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Item 8. Financial Statements and Supplementary Data

2024-06-28 compared with 2023-06-30 · 178 added, 176 removed, 650 unchanged (35% of the section changed)

1 unchanged sentence

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm ( FORVIS, LLP , Charlotte, NC , PCAOB Firm No.

Report of Independent Registered Public Accounting Firm ( Forvis Mazars, LLP , Atlanta, GA , PCAOB Firm No.

Consolidated Statements of Operations—Years ended April 30, 202 4 and 202 3

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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.

We have audited the accompanying consolidated balance sheets of Kewaunee Scientific Corporation (the "Company") as of April 30, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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We determined that there are no critical audit matters.

/s/ FORVIS, LLP

/s/ Forvis Mazars, LLP

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

Charlotte, NC

Atlanta, Georgia

June 28, 2024

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Operating expenses 33,770 30,224

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

Pension (expense) income ( 71 ) 355

Operating earnings

Pension expense

( 4,177 ) ( 71 )

Other income, net 814 939

Interest expense ( 1,799 ) ( 1,734 )

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

Income tax expense 3,139 3,518

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

Earnings before income taxes

Income tax (benefit) expense

( 5,938 ) 3,139

net earnings attributable to the non-controlling interest 304 621

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

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

Net earnings attributable to Kewaunee Scientific Corporation

$ 18,753 $ 738

Net earnings per share attributable to Kewaunee Scientific Corporation stockholders

Basic $ 6.51 $ 0.26

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$ in thousands 2024 2023

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

$ 19,057 $ 1,359

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments ( 598 ) ( 290 )

Postretirement benefit plans

Settlement loss included in net income

Income taxes on postretirement benefit plans ( 3,870 ) —

Change in unrecognized actuarial loss on pension obligations 509 590

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

Total postretirement benefit plans

Comprehensive income, net of tax

$ 19,117 $ 1,659

Less comprehensive income attributable to the non-controlling interest 304 621

Total comprehensive income (loss) attributable to Kewaunee Scientific Corporation $ 1,038 $ ( 6,291 )

Total comprehensive income attributable to Kewaunee Scientific Corporation

$ 18,813 $ 1,038

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

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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

3 unchanged sentences

Stock based compensation 189 347 — — — 536

Purchase of Treasury Stock, 66,191 shares

— — ( 1,998 ) — — ( 1,998 )

Balance at April 30, 2024 $ 7,273 $ 5,406 $ ( 2,051 ) $ 47,514 $ ( 3,382 ) $ 54,760

10 unchanged sentences

Inventories 20,679 21,889

Note receivable — 13,457

Prepaid expenses and other current assets 5,136 6,135

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Right of use assets 7,454 9,170

Deferred income taxes 7,401 —

Other assets 5,445 5,406

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Common stock in treasury, at cost:

70 shares (2024);

3 shares (2023)

( 2,051 ) ( 53 )

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Cash Flows from Operating Activities

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

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

$ 19,057 $ 1,359

Adjustments to reconcile net earnings to net cash used by operating activities:

Depreciation 3,125 2,867

Bad debt provision 120 92

Provision for credit losses

Stock based compensation expense 1,028 886

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Inventories 1,210 1,907

Income tax receivable — 955

Accounts payable and other accrued expenses 691 ( 5,558 )

1 unchanged sentence

Other, net 286 ( 1,508 )

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

Net cash provided by (used in) operating activities

19,564 ( 3,790 )

Cash Flows from Investing Activities

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Repayments on long-term debt ( 88 ) ( 121 )

Net cash provided by financing activities 14,931 11,031

Purchase of Treasury Stock

Net cash (used in) provided by financing activities

( 3,014 ) 14,931

Effect of exchange rate changes on cash, net ( 54 ) ( 72 )

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Income taxes paid $ 6,240 $ 3,158

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

Assets obtained under new operating leases

$ 200 $ 3,902

Assets obtained under new finance leases

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

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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.

The majority of the Company's products are sold to customers located in North America, primarily within the United States.

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

Accounts Receivable and Allowance for Doubtful Accounts Receivables are stated at the amount owed by the customer, net of allowances for estimated doubtful accounts.

Accounts Receivable and Allowance for Credit Losses Receivables are stated at the amount owed by the customer, net of allowances for estimated credit losses.

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 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.

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 credit losses 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 credit losses, a reserve for credit losses is estimated and recorded based on past loss history and an overall assessment of past due trade accounts receivable amounts outstanding.

Accounts are written off when it is clearly established that the receivable is a bad debt.

Recoveries of receivables previously written off are recorded when received.

The activity in the allowance for doubtful accounts for each of the years ended April 30 was:

The activity in the allowance for credit losses for each of the years ended April 30 was:

$ in thousands 2024 2023

Balance at beginning of year $ 476 $ 357

Bad debt provision 120 92

Doubtful accounts written off (net) ( 1 ) ( 371 )

Provision for credit losses

Write-offs, net

( 164 ) ( 1 )

Balance at end of year $ 588 $ 476

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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, 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.

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").

Significant estimates impacting the accompanying consolidated financial statements include the allowance for credit losses, self-insurance reserves, and income taxes.

The Sale Agreement was finalized on March 24, 2022 and coincided with the Company and CAI Investments Medical Products I Master Lessee LLC ("Lessor"), an affiliate of the Buyer, entering into a lease agreement.

The lease arrangement is for a 20-year term.

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").

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

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 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.

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.

The Company's financial instruments consist primarily of cash and equivalents, mutual funds, cash surrender value of life insurance policies, a note receivable and corresponding sale-leaseback financing liability, term loans and short-term borrowings.

The Company's financial instruments consist primarily of cash and equivalents, mutual funds, cash surrender value of life insurance policies, a sale-leaseback financing liability, 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.

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.

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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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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.

Because of the nature and quality of the

Company's products, any warranty issues are determined in a relatively short period after the sale and are infrequent in nature, and as such, warranty costs are immaterial to the Company's consolidated financial position and results of operations and are expensed as incurred.

Credit Concentration The Company performs credit evaluations of its customers.

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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 AC 740, the Company evaluates the realization of all deferred income tax assets and determines if a valuation allowance is required on an annual basis.

Under ASC 740, the Company applies a more-likely-than-not recognition threshold for all tax uncertainties.

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Advertising costs for the years ended April 30, 2024 and 2023 were $ 336,000 and $ 226,000 , respectively.

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

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

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

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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 33,900 antidilutive RSUs and stock options outstanding at April 30, 2023.

There were no antidilutive RSUs and stock options outstanding at April 30, 2024.

There were 33,900 antidilutive RSUs and stock options outstanding at April 30, 2023.

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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 December 2019, the FASB issued ASU No.

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

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

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

The Company adopted this standard effective May 1, 2023.

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

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures," which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The Company will adopt this standard in fiscal year 2025.

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 December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740) - Improvements for Income Tax Disclosures," which requires public business entities to, on an annual basis, (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold.

This ASU also provides for additional disclosure requirements to provide clarity for investors related to income tax disclosures.

This guidance is effective for annual periods beginning after December 15, 2024.

The Company will adopt this standard in fiscal year 2026.

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

Note 2 - Revenue Recognition

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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.

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.

Customers can benefit from each piece of laboratory furniture on its own or with resources readily available in the marketplace 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.

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The closing and opening balances of contract liabilities included in deferred revenue arising from contracts with customers were $ 4,374,000 at April 30, 2024 and $ 4,097,000 at April 30, 2023.

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") 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.

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

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.

The borrowing rate under the Line of Credit at that date was 4.75 %.

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

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").

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At April 30, 2024, there was $ 3,000,000 outstanding under the Revolving Credit Facility, with remaining borrowing capacity under the Revolving Credit Facility of $ 11,587,000 .

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 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 9.54 % and 9.02 % as of April 30, 2024 and 2023, respectively.

The Company was in compliance with all financial covenants under its revolving credit facility at April 30, 2024 and 2023.

In addition, the Company's International subsidiaries had a balance outstanding of $ 99,000 and $ 39,000 in short-term borrowings related to overdraft protection and short-term loan arrangements at April 30, 2024 and 2023, respectively.

At April 30, 2024, there were foreign bank guarantees outstanding to customers in the amounts of $ 7.1 million, $ 435,000 , and $ 226,000 with expiration dates in fiscal years 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.

At April 30, 2023, there were bank guarantees issued by foreign banks 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.

Note 5— Sale-Leaseback Financing Transaction

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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 $ 1,316,000 and $ 147,000 for the years ended April 30, 2023 and 2022, respectively.

expense associated with the financing arrangement was $ 1,287,000 and $ 1,316,000 for the years ended April 30, 2024 and 2023, 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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Note 6— 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 applied 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.

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 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 $ 371,000 and $ 406,000 for the years ended April 30, 2024 and 2023, 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.

Income tax expense consisted of the following:

Income tax (benefit) expense consisted of the following:

$ in thousands 2024 2023

Current tax expense:

Current tax (benefit) expense:

Federal $ 2,332 $ 691

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Total current tax expense 5,058 2,624

Deferred tax expense:

Deferred tax (benefit) expense:

Federal ( 10,378 ) —

State and local ( 893 ) —

Foreign 275 515

Total deferred tax expense 515 121

Net income tax expense $ 3,139 $ 3,518

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:

Total deferred tax (benefit) expense

( 10,996 ) 515

Net income tax (benefit) expense

$ ( 5,938 ) $ 3,139

The reasons for the differences between the above net income tax (benefit) expense and the amounts computed by applying the statutory federal income tax rate to earnings before income taxes are as follows:

$ in thousands 2024 2023

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

Income tax expense at statutory rate

$ 2,755 $ 945

State and local taxes, net of federal income tax benefit 575 ( 119 )

Tax credits (state, net of federal benefit) ( 433 ) ( 457 )

( 355 ) ( 433 )

Effects of differing US and foreign tax rates 243 260

Net operating loss adjustment — ( 286 )

Effect of pension settlement

Return to provision adjustment 743 413

Impact of foreign subsidiary income to parent 96 99

Increase in valuation allowance 1,667 4,170

Increase (decrease) in valuation allowance

( 6,579 ) 1,667

Deferred taxes on unremitted earnings

Other items, net 83 ( 99 )

Net income tax expense $ 3,139 $ 3,518

Net income tax (benefit) expense

$ ( 5,938 ) $ 3,139

Significant items comprising deferred tax assets and liabilities as of April 30 were as follows:

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Accrued employee benefit expenses $ 152 $ 153

Allowance for doubtful accounts 114 142

Allowance for credit losses

Deferred compensation 950 1,156

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Deferred tax assets (liabilities) classified in the balance sheet:

Non-current ( 943 ) ( 428 )

Net deferred tax liabilities $ ( 943 ) $ ( 428 )

Deferred tax assets, non-current

Deferred tax liabilities, non-current

( 1,218 ) ( 943 )

Net deferred tax assets (liabilities)

$ 6,183 $ ( 943 )

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).

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.

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.

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.

The Company evaluates all available evidence, both positive and negative, to determine the amount of any required valuation allowance.

As of April 30, 2024, our deferred tax assets primarily related to proceeds on a prior sale leaseback and Section 174 research and expenditures addbacks.

A valuation allowance of $ 926,000 and $ 8,568,000 was recorded against our net deferred tax asset balance as of April 30, 2024 and 2023, respectively.

For the year ended April 30, 2024, we recorded a net decrease in valuation allowance of $ 6,579,000 , as compared to a net increase of $ 1,667,000 for the year ended April 30, 2023, based on management's reassessment of the amount of its deferred tax assets that are more likely than not to be realized.

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

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Note 7 - Stock Options and Share-Based Compensation

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, 2023 there were 149,007 shares available for future issuance.

Under the 2017 Plan, the Company recorded stock-based compensation expense of $ 845,000 and $ 701,000 and deferred income tax benefit of $ 199,000 and $ 165,000 in fiscal years 2023 and 2022, respectively.

The RSUs include grants with both a service and performance component vesting over a 3 year period and grants with only service components vesting over 2 and 3 year periods.

The Company's stockholders approved the 2023 Omnibus Incentive Plan ("2023 Plan") in August, 2023, which enables the Company to grant a broad range of equity based awards, with potential recipients including directors, consultants and employees.

The 2023 Plan replaced the 2017 Omnibus Incentive Plan (the "2017 Plan").

All outstanding equity granted under the 2017 Plan remain subject to, and will be settled under, the 2017 Plan.

At the date of approval of the 2023 Plan, there were 64,633 shares available for new awards under the 2017 Plan, and 168,791 shares available for issuance under equity awards outstanding under the 2017 Plan.

These shares that were available for new awards and any shares subject to outstanding awards under the 2017 Plan that subsequently cease to be subject to such awards are available under the 2023 Plan.

The 2023 Plan also increased the total number of shares reserved for issuance under the Company's equity compensation plans by 310,000 , for a total of 374,633 shares initially reserved for issuance under the 2023 Plan.

At April 30, 2024, there were 383,572 shares available for future issuance under the 2023 Plan.

Under the 2023 Plan and the 2017 Plan, in the aggregate, the Company recorded stock-based compensation expense for employees of $ 1,018,000 and $ 845,000 and deferred income tax benefit of $ 223,000 and $ 199,000 in fiscal years 2024 and 2023, respectively.

The RSUs granted under the 2023 Plan and the 2017 Plan include grants with both a service and performance component vesting over a 3 year period and grants with only service components 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 performance period based on the ratio of cumulative days incurred to total days over the performance period.

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Outstanding at end of year 168,791 $ 15.35 159,640 $ 11.94

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, 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.

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 stockholders approved the 2008 Key Employee Stock Option 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 and an amendment to the plan in August 2015, authorizing an additional 300,000 shares.

Under the plan, options were granted at not less than the fair market value at the date of grant with options exercisable in such installments, for such terms (up to 10 years).

This plan was replaced by the 2017 Omnibus Plan with all outstanding options granted under the prior plan to remain subject to the prior plan.

The last grant of options, issued on August 31, 2016, under the prior plan will expire August 31, 2026.

The Company did not record any compensation expense related to outstanding stock options in fiscal years 2024 or 2023.

The Company issued new shares of common stock to satisfy options exercised during fiscal years 2024 and 2023.

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Aggregate intrinsic value 386,584

Note 8 - Stockholder's Equity

The Company is authorized to issue 5,000,000 shares of Common Stock, par value of $ 2.50 per share.

Holders of the Company's Common Stock are entitled to 1 vote per share.

At April 30, 2024, and April 30, 2023, there were approximately 2,839,000 and 2,830,000 shares, respectively, of Common Stock issued and outstanding.

The Company has not declared or paid any dividends with respect to its Common Stock during the fiscal year ended April 30, 2024.

The declaration and payment of any future dividends is at the discretion of the Board of Directors and will depend upon many factors, including the Company's earnings, capital requirements, investment and growth strategies, financial conditions, the terms of the Company's indebtedness, which contains provisions that could limit the payment of dividends in certain circumstances, and other factors that the Board of Directors may deem to be relevant.

Share Repurchase Program

On August 31, 2023, the Board of Directors of the Company adopted a share repurchase program with authorization to repurchase up to 100,000 shares.

There is no expiration date and currently, management has no plans to terminate this program.

During the fiscal year ended April 30, 2024, the Company repurchased 66,191 shares of the Company's common stock for approximately $ 1,992,000 , excluding other costs such as broker commissions and fees.

The following table summarizes share repurchase activity for the three months ended April 30, 2024:

Total Number of Shares Purchased (1)

Average Price Paid Per Share (2)

Total Number of Shares Purchased as Part of Publicly Announced Programs (1)

Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)

February 1 - 29 6,932 $ 29.18 6,932 63,612

12,758 $ 31.63 12,758 50,854

17,045 $ 35.11 17,045 33,809

36,735 36,735

(1) On August 31, 2023, the Board of Directors of Kewaunee Scientific Corporation (the "Company") adopted a share repurchase program with authorization to repurchase up to 100,000 shares of our Company's common stock, which commenced on September 1, 2023 and has no expiration date.

The share repurchase program is designed to help offset the impact of future share dilution from employee stock issuances.

The timing and amount of any repurchases under this program will be determined by the Company's management at its discretion based upon its ongoing assessments of the capital needs of the business, the market price of the Company's common stock and general market conditions.

Share repurchases under this program may be made through a variety of methods including open-market purchases, block trades, exchange transactions or any combination thereof.

The program does not obligate the Company to acquire any particular amount of its common stock, and the share repurchase program may be suspended or discontinued at any time at the Company's discretion.

(2) Excludes other costs such as broker commissions and fees.

Transactions that occurred under the share repurchase program prior to the fourth quarter of fiscal year 2024 are presented in Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, in the corresponding interim report on Form 10-Q for the periods ended October 31, 2023 and January 31, 2024 , respectively.

Note 9 - Accumulated Other Comprehensive Income (Loss)

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Change in unrecognized actuarial loss on pension obligations — 509 509

Settlement loss included in net income

— 4,019 4,019

Income taxes on postretirement benefit plans

— ( 3,870 ) ( 3,870 )

Balance at April 30, 2024 $ ( 3,382 ) $ — $ ( 3,382 )

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2027 1,656 40

2028 1,059 40

Thereafter 1,894 56

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Total $ 7,557 $ 346

In November 2023, the Company entered into a new lease that has not yet commenced as of April 30, 2024 with future minimum lease payments in aggregate of $ 681,000 that are not yet reflected on the Condensed Consolidated Balance Sheet.

This lease is expected to commence in the second quarter of fiscal year 2025 with a lease term of 3 years.

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.

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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.

During the year ended April 30 ,2024, the Company settled its non-contributory defined benefit plans by transferring approximately $ 17.8 million of pension obligations through the purchase of group annuity contracts for all remaining liabilities under the pension plan.

In connection with the transfer, the Company contributed $ 287,000 in cash to the pension plan, which was intended to fully fund the Company’s remaining defined benefit pension liabilities.

These non-contributory defined benefit pension plans, which covered some domestic employees, were amended as of April 30, 2005.

Following this amendment, no further benefits have been earned under the plans, and no additional participants have been added.

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.

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:

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Interest cost 890 845

Actuarial loss ( 1,113 ) ( 2,218 )

Actuarial gain (loss)

Actual benefits paid ( 1,558 ) ( 1,386 )

Transfer to insurer

Projected benefit obligations, end of year $ — $ 18,368

4 unchanged sentences

Actual benefits paid ( 1,558 ) ( 1,386 )

Transfer to insurer

Fair value of plan assets, end of year $ — $ 17,732

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Weighted-Average Assumptions Used to Determine Benefit Obligations at April 30

Discount rate 5.10 % 4.40 %

Discount rate N/A 5.10 %

Rate of compensation increase N/A N/A

Mortality table Pri-2012 Pri-2012

Projection scale MP-2021 MP-2020

Mortality table N/A Pri-2012

Projection scale N/A MP-2021

Year Ended April 30,

Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost 2024 2023

Discount rate 5.10 % 4.40 %

Expected long-term return on plan assets 7.75 % 7.75 %

Discount rate N/A 5.10 %

Expected long-term return on plan assets N/A 7.75 %

Rate of compensation increase N/A N/A

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Recognition of net loss 580 628

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 .

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 2024.

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

2029- 2033 7,030

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 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.

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.

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, 2023 and April 30, 2022.

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.

Net periodic pension expense

Effect of settlement

Total net periodic pension expense plus special events

Plan assets by asset categories as of April 30, 2023 were as follows:

$ in thousands 2023

Asset Category Amount % Amount %

Asset Category Amount %

Equity Securities $ 12,724 72

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Totals $ 17,732 $ — $ —

Asset Category Level 1 Level 2 Level 3

Large Cap $ 7,382 $ — $ —

Small/Mid Cap 2,775 — —

International 2,008 — —

Emerging Markets 794 — —

Fixed Income 4,703 — —

Liquid Alternatives 897 — —

Cash and Cash Equivalents 308 — —

Totals $ 18,867 $ — $ —

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.

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Earnings (loss) before income taxes 15,048 6,295 ( 8,224 ) 13,119

Income tax expense — 2,250 889 3,139

Income tax expense (benefit)

3,240 2,935 ( 12,113 ) ( 5,938 )

Net earnings attributable to non-controlling interest — 304 — 304

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Revenues (excluding intersegment) from customers in foreign countries 2,559 72,778 — 75,337

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 completed in March 2023.

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.

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 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

Charlotte, North Carolina

333-274371, 333‑160276, 333‑176447, 333‑213413, and 333‑220389) of Kewaunee Scientific Corporation of our reports dated June 28, 2024, 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, 2024.

/s/ Forvis Mazars, LLP

Atlanta, Georgia

June 28, 2024

1 unchanged sentence

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