KEWAUNEE SCIENTIFIC CORP /DE/ 10-K

Item 8. Financial Statements and Supplementary Data Page Consolidated Financial Statements Report s of Independent Registered Public Accounting Firm s 17 Consolidated Statements of Operations—Years ended April 30, 2021 and 2020 19 Consolidated Statements of Comprehensive Income—Years ended April 30, 2021 and 2020 20 Consolidated Statements of Stockholders ' Equity—Years ended April 30, 2021 and 2020 21 Consolidated Balance Sheets—April 30, 2021 and 2020 22 Consolidated Statements of Cash Flows—Years ended April 30, 2021 and 2020 23 Notes to Consolidated Financial Statements 24 Consent s of Independent Registered Public Accounting Firm s 43 16 Table of Contents 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 sheet of Kewaunee Scientific Corporation and subsidiaries (the “Company”) as of April 30, 2021, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. 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 audit. 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 audit 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion . Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Dixon Hughes Goodman LLP We have served as the Company's auditor since 2020. Charlotte, NC 17 Table of Contents 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, 2020, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for the year ended April 30, 2020, 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, 2020, and the results of its operations and its cash flows for the year ended April 30, 2020, in conformity with U.S. generally accepted accounting principles. 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 audit 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 audit 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 audit provides a reasonable basis for our opinion. /s/ Ernst & Young LLP We served as the Company's auditor from 2016 to 2020. Charlotte, North Carolina July 27, 2020 18 Table of Contents CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended April 30 Kewaunee Scientific Corporation $ and shares in thousands, except per share amounts 2021 2020 Net sales $ 147,469 $ 147,540 Cost of products sold 123,476 124,113 Gross profit 23,993 23,427 Operating expenses 25,309 25,772 Operating loss ( 1,316 ) ( 2,345 ) Pension expense ( 1,153 ) ( 454 ) Other income, net 241 426 Interest expense ( 389 ) ( 493 ) Loss before income taxes ( 2,617 ) ( 2,866 ) Income tax expense 990 1,758 Net loss ( 3,607 ) ( 4,624 ) Less: net earnings attributable to the non-controlling interest 65 63 Net loss attributable to Kewaunee Scientific Corporation $ ( 3,672 ) $ ( 4,687 ) Net loss per share attributable to Kewaunee Scientific Corporation stockholders Basic $ ( 1.33 ) $ ( 1.70 ) Diluted $ ( 1.33 ) $ ( 1.70 ) Weighted average number of common shares outstanding Basic 2,760 2,750 Diluted 2,760 2,750 The accompanying Notes are an integral part of these Consolidated Financial Statements. 19 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended April 30 Kewaunee Scientific Corporation $ in thousands 2021 2020 Net loss $ ( 3,607 ) $ ( 4,624 ) Other comprehensive income (loss), net of tax Foreign currency translation adjustments ( 23 ) ( 444 ) Change in unrecognized actuarial gain (loss) on pension obligations 6,044 ( 2,748 ) Change in fair value of cash flow hedges — 1 Comprehensive income (loss), net of tax $ 2,414 $ ( 7,815 ) Less comprehensive income attributable to the non-controlling interest 65 63 Total comprehensive income (loss) attributable to Kewaunee Scientific Corporation $ 2,349 $ ( 7,878 ) The accompanying Notes are an integral part of these Consolidated Financial Statements. 20 Table of Contents 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, 2019 $ 6,875 $ 3,133 $ ( 53 ) $ 43,552 $ ( 6,407 ) $ 47,100 Net loss attributable to Kewaunee Scientific Corporation — — — ( 4,687 ) — ( 4,687 ) Other comprehensive expense — — — — ( 3,191 ) ( 3,191 ) Cash dividends paid, $ 0.38 per share — — — ( 1,044 ) — ( 1,044 ) Stock options exercised, 2300 shares 1 ( 1 ) — — — — Stock based compensation 9 228 — — — 237 Balance at April 30, 2020 6,885 3,360 ( 53 ) 37,821 ( 9,598 ) 38,415 Net loss attributable to Kewaunee Scientific Corporation — — — ( 3,672 ) — ( 3,672 ) Other comprehensive income — — — — 6,021 6,021 Stock based compensation 30 447 — — — 477 Balance at April 30, 2021 $ 6,915 $ 3,807 $ ( 53 ) $ 34,149 $ ( 3,577 ) $ 41,241 The accompanying Notes are an integral part of these Consolidated Financial Statements. 21 Table of Contents CONSOLIDATED BALANCE SHEETS April 30 Kewaunee Scientific Corporation $ and shares in thousands, except per share amounts 2021 2020 ASSETS Current Assets Cash and cash equivalents $ 5,206 $ 4,365 Restricted cash 525 850 Receivables, less allowance: $ 636 (2021); $ 606 (2020) 34,095 28,062 Inventories 16,517 15,330 Income tax receivable 955 2,717 Prepaid expenses and other current assets 3,159 2,907 Total Current Assets 60,457 54,231 Property, plant and equipment, net 15,982 16,272 Right of use assets 9,279 9,312 Deferred income taxes — 336 Other assets 3,666 3,778 Total Assets $ 89,384 $ 83,929 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-term borrowings $ 6,828 $ 4,719 Current portion of financing lease liability 21 19 Current portion of operating lease liabilities 1,348 1,282 Accounts payable 16,780 13,114 Employee compensation and amounts withheld 4,726 4,159 Deferred revenue 3,123 2,508 Other accrued expenses 1,355 1,259 Total Current Liabilities 34,181 27,060 Long-term portion of financing lease liability 91 113 Long-term portion of operating lease liabilities 7,860 7,780 Accrued pension and deferred compensation costs 4,652 9,303 Deferred income taxes 307 401 Other non-current liabilities 806 569 Total Liabilities 47,897 45,226 Commitments and Contingencies ( Note 8 ) Stockholders' Equity Common stock, $ 2.50 par value, Authorized— 5,000 shares; Issued— 2,766 shares (2021); 2,754 shares (2020) Outstanding— 2,763 shares (2021); 2,751 shares (2020) 6,915 6,885 Additional paid-in capital 3,807 3,360 Retained earnings 34,149 37,821 Accumulated other comprehensive loss ( 3,577 ) ( 9,598 ) Common stock in treasury, at cost: 3 shares ( 53 ) ( 53 ) Total Kewaunee Scientific Corporation Stockholders' Equity 41,241 38,415 Non-controlling interest 246 288 Total Stockholders' Equity 41,487 38,703 Total Liabilities and Stockholders' Equity $ 89,384 $ 83,929 The accompanying Notes are an integral part of these Consolidated Financial Statements. 22 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended April 30 Kewaunee Scientific Corporation $ in thousands 2021 2020 Cash Flows from Operating Activities Net loss $ ( 3,607 ) $ ( 4,624 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 2,687 2,654 Bad debt provision 53 364 Stock based compensation expense 634 251 Provision for deferred income taxes 1,662 1,895 Change in assets and liabilities: Receivables ( 6,087 ) 4,833 Inventories ( 1,188 ) 1,876 Income tax receivable 1,762 ( 2,717 ) Accounts payable and other accrued expenses 4,567 ( 2,016 ) Deferred revenue 615 909 Other, net ( 186 ) 736 Net cash provided by operating activities 912 4,161 Cash Flows from Investing Activities Capital expenditures ( 2,397 ) ( 2,465 ) Net cash used in investing activities ( 2,397 ) ( 2,465 ) Cash Flows from Financing Activities Dividends paid — ( 1,044 ) Dividends paid to non-controlling interest in subsidiaries ( 108 ) ( 324 ) Proceeds from short-term borrowings 62,205 58,721 Repayments on short-term borrowings ( 60,096 ) ( 63,515 ) Payments on long-term debt ( 19 ) ( 1,282 ) Net proceeds from exercise of stock options (including tax benefit) — ( 14 ) Net cash provided by (used in) financing activities 1,982 ( 7,458 ) Effect of exchange rate changes on cash, net 19 ( 179 ) Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash 516 ( 5,941 ) Cash, Cash Equivalents and Restricted Cash at Beginning of Year 5,215 11,156 Cash, Cash Equivalents and Restricted Cash at End of Year $ 5,731 $ 5,215 Supplemental Disclosure of Cash Flow Information Interest paid $ 65 $ 513 Income taxes (refunded) paid $ ( 1,800 ) $ 188 The accompanying Notes are an integral part of these Consolidated Financial Statements. 23 Table of Contents 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, laminar 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. See Note 11 , Restructuring Costs for details on the closure of the Company's China operations in fiscal year 2020. 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, 2021 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; (5) Kewaunee Scientific (Suzhou) Co., Ltd., a commercial sales organization for the Company's products in China, is 100 % owned by the Company; (6) Kequip Global Lab Solutions Pvt. Ltd. is 70 % owned by Kewaunee Scientific Corporation Singapore Pte. Ltd. All intercompany balances, transactions, and profits have been eliminated. Included in the consolidated financial statements are net assets of $ 11,126,000 and $ 12,422,000 at April 30, 2021 and 2020, respectively, of the Company's subsidiaries. Net sales by the Company's subsidiaries in the amounts of $ 36,434,000 and $ 32,437,000 were included in the consolidated statements of operations for fiscal years 2021 and 2020, respectively. Reclassifications The Company reclassified certain amounts in the consolidated balance sheet for the period ended April 30, 2020 and the consolidated statements of cash flows for the year ended April 30, 2020 to conform to the current period presentation. There was no impact to the consolidated statements of operations or statements of stockholders' equity for fiscal year 2020. 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, 2021 and 2020, the Company had cash deposits in excess of FDIC insured limits. The Company has not experienced any losses from such deposits. In accordance with ASU 2016-18, Statement of Cash Flows: Restricted Cash, the Company includes restricted cash along with the cash balance for presentation in the consolidated statements of cash flows. The reconciliation between the consolidated balance sheet and the consolidated statement of cash flows at April 30 is as follows: $ in thousands 2021 2020 Cash and cash equivalents $ 5,206 $ 4,365 Restricted cash 525 850 Total cash, cash equivalents and restricted cash $ 5,731 $ 5,215 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. 24 Table of Contents The activity in the allowance for doubtful accounts for each of the years ended April 30 was: $ in thousands 2021 2020 Balance at beginning of year $ 606 $ 361 Bad debt provision 53 364 Doubtful accounts written off (net) ( 23 ) ( 119 ) Balance at end of year $ 636 $ 606 Unbilled Receivables Accounts receivable include 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, 2021 and 2020 was $ 6,929,000 and $ 6,131,000 , respectively. Inventories During fiscal year 2019, the Company elected to change the method of accounting for the inventory of its Domestic segment from the LIFO method to the FIFO method. Inventories at the Company's international subsidiaries had previously been and continue to be measured on the FIFO method. 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 2021 2020 Useful Life Land $ 41 $ 41 N/A Building and improvements 17,017 16,920 10 - 40 years Machinery and equipment 41,746 40,898 5 - 10 years Total 58,804 57,859 Less accumulated depreciation ( 42,822 ) ( 41,587 ) Net property, plant and equipment $ 15,982 $ 16,272 The Company 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 2021 or 2020. Other Assets Other assets at April 30, 2021 and 2020 included $ 2,649,000 and $ 2,485,000 , respectively, of assets held in a trust account for non-qualified benefit plans and $ 108,000 and $ 87,000 , 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. 25 Table of Contents 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. 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, 2021 and 2020 (in thousands): 2021 Level 1 Level 2 Level 3 Total Financial Assets Trading securities held in non-qualified compensation plans (1) $ 1,299 $ — $ — $ 1,299 Cash surrender value of life insurance policies (1) — 1,458 — 1,458 Total $ 1,299 $ 1,458 $ — $ 2,757 Financial Liabilities Non-qualified compensation plans (2) $ — $ 3,169 $ — $ 3,169 Total $ — $ 3,169 $ — $ 3,169 2020 Level 1 Level 2 Level 3 Total Financial Assets Trading securities held in non-qualified compensation plans (1) $ 2,485 $ — $ — $ 2,485 Cash surrender value of life insurance policies (1) — 87 — 87 Total $ 2,485 $ 87 $ — $ 2,572 Financial Liabilities Non-qualified compensation plans (2) $ — $ 2,899 $ — $ 2,899 Total $ — $ 2,899 $ — $ 2,899 (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 $ 1,668,000 and $ 1,928,000 at April 30, 2021 and 2020, 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. 26 Table of Contents Credit Concentration The Company performs credit evaluations of its customers. Revenues from three of the Company's domestic dealers represented in the aggregate approximately 40 % and 37 % of the Company's sales in fiscal years 2021 and 2020, respectively. Accounts receivable for two domestic customers represented approximately 20 % and 27 % of the Company's total accounts receivable as of April 30, 2021 and 2020, respectively. Insurance The Company maintains a self-insured health-care program. The Company accrues estimated losses for claims incurred but not reported 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. 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. 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, 2021 and 2020. 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 $ 1,406,000 and $ 1,816,000 for the fiscal years ended April 30, 2021 and 2020, respectively. Advertising Costs Advertising costs are expensed as incurred, and include trade shows, training materials, sales, samples, and other related expenses and are included in operating expenses. Advertising costs for the years ended April 30, 2021 and 2020 were $ 174,000 and $ 332,000 , 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 $ 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. The Company terminated the interest rate swap arrangements in conjunction with the payoff of the outstanding long-term debt in September 2019. (See Note 4 , Long-term Debt and Other Credit Arrangements .) 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. The financial position and operating results of Kewaunee Labway Asia Pte. Ltd. are 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. 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 stock options and the conversion of restricted stock units ("RSUs") under the Company's various stock compensation plans, except when RSUs and stock options have an antidilutive effect. There were 166,880 antidilutive RSUs and stock options outstanding at April 30, 2021. There were 121,311 antidilutive RSUs and stock options outstanding at April 30, 2020. The following is a reconciliation of basic to diluted weighted average common shares outstanding: Shares in thousands 2021 2020 Weighted average common shares outstanding Basic 2,760 2,750 Dilutive effect of stock options and RSUs — — Weighted average common shares outstanding—diluted 2,760 2,750 27 Table of Contents 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 95,861 RSUs under the 2017 Omnibus Incentive Plan in fiscal year 2021 and 39,781 RSUs in fiscal year 2020. There were no stock options granted during fiscal years 2021 and 2020. (See Note 6 , Stock Options and Share-Based Compensation ) New Accounting Standards 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 an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. This guidance became effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted this standard effective May 1, 2019. The adoption of ASU 2016-02 resulted in the recognition of ROU assets and corresponding lease liabilities on the Company's consolidated financial position. See Note 8 , Leases, Commitments and Contingencies , for additional information on the adoption of this standard. 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, 2022. The Company will adopt this standard in fiscal year 2024. 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 January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment," which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company adopted this standard effective May 1, 2020. The adoption of this standard did not have a significant impact on the Company's consolidated financial position or results of operations. In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This guidance provides the Company with an option to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act ("2017 Tax Act") from accumulated other comprehensive income to retained earnings. This guidance became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company adopted this standard effective May 1, 2019 and did not elect to reclassify tax effects as a result of tax reform; therefore, the adoption did not have a significant impact on the Company's consolidated financial position or results of operations. In March 2018, the FASB issued ASU 2018-09, "Compensation - Stock Compensation ("Topic 718"): Improvements to Employee Share-Based Payment Accounting" ("ASU 2018-09"). This ASU makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation, and the financial statement presentation of excess tax benefits or deficiencies. ASU 2018-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this standard effective May 1, 2019. The adoption of this standard did not have a significant impact on the Company's consolidated financial position or results of operations. In August 2018, the FASB issued ASU 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC Topic 820. The Company adopted this standard effective May 1, 2020. The adoption of this standard did not have a significant impact on the Company's consolidated financial position or results of operations. In August 2018, the FASB issued ASU 2018-14, "Compensation -Retirement Benefits -Defined Benefit Plans -General (Subtopic 715-20) - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans" ("ASU 2018-14"). The amendments in this update remove defined benefit plan disclosures that are no longer considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company adopted this standard effective May 1, 2020. The adoption of this standard did not have a significant impact on the Company's consolidated financial position or results of operations. In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes ("Topic 740"): Simplifying the Accounting for Income Taxes." This update simplifies the accounting for income taxes through certain targeted improvements to various subtopics within Topic 740. The amendments in this update are effective for fiscal years and interim periods beginning after December 15, 2020. 28 Table of Contents The Company adopted this standard effective May 1, 2021. The adoption of this standard did not have a significant impact on the Company's consolidated financial position or results of operations. Note 2 - Revenue Recognition The Company adopted Accounting Standards Codification 606 - Revenue from Contracts with Customers ("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. 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 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 29 Table of Contents 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 Kewaunee's 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 Kewaunee's 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 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. 30 Table of Contents 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 is as follows (in thousands): 2021 Domestic International Total Over Time $ 107,575 $ 36,434 $ 144,009 Point in Time 3,460 — 3,460 Total Revenue $ 111,035 $ 36,434 $ 147,469 2020 Domestic International Total Over Time $ 109,982 $ 32,437 $ 142,419 Point in Time 5,121 — 5,121 Total Revenue $ 115,103 $ 32,437 $ 147,540 Contract Balances The closing and opening balances of contract assets included in accounts receivable arising from contracts with customers were $ 6,929,000 at April 30, 2021 and $ 6,131,000 at April 30, 2020. The closing and opening balances of contract liabilities included in deferred revenue arising from contracts with customers were $ 3,123,000 at April 30, 2021 and $ 2,508,000 at April 30, 2020. The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, and deferred revenue which 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, 2021, changes in contract assets and liabilities were not materially impacted by any other factors. Approximately 100 % of the contract liability balance at April 30, 2021 is expected to be recognized as revenue during fiscal year 2022. Note 3— Inventories Inventories consisted of the following at April 30: (in thousands) 2021 2020 Finished goods $ 2,988 $ 2,455 Work-in-process 1,832 1,921 Materials and components 11,697 10,954 Total inventories $ 16,517 $ 15,330 At April 30, 2021 and 2020, the Company's international subsidiaries' inventories were $ 2,560,000 and $ 2,136,000 , respectively, measured using the FIFO method at the lower of cost or net realizable value and are included in the above tables. 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") consisting of 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, a term loan in the amount of $ 3,450,000 which matured on May 1, 2020 ("Term Loan A") and a term loan in the amount of $ 1,550,000 which matured on May 1, 2020 (Term Loan B and together with Term Loan A, the "Term Loans"). On June 19, 2019, 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. In September 2019, the Company paid off Term Loan A and Term Loan B and terminated the related interest rate swap agreements. On December 13, 2019, the Company entered into an amendment to the Loan Agreement and the Line of Credit to effect a change to an asset based lending arrangement based on eligible accounts receivable and inventory, with the available amount not to exceed $ 20 million through January 31, 2020, and 31 Table of Contents with such maximum amount reduced to $ 15 million thereafter. This amendment replaced the prior financial covenants with new financial covenants, including minimum monthly liquidity and EBITDA requirements. Additionally, a requirement for the repatriation of foreign cash and restrictions on the payment of dividends were added. At April 30, 2020, the Company was not in compliance with all of the financial covenants under the revolving credit facility. On July 20, 2020, the Company entered into an amendment to the Loan Agreement and Line of Credit which effected changes in certain financial covenants set forth in the Loan Agreement and included a waiver of the non-compliance. On January 28, 2021, the Company entered into another amendment which effected changes (i) extending the maturity date under the Credit Agreement and Revolving Note from February 1, 2021 to May 3, 2021; (ii) establishing a minimum EBITDA covenant for the fiscal quarter ending April 30, 2021 of $ 1,000,000 , determined for the four-quarter period then ending; and (iii) revising the covenant regarding delivery of financial projections to the Bank to, among other things, provide projections for the next succeeding fiscal year. On April 27, 2021, the Company entered into another amendment which effected changes (i) extending the maturity date under the Credit Agreement and Revolving Note from May 3, 2021 to July 30, 2021; and (ii) revising the minimum EBITDA covenant to permit EBITDA to be increased by (a) scheduled one-time non-recurring addbacks in an amount not to exceed $ 250,000 , and (b) solely for the four-quarter period ending April 30, 2021, a one-time addback in an amount not to exceed $ 600,000 for non-cash, stock-based compensation paid by the Company. These amendments did not change the amount of availability under the revolving credit facility. At April 30, 2021, the Company was in compliance with all the financial covenants under its revolving credit facility. At April 30, 2021, there were advances of $ 6.8 million and $ 704,000 in letters of credit outstanding, leaving $ 7.5 million available under the Line of Credit. The borrowing rate under the Line of Credit at that date was 4.750 %. Monthly interest payments under the Line of Credit were payable at the greater of the Daily One Month LIBOR interest rate or 0.75 % plus 4.0 %. At April 30, 2021, there were bank guarantees issued by foreign banks outstanding to customers in the amount of $ 3.2 million, $ 61,000 , $ 18,000 , $ 9,000 and $ 257,000 , and with expiration dates in fiscal years 2022, 2023, 2024, 2025 and 2027, respectively, collateralized by a $ 6.0 million corporate guarantee and certain assets of the Company's subsidiaries in India. At April 30, 2020, there were advances of $ 4.7 million and $ 512,000 in letters of credit outstanding under the Line of Credit. The borrowing rate at that date was 4.13 %. At April 30, 2020, there were foreign bank guarantees outstanding to customers in the amount of $ 1.6 million, $ 297,000 and $ 74,000 with expiration dates in fiscal years 2021, 2022, and 2023, respectively, collateralized by a $ 6.0 million corporate guarantee and certain assets of the Company's subsidiaries in India. Note 5— Income Taxes On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law, which contains several income tax provisions, as well as other measures, aimed at assisting businesses impacted by the economic effects of the COVID-19 pandemic. The CARES Act includes a broad range of tax reform provisions affecting businesses, including permissible net operating losses ("NOLs") carrybacks up to five years , changes in business deductions limitations, and deferral of Social Security withholdings. The Company expects that it will apply the NOL carryback provision of the CARES Act with respect to its estimated NOL for fiscal year 2021 to years that had higher enacted tax rates, and applied this provision to the NOL for fiscal year 2020, resulting in a tax benefit. The Company also applied the deferral of Social Security withholdings in accordance with the CARES Act; these deferred withholdings are due in future periods. Effective August 1, 2019, as previously stated, the Company elected to revoke the indefinite reinvestment of foreign unremitted earnings position set forth by ASC 740-30-25-17 for multiple foreign subsidiaries. The Company recorded a tax withholding expense imposed by the India Income Tax Department of $ 226,000 and $ 1,964,000 for the years ended April 30, 2021 and 2020, respectively. The Company's accounting policy with respect to the Global Intangible Low-Taxed Income ("GILTI") tax rules is that GILTI will be treated as a periodic charge in the year in which it arises. The Company had no tax expense related to GILTI for the year ended April 30, 2021. 32 Table of Contents Income tax expense consisted of the following: $ in thousands 2021 2020 Current tax expense (benefit): Federal $ ( 396 ) $ ( 2,289 ) State and local 8 49 Foreign 1,136 1,567 Total current tax expense (benefit) 748 ( 673 ) Deferred tax expense (benefit): Federal 449 1,233 State and local ( 135 ) 438 Foreign ( 72 ) 760 Total deferred tax expense 242 2,431 Net income tax expense $ 990 $ 1,758 The reasons for the differences between the above net income tax expense and the amounts computed by applying the statutory federal income tax rate to earnings before income taxes are as follows: $ in thousands 2021 2020 Income tax benefit at statutory rate $ ( 470 ) $ ( 567 ) State and local taxes, net of federal income tax benefit ( 129 ) ( 115 ) Tax credits (state, net of federal benefit) ( 415 ) ( 477 ) Effects of differing US and foreign tax rates 17 3 Rate reduction impact on deferred tax assets — ( 47 ) Tax on unrepatriated and repatriated foreign earnings 226 1,964 Net operating loss carryback 118 ( 939 ) Effect of prior year true ups ( 42 ) 38 Impact of foreign subsidiary income (loss) to parent 67 ( 5 ) Increase in valuation allowance 1,538 1,707 Other items, net 80 196 Net income tax expense $ 990 $ 1,758 33 Table of Contents Significant items comprising deferred tax assets and liabilities as of April 30 were as follows: $ in thousands 2021 2020 Deferred tax assets: Accrued employee benefit expenses $ 296 $ 402 Allowance for doubtful accounts 154 150 Deferred compensation 1,283 890 Tax credits (state, net of federal benefits) 978 532 Foreign tax credit carryforwards 638 638 Unrecognized actuarial loss, defined benefit plans 1,196 2,616 Inventory reserves 69 102 Net operating loss carryforwards 572 457 Other 568 506 Total deferred tax assets 5,754 6,293 Deferred tax liabilities: Book basis in excess of tax basis of property, plant and equipment ( 1,596 ) ( 1,545 ) Prepaid pension ( 847 ) ( 1,111 ) APB 23 Assertion ( 765 ) ( 786 ) Other ( 122 ) ( 304 ) Total deferred tax liabilities ( 3,330 ) ( 3,746 ) Valuation allowance ( 2,731 ) ( 2,612 ) Net deferred tax liabilities $ ( 307 ) $ ( 65 ) Deferred tax assets (liabilities) classified in the balance sheet: Current $ — $ 336 Non-current ( 307 ) ( 401 ) Net deferred tax liabilities $ ( 307 ) $ ( 65 ) At April 30, 2021, the Company had deferred tax assets related to various federal, state and foreign deferred tax items, net operating loss carryforwards, and tax credit carryforwards in the amount of $ 5,754,000 . The Company is required to evaluate the realization of the deferred tax asset and any requirement for a valuation allowance in accordance with ASC 740-10-30-2(b). The Company evaluates all available evidence, both positive and negative, to determine the amount of any required valuation allowance. A deferred tax asset valuation allowance of $ 2,731,000 was recorded in the period ended April 30, 2021 based on ASC 740-10-30-18. This guidance provides that the future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on sufficient taxable income of the appropriate character within the carryback or carryforward period available under the tax law. At April 30, 2021, the Company had federal research and development tax credit carryforwards in the amount of $ 808,000 expiring beginning in 2041. At April 30, 2021, the Company had foreign tax credit carryforwards in the amount of $ 638,000 , which are subject to a full valuation allowance, beginning to expire in 2028. At April 30, 2021, the Company had $ 1,136,000 gross net operating losses in jurisdictions outside of the United States, of which $ 482,000 is set to expire in years 2022 to 2025. The Company files federal, state and local tax returns with statutes of limitation generally ranging from 3 to 4 years. The Company is generally no longer subject to federal tax examinations for years prior to fiscal year 2017 or state and local tax examinations for years prior to fiscal year 2016. Tax returns filed by the Company's significant foreign subsidiaries are generally subject to statutes of limitations of 3 to 7 years and are generally no longer subject to examination for years prior to fiscal year 2015. The Company has no unrecognized tax benefits. Note 6— Stock Options and Share-Based Compensation The Company adopted ASU 2016-9, "Stock Compensation – Improvements to Employee Share-Based Payment Accounting" prospectively effective May 1, 2017. The Company elected prospectively to account for forfeitures as they occur rather than apply an estimated rate to share-based compensation expense. 34 Table of Contents The Company's stockholders approved the 2017 Omnibus Incentive Plan ("2017 Plan") on August 30, 2017, which enables the Company to grant a broad range of equity, equity-related, and non-equity types of awards, with potential recipients including directors, consultants and employees. This plan replaced the 2010 Stock Option Plan for Directors and the 2008 Key Employee Stock Option Plan. No new awards will be granted under the prior plans and all outstanding options granted under the prior plans will remain subject to the prior plans. At the date of approval of the 2017 Plan there were 280,100 shares available for issuance under the prior plans. These shares and any shares subject to outstanding awards that subsequently cease to be subject to such awards are available under the 2017 Plan. The 2017 Plan did not increase the total number of shares available for issuance under the Company's equity compensation plans. At April 30, 2021 there were 167,136 shares available for future issuance. Under the 2017 Plan, the Company recorded stock-based compensation expense in accordance with ASC 718 of $ 578,000 and $ 152,000 and deferred income tax benefit of $ 136,000 and $ 36,000 in fiscal years 2021 and 2020, respectively. The RSUs include both a service and performance component vesting over a 3 year period. The recognized expense is based upon the vesting period for service criteria and estimated attainment of the performance criteria at the end of the 3 year period based on the ratio of cumulative days incurred to total days over the 3 year period. The remaining estimated compensation expense of $ 669,000 will be recorded over the remaining vesting periods. The fair value of each RSU granted to employees was estimated on the day of grant based on the weighted average price of the Company's stock reduced by the present value of the expected dividend stream during the vesting period using the risk-free interest rate. The Company issued new shares of common stock to satisfy RSUs that vested during fiscal year 2021. The following table summarizes the RSU activity and weighted averages. 2021 2020 Number of RSUs Weighted Average Grant Date Fair Value Number of RSUs Weighted Average Grant Date Fair Value Outstanding at beginning of year 52,850 $ 20.08 23,308 $ 28.66 Granted 95,861 $ 9.43 39,781 $ 15.93 Vested ( 11,477 ) $ 13.55 ( 2,397 ) $ 18.94 Forfeited ( 12,017 ) $ 16.69 ( 7,842 ) $ 21.94 Outstanding at end of year 125,217 $ 12.71 52,850 $ 20.08 The stockholders approved the 2008 Key Employee Stock Option Plan ("2008 Plan") in fiscal year 2009 which allowed the Company to grant options on an aggregate of 300,000 shares of the Company's common stock. On August 26, 2015, the stockholders approved an amendment to this plan to increase the number of shares available under the 2008 Plan by 300,000 shares. Under the plan, options were granted at not less than the fair market value at the date of grant and options are exercisable in such installments, for such terms (up to 10 years), and at such times, as the Board of Directors determined at the time of the grant. At April 30, 2021, there were no shares available for future grants under the 2008 Plan. The Company recorded stock-based compensation expense in accordance with ASC 718. In order to determine the fair value of stock options on the date of grant, the Company applied the Black-Scholes option pricing model. Inherent in the model are assumptions related to expected stock-price volatility, option life, risk-free interest rate, and dividend yield. The stock options outstanding have the "plain-vanilla" characteristics as defined in SEC Staff Accounting Bulletin No. 107 (SAB 107). The Company utilized the Safe Harbor option "Simplified Method" to determine the expected term of these options in accordance with the guidance of SAB 107 for options outstanding. The stock-based compensation expense is recorded over the vesting period ( 4 years) for the options granted, net of tax. Under the 2008 Plan, the Company recorded $ 15,000 and $ 58,000 of compensation expense and $ 3,000 and $ 14,000 of deferred income tax benefit in fiscal years 2021 and 2020, respectively. 35 Table of Contents The Company issued new shares of common stock to satisfy options exercised during fiscal years 2021 and 2020. Stock option activity and weighted average exercise price are summarized as follows: 2021 2020 Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price Outstanding at beginning of year 88,000 $ 18.45 104,350 $ 18.28 Canceled ( 3,700 ) $ 15.97 ( 14,050 ) $ 17.78 Exercised — $ — ( 2,300 ) $ 14.98 Outstanding at end of year 84,300 $ 18.56 88,000 $ 18.45 Exercisable at end of year 84,300 $ 18.56 83,400 $ 18.16 The number of options outstanding, exercisable, and their weighted average exercise prices were within the following ranges at April 30, 2021: Exercise Price Range $ 8.59 -$ 11.78 $ 15.85 -$ 23.62 Options outstanding 5,150 79,150 Weighted average exercise price $ 10.85 $ 19.06 Weighted average remaining contractual life 1.04 years 4.17 years Aggregate intrinsic value $ 5,918 $ — Options exercisable 5,150 79,150 Weighted average exercise price $ 10.85 $ 19.06 Aggregate intrinsic value $ 5,918 $ — Note 7— Accumulated Other Comprehensive Income (Loss) The Company's other comprehensive income (loss) consists of unrealized gains and losses on the translation of the assets, liabilities, and equity of its foreign subsidiaries, changes in the fair value of its cash flow hedges, and additional minimum pension liability adjustments, net of income taxes. The before tax income (loss), related income tax effect, and accumulated balances are as follows: $ in thousands Cash Flow Hedges Foreign Currency Translation Adjustment Minimum Pension Liability Adjustment Total Accumulated Other Comprehensive Income (Loss) Balance at April 30, 2019 $ — $ ( 1,891 ) $ ( 4,516 ) $ ( 6,407 ) Foreign currency translation adjustment — ( 444 ) — ( 444 ) Change in fair value of cash flow hedges 1 — — 1 Change in unrecognized actuarial loss on pension obligations — — ( 3,592 ) ( 3,592 ) Income tax effect ( 1 ) 1 844 844 Balance at April 30, 2020 — ( 2,334 ) ( 7,264 ) ( 9,598 ) Foreign currency translation adjustment — ( 23 ) — ( 23 ) Change in unrecognized actuarial loss on pension obligations — — 6,044 6,044 Balance at April 30, 2021 $ — $ ( 2,357 ) $ ( 1,220 ) $ ( 3,577 ) Note 8— Leases, Commitments and Contingencies On May 1, 2019, the Company adopted Accounting Standards Update ("ASU") No. 2016-02, Leases, and all subsequently issued clarifying guidance. ASU 2016-02 required the Company to recognize lease assets and lease liabilities with respect to the rights and obligations created by leased assets previously classified as operating leases. Upon adoption, the Company elected to: 36 Table of Contents • Record the impact of adoption using a modified retrospective method with any cumulative effect as an adjustment to retained earnings (accumulated deficit) as opposed to restating comparative periods to reflect the effects of applying the new standard. • Elect the package of three transition practical expedients which alleviate the requirements to reassess embedded leases, lease classification and initial direct costs for leases that commenced prior to the adoption date. • Elected to use the short-term lease recognition exemption for all asset classes. This means, for those leases that qualify, the Company will not recognize right-of-use ("ROU") assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets. The Company has operating type leases for real estate and equipment in both the U.S. and internationally and a financing lease for a truck in the United States. ROU assets totaled $ 9,279,000 and $ 9,312,000 at April 30, 2021 and 2020, respectively. Operating cash paid to settle lease liabilities was $ 1,799,000 and $ 1,526,000 for the twelve months ended April 30, 2021 and 2020, respectively. The Company's leases have remaining lease terms of up to 8 years. In addition, some of the leases may include options to extend the leases for up to 5 years or options to terminate the leases within 1 year. Operating lease expense was $ 2,854,000 for the twelve months ended April 30, 2021, inclusive of period cost for short-term leases, not included in lease liabilities, of $ 1,055,000 . Operating lease expense was $ 2,441,000 for the twelve months ended April 30, 2020, inclusive of period cost for short-term leases, not included in lease liabilities, of $ 915,000 . At April 30, 2021, the weighted average remaining lease term for the capitalized operating leases was 5.9 years and the weighted average discount rate was 4.1 %. At April 30, 2020, the weighted average remaining lease term for the capitalized operating leases was 7.6 years and the weighted average discount rate was 4.1 %. For the financing lease, the remaining lease term was 4.3 years and the discount rate was 10.0 % at April 30, 2021 as compared to 5.3 years and 10.0 % at April 30, 2020. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. Future minimum payments under the non-cancelable lease arrangements for the fiscal years ending April 30 are as follows: ($ in thousands) Operating Financing 2022 $ 2,018 $ 32 2023 1,833 32 2024 1,475 32 2025 1,431 32 2026 1,220 13 Thereafter 2,864 — Total Minimum Lease Payments 10,841 141 Imputed Interest ( 1,633 ) ( 28 ) Total $ 9,208 $ 113 The Company is involved in certain claims and legal proceedings in the normal course of business which management believes will not have a material adverse effect on the Company's consolidated financial condition or results of operations. Note 9— Retirement Benefits Defined Benefit Plans The Company has non-contributory defined benefit pension plans covering some of its domestic employees. These 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 will be added to the plans. The defined benefit plan for salaried employees provides pension benefits that are based on each employee's years of service and average annual compensation during the last ten consecutive calendar years of employment as of April 30, 2005. The benefit plan for hourly employees provides benefits at stated amounts based on years of service as of April 30, 2005. The Company uses an April 30 measurement date for its defined benefit plans. 37 Table of Contents The change in projected benefit obligations and the change in fair value of plan assets for the non-contributory defined benefit pension plans for each of the years ended April 30 are summarized as follows: $ in thousands 2021 2020 Accumulated Benefit Obligation, April 30 $ 22,942 $ 23,720 Change in Projected Benefit Obligations Projected benefit obligations, beginning of year $ 23,720 $ 21,394 Interest cost 723 832 Actuarial (loss) gain ( 97 ) 2,769 Actual benefits paid ( 1,404 ) ( 1,275 ) Projected benefit obligations, end of year $ 22,942 $ 23,720 Change in Plan Assets Fair value of plan assets, beginning of year $ 17,316 $ 19,035 Actual return on plan assets 5,517 ( 444 ) Employer contributions 30 — Actual benefits paid ( 1,404 ) ( 1,275 ) Fair value of plan assets, end of year 21,459 $ 17,316 Funded status—under $ ( 1,483 ) $ ( 6,404 ) Amounts Recognized in the Consolidated Balance Sheets consist of: Non-current liabilities $ ( 1,483 ) $ ( 6,404 ) Amounts Recognized in Accumulated Other Comprehensive Income (Loss) Consist of: Net actual loss $ 5,089 $ 11,133 Deferred tax benefit ( 1,196 ) ( 2,616 ) After-tax actuarial loss $ 3,893 $ 8,517 Weighted-Average Assumptions Used to Determine Benefit Obligations at April 30 Discount rate 3.20 % 3.10 % Rate of compensation increase N/A N/A Mortality table Pri-2012 Pri-2012 Projection scale MP-2020 MP-2019 Year Ended April 30, Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost 2021 2020 Discount rate 3.20 % 3.10 % Expected long-term return on plan assets 7.75 % 7.75 % Rate of compensation increase N/A N/A The components of the net periodic pension expense for each of the fiscal years ended April 30 are as follows: $ in thousands 2021 2020 Interest cost $ 723 $ 832 Expected return on plan assets ( 1,284 ) ( 1,421 ) Recognition of net loss 1,714 1,043 Net periodic pension expense $ 1,153 $ 454 The estimated net actuarial loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during fiscal year 2022 is $ 560,000 . The Company's funding policy is to contribute to the plans when pension laws and economics either require or encourage funding. The Company expects to make no contributions during fiscal year 2022. There were $ 30,000 in contributions made to the plans in fiscal year 2021. The Company made no contributions to the plans during fiscal year 2020. 38 Table of Contents The following benefit payments are expected to be paid from the benefit plans in the fiscal years ending April 30: $ in thousands Amount 2022 $ 1,540 2023 1,580 2024 1,620 2025 1,590 2026 1,570 2027 & Beyond 7,390 The expected long-term portfolio return is established via a building block approach with proper consideration of diversification and rebalancing. Historical markets are studied and long-term historical relationships between equities and fixed-income securities are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long term. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. Peer data and historical returns are also reviewed to check for reasonableness and appropriateness. The Company uses a Yield Curve methodology to determine its GAAP discount rate. Under this approach, future benefit payment cash flows are projected from the pension plan on a projected benefit obligation basis. The payment stream is discounted to a present value using an interest rate applicable to the timing of each respective cash flow. The graph of these time-dependent interest rates is known as a yield curve. The interest rates comprising the Yield Curve are determined through a statistical analysis performed by the IRS and issued each month in the form of a pension discount curve. For this purpose, the universe of possible bonds consists of a set of bonds which are designated as corporate, have high quality ratings (AAA or AA) from nationally recognized statistical rating organizations, and have at least $ 250 million in par amount outstanding on at least one day during the reporting period. A 1 % increase/decrease in the discount rate for fiscal years 2021 and 2020 would decrease/increase pension expense by approximately $ 286,000 and $ 236,000 , respectively. The Company uses a total return investment approach, whereby a mix of equities and fixed-income investments are used to attempt to maximize the long-term return on plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, and small and large capitalizations. The target allocations based on the Company's investment policy were 75 % in equity securities and 25 % in fixed-income securities at April 30, 2021 and April 30, 2020. A 1 % increase/decrease in the expected return on assets for fiscal years 2021 and 2020 would decrease/increase pension expense by approximately $ 165,000 and $ 183,000 , respectively. Plan assets by asset categories as of April 30 were as follows: $ in thousands 2021 2020 Asset Category Amount % Amount % Equity Securities $ 14,814 69 $ 10,797 62 Fixed Income Securities 6,314 29 5,377 31 Cash and Cash Equivalents 331 2 1,142 7 Totals $ 21,459 100 $ 17,316 100 39 Table of Contents The following tables present the fair value of the assets in the Company's defined benefit pension plans at April 30: 2021 Asset Category Level 1 Level 2 Level 3 Large Cap $ 7,726 $ — $ — Small/Mid Cap 3,128 — — International 2,173 — — Emerging Markets 862 — — Fixed Income 6,314 — — Liquid Alternatives 925 — — Cash and Cash Equivalents 331 — — Totals $ 21,459 $ — $ — 2020 Asset Category Level 1 Level 2 Level 3 Large Cap $ 5,831 $ — $ — Small/Mid Cap 2,121 — — International 1,850 — — Emerging Markets 483 — — Fixed Income 5,377 — — Liquid Alternatives 512 — — Cash and Cash Equivalents 1,142 — — Totals $ 17,316 $ — $ — Level 1 retirement plan assets include United States currency held by a designated trustee and equity funds of common and preferred securities issued by domestic and foreign corporations. These equity funds are traded actively on exchanges and price quotes for these shares are readily available. Defined Contribution Plan The Company has a defined contribution plan covering substantially all domestic salaried and hourly employees. The plan provides benefits to all employees who have attained age 21 , completed three months of service, and who elect to participate. The plan provides that the Company make matching contributions equal to 100 % of the employee's qualifying contribution up to 3 % of the employee's compensation, and make matching contributions equal to 50 % of the employee's contributions between 3 % and 5 % of the employee's compensation, resulting in a maximum employer contribution equal to 4 % of the employee's compensation. The Company's matching contributions were $ 997,000 and $ 974,000 for years ending April 30, 2021 and 2020. Additionally, the plan provides that the Company may elect to make a non-matching contribution for participants employed by the Company on December 31 of each year. The Company did not elect to make a non-matching contribution in fiscal years 2021 and 2020. Note 10— Segment Information The Company's operations are classified into two business segments: Domestic and International. The Domestic business segment principally designs, manufactures, and installs scientific and technical furniture, including steel and wood laboratory cabinetry, fume hoods, laminate casework, flexible systems, worksurfaces, workstations, workbenches, and computer enclosures. The International business segment, which consists of the foreign subsidiaries identified in Note 1 , Summary of Significant Accounting Policies , provides the Company's products and services, including facility design, detailed engineering, construction, and project management from the planning stage through testing and commissioning of laboratories. Intersegment transactions are recorded at normal profit margins. All intercompany balances and transactions have been eliminated. Certain corporate expenses shown below have not been allocated to the business segments. 40 Table of Contents The following table shows revenues, earnings, and other financial information by business segment for each of the years ended April 30: $ in thousands Domestic International Corporate Total Fiscal Year 2021 Revenues from external customers $ 111,035 $ 36,434 $ — $ 147,469 Intersegment revenues 1,779 3,549 ( 5,328 ) — Depreciation 2,423 264 — 2,687 Earnings (loss) before income taxes 1,166 3,178 ( 6,961 ) ( 2,617 ) Income tax expense (benefit) 245 1,063 ( 318 ) 990 Net earnings attributable to non-controlling interest — 65 — 65 Net earnings (loss) attributable to Kewaunee Scientific Corporation 921 2,049 ( 6,642 ) ( 3,672 ) Segment assets 64,961 24,423 — 89,384 Expenditures for segment assets 2,312 85 — 2,397 Revenues (excluding intersegment) from customers in foreign countries 1,182 36,434 — 37,616 Fiscal Year 2020 Revenues from external customers $ 115,103 $ 32,437 $ — $ 147,540 Intersegment revenues 3,621 2,277 ( 5,898 ) — Depreciation 2,371 283 — 2,654 Earnings (loss) before income taxes 1,176 1,924 ( 5,966 ) ( 2,866 ) Income tax expense (benefit) 585 2,463 ( 1,290 ) 1,758 Net earnings attributable to non-controlling interest — 63 — 63 Net earnings (loss) attributable to Kewaunee Scientific Corporation 591 ( 602 ) ( 4,676 ) ( 4,687 ) Segment assets 61,154 22,775 — 83,929 Expenditures for segment assets 2,361 104 — 2,465 Revenues (excluding intersegment) from customers in foreign countries 2,009 32,437 — 34,446 Note 11— Restructuring Costs In December 2019, the Company initiated a restructuring, which included the addition of a new Vice President of Information Technology to lead the transformation and modernization of the Company's information systems, and a reduction in workforce primarily in its domestic operations to reduce operating expenses on an ongoing basis. This restructuring plan, which included the closure of the Company's subsidiary in China, a commercial sales organization for the Company's products in China, was substantially completed as of April 30, 2020. In fiscal year 2021, the Company incurred severance expenses in its international operations related to the closure of the China subsidiary of $ 25,000 . The Company reflected all the expenses as operating expenses in the Consolidated Statement of Operations. The Company now expects the remaining administrative requirements for closure of the China subsidiary to be completed by the end of fiscal year 2022. 41 Table of Contents Note 12— Consolidated Quarterly Data ( Unaudited ) Selected quarterly financial data for fiscal years 2021 and 2020 were as follows: $ in thousands, except per share amounts First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year 2021 Net sales $ 36,423 $ 39,000 $ 33,339 $ 38,707 Gross profit 5,881 6,395 5,654 6,063 Net (loss) earnings ( 608 ) ( 165 ) 95 ( 2,929 ) Less: net (loss) earnings attributable to the non-controlling interest ( 10 ) 15 14 46 Net (loss) earnings attributable to Kewaunee Scientific Corporation ( 598 ) ( 180 ) 81 ( 2,975 ) Net (loss) earnings per share attributable to Kewaunee Scientific Corporation Basic ( 0.22 ) ( 0.07 ) 0.03 ( 1.08 ) Diluted ( 0.22 ) ( 0.07 ) 0.03 ( 1.08 ) Cash dividends paid per share — — — — Fiscal Year 2020 Net sales $ 39,336 $ 39,722 $ 34,225 $ 34,257 Gross profit 6,946 6,316 5,278 4,887 Net earnings (loss) 496 ( 2,161 ) ( 1,901 ) ( 1,058 ) Less: net earnings attributable to the non-controlling interest 25 17 17 4 Net earnings (loss) attributable to Kewaunee Scientific Corporation 471 ( 2,178 ) ( 1,918 ) ( 1,062 ) Net earnings (loss) per share attributable to Kewaunee Scientific Corporation Basic 0.17 ( 0.79 ) ( 0.70 ) ( 0.39 ) Diluted 0.17 ( 0.79 ) ( 0.70 ) ( 0.39 ) Cash dividends paid per share 0.19 0.19 — — The sum of the quarterly net earnings per share amounts does not necessarily equal net earnings per share for the year due to rounding. 42 Table of Contents CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - DIXON HUGHES GOODMAN LLP We consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 333-160276, No. 333-176447, No. 333-213413, and No. 333-220389), of Kewaunee Scientific Corporation of our reports dated July 15, 2021 with respect to the consolidated financial statements of Kewaunee Scientific Corporation, included in this Annual Report (Form 10-K) for the year ended April 30, 2021. /s/ Dixon Hughes Goodman LLP Charlotte, North Carolina July 15, 2021 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - ERNST & YOUNG LLP We consent to the incorporation by reference in the following Registration Statements on Form S-8 (No. 333-160276, No. 333-176447, No. 333-213413, and No. 333-220389), of our report dated July 27, 2020 with respect to the consolidated financial statements of Kewaunee Scientific Corporation, included in this Annual Report (Form 10-K) of Kewaunee Scientific Corporation for the year ended April 30, 2021. /s/ Ernst & Young LLP Charlotte, North Carolina July 15, 2021 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.