| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| Delaware | 38-0715562 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
2700 West Front Street Statesville, North Carolina | 28677-2927 | |
| (Address of principal executive offices) | (Zip Code) | |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☒ | |||
| Emerging growth company | ☐ | |||||
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| Item 1. | Financial Statements |
Net sales Costs of products sold Gross profit Operating expenses Operating earnings Other income Interest expense Earnings before income taxes Income tax expense Net earnings Less: net earnings attributable to the noncontrolling interest Net earnings attributable to Kewaunee Scientific Corporation Net earnings per share attributable to Kewaunee Scientific Corporation stockholders Basic Diluted Weighted average number of common shares outstanding Basic Diluted amounts) Net earnings Other comprehensive income (loss), net of tax: Foreign currency translation adjustments Change in fair value of cash flow hedge Other comprehensive income (loss) Comprehensive income, net of tax Less: comprehensive income attributable to the noncontrolling interest Comprehensive income attributable to Kewaunee Scientific Corporation Balance at April 30, 2017 Net earnings attributable to Kewaunee Scientific Corporation Other comprehensive income Cash dividends paid, $0.49 per share Stock options exercised, 22,600 shares Stock based compensation Balance at January 31, 2018 Assets Current Assets: Cash and cash equivalents Restricted cash Receivables, less allowance; $224; $191, on each respective date Inventories Prepaid expenses and other current assets Total Current Assets Property, plant and equipment, at cost Accumulated depreciation Net Property, Plant and Equipment Deferred income taxes Other Total Other Assets Total Assets Liabilities and Equity Current Liabilities: Short-term borrowings and interest rate swaps Current portion of long-term debt Accounts payable Employee compensation and amounts withheld Deferred revenue Other accrued expenses Total Current Liabilities Long-term debt Accrued pension and deferred compensation costs OtherNon-Current Liabilities Total Liabilities Commitments and Contingencies Stockholders’ Equity: Common Stock, $2.50 par value, Authorized – 5,000 shares; Issued – 2,728 shares; 2,715 shares; – Outstanding – 2,725 shares; 2,712 shares, on each respective date Additionalpaid-in-capital Retained earnings Accumulated other comprehensive loss Common stock in treasury, at cost, 3 shares, on each date Total Kewaunee Scientific Corporation Stockholders’ Equity Noncontrolling interest Total Equity Total Liabilities and Equity Cash flows from operating activities: Net earnings Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Depreciation Bad debt provision Stock based compensation expense Expense (benefit) for deferred income taxes Change in assets and liabilities: Increase (decrease) in receivables Increase in inventories Increase (decrease) in accounts payable and other accrued expenses Decrease in deferred revenue Other, net Net cash (used in) provided by operating activities Cash flows from investing activities: Capital expenditures Decrease (increase) in restricted cash Net cash used in investing activities Cash flows from financing activities: Dividends paid Dividends paid to holders of noncontrolling interest in subsidiaries Proceeds from short-term borrowings Repayments on short-term borrowings Payments on long-term debt Net proceeds from exercise of stock options Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents (Decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period condensed consolidated balance sheet: footnote information presented herein as necessary. Finished products Work in process Raw materials value and are included in the above tables. Certain amounts in the Company’s condensed consolidated balance sheet as of April 30, 2018 were adjusted as follows (in thousands): Three months ended January 31, 2018 Revenues from external customers Intersegment revenues Earnings (loss) before income taxes Three months ended January 31, 2017 Revenues from external customers Intersegment revenues Earnings (loss) before income taxes Nine months ended January 31, 2018 Revenues from external customers Intersegment revenues Earnings (loss) before income taxes Nine months ended January 31, 2017 Revenues from external customers Intersegment revenues Earnings (loss) before income taxes Service cost Interest cost Expected return on plan assets Recognition of net loss Net periodic pension expense Service cost Interest cost Expected return on plan assets Recognition of net loss Net periodic pension expense Financial Assets Trading securities held innon-qualified compensation plans (1) Cash surrender value of life insurance policies (1) Total Financial Liabilities Non-qualified compensation plans (2) Interest rate swap derivatives Total Financial Assets Trading securities held innon-qualified compensation plans (1) Cash surrender value of life insurance policies (1) Total Financial Liabilities Non-qualified compensation plans (2) Interest rate swap derivatives Total data) Three months ended
January 31 Nine months ended
January 31 2018 2017 2018 2017 $ 38,190 $ 30,371 $ 113,542 $ 103,979 29,836 25,339 90,456 84,704 8,354 5,032 23,086 19,275 5,971 4,590 16,360 14,484 2,383 442 6,726 4,791 179 120 524 358 (78 ) (71 ) (226 ) (229 ) 2,484 491 7,024 4,920 1,566 133 3,149 1,695 918 358 3,875 3,225 35 17 120 98 $ 883 $ 341 $ 3,755 $ 3,127 $ 0.32 $ 0.13 $ 1.38 $ 1.16 $ 0.31 $ 0.13 $ 1.35 $ 1.15 2,722 2,711 2,717 2,703 2,784 2,734 2,772 2,724 Three Months Ended
January 31, Nine Months Ended
January 31, 2019 2018 2019 2018 Net sales $ 32,372 $ 38,190 $ 111,802 $ 113,542 Costs of products sold 27,142 29,791 91,325 90,411 Gross profit 5,230 8,399 20,477 23,131 Operating expenses 5,305 5,971 17,031 16,360 Operating earnings (loss) (75 ) 2,428 3,446 6,771 Other income 186 179 500 524 Interest expense, net (76 ) (78 ) (258 ) (226 ) Earnings before income taxes 35 2,529 3,688 7,069 Income tax expense 20 1,581 803 3,164 Net earnings 15 948 2,885 3,905 Less: net earnings attributable to the noncontrolling interest 37 35 86 120 Net earnings (loss) attributable to Kewaunee Scientific Corporation $ (22 ) $ 913 $ 2,799 $ 3,785 Net earnings (loss) per share attributable to Kewaunee Scientific Corporation stockholders Basic $ (0.01 ) $ 0.33 $ 1.02 $ 1.39 Diluted $ (0.01 ) $ 0.32 $ 1.00 $ 1.36 Weighted average number of common shares outstanding Basic 2,744 2,722 2,741 2,717 Diluted 2,794 2,784 2,799 2,772 Three months ended
January 31 Nine months ended
January 31 2018 2017 2018 2017 $ 918 $ 358 $ 3,875 $ 3,225 203 (63 ) 49 (232 ) 12 35 30 53 215 (28 ) 79 (179 ) 1,133 330 3,954 3,046 35 17 120 98 $ 1,098 $ 313 $ 3,834 $ 2,948 Three Months Ended
January 31, Nine Months Ended
January 31, 2019 2018 2019 2018 Net earnings $ 15 $ 948 $ 2,885 $ 3,905 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 496 203 (617 ) 49 Change in fair value of cash flow hedge (1 ) 12 4 30 Other comprehensive income (loss) 495 215 (613 ) 79 Comprehensive income, net of tax 510 1,163 2,272 3,984 Less: comprehensive income attributable to the noncontrolling interest 37 35 86 120 Comprehensive income attributable to Kewaunee Scientific Corporation $ 473 $ 1,128 $ 2,186 $ 3,864 Common
Stock Additional
Paid-in
Capital Treasury
Stock Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
Stockholders’
Equity $ 6,789 $ 2,695 $ (53 ) $ 39,771 $ (6,319 ) $ 42,883 — — — 3,755 — 3,755 — — — — 79 79 — — — (1,331 ) — (1,331 ) 28 (20 ) — — — 8 4 272 — — — 276 $ 6,821 $ 2,947 $ (53 ) $ 42,195 $ (6,240 ) $ 45,670 Balance at April 30, 2018 $ 6,841 $ 3,006 $ (53 ) $ 43,836 $ (5,900 ) $ 47,730 Net earnings attributable to Kewaunee Scientific Corporation — — — 1,407 — 1,407 Other comprehensive loss — — — — (384 ) (384 ) Cash dividends paid, $0.17 per share — — — (465 ) — (465 ) Stock options exercised, 9,250 shares 13 (13 ) — — — — Stock based compensation 7 99 — — — 106 Cumulative adjustment for ASC 606, net of tax — — — 217 — 217 Balance at July 31, 2018 $ 6,861 $ 3,092 $ (53 ) $ 44,995 $ (6,284 ) $ 48,611 Net earnings attributable to Kewaunee Scientific Corporation — — — 1,414 — 1,414 Other comprehensive loss — — — — (724 ) (724 ) Cash dividends paid, $0.19 per share — — — (521 ) — (521 ) Stock options exercised, 5,800 shares 8 (8 ) — — — — Stock based compensation — 140 — — — 140 Balance at October 31, 2018 $ 6,869 $ 3,224 $ (53 ) $ 45,888 $ (7,008 ) $ 48,920 Net loss attributable to Kewaunee Scientific Corporation — — — (22 ) — (22 ) Other comprehensive income — — — — 495 495 Cash dividends paid, $0.19 per share — — — (521 ) — (521 ) Stock based compensation — 118 — — — 118 Balance at January 31, 2019 $ 6,869 $ 3,342 $ (53 ) $ 45,345 $ (6,513 ) $ 48,990 Balance at April 30, 2017 $ 6,789 $ 2,695 $ (53 ) $ 40,349 $ (6,319 ) $ 43,461 Net earnings attributable to Kewaunee Scientific Corporation — — — 1,148 — 1,148 Other comprehensive income — — — — 83 83 Cash dividends paid, $0.15 per share — — — (406 ) — (406 ) Stock options exercised, 500 shares 1 8 — — — 9 Stock based compensation — 52 — — — 52 Balance at July 31, 2017 $ 6,790 $ 2,755 $ (53 ) $ 41,091 $ (6,236 ) $ 44,347 Net earnings attributable to Kewaunee Scientific Corporation — — — 1,724 — 1,724 Other comprehensive loss — — — — (219 ) (219 ) Cash dividends paid, $0.17 per share — — — (462 ) — (462 ) Stock options exercised, 15,241 shares 15 (16 ) — — — (1 ) Stock based compensation 4 122 — — — 126 Balance at October 31, 2017 $ 6,809 $ 2,861 $ (53 ) $ 42,353 $ (6,455 ) $ 45,515 Net earnings attributable to Kewaunee Scientific Corporation — — — 913 — 913 Other comprehensive income — — — — 215 215 Cash dividends paid, $0.17 per share — — — (463 ) — (463 ) Stock options exercised, 6,859 shares 12 (12 ) — — — — Stock based compensation — 98 — — — 98 Balance at January 31, 2018 $ 6,821 $ 2,947 $ (53 ) $ 42,803 $ (6,240 ) $ 46,278 January 31,
2018 April 30,
2017 (Unaudited) $ 9,178 $ 12,506 1,493 1,435 30,843 29,889 17,680 14,935 3,083 1,047 62,277 59,812 53,418 51,568 (39,588 ) (37,541 ) 13,830 14,027 2,519 3,158 4,068 3,919 6,587 7,077 $ 82,694 $ 80,916 $ 4,778 $ 3,591 1,167 918 12,631 11,995 2,848 2,765 1,959 5,806 2,667 1,852 26,050 26,927 1,556 2,431 8,509 8,301 486 — 36,601 37,659 6,821 6,789 2,947 2,695 42,195 39,771 (6,240 ) (6,319 ) (53 ) (53 ) 45,670 42,883 423 374 46,093 43,257 $ 82,694 $ 80,916 January 31,
2019 April 30,
2018 (Unaudited) Assets Current Assets: Cash and cash equivalents $ 10,771 $ 9,716 Restricted cash 606 1,242 Receivables, less allowance; $361; $384, on each respective date 27,929 32,660 Inventories 16,672 18,549 Prepaid expenses and other current assets 3,778 2,224 Total Current Assets 59,756 64,391 Property, plant and equipment, at cost 56,791 54,648 Accumulated depreciation (41,589 ) (39,987 ) Net Property, Plant and Equipment 15,202 14,661 Deferred income taxes 1,676 1,869 Other assets 2,928 4,162 Total Other Assets 4,604 6,031 Total Assets $ 79,562 $ 85,083 Liabilities and Stockholders’ Equity Current Liabilities: Short-term borrowings and interest rate swaps $ 5,118 $ 3,885 Current portion of long-term debt and lease obligations 1,184 1,167 Accounts payable 11,106 14,754 Employee compensation and amounts withheld 1,954 3,810 Deferred revenue 1,450 1,884 Other accrued expenses 2,894 2,116 Total Current Liabilities 23,706 27,616 Long-term debt and lease obligations 526 1,264 Accrued pension and deferred compensation costs 5,480 7,465 Income taxes payable 339 546 Total Liabilities 30,051 36,891 Commitments and Contingencies Stockholders’ Equity: Common stock, $2.50 par value, Authorized – 5,000 shares; Issued – 2,747 shares; 2,736 shares; – Outstanding – 2,744 shares; 2,733 shares, on each respective date 6,869 6,841 Additional paid-in-capital 3,342 3,006 Retained earnings 45,345 43,836 Accumulated other comprehensive loss (6,513 ) (5,900 ) Common stock in treasury, at cost, 3 shares, on each date (53 ) (53 ) Total Kewaunee Scientific Corporation Stockholders’ Equity 48,990 47,730 Noncontrolling interest 521 462 Total Stockholders’ Equity 49,511 48,192 Total Liabilities and Stockholders’ Equity $ 79,562 $ 85,083 Nine months ended
January 31 2018 2017 $ 3,875 $ 3,225 2,104 1,960 71 (42 ) 276 150 639 (12 ) (1,025 ) 2,090 (2,745 ) (105 ) 2,020 (1,189 ) (3,847 ) (237 ) (2,013 ) 11 (645 ) 5,851 (1,907 ) (2,190 ) (58 ) 129 (1,965 ) (2,061 ) (1,331 ) (1,163 ) (74 ) — 44,639 39,804 (43,452 ) (38,943 ) (626 ) (316 ) 8 141 (836 ) (477 ) 118 (281 ) (3,328 ) 3,032 12,506 5,222 $ 9,178 $ 8,254 Nine Months Ended
January 31, 2019 2018 Cash flows from operating activities: Net earnings $ 2,885 $ 3,905 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation 1,908 2,104 Bad debt provision 57 71 Stock based compensation expense 393 276 Provision for deferred income taxes 355 639 Change in assets and liabilities: Decrease (increase) in receivables 4,674 (1,025 ) Decrease (increase) in inventories 990 (2,790 ) (Decrease) increase in accounts payable and other accrued expenses (4,879 ) 2,035 Decrease in deferred revenue (434 ) (3,847 ) Other, net (1,415 ) (2,013 ) Net cash provided by (used in) by operating activities 4,534 (645 ) Cash flows from investing activities: Capital expenditures (2,290 ) (1,907 ) Net cash used in investing activities (2,290 ) (1,907 ) Cash flows from financing activities: Dividends paid (1,507 ) (1,331 ) Dividends paid to holders of noncontrolling interest in subsidiaries (51 ) (74 ) Proceeds from short-term borrowings 46,103 44,639 Repayments on short-term borrowings (44,870 ) (43,452 ) Payments on long-term debt and lease obligations (880 ) (626 ) Net proceeds from exercise of stock options (29 ) 8 Net cash used in financing activities (1,234 ) (836 ) Effect of exchange rate changes on cash and cash equivalents (591 ) 118 Increase (decrease) in cash, cash equivalents and restricted cash 419 (3,270 ) Cash, cash equivalents and restricted cash, beginning of period 10,958 13,941 Cash, cash equivalents and restricted cash, end of period $ 11,377 $ 10,671 20172018 Annual Report to Stockholders.on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. The condensed consolidated balance sheet as of April 30, 20172018 included in this interim period filing has been derived from the audited financial statements at that date, but does not include all of the information and related notes required by generally accepted accounting principles (GAAP) for complete financial statements.Product salesinstallation revenue are recognized whenobtain substantially all of the following criteriaremaining benefits from that good or service. The majority of the Company’s revenues are recognized over time as the customer receives control as the Company performs work under a contract. However, a portion of the Company’s revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract.been met: (1) products have been shipped,the same pattern of transfer. The Company identifies performance obligations at the inception of a contract and allocates the transaction price to individual performance obligations to reasonably reflect the Company’s performance in transferring control of the promised goods or customers have purchased and accepted titleservices to the goods, but because of construction delays, have requested that the Company temporarily store the finished goods on the customer’s behalf; service revenue for installation of products sold is recognized as the installation services are performed, (2) persuasive evidence of an arrangement exists, (3) the price to the customer is fixed, and (4) collectability is reasonably assured.customer. The Company utilizes eitherhas elected to treat shipping and handling as a fulfillment activity instead of a separate performance obligation.percentageprimary performance obligations identified by the Company:completioncustom 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 completed contract method based on factswith resources readily available in the market place such as separately purchased installation services. Each piece of laboratory furniture does not significantly modify or customize othercircumstancesthe pieces of individual contracts.Deferred revenue consistslaboratory furniture are not highly interdependent or interrelated with each other. The Company can, and frequently does, break portions of customer depositscontracts into separate “runs” to meet manufacturing and advance billingsconstruction schedules. As such, each piece of laboratory furniture is considered a separate and distinct performance obligation. The majority of the Company’s products whereare customized to meet the specific architectural design and performance requirements of laboratory planners and end users. The finished laboratory furniture has no alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. As such, revenue from the sales haveof customized laboratory furniture is recognized over time once the customization process has begun, using the units-of-production output method to measure progress towards completion. There is not yet been recognized. Shippinga material amount of work-in-process for which the customization process has begun at the end of a reporting period. The Company believes this output method most reasonably reflects the Company’s performance because it directly measures the value of the goods transferred to the customer. For standardized products sold by the Company, revenue is recognized when control transfers, which is typically freight on board (“FOB”) shipping point.handling costs are included in costsmaterials under normal use and conditions for a limited period of product sales. Because oftime. Due to the nature and quality of the Company’s products, any warranty issues arehave historically been determined in a relatively short period after the sale, and arehave been infrequent in nature, and have been immaterial to the Company’s financial position and results of operations. The Company’s standard warranties are not considered a separate and distinct performance obligation as the Company does not provide a service to customers beyond assurance that the covered product is free of initial defects. Costs of providing these short term assurance warranties are immaterial and, accordingly, are expensed as incurred. Extended separately priced warranties are available which can last up to five years. Extended warranties are considered separate performance obligations as they are individually priced options providing assurances that the products are free of defects.warranty costsare considered a separate and distinct performance obligation. Custodial services are simultaneously received and consumed by the customer and as such revenue from custodial services is recognized over time using a straight-line time-based measure of progress towards completion, because the Company’s services are provided evenly throughout the performance period.Productresultingtransferred to customers at a point in time and over time for the three and nine months ended January 31, 2019 is as follows (in thousands): Three Months Ended January 31, 2019 Domestic International Total Over Time $ 24,414 $ 7,155 $ 31,569 Point in Time 803 — 803 $ 25,217 $ 7,155 $ 32,372 Nine Months Ended January 31, 2019 Domestic International Total Over Time $ 86,973 $ 19,893 $ 106,866 Point in Time 4,936 — 4,936 $ 91,909 $ 19,893 $ 111,802 fixed-price construction contracts involvewith customers were $1,450,000 at January 31, 2019 and $1,884,000 at April 30, 2018. The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, and deferred revenue on the condensed consolidated balance sheets. In general, the Company receives payments from customers based on a signedbilling schedule established in its contracts. Unbilled receivables represent amounts earned which have not yet been billed in accordance with contractually stated billing terms. Accounts receivable are recorded when the right to consideration becomes unconditional and the Company has a right to invoice thefixed pricepoint in time now meet the criteria of a performance obligation satisfied over time. These contracts consist of customized laboratory furniture engineered or tailored to providemeet the Company’scustomer’s requirements. In the event the customer cancels the contract, the Company will have no alternative use for and cannot economically repurpose the laboratory furniture, and fume hoods for a construction project. In these instances, the Company is usuallyhas the right to payment for performance completed to date. This change results in accelerated recognition of revenue and increases the rolebalance of a subcontractor, but in some cases may enter into a contract directly withassets compared to theend-user previous revenue recognition standard.products. Contract arrangements normally doadoption date, which resulted in a cumulative effect adjustment to increase retained earnings, net of tax, of $217,000. Comparative information for prior periods has not contain a general rightbeen restated and continues to be reported under the accounting standards in effect for those periods presented. The Company elected to reflect the aggregate effect of return relativeall contract modifications that occurred before the beginning of the earliest period presented in determining the transaction price, identifying the satisfied and unsatisfied performance obligations and allocating the transaction price to the delivered items. Product sales resulting from fixed-price construction contracts are generated from multiple-element arrangements that require separate units of accountingsatisfied and estimates regardingunsatisfied performance obligations for the fair value of individual elements.modified contract at transition. The Company has determined that its multiple-element arrangements that qualify as separate units of accounting are (1) product sales and (2) installation services. There is objective and reliable evidence of fair value for both the product sales and installation services and allocation of arrangement consideration for eacheffects of these units is basedelections were immaterial.their relative fair values. Eachthe condensed consolidated statements of these elements represent individual unitsoperations: Three Months Ended January 31, 2019 ($ in thousands, except per share amounts) As Reported Adjustments Net sales $ 32,372 $ (1,668 ) $ 30,704 Costs of products sold 27,142 (1,519 ) 25,623 Gross profit 5,230 (149 ) 5,081 Operating expenses 5,305 6 5,311 Operating loss (75 ) (155 ) (230 ) Other income 186 — 186 Interest expense (76 ) — (76 ) Earnings (loss) before income taxes 35 (155 ) (120 ) Income tax expense (benefit) 20 (46 ) (26 ) Net earnings (loss) 15 (109 ) (94 ) Net earnings attributable to the noncontrolling interest 37 — 37 Net earnings (loss) attributable to Kewaunee Scientific Corporation $ (22 ) $ (109 ) $ (131 ) Basic Loss Per Share $ (0.01 ) $ (0.04 ) $ (0.05 ) Diluted Loss Per Share $ (0.01 ) $ (0.04 ) $ (0.05 ) Nine Months Ended January 31, 2019 ($ in thousands, except per share amounts) As Reported Adjustments Net sales $ 111,802 $ (1,720 ) $ 110,082 Costs of products sold 91,325 (1,169 ) 90,156 Gross profit 20,477 (551 ) 19,926 Operating expenses 17,031 11 17,042 Operating earnings 3,446 (562 ) 2,884 Other income 500 — 500 Interest expense (258 ) — (258 ) Earnings before income taxes 3,688 (562 ) 3,126 Income tax expense 803 (138 ) 665 Net earnings 2,885 (424 ) 2,461 Net earnings attributable to the noncontrolling interest 86 — 86 Net earnings attributable to Kewaunee Scientific Corporation $ 2,799 $ (424 ) $ 2,375 Basic Earnings Per Share $ 1.02 $ (0.15 ) $ 0.87 Diluted Earnings Per Share $ 1.00 $ (0.15 ) $ 0.85 accounting, asadopting ASC 606 on the delivered item has value to a customer on a stand-alone basis. The Company’s products are regularly sold on a stand-alone basis to customers which provides either best estimate of selling prices or vendor-specific objective evidence of fair value. The fair value of installation services is separately calculated using expected costs of installation services. Many times the value of installation services is calculated using price quotations from subcontractors to the Company who perform installation services on a stand-alone basis.Product sales resulting from purchase orders involve a purchase order received by the Company from its dealers or stocking distributor. This category includes product sales for standard products, as well as products which require some customization. Any customization requirements are approved by the customer prior to manufacture of the customized product. Sales from purchase orders are recognized under the terms of the purchase order which generally are freight on board (“FOB”) shipping point and do not include rights of return. Accordingly, these sales are recognized at the time of shipment. January 31, 2019 ($ in thousands) As Reported Adjustments Assets Cash and cash equivalents $ 10,771 $ — $ 10,771 Restricted cash 606 — 606 Receivables, less allowances 27,929 (3,304 ) 24,625 Inventories 16,672 3,106 19,778 Prepaid expenses and other assets 3,778 — 3,778 Total Current Assets 59,756 (198 ) 59,558 Net property, plant and equipment 15,202 — 15,202 Other assets 4,604 — 4,604 Total Assets $ 79,562 $ (198 ) $ 79,364 Liabilities and Stockholders’ Equity Short-term borrowings and interest rate swaps $ 5,118 $ — $ 5,118 Current portion of long-term debt and lease obligations 1,184 — 1,184 Accounts payable 11,106 (4 ) 11,102 Deferred revenue 1,450 661 2,111 Other current liabilities 4,848 (214 ) 4,634 Total Current Liabilities 23,706 443 24,149 Other non-current liabilities 6,345 — 6,345 Total Liabilities 30,051 443 30,494 Noncontrolling interest 521 — 521 Total Kewaunee Scientific Corporation Stockholders’ Equity 48,990 (641 ) 48,349 Total Stockholders’ Equity 49,511 (641 ) 48,870 Total Liabilities and Stockholders’ Equity $ 79,562 $ (198 ) $ 79,364 sheetsheets at fair value and establishes criteria for designation and effectiveness of hedging relationships. The nature of the Company’s business activities involves the management of various financial and market risks, including those related to changes in interest rates. The Company does not enter into derivative instruments for speculative purposes. In May 2013, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on $3,450,000 of outstanding long-term debt was effectively converted to a fixed interest rate of 4.875% for the period beginning May 1, 2013 and ending August 1, 2017. In May 2013, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on $2,600,000 of outstanding long-term debt was effectively converted to a fixed interest rate of 4.37% for the period beginning August 1, 2017 and ending May 1, 2020. In May 2013, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on $1,218,000 of outstanding long-term debt was effectively converted to a fixed interest rate of 3.07% for the period beginning November 3, 2014 and ending May 1, 2020. The Company entered into these interest rate swap arrangements to mitigate future interest rate risk associated with its long-term debt and has designated these as cash flow hedges. Stock optionspurchase 39,200 shares were not includedchange its method of inventory accounting to the FIFO method from the LIFO link-chain dollar-value method for its Domestic segment inventories. The Company believes that the FIFO method is preferable as it results in increased uniformity across the computationCompany’s operations with respect to the inventory valuation method, as the Company’s International subsidiaries use the FIFO method. The Company also believes that the change to FIFO will improve financial reporting by better reflecting the current value of diluted earnings per shareinventory on the condensed consolidated balance sheets, by more closely aligning the flow of physical inventory with the accounting for the threeinventory, providing better matching of revenues and nine month periods ended January 31, 2017, because the option exercise prices were greater than the average market priceexpenses. The Company applied this change in method of the common shares during the quarter,inventory accounting by retrospectively adjusting all prior period financial statements and accordingly, such stock options would have an antidilutive effect.E.Inventories January 31, 2018 April 30, 2017 $ 3,778 $ 3,179 2,133 1,950 11,769 9,806 $ 17,680 $ 14,935 January 31,
2019 As Adjusted
April 30, 2018Finished products $ 3,591 $ 4,987 Work in process 1,804 2,393 Raw materials 11,277 11,169 $ 16,672 $ 18,549 Company uses thelast-in,first-out (LIFO) method of valuing inventory for its domestic operations, which represents $15,833,000 of inventoryCompany’s International subsidiaries’ inventories were $1,410,000 at January 31, 20182019 and $12,730,000$1,908,000, at April 30, 2017. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Interim LIFO calculations are based on management’s estimates of expectedyear-end inventory levels and costs, and are subject to the finalyear-end LIFO inventory valuation. The Company’s international subsidiaries’ inventories were $1,847,000 at January 31, 2018, and $2,205,000, at April 30, 2017, measured using thefirst-in,first-out (“FIFO”) FIFO method at the lower of cost and net realizable value. April 30, 2018 Adjustments As Adjusted Inventories $ 17,662 $ 887 $ 18,549 Total Current Assets 63,504 887 64,391 Deferred Income Taxes 2,031 (162 ) 1,869 Total Assets 84,358 725 85,083 Other Accrued Expenses 2,062 54 2,116 Total Current Liabilities 27,562 54 27,616 Total Liabilities 36,837 54 36,891 Retained Earnings 43,165 671 43,836 Total Kewaunee Scientific Corporation Stockholders’ Equity 47,059 671 47,730 Total Stockholders’ Equity 47,521 671 48,192 Total Liabilities and Stockholders’ Equity $ 84,358 $ 725 $ 85,083 Three Months Ended January 31, 2018 As Reported Under LIFO Adjustments As Adjusted Under FIFO Cost of products sold $ 29,836 $ (45 ) $ 29,791 Income tax expense 1,566 15 1,581 Net earnings 918 30 948 Net earnings attributable to Kewaunee Scientific Corporation $ 883 $ 30 $ 913 Net earnings per share attributable to Kewaunee Scientific Corporation stockholders Basic $ 0.32 $ 0.01 $ 0.33 Diluted $ 0.31 $ 0.01 $ 0.32 Nine Months Ended January 31, 2018 As Reported Under LIFO Adjustments As Adjusted Under FIFO Cost of products sold $ 90,456 $ (45 ) $ 90,411 Income tax expense 3,149 15 3,164 Net earnings 3,875 30 3,905 Net earnings attributable to Kewaunee Scientific Corporation $ 3,755 $ 30 $ 3,785 Net earnings per share attributable to Kewaunee Scientific Corporation stockholders Basic $ 1.38 $ 0.01 $ 1.39 Diluted $ 1.35 $ 0.01 $ 1.36 As Reported Under LIFO Net earnings $ 3,875 $ 30 $ 3,905 Decrease in inventories (2,745 ) (45 ) (2,790 ) Increase in accounts payable and other accrued expenses 2,020 15 2,035 Net cash used in operating activities $ (645 ) $ — $ (645 ) Three Months Ended January 31, 2019 As Reported Under FIFO Adjustments As Computed Under LIFO Cost of products sold $ 27,142 $ (49 ) $ 27,093 Income tax expense 20 12 32 Net earnings 15 37 52 Net earnings (loss) attributable to Kewaunee Scientific Corporation $ (22 ) $ 37 $ 15 Net earnings (loss) per share attributable to Kewaunee Scientific Corporation stockholders Basic $ (0.01 ) $ 0.01 $ — Diluted $ (0.01 ) $ 0.01 $ — Nine Months Ended January 31, 2019 As Reported Under FIFO Adjustments As Computed Under LIFO Cost of products sold $ 91,325 $ 151 $ 91,476 Income tax expense 803 (37 ) 766 Net earnings 2,885 (114 ) 2,771 Net earnings attributable to Kewaunee Scientific Corporation $ 2,799 $ (114 ) $ 2,685 Net earnings per share attributable to Kewaunee Scientific Corporation stockholders Basic $ 1.02 $ (0.04 ) $ 0.98 Diluted $ 1.00 $ (0.04 ) $ 0.96 Nine Months Ended January 31, 2019 As Reported Under FIFO Adjustments As Computed Under LIFO Net earnings $ 2,885 $ (114 ) $ 2,771 Decrease in inventories 990 151 1,141 Decrease in accounts payable and other accrued expenses (4,879 ) (37 ) (4,916 ) Net cash provided by operating activities $ 4,534 $ — $ 4,534 January 31, 2019 Adjustment Inventories $ 16,672 $ (1,038 ) $ 15,634 Total Current Assets 59,756 (1,038 ) 58,718 Deferred Income Taxes 1,676 162 1,838 Total Assets 79,562 (876 ) 78,686 Other Accrued Expenses 2,894 (91 ) 2,803 Total Current Liabilities 23,706 (91 ) 23,615 Total Liabilities 30,051 (91 ) 29,960 Retained Earnings 45,345 (785 ) 44,560 Total Kewaunee Scientific Corporation Stockholders’ Equity 48,990 (785 ) 48,205 Total Stockholders’ Equity 49,511 (785 ) 48,726 Total Liabilities and Stockholders’ Equity $ 79,562 $ (876 ) $ 78,686 table providestables provide financial information by business segments for the three and nine months ended January 31, 20182019 and 20172018 (in thousands): Domestic
Operations International
Operations Corporate /
Eliminations Total $ 29,734 $ 8,456 $ — $ 38,190 1,145 1,361 (2,506 ) — 2,959 1,363 (1,838 ) 2,484 $ 25,313 $ 5,058 $ — $ 30,371 344 538 (882 ) — 563 943 (1,015 ) 491 Domestic
Operations International
Operations Corporate/
Eliminations Total $ 80,420 $ 33,122 $ — $ 113,542 10,298 3,291 (13,589 ) — 7,720 4,019 (4,715 ) 7,024 $ 83,161 $ 20,818 $ — $ 103,979 3,781 2,936 (6,717 ) — 5,580 3,010 (3,670 ) 4,920 Total Three months ended January 31, 2019 Revenues from external customers $ 25,217 $ 7,155 $ — $ 32,372 Intersegment revenues 612 2,135 (2,747 ) — Earnings (loss) before income taxes $ 60 $ 1,020 $ (1,045 ) $ 35 Three months ended January 31, 2018 Revenues from external customers $ 29,734 $ 8,456 $ — $ 38,190 Intersegment revenues 1,145 1,361 (2,506 ) — Earnings (loss) before income taxes $ 3,004 $ 1,363 $ (1,838 ) $ 2,529 Total Nine months ended January 31, 2019 Revenues from external customers $ 91,909 $ 19,893 $ — $ 111,802 Intersegment revenues 1,490 3,969 (5,459 ) — Earnings (loss) before income taxes $ 6,005 $ 2,174 $ (4,491 ) $ 3,688 Nine months ended January 31, 2018 Revenues from external customers $ 80,420 $ 33,122 $ — $ 113,542 Intersegment revenues 10,298 3,291 (13,589 ) — Earnings (loss) before income taxes $ 7,765 $ 4,019 $ (4,715 ) $ 7,069 $600,000$1,000,000 were paid to the plans during the nine months ended January 31, 2018,2019, and the Company does not expect any contributions to be paid to the plans during the remainder of the fiscal year. Contributions of $555,000$600,000 were paid to the plans during the nine months ended January 31, 2017.2018. The Company assumed an expected long-term rate of return of 7.75% for the period ended January 31, 20182019 as compared to 8.0%7.75% for the period ended January 31, 2017.2018. Pension expense consisted of the following (in thousands): Three months ended
January 31, 2018 Three months ended
January 31, 2017 $ -0- $ -0- 219 232 (328 ) (311 ) 283 314 $ 174 $ 235 Nine months ended
January 31, 2018 Nine months ended
January 31, 2017 $ -0- $ -0- 687 695 (984 ) (932 ) 849 942 $ 522 $ 705 Three Months Ended January 31, 2019 Three Months Ended January 31, 2018 Service cost $ 0 $ 0 Interest cost 214 219 Expected return on plan assets (362 ) (328 ) Recognition of net loss 221 283 Net periodic pension expense $ 73 $ 174 Nine Months Ended January 31, 2019 Nine Months Ended
January 31, 2018Service cost $ 0 $ 0 Interest cost 644 657 Expected return on plan assets (1,086 ) (984 ) Recognition of net loss 663 849 Net periodic pension expense $ 221 $ 522 20182019 and April 30, 20172018 (in thousands): January 31, 2018 Level 1 Level 2 Total $ 3,994 $ — $ 3,994 — 75 75 $ 3,994 $ 75 $ 4,069 $ — $ 4,472 $ 4,472 — 14 14 $ — $ 4,486 $ 4,486 April 30, 2017 Level 1 Level 2 Total $ 3,748 $ — $ 3,748 — 75 75 $ 3,748 $ 75 $ 3,823 $ — $ 4,186 $ 4,186 — 62 62 $ — $ 4,248 $ 4,248 January 31, 2019 Financial Assets Level 1 Level 2 Total Trading securities held in non-qualified compensation plans (1) $ 2,818 $ — $ 2,818 Cash surrender value of life insurance policies (1) — 65 65 Total $ 2,818 $ 65 $ 2,883 Financial Liabilities Non-qualified compensation plans (2) $ — $ 3,256 $ 3,256 April 30, 2018 Financial Assets Level 1 Level 2 Total Trading securities held in non-qualified compensation plans (1) $ 4,050 $ — $ 4,050 Cash surrender value of life insurance policies (1) — 65 65 Total $ 4,050 $ 65 $ 4,115 Financial Liabilities Non-qualified compensation plans (2) $ — $ 4,462 $ 4,462 Interest rate swap derivatives — 5 5 Total $ — $ 4,467 $ 4,467 (1) The Company maintains twonon-qualified compensation plans which include investment assets in a rabbi trust. These assets consist of marketable securities, which are valued using quoted market prices multiplied by the number of shares owned, and life insurance policies, which are valued at their cash surrender value. (2) Plan liabilities are equal to the individual participants’ account balances and other earned retirement benefits.
Compensation.”
The 2017 Tax Act lowered the federal statutory tax rate from 35% to 21%. As the Company has a fiscal year ending April 30, it is subject to a blended tax rate for the current fiscal year. Therefore, a blended rate of 29.73% was computed as the federal statutory rate for this year.
In accordance with ASC 740, ”Income Taxes”, which requires deferred taxes tohas concluded that GILTI will bere-measured treated as a periodic charge in the year of an income tax rate change,in which it arises. Therefore, the Company recorded a provisional discretewill not record deferred income tax expense of $587,000 in the three months ended January 31, 2018 as a result of applying a lower U.S. federal income tax rate to the Company’s net deferred tax assets.
The Company revalued the U.S. deferred tax balances based on the tax rates effectivetaxes for the following fiscal year at the new federal rate of 21% for amounts that are not expected to reverse during the current fiscal year and revalued the deferred tax balances expected to reverse in the current fiscal year at the Company’s current fiscal year blended rate of 29.73%.basis associated with GILTI earnings. The Company has not yet completedincluded estimated tax expense related to GILTI for current year operations in the revaluationforecasted effective tax rate.
The 2017 Tax Act also includes aone-time transition tax on accumulated unrepatriated foreign earnings. In the three months ended January 31, 2018,Cash Flows-Restricted Cash,” the Company recorded a provisional discrete current income tax expense of $528,000 on accumulated unrepatriated foreign earnings, including estimates for foreign earnings through April 30, 2018. In addition, the Company has not yet completed the calculation of the related income tax pools for its foreign subsidiaries. The Company is entitled to elect to pay theone-time transition tax over a period of eight years. The Company intends to make this election and has recorded $486,000 of the provisional expense as othernon-current liabilitiesreclassified certain 2018 amounts in the Company’s Consolidated Balance Sheet for January 31, 2018. No additional income taxes have been provided for any remaining undistributed foreign earnings not subjectcondensed consolidated statements of cash flows to include restricted cash when reconciling the transition tax, or any additional outside basis difference inherent in these entities, as thesebeginning-of-period and end-of-period cash amounts continue to be indefinitely reinvested in foreign operations.
The Company is currently in the process of evaluating the new Global IntangibleLow-Taxed Income (“GILTI”) provisions and has not yet elected an accounting policy with respect to whether to reflect GILTI in its deferred tax calculations or not. Therefore, the Company has not made any adjustments related to the GILTI tax in its financial statements. Under the SEC guidance noted above, the Company will continue to analyze and assess the effects of the GILTI provisions of the Act.
The Company anticipates future impacts at a U.S., state and local tax level related to the 2017 Tax Act as statutory and interpretive guidance is not available from applicable tax authorities needed to reasonably estimate the impact. Consequently, the Company has not recorded provisional amounts for this statutory and interpretive guidance and has continued to apply ASC 740 basedshown on the provisionsstatement of the tax laws that were in effect immediately prior to the 2017 Tax Act enactment.
K.Reclassifications
Certain 2017 amounts have been reclassifiedcash flows to conform to the 2018current period presentation. To comply with the Commission’s final rule on Disclosure Simplification, the Company’s presentation inof the prior period’s condensed consolidated statementsstatement of cash flows. Such reclassifications had no impact on net earnings.
stockholders’ equity has been reclassed to conform to the current period format.
this standard.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Sales for the nine months ended January 31, 2018 were $113,542,000, an increase of 9.2% from sales of $103,979,000 in the comparable period of the prior year. Domestic sales were $80,420,000 down from $83,161,000 in the comparable period of the prior year as domestic orders from dealers were lower thanprincipally due to the prior year period.strength domestically in the Company’s first quarter of the current fiscal year. International sales were $33,122,000, up$19,893,000, down from sales of $20,818,000$33,122,000 in the comparable period of the prior year due to the impact of a large order being delivered to a customer in the Middle East.
East in the prior year.
is aggressively pursuing these projects.
mix, and year-over-year decline in sales, as well as continued increases in raw material and freight costs which negatively affected margins compared to the prior period. The unfavorable impact due to year-over-year increases in steel and resin material costs was approximately $1.7 million dollars for the nine-month period.
$100,000, offset by increases in International operating expenses of $196,000. The decreases in the incentive compensation expense reflects management’s anticipated payout based on actual performance relative to companywide annual performance goals. The increase in International operating expenses related to investments made to expand the Company’s presence and capabilities in the Middle East and India.
of $301,000. The increases in professional and consulting fees were related to the Company’s preparations in anticipation of potentially moving from smaller reporting company status to accelerated filer status for Securities and Exchange Commission reporting purposes, and increased compliance costs related to implementing the provisions of the Tax Cuts and Jobs Tax Act of 2017 (the "2017 Tax Act"). Increases in International operating expenses were substantially the same as those described above with respect to the increases in the most recent quarter.
Income tax expense of $3,149,000$803,000 and $1,695,000$3,164,000 was recorded for the nine months ended January 31, 20182019 and 2017,2018, respectively. The effective tax rates were 44.8%21.8% and 34.5%44.8% for the nine months ended January 31, 2019 and 2018, respectively. The decreases in the effective tax rates for the three-month and nine-month periods reflect the favorable impact of the lower federal 21% statutory rate that was effective in the current fiscal year as a result of the enactment of the 2017 respectively.
Tax Act, which was signed into law in December 2017.
2018.
used for capital expenditures. During the nine months ended January 31, 2018, the Company used net cash of $1,965,000$1,907,000 was used in investing activities, all of which included $1,907,000was used for capital expenditures, and a $58,000 increase in restricted cash. Duringexpenditures.
net short-term borrowings of $1,233,000. The Company’s financing activities used cash of $836,000 during the nine months ended January 31, 2018, primarily for cash dividends of $1,331,000 paid to stockholders, cash dividends of $74,000 paid to minority interest holders, and payments of $626,000 on long-term debt, partially offset by an increase in net short-term borrowings of $1,187,000. The Company’s financing activities used cash of $477,000 during the nine months ended January 31, 2017, primarily for cash dividends of $1,163,000 and payments on long-term debt of $316,000, partially offset by an increase in short-term borrowings of $861,000.
Financial
As disclosed in the Company’s Report on Form10-Q for the period ended October 31, 2017, on December 7, 2017, the Company experienced a criminal network cyber-attack that led to a disruption of its domestic operations, including manufacturing, engineering, administration, and sales operations. The temporary production disruption had an immaterial impact on sales and earnings for the period ended January 31, 2018, and the Company believes it will have an immaterial impact for the remainder of the fiscal year.
fourth quarter.
that could cause actual results to differ materially from those described in the forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to, competitive and general economic conditions, both domestically and internationally; changes in customer demands; dependence on customers’ required delivery schedules; risks related to fluctuations in the Company’s operating results from quarter to quarter; risks related to international operations, including foreign currency fluctuations; changes in the legal and regulatory environment; changes in raw materials and commodity costs; and acts of terrorism, war, governmental action, natural disasters and other Force Majeure events. Many important factors that could cause such a differencedifferences are described under the caption “Risk Factors” in Item 1A in the Company’s 20172018 Annual Report on Form10-K and underin Quarterly Reports on Form 10-Q subsequently filed by the caption “Risk Factors” in Part II, Item 1A of both this report and the Company’s Report on Form10-Q for the period ended October 31, 2017.Company. These forward-looking statements speak only as of the date of this document. The Company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
| Item 4. | Controls and Procedures |
As of the end of the period covered by this Quarterly Report on Form10-Q, we carried out anprocedures
As disclosed under Item 9A. Controls and Procedures in our Annual Report on Form10-K for the year ended April 30, 2017, management identified a material weakness inCompany’s internal control over financial reporting relatingthat occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to the misapplication of certain aspects ofmaterially affect, the Company’s multi-element and percentage of completion revenue recognition policies.
The Company has implemented changes to the design of its controls and procedures surrounding the execution of the Company’s multi-element and percentage of completion revenue recognition policies, which included, but were not limited to, drafting additional policy guidance, training key personnel and developing additional detective and monitoring controls. The material weakness cannot be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We currently expect to complete remediation of the material weakness by April 30, 2018.
In addition, as disclosed in the Company’sForm 10-Q for the period ended October 31, 2017, on December 7, 2017, the Company experienced a criminal network cyber-attack that led to a disruption of its domestic operations, including manufacturing, engineering, administration, and sales operations. The Company engaged a leading cybersecurity firm to perform a forensic investigation of this attack and as a result of the investigation has identified a material weakness in its logical accessinternal control over its IT systems. We currently expect to complete remediation of this material weakness by April 30, 2018.
financial reporting.
| Item 1A. | Risk Factors |
Cybersecurity incidents could expose us to liability and damage our reputation and our business.
We collect, process, store, and transmit large amounts of data, and it is critical to our business strategy that our facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Our information technology systems are essential to our efforts to manufacture our products, process customer sales transactions, manage inventory levels, conduct business with our suppliers and other business partners, and record, summarize and analyze the results of our operations. These systems contain, among other things, material operational, financial and administrative information related to our business. As with most companies there will always be some risk of physical or electronicbreak-ins, computer viruses, or similar disruptions.
In addition, we like all entities, are the target of cybercriminals who attempt to compromise our systems. From time to time, we experience threats and intrusions that may require remediation to protect sensitive information, including our intellectual property and personal information, and our overall business. Any physical or electronicbreak-in, computer virus, cybersecurity attack or other security breach or compromise of the information handled by us or our service providers may jeopardize the security or integrity of information in our computer systems and networks or those of our customers and cause significant interruptions in our and our customers’ operations.
Any systems and processes that we have developed that are designed to protect customer, associate and vendor information, intellectual property, and prevent data loss and other security attacks cannot provide absolute security. In addition, we may not successfully implement remediation plans to address all potential exposures. It is possible that we may have to expend additional financial and other resources to address these problems. Failure to prevent or mitigate data loss or other security incidents could expose us or our customers, associates and vendors to a risk of loss or misuse of such information, cause customers to lose confidence in our data protection measures, damage our reputation, adversely affect our operating results or result in litigation or potential liability for us. While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, this insurance coverage is subject to a retention amount and may not be applicable to a particular incident or otherwise may be insufficient to cover all our losses beyond any retention. Similarly, we expect to continue to make significant investments in our information technology infrastructure. The implementation of these investments may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact our financial position, results of operations or cash flows.
We recently experienced a network cyber-attack that disrupted our domestic operations.
As disclosed in ourForm 10-Q for the period ended October 31, 2017, on December 7, 2017, the Company experienced a criminal network cyber-attack that led to a disruption of its domestic operations, including manufacturing, engineering, administration, and sales operations. As of December 12, 2017 the Company had restored its domestic operations. The Company engaged third party experts, including a leading cybersecurity firm, to perform a forensic investigation of this attack and as a result of the investigation has identified a material weakness in internal control over financial reporting relating to its logical access control over its IT systems. While the Company currently expects to complete remediation of this weakness by April 30, 2018, there can be no assurance that such remediation will be completed by such date. The Company has insurance coverage against recovery costs and business interruption resulting from cyber-attacks. However, the Company may have incurred, and may incur in the future, expenses and losses related to this attack that are not covered by insurance.
2018.
| Item 6. | Exhibits |
| 3 | ||
| 31.1 | ||
| 32.1 | ||
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| |||||||||
KEWAUNEE SCIENTIFIC CORPORATION (Registrant) | |||||||||
| Date: March 15, 2019 | By | /s/ Thomas D. Hull III | |||||||
Thomas D. Hull III | |||||||||
| (As duly authorized officer and President and Chief Executive Officer and Vice President, Finance and Chief Financial Officer) | |||||||||
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