidiaries are, and remain, measured on the FIFO method.
Pension Benefits
We sponsor pension plans covering all employees who met eligibility requirements as of April 30, 2005. These pension plans were amended as of April 30, 2005, no further benefits have been, or will be, earned under the plans subsequent to the amendment date, and no additional participants have been, or will be, added to the plans. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the pension plans. These factors include assumptions about the discount rate used to calculate and determine benefit obligations and the expected return on plan assets within certain guidelines. The actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. These differences may significantly affect the amount of pension income or expense recorded by us in future periods.
Self-Insurance Reserves

10


The Company’s domestic operations are self-insured for employee health care. The Company has purchased specific stop-loss insurance to limit claims above a certain amount. Estimated medical costs were accrued for claims incurred but not reported (“IBNR”) using assumptions based upon historical loss experiences. The Company’s exposure reflected in the self-insurance reserves varies depending upon market conditions in the insurance industry, availability of cost-effective insurance coverage, and actual claims versus estimated future claims.
RESULTS OF OPERATIONS
Sales for fiscal year 2019 were $146.6 million, a decrease of 7.3% from fiscal year 2018 sales of $158.1 million. Domestic sales for fiscal year 2019 were $116.6 million, an increase of 1.7% compared to fiscal year 2018 sales of $114.6 million. International sales for fiscal year 2019 were $30.0 million, a decrease of 31.0% from fiscal year 2018 sales of $43.5 million. The decrease in International sales for fiscal year 2019 is primarily due to the year-over-year decline in sales in the Middle East region. In fiscal year 2018, Kewaunee’s International segment delivered the single largest order ever awarded to Kewaunee for the College of Science complex for Kuwait University's Sabah Al Salem University City, which continues to affect the comparison of operating performance of the International segment in the current fiscal year.
Our order backlog was $100.8 million at April 30, 2019, as compared to $116.3 million at April 30, 2018.
Gross profit represented 17.3% and 20.4% of sales in fiscal years 2019 and 2018, respectively. The decrease in gross profit margin percentage was primarily due to an unfavorable shift in product mix, and year-over-year decline in sales, as well as continued increases in raw material and freight costs which negatively affected margins compared to the prior period. The unfavorable impact due to year-over-year increases in steel and resin material costs was approximately $2.1 million dollars.
Operating expenses were $23.2 million and $22.2 million in fiscal years 2019 and 2018, respectively, and 15.8% and 14.1% of sales, respectively. The increase in operating expense dollars in fiscal year 2019 as compared to fiscal year 2018 is related primarily to management separation expenses of $502,000, audit and tax services of $637,000, and an increase of $893,000 in operating expense for the Company’s International operations, partially offset by a decrease in incentive compensation of $1.2 million.
Other income (expense) was $389,000 and ($1,000) in fiscal years 2019 and 2018, respectively. The increase in other income in fiscal year 2019 was primarily due to the decrease in pension plan expense as discussed in Note 9 of the Notes to the Consolidated Financial Statements included in Item 8.
Interest expense was $367,000 and $299,000 in fiscal years 2019 and 2018, respectively. The increase in interest expense for fiscal year 2019 was primarily due to increases in the levels of bank borrowings.
Domestic pre-tax earnings were impacted by a significant decline in the Company’s operating volumes during the second half of the fiscal year which resulted in the Company operating at levels below the rate we believe is necessary to generate favorable financial results. The Company's financial results were unfavorably impacted by shifts in the manufacturing demand which occurred more rapidly than the Company's ability to reduce its fixed cost structure. Profitability was also impacted by higher raw material costs in steel and resin that we were not able to pass along to customers.  International pre-tax earnings were impacted by the year-over-year decline in sales as well as the year-over-year decline in the exchange rate of the Indian rupee versus the US dollar.  Finally, profitability was impacted by one-time non-operating costs related to management changes.
Income tax expense was $446,000 and $4,161,000 in fiscal years 2019 and 2018, respectively, or 20.9% and 43.3% of pretax earnings, respectively. The effective tax rate decreased in fiscal year 2019, primarily due to the effect of the enactment of the Tax Cuts and Jobs Act ("2017 Tax Act"). The effective rate increased in fiscal year 2018 primarily due to the enactment of the 2017 Tax Act which imposed a one-time transition tax on the unrepatriated earnings of our foreign subsidiaries. The impact of this one-time transition tax recorded for fiscal year 2018 was $649,000.
Net earnings attributable to the noncontrolling interest related to our subsidiaries that are not 100% owned by the Company were $159,000 and $177,000 for fiscal years 2019 and 2018, respectively. The changes in the net earnings attributable to the noncontrolling interest for each year were due to changes in the levels of net income of the subsidiaries.
Net earnings in fiscal year 2019 were $1,529,000, or $0.55 per diluted share. Net earnings in fiscal year 2018 were $5,281,000, or $1.90 per diluted share. The decrease in earnings was attributable to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity have historically been funds generated from operating activities, supplemented as needed by borrowings under our revolving credit facility. Additionally, certain machinery and equipment are financed by non-cancelable operating leases. We believe that these sources of funds will be sufficient to support ongoing business requirements, including capital expenditures, through fiscal year 2020.

11


At April 30, 2019, we had advances of $9.5 million and standby letters of credit aggregating $5.2 million outstanding under our unsecured $20 million revolving credit facility. On June 19, 2019 we entered into a Security Agreement pursuant to which we granted a security interest in substantially all of our assets to secure our obligations under the credit facility. See Note 4 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report for additional information concerning our credit facility. We did not have any off balance sheet arrangements at April 30, 2019.
The following table summarizes the cash payment obligations for our lease arrangements and long-term debt as of April 30, 2019:
PAYMENTS DUE BY PERIOD
($ in thousands)
Contractual Cash Obligations
Total
 
1 Year
 
2-3 Years
 
4-5 Years
 
After 5 years
Operating Leases
$
5,565

 
$
1,246

 
$
1,602

 
$
981

 
$
1,736

Long-term Debt and Capital Lease Obligations
1,413

 
1,185

 
138

 
50

 
40

Total Contractual Cash Obligations
$
6,978

 
$
2,431

 
$
1,740

 
$
1,031

 
$
1,776

Operating activities provided cash of $2,490,000 in fiscal year 2019, primarily from operating earnings, and a decrease in inventories, partially offset by increases in receivables, and decreases in deferred revenue. Operating activities provided cash of $3,183,000 in fiscal year 2018, primarily from operating earnings, and an increase in accounts payable and other accrued expenses, partially offset by increases in receivables, inventories, and deferred revenue.
The Company’s financing activities provided cash of $2,334,000 during fiscal year 2019 as a result of an increase in short-term borrowings of $5,628,000, which was partially utilized for cash dividends of $2,030,000 paid to stockholders, cash dividends of $51,000 paid to minority interest holders and repayment of long-term debt of $1,177,000. The Company’s financing activities used cash of $2,484,000 during fiscal year 2018 for cash dividends of $1,794,000 paid to stockholders, cash dividends of $74,000 paid to minority interest holders, and repayment of long-term debt of $918,000, partially offset by an increase in short-term borrowings of $294,000. See Note 4 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report for additional information concerning our credit facility.
The majority of the April 30, 2019 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2020, with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner.
As discussed above, no further benefits have been, or will be, earned under our pension plans after April 30, 2005, and no additional participants have been, or will be, added to the plans. We do not expect to make any contributions to the plans in fiscal year 2020. We made contributions of $1,000,000 and $600,000 to the plans in fiscal years 2019 and 2018, respectively.
Capital expenditures were $4.2 million and $3.4 million in fiscal years 2019 and 2018, respectively. Capital expenditures in fiscal year 2019 were funded primarily from operations. Fiscal year 2020 capital expenditures are anticipated to be approximately $2.5 million, with the majority of these expenditures for manufacturing equipment and facilities improvements. The fiscal year 2020 expenditures are expected to be funded primarily by operating activities, supplemented as needed by borrowings under our revolving credit facility.
Working capital was $32.6 million at April 30, 2019, down from $36.8 million at April 30, 2018, and the ratio of current assets to current liabilities was 2.0-to-1.0 at April 30, 2019 and 2.3-to-1.0 at April 30, 2018. The decrease in working capital for fiscal year 2019 was primarily due to the increase in current liabilities related to the outstanding line of credit at year end along with the decrease in inventories, partially offset by an increase in cash and receivables.
We paid cash dividends of $0.74 per share in fiscal year 2019. We paid cash dividends of $0.66 per share in fiscal year 2018. We expect to pay a dividend in the future in line with our actual and anticipated future operating results. The declaration and payment of future dividends under the quarterly dividend policy will be at the discretion of the Board of Directors and will depend upon many factors, including the Company’s earnings, capital requirements, financial conditions, the terms of the Company’s indebtedness and other factors that the Board of Directors may deem to be relevant.
 
RECENT ACCOUNTING STANDARDS
New Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). This update outlined a new comprehensive revenue recognition model that

12


supersedes most prior revenue recognition guidance and required companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflected the consideration to which the entity expected to be entitled in exchange for those goods or services. The Company adopted this standard effective May 1, 2019. See Note 2 of the Notes to Consolidated Financial Statements included in Item 8 for a discussion of the impact of the adoption of this standard.
In July 2015, the FASB issued ASU 2015-11, “Inventory—Simplifying the Measurement of Inventory.” This guidance changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company adopted this standard effective May 1, 2017. The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.
In February 2016, the FASB issued ASU 2016-02, “Leases.” This guidance establishes a right-of-use (ROU) model that requires a lessee to record a 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 will adopt this standard in fiscal year 2020. Based on the Company's assessment to date, the Company expects that the adoption of ASU 2016-02 will result in the recognition of right-to-use assets and corresponding lease liabilities with a material impact on the Company's consolidated financial position and an immaterial impact on the Company's consolidated results of operations and cash flows.
In March 2016, the FASB issued ASU 2016-09, “Stock Compensation—Improvements to Employee Share-Based Payment Accounting.” This guidance simplifies various aspects related to how share-based payments are accounted for and presented in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company adopted this standard effective May 1, 2017. Prior periods were not retrospectively adjusted. The adoption of this standard 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. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company will adopt this standard in fiscal year 2021. 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.
In August 2016, the FASB issued ASU 2016-15, “Cash Flow Classification of Certain Cash Receipts and Cash Payments,” which clarifies guidance on classification of certain transactions in the statement of cash flows, including classification of debt prepayments, debt extinguishment costs and contingent consideration payments after a business combination. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company adopted this standard effective May 1, 2018. The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows—Restricted Cash,” which requires that the statement of cash flows reconcile the change during the period in total cash, cash equivalents and restricted cash. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company adopted this standard effective May 1, 2018. The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.
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 will adopt this standard in fiscal year 2021. The Company does not expect the adoption of this standard to have any impact on the Company’s consolidated financial position or results of operations.
In March 2017, the FASB issued ASU 2017-07, “Compensation—Retirement Benefits—Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that the service cost component of net periodic pension cost is presented in the same line as other compensation costs arising from services rendered by the respective employees during the year. The other components of net periodic pension cost are required to be presented in the income statement separately from the service cost component and outside of earnings from operations. This guidance allows for the service cost component to be eligible for capitalization when applicable. This guidance is effective for fiscal years, and interim

13


periods within those years, beginning after December 15, 2017. The Company adopted this standard effective May 1, 2018 using the full retrospective approach. The Company reclassified $694,000 of non-service components of net benefits cost to other (income)/expense, net from operating expenses on the Consolidated Statements of Operations. During 2019, the Company recorded $295,000 of non-service components of net benefits cost to other (income)/expense, net.
In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation—Scope of Modification Accounting.” This guidance was issued in an effort to reduce diversity in practice as it relates to applying modification accounting for changes to the terms and conditions of share-based payment awards. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard effective May 1, 2018. 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 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 will adopt this standard in fiscal year 2020. 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.
OUTLOOK
Financial Outlook
The Company’s ability to predict future demand for its products continues to be limited given its role as subcontractor or supplier to dealers for subcontractors. Demand for the Company’s products is also dependent upon the number of laboratory construction projects planned and/or current progress in projects already under construction. The Company’s earnings are also impacted by fluctuations in prevailing pricing for projects in the laboratory construction marketplace and increased costs of raw materials, including stainless steel, wood, and epoxy resin, and whether the Company is able to increase product prices to customers in amounts that correspond to such increases without materially and adversely affecting sales. Additionally, since prices are normally quoted on a firm basis in the industry, the Company bears the burden of possible increases in labor and material costs between the quotation of an order and delivery of a product. Looking forward, the Company is optimistic in its ability to secure the volumes necessary to return to profitability, and that fiscal year 2020 will result in sales and earnings growth.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rates
We are exposed to market risk in the area of interest rates. This exposure is associated with advances outstanding under our bank line of credit and certain lease obligations for production machinery, all of which are priced on a floating rate basis. Advances outstanding under the bank line of credit were $9.5 million at April 30, 2019. 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. We believe that our current exposure to interest rate market risk is not material. As a result of the swaps described above, at April 30, 2019 we had a total of $9.5 million of outstanding debt bearing interest at floating rates.
Foreign Currency Exchange Rates
Our results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. We derive net sales in U.S. dollars and other currencies including Indian rupees, Chinese renminbi, Singapore dollars, or other currencies. For fiscal 2019, 20% of net sales were derived in currencies other than U.S. dollars. We incur expenses in currencies other than U.S. dollars relating to specific contracts with customers and for our operations outside the U.S.
Over the long term, net sales to international markets are expected to increase as a percentage of total net sales and, consequently, a greater portion of our business could be denominated in foreign currencies. As a result, operating results may become more subject to fluctuations based upon changes in the exchange rates of certain currencies in relation to the U.S. dollar. To the extent we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make

14


our products less competitive in international markets. This effect is also impacted by sources of raw materials from international sources and costs of our sales, service, and manufacturing locations outside the U.S.
We have foreign currency cash accounts to operate our global business. These accounts are impacted by changes in foreign currency rates. Cash balances at April 30, 2019 of $11.1 million were held by our foreign subsidiaries and denominated in currencies other than U.S. dollars.


15


Item 8. Financial Statements and Supplementary Data

16


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Kewaunee Scientific Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Kewaunee Scientific Corporation and subsidiaries (the Company) as of April 30, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the two years in the period ended April 30, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at April 30, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2019, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Notes 1 and 3 to the consolidated financial statements, effective August 1, 2018, the Company elected to change its method of accounting for its domestic inventory from the last-in, first-out method, to the first-in, first out method. 
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Charlotte, North Carolina
July 11, 2019


17


CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended April 30
 
Kewaunee Scientific Corporation
 
 
 
 
 
 
 
$ and shares in thousands, except per share amounts
 
2019
 
2018 As Adjusted  
 
 
Net sales
 
$
146,550

 
$
158,050

 
 
Cost of products sold
 
121,231

 
125,891

 
 
Gross profit
 
25,319

 
32,159

 
 
Operating expenses
 
23,207

 
22,240

 
 
Operating earnings
 
2,112

 
9,919

 
 
Other income (expenses), net
 
389

 
(1
)
 
 
Interest expense
 
(367
)
 
(299
)
 
 
Earnings before income taxes
 
2,134

 
9,619

 
 
Income tax expense
 
446

 
4,161

 
 
Net earnings
 
1,688

 
5,458

 
 
Less: net earnings attributable to the noncontrolling interest
 
159

 
177

 
 
Net earnings attributable to Kewaunee Scientific Corporation
 
$
1,529

 
$
5,281

 
 
Net earnings per share attributable to Kewaunee Scientific Corporation stockholders
 
 
 
 
 
 
Basic
 
$
0.56

 
$
1.94

 
 
Diluted
 
$
0.55

 
$
1.90

 
 
Weighted average number of common shares outstanding
 
 
 
 
 
 
Basic
 
2,742

 
2,720

 
 
Diluted
 
2,794

 
2,777

 
 













The accompanying Notes are an integral part of these Consolidated Financial Statements.

18


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended April 30
 
Kewaunee Scientific Corporation
 
 
 
 
 
 
 
$ in thousands
 
2019
 
2018 As Adjusted  
 
 
Net earnings
 
$
1,688

 
$
5,458

 
 
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
Foreign currency translation adjustments
 
(464
)
 
(430
)
 
 
Change in unrecognized actuarial loss on pension obligations
 
(46
)
 
812

 
 
Change in fair value of cash flow hedges
 
3

 
37

 
 
Comprehensive income, net of tax
 
1,181

 
5,877

 
 
Less comprehensive income attributable to the noncontrolling interest
 
159

 
177

 
 
Total comprehensive income attributable to Kewaunee Scientific Corporation
 
$
1,022

 
$
5,700

 
 



















The accompanying Notes are an integral part of these Consolidated Financial Statements.

19


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Kewaunee Scientific Corporation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands, except shares and per share amounts
 
Common
Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings As Adjusted
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
Balance at April 30, 2017
 
6,789

 
2,695

 
(53
)
 
40,349

 
(6,319
)
 
43,461

Net earnings attributable to Kewaunee Scientific Corporation
 

 

 

 
5,281

 

 
5,281

Other comprehensive income
 

 

 

 

 
419

 
419

Cash dividends paid, $0.66 per share
 

 

 

 
(1,794
)
 

 
(1,794
)
Stock options exercised, 36,800 shares
 
52

 
(40
)
 

 

 

 
12

Stock based compensation
 

 
351

 

 

 

 
351

Balance at April 30, 2018
 
6,841

 
3,006

 
(53
)
 
43,836

 
(5,900
)
 
47,730

Net earnings attributable to Kewaunee Scientific Corporation
 

 

 

 
1,529

 

 
1,529

Other comprehensive income (expense)
 

 

 

 

 
(507
)
 
(507
)
Cash dividends paid, $0.74 per share
 

 

 

 
(2,030
)
 

 
(2,030
)
Stock options exercised, 19,800 shares
 
27

 
(27
)
 

 

 

 

Stock based compensation
 
7

 
154

 

 

 

 
161

Cumulative adjustment for adoption of ASC 606, net of tax
 

 

 

 
217

 

 
217

Balance at April 30, 2019
 
$
6,875

 
$
3,133

 
$
(53
)
 
$
43,552

 
$
(6,407
)
 
$
47,100















The accompanying Notes are an integral part of these Consolidated Financial Statements.

20


CONSOLIDATED BALANCE SHEETS
April 30
 
Kewaunee Scientific Corporation
 
$ and shares in thousands, except per share amounts
 
2019
 
2018 As Adjusted  
ASSETS
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
10,647

 
$
9,716

Restricted cash
 
509

 
1,242

Receivables, less allowance: $361 (2019); $384 (2018)
 
33,259

 
32,660

Inventories
 
17,206

 
18,549

Prepaid expenses and other current assets
 
3,736

 
2,224

Total Current Assets
 
65,357

 
64,391

Property, Plant and Equipment, Net
 
16,462

 
14,661

Other Assets
 
 
 
 
Deferred income taxes
 
1,829

 
1,869

Other
 
3,575

 
4,162

Total Other Assets
 
5,404

 
6,031

Total Assets
 
$
87,223

 
$
85,083

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current Liabilities
 
 
 
 
Short-term borrowings and interest rate swaps
 
$
9,513

 
$
3,885

Current portion of long-term debt and lease obligations
 
1,184

 
1,167

Accounts payable
 
15,190

 
14,754

Employee compensation and amounts withheld
 
3,737

 
3,810

Deferred revenue
 
1,599

 
1,884

Other accrued expenses
 
1,510

 
2,116

Total Current Liabilities
 
32,733

 
27,616

Long-term debt and lease obligations
 
229

 
1,264

Accrued pension and deferred compensation costs
 
5,878

 
7,465

Other non-current liabilities
 
680

 
546

Total Liabilities
 
39,520

 
36,891

Commitments and Contingencies (Note 8)
 

 

Stockholders’ Equity
 
 
 
 
Common stock, $2.50 par value, Authorized—5,000 shares;
 
 
 
 
Issued—2,750 shares (2019); 2,736 shares; (2018);
 
 
 
 
Outstanding—2,747 shares (2019); 2,733 shares (2018);
 
6,875

 
6,841

Additional paid-in-capital
 
3,133

 
3,006

Retained earnings
 
43,552

 
43,836

Accumulated other comprehensive loss
 
(6,407
)
 
(5,900
)
Common stock in treasury, at cost: 3 shares
 
(53
)
 
(53
)
Total Kewaunee Scientific Corporation Stockholders’ Equity
 
47,100

 
47,730

Noncontrolling Interest
 
603

 
462

Total Stockholders' Equity
 
47,703

 
48,192

Total Liabilities and Stockholders’ Equity
 
$
87,223

 
$
85,083


The accompanying Notes are an integral part of these Consolidated Financial Statements.

21


CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended April 30
 
Kewaunee Scientific Corporation
$ in thousands
 
2019
 
2018                                         As adjusted
 
 
Cash Flows from Operating Activities
 
 
 
 
 
 
Net earnings
 
$
1,688

 
$
5,458

 
 
Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation
 
2,571

 
2,761

 
 
Bad debt provision
 
65

 
344

 
 
Stock based compensation expense
 
197

 
355

 
 
Provision for deferred income tax expense
 
202

 
1,127

 
 
Change in assets and liabilities:
 
 
 
 
 
 
Receivables
 
(664
)
 
(3,115
)
 
 
Inventories
 
456

 
(2,866
)
 
 
Accounts payable and other accrued expenses
 
(55
)
 
4,606

 
 
Deferred revenue
 
(285
)
 
(3,922
)
 
 
Other, net
 
(1,685
)
 
(1,565
)
 
 
Net cash provided by operating activities
 
2,490

 
3,183

 
 
Cash Flows from Investing Activities
 
 
 
 
 
 
Capital expenditures
 
(4,213
)
 
(3,395
)
 
 
Net cash used in investing activities
 
(4,213
)
 
(3,395
)
 
 
Cash Flows from Financing Activities
 
 
 
 
 
 
Dividends paid
 
(2,030
)
 
(1,794
)
 
 
Dividends paid to noncontrolling interest in subsidiaries
 
(51
)
 
(74
)
 
 
Proceeds from short-term borrowings
 
62,646

 
59,069

 
 
Repayments on short-term borrowings
 
(57,018
)
 
(58,775
)
 
 
Payments on long-term debt and lease obligations
 
(1,177
)
 
(918
)
 
 
Net proceeds from exercise of stock options (including tax benefit)
 
(36
)
 
8

 
 
Net cash provided by (used in) financing activities
 
2,334

 
(2,484
)
 
 
Effect of exchange rate changes on cash, net
 
(413
)
 
(287
)
 
 
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
 
198

 
(2,983
)
 
 
Cash, Cash Equivalents and Restricted Cash at Beginning of Year
 
10,958

 
13,941

 
 
Cash, Cash Equivalents and Restricted Cash at End of Year
 
$
11,156

 
$
10,958

 
 
Supplemental Disclosure of Cash Flow Information
 
 
 
 
 
 
Interest paid
 
$
352

 
$
295

 
 
Income taxes paid
 
$
2,460

 
$
2,872

 
 




The accompanying Notes are an integral part of these Consolidated Financial Statements.

22


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Summary of Significant Accounting Policies
Kewaunee Scientific Corporation and subsidiaries (collectively the “Company”) design, manufacture, and install laboratory, healthcare, and technical furniture products. The Company’s products include steel, wood, and laminate furniture, fume hoods, biological safety cabinets, laminare flow and ductless fume hoods, adaptable modular and column systems, movable workstations and carts, epoxy resin worksurfaces, sinks and accessories and related design services. The Company’s sales are made through purchase orders and contracts submitted by customers, dealers and agents, a national stocking distributor, and competitive bids submitted by the Company and its subsidiaries located in Singapore, India, and China. The majority of the Company’s products are sold to customers located in North America, primarily within the United States. The Company’s laboratory products are used in chemistry, physics, biology and other general science laboratories in the pharmaceutical, biotechnology, industrial, chemical, commercial, educational, government and health care markets. Technical products are used in facilities manufacturing computers and light electronics and by users of computer and networking furniture. Laminate casework is used in educational, healthcare and industrial applications.
Principles of Consolidation The Company’s consolidated financial statements include the accounts of Kewaunee Scientific Corporation and its international subsidiaries. A brief description of each subsidiary, along with the amount of the Company’s controlling financial interests, as of April 30, 2019 is as follows: (1) Kewaunee Labway Asia Pte. Ltd., a commercial sales organization for the Company’s products in Singapore, is 100% owned by the Company; (2) Kewaunee Scientific Corporation Singapore Pte. Ltd., a holding company in Singapore, is 100% owned by the Company; (3) Kewaunee Labway India Pvt. Ltd., a manufacturing, assembly and commercial sales operation for the Company’s products in Bangalore, India, is 95% owned by the Company; (4) Koncepo Scientech International Pvt. Ltd., a laboratory design and strategic advisory and construction management services firm, located in Bangalore, India, is 80% owned by the Company; and (5) Kewaunee Scientific (Suzhou) Co., Ltd., a commercial sales organization for the Company’s products in China, is 100% owned by the Company. In fiscal year 2019, Kewaunee Scientific Corporation India Pvt. Ltd. merged into Kewaunee Labway India, Pvt. Ltd. resulting in a single subsidiary. There was no impact to the Company's weighted ownership of both subsidiaries. All intercompany balances, transactions, and profits have been eliminated. Included in the consolidated financial statements are net assets of $ 17,887,000 and $15,762,000 at April 30, 2019 and 2018 , respectively, of the Company’s subsidiaries. Net sales by the Company’s subsidiaries in the amounts of $29,964,000 and $43,456,000 were included in the consolidated statements of operations for fiscal years 2019 and 2018 , respectively.
Change in Accounting Principle During the second quarter of 2019, the Company changed its method of accounting for its Domestic segment’s inventory from the last-in, first-out (LIFO) method to the first-in, first out (FIFO) method. All prior periods presented have been retrospectively adjusted to apply the new method of accounting. See Note 3 for more information on the change in inventory accounting method.
Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. During the years ended April 30, 2019 and 2018 , the Company had cash deposits in excess of FDIC insured limits. The Company has not experienced any losses from such deposits.
Restricted Cash Restricted cash includes bank deposits of subsidiaries used for performance guarantees against customer orders.
Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are stated at the amount owed by the customer, net of allowances for estimated doubtful accounts. The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where management is aware of a customer’s inability to meet its financial obligations to the Company, or a project dispute makes it unlikely that all of the receivable owed by a customer will be collected, a specific reserve for bad debts is estimated and recorded to reduce the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, a general reserve for bad debts is estimated and recorded based on past loss history and an overall assessment of past due trade accounts receivable amounts outstanding. Accounts are written off when it is clearly established that the receivable is a bad debt. Recoveries of receivables previously written off are recorded when received. The activity in the allowance for doubtful accounts for each of the years ended April 30 was:
$ in thousands
 
2019
 
2018
Balance at beginning of year
 
$
384

 
$
191

Bad debt provision
 
65

 
344

Doubtful accounts written off (net)
 
(88
)
 
(151
)
Balance at end of year
 
$
361

 
$
384


23


Unbilled Receivables Accounts receivable included unbilled receivables that represent amounts earned which have not yet been billed in accordance with contractually stated billing terms. The amount of unbilled receivables at April 30, 2019 and 2018 was $4,589,000 and $1,007,000 , respectively.
Inventories The Company elected to change the method of accounting for the inventory of its Domestic segment from the last-in, first-out ("LIFO") method to the first-in, first out ("FIFO") method. Inventories at the Company's international subsidiaries had previously been and continue to be measured on the FIFO method. See Note 3 for additional information.
Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is determined for financial reporting purposes principally on the straight-line method over the estimated useful lives of the individual assets or, for leaseholds, over the terms of the related leases, if shorter. Property, plant and equipment consisted of the following at April 30 :
$ in thousands
 
2019
 
2018
 
Useful Life
Land
 
$
41

 
$
41

 
N/A
Building and improvements
 
16,594

 
16,489

 
10-40 years
Machinery and equipment
 
40,041

 
38,118

 
5-10 years
Total
 
56,676

 
54,648

 
 
Less accumulated depreciation
 
(40,214
)
 
(39,987
)
 
 
Net property, plant and equipment
 
$
16,462

 
$
14,661

 
 
Management reviews the carrying value of property, plant and equipment for impairment whenever changes in circumstances or events indicate that such carrying value may not be recoverable. If projected undiscounted cash flows are not sufficient to recover the carrying value of the potentially impaired asset, the carrying value is reduced to estimated fair value. There were no impairments in fiscal years 2019 or 2018 .
Other Assets Other assets at April 30, 2019 and 2018 included $3,057,000 and $4,050,000 , respectively, of assets held in a trust account for non-qualified benefit plans and $76,000 and $65,000 , respectively, of cash surrender values of life insurance policies. Life insurance policies are recorded at the amount that could be realized under the insurance contract as of the date of the Company’s consolidated balance sheets with the change in cash surrender or contract value being recorded as income or expense during each period.
Use of Estimates The presentation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Significant estimates impacting the accompanying consolidated financial statements include the allowance for uncollectible accounts receivable, inventory valuation, self-insurance reserves, and pension liabilities.
Fair Value of Financial Instruments A financial instrument is defined as cash equivalents, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from another party. 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 approximate their fair value.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Expanded disclosures about instruments measured at fair value require the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:
Level 1
Quoted prices in active markets for identical assets or liabilities as of the reporting date.
Level 2
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities as of the reporting date.
Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

24


The following tables summarize the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring and nonrecurring basis as of April 30, 2019 and 2018 (in thousands):
 
2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets
 
 
 
 
 
 
 
Trading securities held in non-qualified compensation plans (1)
$
3,057

 
$

 
$

 
$
3,057

Cash surrender value of life insurance policies (1)

 
76

 

 
76

Total
$
3,057

 
$
76

 
$

 
$
3,133

Financial Liabilities
 
 
 
 
 
 
 
Non-qualified compensation plans (2)
$

 
$
3,519

 
$

 
$
3,519

Interest rate swap derivatives

 
1

 

 
1

Total
$

 
$
3,520

 
$

 
$
3,520

 
2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial Assets
 
 
 
 
 
 
 
Trading securities held in non-qualified compensation plans  (1)
$
4,050

 
$

 
$

 
$
4,050

Cash surrender value of life insurance policies  (1)

 
65

 

 
65

Total
$
4,050

 
$
65

 
$

 
$
4,115

Financial Liabilities
 
 
 
 
 
 
 
Non-qualified compensation plans (2)
$

 
$
4,462

 
$

 
$
4,462

Interest rate swap derivatives

 
5

 

 
5

Total
$

 
$
4,467

 
$

 
$
4,467


(1)
The Company maintains two non-qualified compensation plans which include investment assets in a rabbi trust. These assets consist of marketable securities, which are valued using quoted market prices multiplied by the number of shares owned, and life insurance policies, which are valued at their cash surrender value.
(2)
Plan liabilities are equal to the individual participants’ account balances and other earned retirement benefits.
Revenue Recognition Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. The Company recognizes revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The majority of the Company’s revenues are recognized over time as the customer receives control as the Company performs work under a contract. However, a portion of the Company’s revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract. Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Certain customers' cash discounts and volume rebates are offered as sales incentives. The discounts and volume rebates are recorded as a reduction in sales at the time revenue is recognized in an amount estimated based on historical experience and contractual obligations.
Deferred revenue consists of customer deposits and advance billings of the Company’s products where sales have not yet been recognized. Accounts receivable includes retainage in the amounts of $1,810,000 and $2,724,000 at April 30, 2019 and 2018 , respectively. Shipping and handling costs are included in cost of product sales. Because of the nature and quality of the Company’s products, any warranty issues are determined in a relatively short period after the sale and are infrequent in nature, and as such, warranty costs are immaterial to the Company’s consolidated financial position and results of operations and are expensed as incurred.
Credit Concentration The Company performs credit evaluations of its customers. Revenues from three of the Company’s domestic dealers represented in the aggregate approximately 34% and 33% of the Company’s sales in fiscal years 2019 and 2018 , respectively. Accounts receivable for two domestic customers represented approximately 30% and 31% of the Company’s total accounts receivable as of April 30, 2019 and 2018 , respectively.
Insurance The Company maintains a self-insured health-care program. The Company accrues estimated losses for claims incurred but not reported (“IBNR”) using actuarial models and assumptions based on historical loss experience. The Company has also purchased specific stop-loss insurance to limit claims above a certain amount. The Company adjusts insurance reserves, as needed, in the event that future loss experience differs from historical loss patterns.

25


Income Taxes In accordance with ASC 740, “Income Taxes,” the Company uses the liability method in measuring the provision for income taxes and recognizing deferred tax assets and liabilities on the consolidated balance sheets. Provision has not been made for income taxes on unremitted earnings of foreign subsidiaries as these earnings are deemed to be permanently reinvested. ASC 740 clarifies the financial statement recognition threshold and measurement attribute of a tax position taken or expected to be taken in a tax return. Under ASC 740, the Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC 740 only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the taxing authorities. The Company did not have any significant uncertain tax positions at April 30, 2019 and 2018 .
Research and Development Costs Research and development costs are charged to cost of products sold in the periods incurred. Expenditures for research and development costs were $1,550,000 and $1,537,000 for the fiscal years ended April 30, 2019 and 2018 , respectively.
Advertising Costs Advertising costs are expensed as incurred, and include trade shows, training materials, sales, samples, and other related expenses. Advertising costs for the years ended April 30, 2019 and 2018 were $268,000 and $395,000 , respectively.
Derivative Financial Instruments The Company records derivatives on the consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of hedging relationships. The nature of the Company’s business activities involves the management of various financial and market risks, including those related to changes in interest rates. 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. (See Note 4)
Foreign Currency Translation The financial statements of subsidiaries located in India and China, and of Kewaunee Scientific Corporation Singapore Pte. Ltd., are measured using the local currency as the functional currency. Kewaunee Labway Asia Pte. Ltd. is measured using the U.S. dollar as its functional currency. Assets and liabilities of the Company’s foreign subsidiaries using local currencies are translated into United States dollars at fiscal year-end exchange rates. Sales, expenses, and cash flows are translated at weighted average exchange rates for each period. Net translation gains or losses are included in other comprehensive income, a separate component of stockholders’ equity. The Company does not provide for U.S. income taxes on foreign currency translation adjustments, since it does not provide for taxes on undistributed earnings of foreign subsidiaries. Gains and losses from foreign currency transactions of these subsidiaries are included in operating expenses.

Earnings Per Share Basic earnings per share is based on the weighted average number of common shares outstanding during the year. 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 31,015 antidilutive RSUs and options outstanding at April 30, 2019 . There were no antidilutive RSUs or options outstanding at April 30, 2018.

The following is a reconciliation of basic to diluted weighted average common shares outstanding:
Shares in thousands
 
2019
 
2018
 
Weighted average common shares outstanding
 
 
 
 
 
Basic
 
2,742

 
2,720

 
Dilutive effect of stock options and RSUs
 
52

 
57

 
Weighted average common shares outstanding—diluted
 
2,794

 
2,777

 
Accounting for Stock Options and Other Equity Awards 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 19,738 RSUs under the 2017 Omnibus Incentive Plan in fiscal year 2019 and 23,907 RSUs in fiscal 2018. There were no stock options granted during fiscal years 2019 and 2018. (See Note 6)
Reclassifications In connection with the Company's adoption of ASU 2016-18, “Statement of Cash Flows-Restricted Cash,” the Company reclassified certain 2018 amounts in the consolidated statements of cash flows to include restricted cash when

26


reconciling the beginning-of-period and end-of-period cash amounts shown on the statement of cash flows to conform to the current period presentation. Such reclassifications had no impact on net earnings.
New Accounting Standards In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-9, “Revenue from Contracts with Customers” (“ASU 2014-09”). This update outlined a new comprehensive revenue recognition model that supersedes prior revenue recognition guidance and required companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflected the consideration to which the entity expected to be entitled in exchange for those goods or services. The Company adopted this standard effective May 1, 2018. See Note 2 for a discussion of the impact of the adoption of this standard.
In July 2015, the FASB issued ASU 2015-11, “Inventory—Simplifying the Measurement of Inventory.” This guidance changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company adopted this standard effective May 1, 2017. The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.
In February 2016, the FASB issued ASU 2016-2, “Leases.” This guidance establishes a right-of-use (ROU) model that requires a lessee to record a 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 will adopt this standard in fiscal year 2020. Based on the Company's assessment to date, the Company expects that the adoption of ASU 2016-02 will result in the recognition of right-to-use assets and corresponding lease liabilities with a material impact on the Company's consolidated financial position and an immaterial impact on the Company's consolidated results of operations and cash flows.
In March 2016, the FASB issued ASU 2016-9, “Stock Compensation—Improvements to Employee Share-Based Payment Accounting.” This guidance simplifies various aspects related to how share-based payments are accounted for and presented in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company adopted this standard effective May 1, 2017. Prior periods were not retrospectively adjusted. The adoption of this standard 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. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company will adopt this standard in fiscal year 2021. 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.
In August 2016, the FASB issued ASU 2016-15, “Cash Flow Classification of Certain Cash Receipts and Cash Payments,” which clarifies guidance on classification of certain transactions in the statement of cash flows, including classification of debt prepayments, debt extinguishment costs and contingent consideration payments after a business combination. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company adopted this standard effective May 1, 2018. The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows—Restricted Cash,” which requires that the statement of cash flows reconcile the change during the period in total cash, cash equivalents and restricted cash. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company adopted this standard effective May 1, 2018. The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.
In January 2017, the FASB issued ASU 2017-4, “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 will adopt this standard in fiscal year 2021. The Company does not expect the adoption of this standard to have any impact on the Company’s consolidated financial position or results of operations.

27


In March 2017, the FASB issued ASU 2017-7, “Compensation—Retirement Benefits—Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that the service cost component of net periodic pension cost is presented in the same line as other compensation costs arising from services rendered by the respective employees during the year. The other components of net periodic pension cost are required to be presented in the income statement separately from the service cost component and outside of earnings from operations. This guidance allows for the service cost component to be eligible for capitalization when applicable. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company adopted this standard effective May 1, 2018 using the full retrospective approach. The Company reclassified $694,000 of non-service components of net benefits cost to Other (Income)/expense, net from operating expenses on the Consolidated Statements of Operations. During 2019, the Company recorded $295,000 of non-service components of net benefits cost to other (income)/expense, net.
In May 2017, the FASB issued ASU 2017-9, “Compensation—Stock Compensation—Scope of Modification Accounting.” This guidance was issued in an effort to reduce diversity in practice as it relates to applying modification accounting for changes to the terms and conditions of share-based payment awards. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard effective May 1, 2018. The adoption of this standard did not have a significant impact on the Company’s 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 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 will adopt this standard in fiscal year 2020. 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.

Note 2 - Revenue Recognition
The Company recognizes revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The majority of the Company’s revenues are recognized over time as the customer receives control as the Company performs work under a contract. However, a portion of the Company’s revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract.
Performance Obligations
A performance obligation is a distinct good or service or bundle of goods and services that is distinct or a series of distinct goods or services that are substantially the same and have the same pattern of transfer. The Company identifies performance obligations at the inception of a contract and allocates the transaction price to individual performance obligations to reasonably reflect the Company’s performance in transferring control of the promised goods or services to the customer. The Company has elected to treat shipping and handling as a fulfillment activity instead of a separate performance obligation.
The following are the primary performance obligations identified by the Company:
Laboratory Furniture
The Company principally generates revenue from the manufacture of custom laboratory, healthcare, and technical furniture and infrastructure products (herein referred to as “laboratory furniture”). The Company’s products include steel, wood, and laminate furniture, fume hoods, biological safety cabinets, laminar flow and ductless hoods, adaptable modular and column systems, moveable workstations and carts, epoxy resin worksurfaces, sinks, and accessories and related design services. Customers can benefit from each piece of laboratory furniture on its own or with resources readily available in the market place such as separately purchased installation services. Each piece of laboratory furniture does not significantly modify or customize other laboratory furniture, and the pieces of laboratory furniture are not highly interdependent or interrelated with each other. The Company can, and frequently does, break portions of contracts into separate “runs” to meet manufacturing and construction schedules. As such, each piece of laboratory furniture is considered a separate and distinct performance obligation. The majority of the Company’s products are customized to meet the specific architectural design and performance requirements of laboratory planners and end users. The finished laboratory furniture has no alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. As such, revenue from the sales of customized laboratory furniture is recognized over time once the customization process has begun, using the units-of-production output method to measure progress towards completion. There is not a material amount of work-in-process for which the customization process

28


has begun at the end of a reporting period. The Company believes this output method most reasonably reflects the Company’s performance because it directly measures the value of the goods transferred to the customer. For standardized products sold by the Company, revenue is recognized when control transfers, which is typically freight on board (“FOB”) shipping point.
Warranties
All orders contain a standard warranty that warrants that the product is free from defects in workmanship and materials under normal use and conditions for a limited period of time. Due to the nature and quality of the Company’s products, any warranty issues have historically been determined in a relatively short period after the sale, have been infrequent in nature, and have been immaterial to the Company’s financial position and results of operations. The Company’s standard warranties are not considered a separate and distinct performance obligation as the Company does not provide a service to customers beyond assurance that the covered product is free of initial defects. Costs of providing these short term assurance warranties are immaterial and, accordingly, are expensed as incurred. Extended separately priced warranties are available which can last up to five years. Extended warranties are considered separate performance obligations as they are individually priced options providing assurances that the products are free of defects.
Installation Services
The Company sometimes performs installation services for customers. The scope of installation services primarily relates to setting up and ensuring the proper functioning of the laboratory furniture. In certain markets, the Company may provide a broader range of installation services involving the design and installation of the laboratory’s mechanical services. Installation services can be, and often are, performed by third parties and thus may be distinct from the Company’s products. Installation services create or enhance assets that the customer controls as the installation services are provided. As such, revenue from installation services is recognized over time, as the installation services are performed using the cost input method, as there is a direct relationship between the Company’s inputs and the transfer of control by means of the performance of installation services to the customer.
Custodial Services
It is common in the laboratory and healthcare furniture industries for customers to request delivery at specific future dates, as products are often to be installed in buildings yet to be constructed. Frequently, customers will request the manufacture of these products prior to the customer’s ability or readiness to receive the product due to various reasons such as changes to or delays in the construction of the building. As such, from time to time our customers require us to provide custodial services for their laboratory furniture. Custodial services are frequently provided by third parties and do not significantly alter the other goods or services covered by the contract and as such are considered a separate and distinct performance obligation. Custodial services are simultaneously received and consumed by the customer and as such revenue from custodial services is recognized over time using a straight-line time-based measure of progress towards completion, because the Company’s services are provided evenly throughout the performance period.
Payment Terms and Transaction Prices
The Company's contracts with customers are fixed-price and do not contain variable consideration or a general right of return or refund. The Company's contracts with customers contain terms typical for our industry, including withholding a portion of the transaction price until after the goods or services have been transferred to the customer (i.e. “retainage”). The Company does not recognize this as a significant financing component because the primary purpose of retainage is to provide the customer with assurance that the Company will perform its obligations under the contract, rather than to provide financing to the customer.
Allocation of Transaction Price
The Company's contracts with customers may cover multiple goods and services, such as differing types of laboratory furniture and installation services. For these arrangements, each good or service is evaluated to determine whether it represents a distinct performance obligation. The total transaction price is then allocated to the distinct performance obligations based on their relative standalone selling price at the inception of the arrangement. If available, the Company utilizes observable prices for goods or services sold separately to similar customers in similar circumstances to determine its relative standalone selling price. Otherwise, list prices are used if they are determined to be representative of standalone selling prices. If neither of these methods are available at contract inception, such as when the Company does not sell the product or service separately, judgment may be required and the Company determines the standalone selling price using one, or a combination of, the adjusted market assessment or expected cost-plus margin approaches.
Practical Expedients Used

29


Accounting Standards Codification 606 - Revenue from Contracts with Customers ("ASC 606") permits the use of practical expedients under certain conditions. The Company has elected the following practical expedients allowed under ASC 606:
Under the modified retrospective approach, the Company elected to reassess revenue recognition under ASC 606 for only those contracts open as of the adoption date.
The portfolio approach was applied in evaluating the accounting for the cost of obtaining a contract.
Payment terms with the Company's customers which are one year or less are not considered a significant financing component.
The Company excludes from revenues taxes it collects from customers that are assessed by a government authority. This is primarily relevant to domestic sales but also includes taxes on some international sales which are also excluded from the transaction price.
The Company's incremental cost to obtain a contract is limited to sales commissions. The Company applies the practical expedient to expense commissions as incurred for contracts having a duration of one year or less. Sales commissions related to contracts with a duration of greater than one year are immaterial to the Company’s consolidated financial position and results of operations and are also expensed as incurred.
Disaggregated Revenue
A summary of net sales transferred to customers at a point in time and over time for the twelve months ended April 30, 2019 is as follows (in thousands):
 
Twelve Months Ended April 30, 2019
 
Domestic
International
 
Total
Over Time
$
110,338

 
$
29,964

 
$
140,302

 
Point in Time

6,248

 


 

6,248

 
    Total Revenue
$
116,586

 
$
29,964

 
$
146,550

 
Contract Balances
The closing and opening balances of contract assets arising from contracts with customers were $4,589,000 at April 30, 2019 and $1,007,000 at April 30, 2018. The closing and opening balances of contract liabilities arising from contracts with customers were $1,599,000 at April 30, 2019 and $1,884,000 at April 30, 2018. The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, and deferred revenue which is disclosed on the consolidated balance sheets and in the notes to the 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. 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.
During the twelve months ended April 30, 2019, changes in contract assets and liabilities were not materially impacted by any other factors. Approximately 100% of the contract liability balance at April 30, 2019 is expected to be recognized as revenue during fiscal year 2020.
ASC 606 adoption impact
Under ASC 606, sales consisting of customized products sold to customers for which revenue was previously recognized at a point in time now meet the criteria of a performance obligation satisfied over time. These contracts consist of customized laboratory furniture engineered or tailored to meet the customer’s requirements. In the event the customer cancels the contract, the Company will have no alternative use for and cannot economically repurpose the laboratory furniture, and the Company has the right to payment for performance completed to date. This change results in accelerated recognition of revenue and increases the balance of contract assets compared to the previous revenue recognition standard.
The Company adopted ASC 606 on May 1, 2018 using the modified retrospective approach and elected to reassess revenue recognition under ASC 606 for only those contracts open as of the adoption date, which resulted in a cumulative effect adjustment to increase retained earnings, net of tax, of $217,000 . Comparative information for prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods presented. The Company elected to reflect the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented in determining the transaction price, identifying the satisfied and unsatisfied performance obligations and allocating the transaction

30


price to the satisfied and unsatisfied performance obligations for the modified contract at transition. The effects of these elections were immaterial.
The following table summarizes the impact of adopting ASC 606 on the Company's consolidated statement of operations:
 
Twelve Months Ended April 30, 2019
 
($ in thousands, except per share amounts)
 
As Reported
 
Adjustments
 
Balance Without
Adoption of
ASC 606
Net sales
$
146,550

 
$
(1,226
)
 
$
145,324

Cost of products sold
121,231
 
 
 
(403
)
 
 
120,828

Gross profit
25,319
 
 
 
(823
)
 
 
24,496

Operating expenses
23,207
 
 
 
(35
)
 
 
23,172

Operating earnings
2,112
 
 
 
(788
)
 
 
1,324

Other income
389
 
 
 

 
 
389

Interest expense
(367
)
 
 

 
 
(367
)
Earnings before income taxes
2,134
 
 
 
(788
)
 
 
1,346

Income tax expense
446
 
 
 
(182
)
 
 
264

Net earnings
1,688
 
 
 
(606
)
 
 
1,082

Net earnings attributable to the noncontrolling interest
159
 
 
 

 
 
159

Net earnings attributable to Kewaunee Scientific Corporation
$
1,529

 
$
(606
)
 
$
923

Basic Earnings Per Share
$
0.56

 
$
(0.22
)
 
$
0.34

Diluted Earnings Per Share
$
0.55

 
$
(0.22
)
 
$
0.33

The following table summarizes the impact of adopting ASC 606 on the Company’s consolidated balance sheet:
 
April 30, 2019
 
($ in thousands)
 
As Reported
 
Adjustments
 
Balance Without
Adoption of
ASC 606
Assets
 
 
 
 
 
Receivables, less allowances

33,259

 

(3,354
)
 
 
29,905

Inventories

17,206

 

2,331

 
 
19,537

Total Current Assets

65,357



(1,023
)
 
 
64,334

Total Assets
$
87,223

 
$
(1,023
)
 
$
86,200

Liabilities and Stockholders’ Equity
 
 
 
 
 
Accounts payable
 
15,190

 

(59
)
 
 
15,131

Deferred revenue
 
1,599

 

117

 
 
1,716

Other accrued expenses
 
1,510

 

(258
)
 
 
1,252

Total Current Liabilities
 
32,733

 

(200
)

 
32,533

Total Liabilities
 
39,520

 

(200
)
 
 
39,320

Total Kewaunee Scientific Corporation Stockholders’ Equity
 
47,100

 

(823
)
 
 
46,277

Total Stockholders’ Equity
 
47,703

 

(823
)
 
 
46,880

Total Liabilities and Stockholders’ Equity
$
87,223

 
$
(1,023
)
 
$
86,200


Note 3—Inventories

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Inventories consisted of the following at April 30 :
(in thousands)
2019
2018
Finished goods
$
4,139

$
4,987

Work-in-process
2,179

2,393

Materials and components
10,888

11,169

Total inventories
$
17,206

$
18,549

At April 30, 2019 and 2018 , the Company’s international subsidiaries’ inventories were $1,863,000 and $1,908,000 , respectively, measured using the FIFO method at the lower of cost and net realizable value and are included in the above tables.
The following table summarizes the effect of the change in method of accounting on the Company's prior consolidated statement of operations:
 
Twelve Months Ended April 30, 2018
 
Effect of Accounting Change
 
Twelve Months Ended April 30, 2018
(in thousands, except per share data) 
As Previously Reported
 
LIFO/FIFO
 
As Adjusted
Cost of products sold
 
126,030

 
(139
)
 
125,891

Gross profit
 
32,020

 
139

 
32,159

Earnings from continuing operations before income taxes
 
9,480

 
139

 
9,619

Income tax expense
 
4,115

 
46

 
4,161

Net earnings
 
5,365

 
93

 
5,458

Net earnings attributable to Kewaunee Scientific Corporation
$
5,188

$
93

$
5,281

Net earnings per share attributable to Kewaunee Scientific Corporation stockholders
 
 
 
 
Basic
$
1.91

$
0.03

$
1.94

Diluted
$
1.87

$
0.03

$
1.90


The following table summarizes the effect of the change in method of accounting on the Company's prior consolidated balance sheet:
 
April 30, 2018
 
 
Effect of Accounting Change
 
 
April 30, 2018
(in thousands) 
As Previously Reported
 
 
LIFO/FIFO
 
 
As Adjusted
 
 
 
 
 
 
 
 
 
Inventory
$
17,662

 
$
887

 
$
18,549

Total Current Assets
 
63,504

 
 
887

 
 
64,391

Deferred income taxes
 
2,031

 
 
(162
)
 
 
1,869

Total Other Assets
 
6,193

 
 
(162
)
 
 
6,031

Total Assets
$
84,358

 
$
725

 
$
85,083

 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
Other accrued expenses
$
2,062

 
$
54

 
$
2,116

Total Current Liabilities
 
27,562

 
 
54

 
 
27,616

Total Liabilities
 
36,837

 
 
54

 
 
36,891

Retained earnings
 
43,165

 
 
671

 
 
43,836

Total Kewaunee Scientific Corporation Stockholders' Equity
 
47,059

 
 
671

 
 
47,730

Total Equity
 
47,521

 
 
671

 
 
48,192

Total Liabilities and Stockholders' Equity
$
84,358

 
$
725

 
$
85,083



32


The following table summarizes the effect of the change in method of accounting on the Company's prior consolidated cash flow:
 
 
Twelve Months Ended April 30,
 
Effect of Accounting Change
 
Twelve Months Ended April 30,
 
 
2018
 
 
2018
 
(in thousands) 
As Previously Reported
 
LIFO/FIFO
 
As Adjusted
 
 
Net earnings
$
5,365

 
$
93

 
$
5,458

 
 Change in assets and liabilities:
 
 
 
 
 
 
 
 
 
  Inventories
 
(2,727
)
 
 
(139
)
 
 
(2,866
)
 
  Accounts payable and other accrued expenses
 
4,560

 
 
46

 
 
4,606

 
Net cash provided by operating activities
$
3,183

 
$

 
$
3,183

Certain amounts in the Company’s consolidated statement of operations for the twelve months ended April 30, 2019 under the former LIFO method would have been as follows :
 
Twelve Months Ended April 30, 2019
(in thousands, except per share amounts)
As Reported
Under FIFO
 
Adjustments
 
As Computed
Under LIFO
Cost of products sold
$
121,231

 
$
444

 
$
121,675

Income tax expense
446

 
(104
)
 
342

Net earnings
1,688

 
(340
)
 
1,348

Net earnings attributable to Kewaunee Scientific Corporation
$
1,529

 
$
(340
)
 
$
1,189

Net earnings per share attributable to Kewaunee Scientific Corporation stockholders
 
 
 
 
 
Basic
$
0.56

 
$
(0.12
)
 
$
0.44

Diluted
$
0.55

 
$
(0.12
)
 
$
0.43


Certain amounts in the Company’s consolidated statement of cash flows for the twelve months ended April 30, 2019 would h ave been as follows under the former LIFO method:
 
Twelve Months Ended April 30, 2019
(in thousands)
As Reported
Under FIFO
 
Adjustments
 
As Computed
Under LIFO
Net earnings
$
1,688

 
$
(340
)
 
$
1,348

Change in assets and liabilities:
 
 
 
 
 
Inventories
456

 
444

 
900

Other, net
(1,685
)
 
(104
)
 
(1,789
)
Net cash provided by operating activities
$
2,490

 
$

 
$
2,490



33


Certain amounts in the Company’s consolidated balance sheet as of April 30, 2019 would have been as follows under the former LIFO method:
 
April 30, 2019
(in thousands)
As Reported
Under FIFO
 
Adjustments
 
As Computed
Under LIFO
Inventories
$
17,206

 
$
(1,331
)
 
$
15,875

Total Current Assets
65,357

 
(1,331
)
 
64,026

Deferred Income Taxes
1,829

 
156

 
1,985

Prepaid Expenses and Other Assets
3,736

 
164

 
3,900

Total Assets
87,223

 
(1,011
)
 
86,212

Retained Earnings
43,552

 
(1,011
)
 
42,541

Total Kewaunee Scientific Corporation Stockholders’ Equity
47,100

 
(1,011
)
 
46,089

Total Stockholders’ Equity
47,703

 
(1,011
)
 
46,692

Total Liabilities and Stockholders’ Equity
$
87,223

 
$
(1,011
)
 
$
86,212


Note 4—Long-term Debt and Other Credit Arrangements
On May 6, 2013, the Company entered into a credit and security agreement (the “Loan Agreement”) with a new lender consisting of (1) a $20 million revolving credit facility (“Line of Credit”) which matured on May 1, 2018 and was extended to March 1, 2021 on March 12, 2018, (2) a term loan in the amount of $3,450,000 which matures on May 1, 2020 (“Term Loan A”) and (3) a term loan in the amount of $1,550,000 which matures on May 1, 2020 (Term Loan B and together with Term Loan A, the “Term Loans”). The Loan Agreement provided funds to refinance all existing indebtedness to the Company’s previous lender and for working capital and other general corporate purposes. In addition, the credit facility provided a sub-line for the issuance of up to $6.5 million of letters of credit at April 30, 2019 and April 30, 2018 .
At April 30, 2019 , there were advances of $9.5 million and $5.2 million in letters of credit outstanding, leaving $5.3 million available under the Line of Credit. The borrowing rate under the Line of Credit at that date was 4.00% . Monthly interest payments under the Line of Credit were payable at the Daily One Month LIBOR interest rate plus 1.50%  per annum. Payments are due under Term Loan A in consecutive equal monthly principal payments in the amount of $79,000 until May 1, 2020, and at that time, all principal, accrued unpaid interest and other charges outstanding under Term Loan A shall be due and payable in full. The interest rate on Term Loan A, after consideration of related interest rate swap agreements, is a fixed rate per annum equal to 4.37% . Payments are due under Term Loan B in consecutive equal monthly principal payments in the amount of $18,000 until May 1, 2020, and at that time, all principal, accrued unpaid interest and other charges outstanding under Term Loan B shall be due and payable in full. The interest rate on Term Loan B, after consideration of the related interest rate swap agreement, effective November 3, 2014, converted to a fixed rate per annum of 3.07% . The fair value of the interest rate swap derivatives were $1,000 and $5,000 at April 30, 2019 and 2018 , respectively. Scheduled annual principal payments for the term loans are $1,167,000 and $97,000 for fiscal years 2020 and 2021, respectively. Term Loan A and Term Loan B are secured by liens against certain machinery and equipment.
At April 30, 2019 , there were bank guarantees issued by foreign banks outstanding to customers in the amount of $2,337,000 , $49,000 , $75,000 , and $60,000 with expiration dates in fiscal years 2020 , 2021 , 2022 and 2023 , respectively, collateralized by a $5.0 million letter of credit under the Line of Credit and certain assets of the Company’s subsidiaries in India. The Loan Agreement includes financial covenants with respect to certain ratios, including (a) senior funded debt to EBITDA, (b) fixed charge coverage, and (c) asset coverage. At April 30, 2019 , the Company was not in compliance with all of the financial covenants. The Company received a waiver from its lender for 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 agreement to amend the Loan Agreement and the Line of Credit to effect a change in the financial covenants set forth in the Loan Agreement.  The amendment does not change the amount of availability provided by Company’s Line of Credit.
At April 30, 2018 , there were advances of $3.8 million and $5.2 million in letters of credit outstanding under the Line of Credit. The borrowing rate at that date was 3.50% . At April 30, 2018 , there were foreign bank guarantees outstanding to customers in the

34


amount of $1,625,000 , $21,000 , $1,000 and $63,000 with expiration dates in fiscal years 2019, 2020, 2021 and 2023, respectively. At April 30, 2018 , the Company was in compliance with all of the financial covenants in the Loan Agreement.
Amounts outstanding under the term loans were as follows as of April 30 :
$ in thousands