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Item 8. Financial Statements and Supplementary Data

2023-06-30 compared with 2022-07-01 · 114 added, 172 removed, 712 unchanged (29% of the section changed)

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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, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the two years in the period ended April 30, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2022, in conformity with U.S.

generally accepted accounting principles.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Kewaunee Scientific Corporation and subsidiaries (the "Company") as of April 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the years in the two-year period ended April 30, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2023, in conformity with principles generally accepted in the United States of America.

Basis for Opinion

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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.

Such procedures include 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.

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/s/ FORVIS, LLP

(formerly, Dixon Hughes Goodman LLP)

We have served as the Company's auditor since 2020.

Charlotte, NC

June 30, 2023

CONSOLIDATED STATEMENTS OF OPERATIONS

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Operating expenses 30,224 26,828

Operating loss ( 2,608 ) ( 1,316 )

Pension income (expense) 355 ( 1,153 )

Operating earnings (loss) 5,364 ( 2,608 )

Pension (expense) income ( 71 ) 355

Other income, net 939 400

Interest expense ( 1,734 ) ( 632 )

Loss before income taxes ( 2,485 ) ( 2,617 )

Earnings (Loss) before income taxes 4,498 ( 2,485 )

Income tax expense 3,139 3,518

Net loss ( 6,003 ) ( 3,607 )

Net earnings (loss) 1,359 ( 6,003 )

net earnings attributable to the non-controlling interest 621 123

Net loss attributable to Kewaunee Scientific Corporation $ ( 6,126 ) $ ( 3,672 )

Net loss per share attributable to Kewaunee Scientific Corporation stockholders

Net earnings (loss) attributable to Kewaunee Scientific Corporation $ 738 $ ( 6,126 )

Net earnings (loss) per share attributable to Kewaunee Scientific Corporation stockholders

Basic $ 0.26 $ ( 2.20 )

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$ in thousands 2023 2022

Net loss $ ( 6,003 ) $ ( 3,607 )

Net earnings (loss) $ 1,359 $ ( 6,003 )

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments ( 290 ) ( 186 )

Change in unrecognized actuarial gain on pension obligations 21 6,044

Change in unrecognized actuarial loss on pension obligations 590 21

Comprehensive income (loss), net of tax $ 1,659 $ ( 6,168 )

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Net loss attributable to Kewaunee Scientific Corporation — — — ( 6,126 ) — ( 6,126 )

Other comprehensive income — — — — 6,021 6,021

Other comprehensive loss — — — — ( 165 ) ( 165 )

Stock based compensation 68 676 — — — 744

Balance at April 30, 2022 6,983 4,483 ( 53 ) 28,023 ( 3,742 ) 35,694

Net loss attributable to Kewaunee Scientific Corporation — — — ( 6,126 ) — ( 6,126 )

Other comprehensive loss — — — — ( 165 ) ( 165 )

Net earnings attributable to Kewaunee Scientific Corporation — — — 738 — 738

Other comprehensive income — — — — 300 300

Stock based compensation 101 576 — — — 677

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Inventories 21,889 23,796

Income tax receivable — 955

Note receivable — 13,457

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Current portion of financing liability 642 575

Current portion of financing lease liability 126 21

Current portion of financing lease liabilities 85 126

Current portion of operating lease liabilities 1,967 1,319

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Long-term portion of financing liability 28,132 28,775

Long-term portion of financing lease liability 228 91

Long-term portion of financing lease liabilities 148 228

Long-term portion of operating lease liabilities 7,136 6,179

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Cash Flows from Operating Activities

Net loss $ ( 6,003 ) $ ( 3,607 )

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

Net earnings (loss) $ 1,359 $ ( 6,003 )

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

Depreciation 2,867 2,769

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Other, net ( 1,508 ) ( 3,096 )

Net cash (used) provided by operating activities ( 7,885 ) 912

Net cash used by operating activities ( 3,790 ) ( 7,885 )

Cash Flows from Investing Activities

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Cash Flows from Financing Activities

Dividends paid to non-controlling interest in subsidiaries — ( 108 )

Proceeds from short-term borrowings 60,599 59,359

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Proceeds from sale-leaseback transaction 13,629 15,893

Repayments on financing liability ( 575 ) —

Proceeds from long-term debt — 377

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Interest paid $ 1,862 $ 480

Income taxes (refunded) paid $ 1,006 $ ( 1,800 )

Income taxes paid $ 3,158 $ 1,006

Assets obtained under new finance or operating leases $ 3,902 $ 366

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

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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, its subsidiaries in Singapore and India, and a national stocking distributor.

The Company's products include steel and wood casework, fume hoods, adaptable modular systems, moveable workstations, stand-alone benches, biological safety cabinets, and epoxy resin work surfaces and sinks.

The Company's sales are made through purchase orders and contracts submitted by customers through its dealers, its subsidiaries in Singapore and India, and a national stocking distributor.

See Note 12 , Restructuring Costs for details on the closure status of the Company's China operations.

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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.

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(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;

Ltd., a design, installation, 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;

(5) Kequip Global Lab Solutions Pvt.

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Net sales by the Company's subsidiaries in the amounts of $ 72,778,000 and $ 42,024,000 were included in the consolidated statements of operations for fiscal years 2023 and 2022, respectively.

Reclassifications The Company reclassified certain amounts in the Condensed Consolidated Balance Sheet as of April 30, 2021 and the Condensed Consolidated Statements of Cash Flows for the period ended April 30, 2021 to conform to the current year presentation.

There was no impact to the Condensed Consolidated Statements of Operations or Condensed Consolidated Statement of Stockholders' Equity.

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.

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Net property, plant and equipment $ 16,402 $ 15,121

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.

The Company reviews the carrying value of property, plant and equipment for impairment annually or 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.

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Actual results could differ from these estimates.

Significant estimates impacting the accompanying consolidated financial statements include the allowance for uncollectible accounts receivable, self-insurance reserves, and pension liabilities.

Variable Interest Entity On December 22, 2021, the Company entered into an Agreement for Purchase and Sale of Real Property with CAI Investments Sub-Series 100 LLC, a Nevada limited liability company (the “Buyer”), for the Company’s headquarters and manufacturing facilities (the “Property”) located at 2700 West Front Street in Statesville, North Carolina (the “Sale Agreement”) in exchange for $ 30,275,000 in sales proceeds, $ 14,864,000 of which was payable in redeemable preferred shares in CAI Investments Medical Products I Parent, LLC ("Parent"), a Delaware limited liability company and an affiliate of Buyer.

The redemption feature on the preferred shares is personally guaranteed by a shareholder and manager of Buyer and its affiliates.

Significant estimates impacting the accompanying consolidated financial statements include the allowance for uncollectible accounts receivable, self-insurance reserves, income taxes, and pension liabilities.

Variable Interest Entity On December 22, 2021, the Company entered into an Agreement for Purchase and Sale of Real Property with CAI Investments Sub-Series 100 LLC (the "Buyer"), for the Company’s headquarters and manufacturing facilities (the "Property") located in Statesville, North Carolina (the "Sale Agreement") in exchange for $ 30,275,000 in sales proceeds, $ 14,864,000 of which was payable in redeemable preferred shares in CAI Investments Medical Products I Parent, LLC ("Parent"), an affiliate of Buyer.

At April 30, 2022, the carrying value of the redeemable preferred shares was $ 13.5 million.

As of June 22, 2022, the Company had fully redeemed all shares and converted the Note Receivable to cash.

The transfer of title was initially conditioned upon a 30-day acceptance period to permit Buyer to examine and evaluate the Property.

The Sale Agreement was subsequently finalized on March 24, 2022 to complete Buyer’s purchase of the Property and to coincide with a 20-year lease, effective on such date between the Company and CAI Investments Medical Products I Master Lessee LLC (“Lessor”), an affiliate of Buyer, for the Property (the "Lease Agreement").

At the same time, the Buyer and its affiliates formed a new, debt-financed affiliate CAI Investments Medical Products I, DST (“Trust”) and contributed the Property

to the Trust.

According to the terms of the contemporaneous lease, the Trust leased the Property to its affiliated Lessor, which in turn sub-leased the Property to the Company (together with the Sale Agreement, the “Sale-Leaseback Arrangement”).

The Sale Agreement was finalized on March 24, 2022 and coincided with a 20-year lease, effective on such date between the Company and CAI Investments Medical Products I Master Lessee LLC ("Lessor"), an affiliate of Buyer, for the Property (the "Lease Agreement").

At the same time, the Buyer and its affiliates formed a new, debt-financed affiliate CAI Investments Medical Products I, DST ("Trust") and contributed the Property to the Trust.

According to the terms of the lease, the Trust leased the Property to its affiliated Lessor, which in turn sub-leased the Property to the Company (together with the Sale Agreement, the "Sale-Leaseback Arrangement").

For additional information on the accounting for the Sale-Leaseback Arrangement, refer to Note 5 , Sale-Leaseback Financing Transaction .

The Company concluded as of April 30, 2022 that Parent and its direct affiliates, including the Trust, are designed primarily to acquire and manage the Property and constitute a variable interest entity because the Trust, wholly-owned through Parent’s subsidiaries, lacks sufficient equity on its own to finance its operations.

The Company concluded as of April 30, 2022 that Parent and its direct affiliates, including the Trust, are designed primarily to acquire and manage the Property and constitute a variable interest entity because the Trust lacks sufficient equity on its own to finance its operations.

The Company evaluated its lease arrangement and redeemable preferred shares in Parent as variable interests.

The Company is not the primary beneficiary of Parent or its affiliates because the Company does not direct the activities that most significantly impact the economic performance of Parent and its affiliated Trust (e.g., property management, maintenance and budget oversight, residual ownership and price exposure to changes in the fair value of the Property, etc.).

Further, the Company’s redeemable preferred shares in Parent do not provide the Company with a controlling financial interest in Parent or its affiliates.

The Company’s redeemable preferred shares generally provide the Company with the same, non-majority right as other voting interests in Parent and the Buyer and its affiliates retain the substantive right to unilaterally “kick out” the Company by redeeming the Company’s preferred shares at any time.

The Company concluded it should not consolidate Parent or its affiliates under the variable interest model or the voting interest model of ASC 810.

The Company has no requirement to fund losses or finance future operations of the Buyer or its affiliates.

The Company recorded the redeemable preferred shares in Parent and its affiliates as a Note Receivable on its Consolidated Balance Sheet, rather than as an investment in preferred equity, due to the mandatory redemption feature of the preferred shares.

The Note Receivable is classified as held to maturity at amortized cost, subject to impairment.

The Company’s maximum exposure to the Buyer and its affiliates as of April 30, 2022 was limited to the Company’s lease payments and right to use the Property as well as to the carrying value of the redeemable preferred shares.

Based on its evaluation, the Company concluded it should not consolidate Parent or its affiliates under the variable interest model or the voting interest model of ASC 810, Consolidation .

The Company recorded the redeemable preferred shares as a Note Receivable, classified as held to maturity at amortized cost, on its Consolidated Balance Sheet, rather than as an investment in preferred equity, due to the mandatory redemption feature of the preferred shares.

As of June 22, 2022, the Company had fully redeemed all shares and converted the Note Receivable to cash.

The Company's maximum exposure to the Buyer and its affiliates as of April 30, 2023 was limited to the Company’s lease payments and right to use the Property.

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.

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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.

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.

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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 accrues estimated losses for claims incurred but not reported using assumptions based on historical loss experience.

The Company has also purchased specific stop-loss insurance to limit claims above a certain amount.

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The Company did not have any significant uncertain tax positions at April 30, 2023 or 2022.

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 $ 990,000 and $ 1,406,000 for the fiscal years ended April 30, 2022 and 2021, respectively.

Research and Experimentation Expenditures Research and experimentation expenditures are charged to cost of products sold in the periods incurred.

Expenditures for research and experimentation expenditures were $ 1,012,000 and $ 990,000 for the fiscal years ended April 30, 2023 and 2022, 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, 2023 and 2022 were $ 226,000 and $ 175,000 , respectively.

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.

Foreign Currency Translation The financial statements of subsidiaries located in India and China are measured using the local currency as the functional currency.

Effective May 1, 2022, Kewaunee Scientific Corporation Singapore Pte.

transitioned to using the U.S.

dollar as its functional currency.

The financial position and operating results of Kewaunee Labway Asia Pte.

are measured using the U.S.

are also measured using the U.S.

dollar as its functional currency.

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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 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.

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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.

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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 separately priced warranties are available which can last up to ten years.

Extended warranties are considered separate performance obligations as they are individually priced options providing assurances that the products are free of defects.

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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 are generally 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.

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The closing and opening balances of contract liabilities included in deferred revenue arising from contracts with customers were $ 4,097,000 at April 30, 2023 and $ 3,529,000 at April 30, 2022.

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.

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.

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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 subsequently extended to March 1, 2021.

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.

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") with Wells Fargo, National Bank, which originally matured in May 2018 and was extended numerous times until it was terminated in June 2022.

On June 19, 2019, the Company entered into a Security Agreement with Wells Fargo, National Bank, pursuant to which the Company granted a security interest in substantially all of its assets to secure its obligations under the Loan Agreement.

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

This amendment replaced the prior financial covenants with new

financial covenants, including minimum monthly liquidity and EBITDA requirements.

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.

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;

and (ii) modifying existing covenants.

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 existing covenants.

On July 30, 2021, the Company entered into another amendment which effected changes (i) extending the maturity date under the Credit Agreement and Revolving Note from July 30, 2021 to April 30, 2022;

(ii) removing the minimum EBITDA covenant;

(iii) in addition to the existing Minimum Monthly Liquidity requirement as of the end of each calendar month of not less than $ 2,000,000 , adding an additional covenant that the Company will maintain Supplemental Liquidity as of the first day of each calendar month not less than (a) during the period from August 1, 2021 through December 31, 2021, $ 1,000,000 and (b) thereafter $ 1,500,000 ;

and (iv) restating the Credit Agreement to reflect all amendments to date.

On March 11, 2022, the Company entered into another Amendment, the effectiveness of which was conditioned upon the consummation of the Sale-Leaseback Arrangement, described in Note 5 , Sale-Leaseback Financing Transaction below, which occurred on March 24, 2022.

The Amendment effected changes (i) amending and replacing the $ 15,000,000 line of credit with a $ 7,500,000 line of credit;

(ii) providing for the removal of liens on property of the Company previously existing pursuant to the terms of the Credit Agreement;

(iii) changing the interest rate under the Credit Agreement;

(iv) consenting to the consummation of the Sale-Leaseback Arrangement;

and (v) restating the Credit Agreement to reflect all amendments to date.

Effective as of April 29, 2022, the Company entered into another amendment which effected changes (i) reducing the amount available under the line of credit from $ 7,500,000 to $ 4,715,823 ;

(ii) extending the maturity date under the Credit Agreement and Revolving Note from April 30, 2022 to May 31, 2022;

and (iii) adding a cash collateral agreement whereby the Company shall deliver to the Bank cash in the amount of 105 % of the outstanding issued Letters of Credit on or before May 23, 2022, which amount shall be deposited in, and maintained in, a blocked, non-interest-bearing deposit account at the Bank.

As of May 27, 2022, the Company entered into an additional amendment which effected changes (i) further reducing the amount available under the line of credit from $ 4,715,823 to $ 3,000,000 ;

(ii) extending the maturity date under the Credit Agreement and Revolving Note from May 31, 2022 to June 30, 2022;

and (iii) permanently reducing the maximum aggregate principal amount committed under the line of credit.

The Security Agreement was amended several times during fiscal years 2022 and 2023 as the Company was finalizing the Sale-Leaseback financing transaction discussed in Note 5 , Sale-Leaseback Financing Transaction .

These amendments were primarily driven by requirements and timing of the Company's new credit arrangement.

On June 27, 2022, the Company terminated the Credit Agreement with Wells Fargo, National Bank.

At the time of termination, there were no borrowings under the Credit Agreement, and the Company did not incur any material termination penalties as a result of the termination.

At April 30, 2022, there were advances of $ 1.6 million and $ 716,000 in letters of credit outstanding, leaving $ 2.4 million available under the Line of Credit.

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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, 2022, there were bank guarantees issued by foreign banks outstanding to customers in the amounts of $ 8.2 million, $ 111,000 , $ 9,000 , $ 3,000 and $ 249,000 , and with expiration dates in fiscal years 2023, 2024, 2025, 2026 and 2027, respectively, collateralized by a $ 6.0 million corporate guarantee and certain assets of the Company's subsidiaries in India.

At April 30, 2022, 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 under the Line of Credit.

The borrowing rate at that date was 4.75 %.

At April 30, 2021, there were foreign bank guarantees outstanding to customers in the amounts of $ 3.2 million, $ 61,000 , $ 18,000 , $ 9,000 and $ 257,000 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.

On June 27, 2022, the Company terminated the Credit Agreement with Wells Fargo, National Bank.

At the time of termination, there were no borrowings under the Credit Agreement, and the Company will not incur any material termination penalties as a result of the termination.

On December 19, 2022, the Company entered into a Credit and Security Agreement (the "Credit Agreement") with Mid Cap Funding IV Trust, as agent (the "Agent"), and the lenders from time to time party thereto (collectively, the "Lenders").

The Credit Agreement provides for a secured revolving line of credit initially up to $ 15.0 million (the "Revolving Credit Facility").

Availability under the Revolving Credit Facility is subject to a borrowing base calculated in accordance with the terms of the Credit Agreement and on the basis of eligible accounts and inventory and certain other reserves and adjustments.

Pursuant to the Credit Agreement, the Company granted to the Agent, for itself and the Lenders, a first priority security interest in all existing and future acquired assets owned by the Company.

Subject to the terms of the Credit Agreement, from time to time the Company may request that the initial revolving loan amount available under the Revolving Credit Facility be increased with additional tranches in minimum amounts of $ 1,000,000 , up to a maximum borrowing availability of $ 30.0 million.

The Agent and Lenders must consent to any such increase in their sole discretion.

The Revolving Credit Facility matures on December 19, 2025.

Except as set forth in the Credit Agreement, borrowings under the Revolving Credit Facility bear interest at a rate equal to Term SOFR (Secured Overnight Financing Rate) plus 4.10 %.

The Company is required to make monthly interest payments on the Revolving Credit Facility, with the entire principal payment due at maturity.

At April 30, 2023, there was $ 3,548,000 outstanding under the Revolving Credit Facility, with remaining borrowing capacity under the Revolving Credit Facility of $ 10,286,000 .

The borrowing rate under the Revolving Credit Facility was 9.02 % as of April 30, 2023.

At April 30, 2023, the Company was in compliance with all financial covenants under its revolving credit facility.

In addition, the Company's International subsidiaries have a balance outstanding of $ 39,000 in short-term borrowings related to overdraft protection and short-term loan arrangements.

At April 30, 2023, there were foreign bank guarantees outstanding to customers in the amounts of $ 5.2 million, $ 142,000 , $ 3,000 , and $ 233,000 with expiration dates in fiscal years 2024, 2025, 2026, and 2027, respectively, collateralized by certain assets of the Company's subsidiaries in India.

At April 30, 2022, there were bank guarantees issued by foreign banks outstanding to customers in the amounts of $ 8.2 million, $ 111,000 , $ 9,000 , $ 3,000 , and $ 249,000 with expiration dates in fiscal years 2023, 2024, 2025, 2026, and 2027, respectively, collateralized by a $ 6.0 million corporate guarantee and certain assets of the Company's subsidiaries in India.

Note 5— Sale-Leaseback Financing Transaction

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Under the terms of the Lease Agreement, the Company’s initial basic rent is approximately $ 158,000 per month, with annual increases of approximately 2 % each year of the initial term.

The Company accounted for the Sale-Leaseback Arrangement as a financing transaction with the Buyer in accordance with ASC 842 as the Lease Agreement was determined to be a finance lease.

The Company concluded the Lease Agreement met the

qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using a discount rate of 4.75 % to reflect the Company’s incremental borrowing rate, compared to the fair value of the leased property as of the lease commencement date.

The Company accounted for the Sale-Leaseback Arrangement as a financing transaction with the Buyer in accordance with ASC 842, Leases , as the Lease Agreement was determined to be a finance lease.

The Company concluded the Lease Agreement met the qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using a discount rate of 4.75 % to reflect the Company’s incremental borrowing rate, compared to the fair value of the leased property as of the lease commencement date.

In measuring the lease payments for the present value analysis, the Company elected the practical expedient to combine the lease component (the leased facilities) with the non-lease component (property management provided by the Buyer/Lessor) into a single lease component.

The presence of a finance lease indicates that control of the Property has not transferred to the Buyer/Lessor and, as such, the transaction was deemed a failed sale-leaseback and must be accounted for as a financing arrangement.

As a result of this determination, the Company is viewed as having received the sales proceeds from the Buyer/Lessor in the form of a hypothetical loan collateralized by its leased facilities.

1 unchanged sentence

As such, the Company will not derecognize the Property from its books for accounting purposes until the lease ends.

No gain or loss was recognized related to the Sale-Leaseback Arrangement under U.S.

As of April 30, 2023, the carrying value of the financing liability was $ 28,774,000 , net of $ 708,000 in debt issuance costs, of which $ 642,000 was classified as current on the Consolidated Balance Sheet with $ 28,132,000 classified as long-term.

As of April 30, 2022, the carrying value of the financing liability was $ 29,350,000 , net of $ 768,000 in debt issuance costs, of which $ 575,000 was classified as current on the Consolidated Balance Sheet with $ 28,775,000 classified as long-term.

The monthly lease payments are split between a reduction of principal and interest expense using the effective interest rate method.

Interest expense associated with the financing arrangement was $ 147,000 for the year ended April 30, 2022.

No gain or loss was recognized related to the Sale-Leaseback Arrangement under U.S.

GAAP for the fiscal year ended April 30, 2022.

Interest expense associated with the financing arrangement was $ 1,316,000 and $ 147,000 for the years ended April 30, 2023 and 2022, respectively.

The Company will depreciate the building down to zero over the 20-year assumed economic life of the Property so that at the end of the lease term, the remaining carrying amount of the financing liability will equal the carrying amount of the land of $ 41,000 .

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The Company also applied the deferral of Social Security withholdings in accordance with the CARES Act;

50% of these deferred withholdings were due and paid by December 31, 2021, with the remainder due December 31, 2022.

50% of these deferred withholdings were due and paid by December 31, 2021, with the remainder due and paid by December 31, 2022.

Effective August 1, 2019, 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.

As a result of this election, the Company recorded a tax withholding expense imposed by the India Income Tax Department of $ 406,000 and $ 240,000 for the years ended April 30, 2023 and 2022, respectively.

On December 22, 2017, the Tax Cuts and Job Act amended Internal Revenue Code Section 174, effective for tax years beginning after December 31, 2021.

This amendment to Section 174, effective during fiscal year 2023 for the Company, eliminated the current year deductibility of research and experimentation expenditures and required the Company to deduct these expenditures over five years .

The impact of this tax regulation required the Company to record a new deferred tax asset of $ 1,558,000 as of April 30, 2023.

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 years ended April 30, 2022 and 2021.

Income tax expense consisted of the following:

$ in thousands 2023 2022

Current tax expense (benefit):

Current tax expense:

Federal $ 691 $ 1,899

1 unchanged sentence

Foreign 1,736 1,008

Total current tax expense (benefit) 3,397 748

Deferred tax expense (benefit):

Federal — 449

Total current tax expense 2,624 3,397

Deferred tax expense:

State and local — —

4 unchanged sentences

$ in thousands 2023 2022

Income tax benefit at statutory rate $ ( 432 ) $ ( 470 )

Income tax expense (benefit) at statutory rate $ 945 $ ( 432 )

State and local taxes, net of federal income tax benefit ( 119 ) ( 29 )

1 unchanged sentence

Effects of differing US and foreign tax rates 260 22

Tax on unrepatriated and repatriated foreign earnings — 226

Net operating loss adjustment — ( 286 )

Return to provision adjustment 413 —

Impact of foreign subsidiary income to parent 99 74

10 unchanged sentences

Foreign tax credit carryforwards 638 638

Section 174 R&E Addback 1,558 —

Unrecognized actuarial loss, defined benefit plans 1,064 1,202

Inventory reserves 62 69

Inventory reserves and capitalized costs 201 110

Net operating loss carryforwards 249 112

Proceeds on Sale Leaseback 6,963 7,215

Operating lease liabilities 1,558 —

Other 254 449

5 unchanged sentences

APB 23 Assertion ( 1,318 ) ( 976 )

Right of use assets ( 1,526 ) —

Debt Issuance Cost on Sale Leaseback ( 167 ) ( 184 )

Other — ( 122 )

Total deferred tax liabilities ( 6,453 ) ( 4,989 )

5 unchanged sentences

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 $ 6,901,000 was recorded in the period ended April 30, 2022 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, 2022, the Company had foreign tax credit carryforwards in the amount of $ 638,000 , which are subject to a full valuation allowance, and which begin to expire in 2028.

The Company evaluates all available evidence, both

positive and negative, to determine the amount of any required valuation allowance.

The valuation allowance totaled $ 8,568,000 and $ 6,901,000 at April 30, 2023 and 2022, respectively.

At April 30, 2023, the Company had foreign tax credit carryforwards in the amount of $ 638,000 , which are subject to a full valuation allowance, and which will begin to expire in 2028.

The Company files federal, state and local tax returns with statutes of limitation generally ranging from 3 to 4 years.

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At April 30, 2023, there were no shares available for future grants under the 2008 Plan.

Under the 2008 Plan, the Company recorded no compensation expense or deferred income tax benefit in fiscal year 2023 or 2022.

In order to determine the fair value of stock options on the date of grant, the Company applied the Black-Scholes option pricing model.

3 unchanged sentences

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 no compensation expense or deferred income tax benefit in fiscal year 2022, as compared to $ 15,000 of compensation expense and $ 3,000 of deferred income tax benefit in fiscal year 2021.

The Company issued new shares of common stock to satisfy options exercised during fiscal years 2023 and 2022.

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The number of options outstanding, exercisable, and their weighted average exercise prices were within the following ranges at April 30, 2023:

Exercise Price Range

$ 15.85 -$ 23.62

Options outstanding 33,900

Weighted average exercise price $ 19.97

Weighted average remaining contractual life 0.33 years 3.60 years

Weighted average remaining contractual life 2.5 years

Aggregate intrinsic value $ 1,400

42 unchanged sentences

2026 1,920 72

2026 1,221 71

Thereafter 1,380 —

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Recognition of net loss 628 539

Net periodic pension (income) expense $ ( 355 ) $ 1,153

Net periodic pension expense (income) $ 71 $ ( 355 )

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 2024 is $ 580,000 .

1 unchanged sentence

The Company expects to make no contributions during fiscal year 2024.

There were no contributions made to the plans in fiscal year 2022.

The Company made $ 30,000 in contributions to the plans during fiscal year 2021.

There were no contributions made to the plans in fiscal year 2023 or 2022.

The following benefit payments are expected to be paid from the benefit plans in the fiscal years ending April 30:

$ in thousands Amount

2028 & Beyond 7,230

2029- 2033 7,030

The expected long-term portfolio return is established via a building block approach with proper consideration of diversification and rebalancing.

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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 2022 and 2021 would decrease/increase pension expense by approximately $ 271,000 and $ 286,000 , respectively.

A 1 % increase/decrease in the discount rate for fiscal years 2023 and 2022 would increase/decrease pension expense by approximately $ 231,000 and $ 271,000 , 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.

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The target allocations based on the Company's investment policy were 75 % in equity securities and 25 % in fixed-income securities at April 30, 2023 and April 30, 2022.

A 1 % increase/decrease in the expected return on assets for fiscal years 2022 and 2021 would decrease/increase pension expense by approximately $ 207,000 and $ 165,000 , respectively.

A 1 % increase/decrease in the expected return on assets for fiscal years 2023 and 2022 would increase/decrease pension expense by approximately $ 181,000 and $ 207,000 , respectively.

Plan assets by asset categories as of April 30 were as follows:

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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 Domestic business segment principally designs, manufactures, and installs scientific and technical furniture, including steel and wood laboratory cabinetry, fume hoods, 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.

1 unchanged sentence

All intercompany balances and transactions have been eliminated.

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

The following table shows revenues, earnings, and other financial information by business segment for each of the years ended April 30:

Certain corporate expenses shown below are net of expenses that have been allocated to the business segments.

The following table shows revenues, earnings, and other financial information by business segment and unallocated corporate expenses for each of the years ended April 30:

$ in thousands Domestic International Corporate Total

15 unchanged sentences

Earnings (loss) before income taxes ( 179 ) 3,585 ( 5,891 ) ( 2,485 )

Income tax expense (benefit) 245 1,063 ( 318 ) 990

Income tax expense 50 1,129 2,339 3,518

Net earnings attributable to non-controlling interest — 123 — 123

4 unchanged sentences

Note 12— Restructuring Costs

In December 2019, the Company initiated a restructuring, which included the closure of the Company's subsidiary in China, a commercial sales organization for the Company's products in China, that was substantially completed as of April 30, 2020.

In fiscal year 2022, the legal closure of the Company's China subsidiary was delayed as a result of COVID-19-related shutdowns.

As a result, the Company incurred operating expenses of $ 28,000 in its international operations related to the closure of the China subsidiary.

The Company incurred operating expenses of $ 32,000 in its international operations related to the closure of the China subsidiary in fiscal year 2023, offset by the recovery of bad debt collections of $ 51,000 that were originally written off when the Company initiated the restructuring.

The Company incurred operating expenses of $ 28,000 related to the closure in the prior year period.

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 2023.

Note 13— Consolidated Quarterly Data ( Unaudited )

Selected quarterly financial data for fiscal years 2022 and 2021 were as follows:

$ in thousands, except per share amounts First

Quarter Second

Quarter Third

Quarter Fourth

Fiscal Year 2022

Net sales $ 39,493 $ 39,031 $ 40,633 $ 49,715

Gross profit 5,674 3,597 5,622 9,327

Net loss ( 1,307 ) ( 3,082 ) ( 1,286 ) ( 328 )

net earnings attributable to the non-controlling interest 38 18 33 34

Net loss attributable to Kewaunee Scientific Corporation ( 1,345 ) ( 3,100 ) ( 1,319 ) ( 362 )

Net loss per share attributable to Kewaunee Scientific Corporation

Basic ( 0.48 ) ( 1.11 ) ( 0.47 ) ( 0.13 )

Diluted ( 0.48 ) ( 1.11 ) ( 0.47 ) ( 0.13 )

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 )

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 )

The sum of the quarterly net earnings per share amounts does not necessarily equal net earnings per share for the year due to rounding.

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Forms S‑8 (Nos.

333‑160276, 333‑176447, 333‑213413 and 333‑220389) of Kewaunee Scientific Corporation of our report dated July 1, 2022, with respect to the consolidated financial statements of Kewaunee Scientific Corporation, included in this Annual Report on Form 10‑K for the year ended April 30, 2022.

333‑160276, 333‑176447, 333‑213413 and 333‑220389) of Kewaunee Scientific Corporation of our report dated June 30, 2023, with respect to the consolidated financial statements of Kewaunee Scientific Corporation, included in this Annual Report on Form 10‑K for the year ended April 30, 2023.

/s/ FORVIS, LLP

(Formerly, Dixon Hughes Goodman LLP )

Charlotte, North Carolina

June 30, 2023

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data