PART I [Business](index=4&type=section&id=Item%201.%20Business) Kewaunee Scientific Corporation designs, manufactures, and installs laboratory, healthcare, and technical furniture - The company's principal business is the design, manufacture, and installation of laboratory, healthcare, and technical furniture products. Key markets include pharmaceutical, biotechnology, industrial, educational, and governmental facilities[8](index=8&type=chunk)[9](index=9&type=chunk) - Sales from three of the company's domestic dealers accounted for approximately **34%** of total sales in fiscal year 2019, indicating significant customer concentration[13](index=13&type=chunk) Order Backlog and R&D Spending | Metric | FY 2019 | FY 2018 | | :--- | :--- | :--- | | Order Backlog (as of April 30) | $100.8 million | $116.3 million | | R&D Spending | $1,550,000 | $1,537,000 | Full-Time Employees as of April 30, 2019 | Region | Number of Employees | | :--- | :--- | | Domestic | 593 | | International | 263 | [Risk Factors](index=5&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from financial market disruptions, competition, customer concentration, raw material prices, and trade policy - The company has substantial sales to three domestic dealers, which combined accounted for approximately **34%** of sales in fiscal year 2019. The loss of a large customer could materially harm revenues and profits[28](index=28&type=chunk) - Increases in the price of raw materials (steel, wood, epoxy resin) and energy could negatively affect profits, as product prices are normally quoted on a firm basis for future delivery[29](index=29&type=chunk) - Changes in U.S. trade policy, including the imposition of tariffs, could increase the cost of imported raw materials or reduce demand for products if prices are increased, potentially having a material adverse impact on business and results of operations[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - Cybersecurity incidents pose a significant risk. The company is a target of cybercriminals, and a security breach could jeopardize sensitive information, damage its reputation, and result in liability or operational interruptions[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) [Properties](index=8&type=section&id=Item%202.%20Properties) The company operates owned manufacturing and leased distribution facilities in Statesville, NC, and leased international facilities Key Company Facilities | Location | Type | Size (sq. ft.) | Ownership | | :--- | :--- | :--- | :--- | | Statesville, NC | Manufacturing & Corporate | 413,000 | Owned | | Statesville, NC | Distribution & Warehouse | 376,000 | Leased | | Bangalore, India | Manufacturing | 83,000 | Leased | | Bangalore, India | Sales & Admin Office | 17,000 | Leased | [Legal Proceedings](index=8&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course litigation, which management believes will not materially affect financial condition or results - The company does not expect any pending legal matters to have a material adverse effect on its financial condition or results of operations[45](index=45&type=chunk) [Mine Safety Disclosures](index=8&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[46](index=46&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=8&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ, with approximately 2,000 holders and increased cash dividends in FY2019 Quarterly Stock Prices (Fiscal Year 2019) | Quarter | High | Low | | :--- | :--- | :--- | | First | $38.80 | $30.50 | | Second | $35.05 | $25.97 | | Third | $34.84 | $22.00 | | Fourth | $32.70 | $20.21 | Cash Dividends Per Share | Fiscal Year | Dividend per Share | | :--- | :--- | | 2019 | $0.74 | | 2018 | $0.66 | [Selected Financial Data](index=9&type=section&id=Item%206.%20Selected%20Financial%20Data) Selected financial data for FY2019 and FY2018 show decreased net sales, operating earnings, and EPS, while assets remained stable Selected Operating Statement Data (in thousands, except per share) | Metric | 2019 | 2018 As Adjusted | | :--- | :--- | :--- | | Net sales | $146,550 | $158,050 | | Gross profit | $25,319 | $32,159 | | Operating earnings | $2,112 | $9,919 | | Net earnings attributable to Kewaunee | $1,529 | $5,281 | | Diluted EPS | $0.55 | $1.90 | | Cash dividends per share | $0.74 | $0.66 | Selected Balance Sheet Data (as of April 30, in thousands) | Metric | 2019 | 2018 As Adjusted | | :--- | :--- | :--- | | Net working capital | $32,624 | $36,775 | | Total assets | $87,223 | $85,083 | | Total borrowings/long-term debt | $10,926 | $6,316 | | Kewaunee Stockholders' equity | $47,100 | $47,730 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=10&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2019 net sales decreased by **7.3%** due to lower international sales, impacting gross profit and net earnings [Critical Accounting Policies](index=11&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve judgment for revenue, doubtful accounts, inventories, pension benefits, and self-insurance - On August 1, 2018, the Company changed its inventory valuation method for the Domestic segment from Last-In, First-Out (LIFO) to First-In, First-Out (FIFO) to better reflect current inventory value and improve matching of revenues and expenses[65](index=65&type=chunk) - The majority of the Company's revenues are recognized over time as the customer receives control of the product or service as work is performed[63](index=63&type=chunk) [Results of Operations](index=12&type=section&id=Results%20of%20Operations) FY2019 sales decreased by **7.3%** to **$146.6 million**, driven by international decline, impacting gross profit and net earnings Fiscal Year Performance Comparison (2019 vs. 2018) | Metric | FY 2019 | FY 2018 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $146.6M | $158.1M | -7.3% | | - Domestic Sales | $116.6M | $114.6M | +1.7% | | - International Sales | $30.0M | $43.5M | -31.0% | | Gross Profit Margin | 17.3% | 20.4% | -3.1 p.p. | | Net Earnings | $1.5M | $5.3M | -71.7% | | Diluted EPS | $0.55 | $1.90 | -71.1% | - The decrease in gross profit margin was primarily due to an unfavorable product mix, lower sales volume, and increased raw material and freight costs. The unfavorable impact from increased steel and resin costs was approximately **$2.1 million**[71](index=71&type=chunk) - Operating expenses increased due to management separation costs (**$502,000**), higher audit/tax fees (**$637,000**), and increased international operating expenses (**$893,000**), partially offset by a **$1.2 million** decrease in incentive compensation[72](index=72&type=chunk) [Liquidity and Capital Resources](index=12&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is from operations and a **$20 million** revolving credit facility, with working capital decreasing and projected capital expenditures - At April 30, 2019, the company had **$9.5 million** in advances and **$5.2 million** in standby letters of credit outstanding under its **$20 million** revolving credit facility[79](index=79&type=chunk) Contractual Cash Obligations (as of April 30, 2019, in thousands) | Obligation Type | Total | < 1 Year | 2-3 Years | 4-5 Years | > 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Leases | $5,565 | $1,246 | $1,602 | $981 | $1,736 | | Long-term Debt | $1,413 | $1,185 | $138 | $50 | $40 | | **Total** | **$6,978** | **$2,431** | **$1,740** | **$1,031** | **$1,776** | - Capital expenditures were **$4.2 million** in fiscal 2019 and are anticipated to be approximately **$2.5 million** in fiscal 2020[85](index=85&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=15&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rates on floating-rate debt and foreign currency fluctuations, as international sales grow - The company is exposed to interest rate risk on **$9.5 million** of outstanding debt bearing floating rates as of April 30, 2019[102](index=102&type=chunk) - In fiscal 2019, **20%** of net sales were derived in currencies other than U.S. dollars, primarily Indian rupees, Chinese renminbi, and Singapore dollars[103](index=103&type=chunk) - Cash balances of **$11.1 million** were held by foreign subsidiaries in non-U.S. currencies as of April 30, 2019[106](index=106&type=chunk) [Financial Statements and Supplementary Data](index=16&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for FY2019 and FY2018, including notes and auditor's report [Report of Independent Registered Public Accounting Firm](index=18&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements, noting a change in inventory accounting from LIFO to FIFO - The auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements[108](index=108&type=chunk) - The report notes a change in accounting principle, where the company changed its method for domestic inventory from LIFO to FIFO[109](index=109&type=chunk) [Note 2 - Revenue Recognition](index=29&type=section&id=Note%202%20-%20Revenue%20Recognition) The company adopted ASC 606 on May 1, 2018, recognizing most revenue over time, resulting in a **$217,000** increase to retained earnings Disaggregated Revenue for FY 2019 (in thousands) | Revenue Timing | Domestic | International | Total | | :--- | :--- | :--- | :--- | | Over Time | $110,338 | $29,964 | $140,302 | | Point in Time | $6,248 | $— | $6,248 | | **Total Revenue** | **$116,586** | **$29,964** | **$146,550** | - The company adopted ASC 606 on May 1, 2018, using the modified retrospective approach, resulting in a **$217,000** increase to retained earnings[174](index=174&type=chunk) [Note 3—Inventories](index=32&type=section&id=Note%203%E2%80%94Inventories) This note details inventory composition and the retrospective change from LIFO to FIFO for the Domestic segment, impacting prior year financials Inventories (in thousands) | Category | 2019 | 2018 | | :--- | :--- | :--- | | Finished goods | $4,139 | $4,987 | | Work-in-process | $2,179 | $2,393 | | Materials and components | $10,888 | $11,169 | | **Total inventories** | **$17,206** | **$18,549** | [Note 4—Long-term Debt and Other Credit Arrangements](index=35&type=section&id=Note%204%E2%80%94Long-term%20Debt%20and%20Other%20Credit%20Arrangements) The company's credit agreement includes a **$20 million** revolving line of credit, with a covenant waiver obtained after non-compliance - At April 30, 2019, the company was not in compliance with its financial covenants but subsequently received a waiver from its lender[181](index=181&type=chunk) - As part of the waiver agreement, the company granted a security interest in substantially all of its assets to secure its obligations under the loan agreement[181](index=181&type=chunk) [Note 10—Segment Information](index=43&type=section&id=Note%2010%E2%80%94Segment%20Information) The company operates Domestic and International segments, with FY2019 revenues of **$116.6 million** and **$30.0 million** respectively Segment Performance - Fiscal Year 2019 (in thousands) | Segment | Revenues from External Customers | Earnings Before Income Taxes | | :--- | :--- | :--- | | Domestic | $116,586 | $4,971 | | International | $29,964 | $3,374 | | Corporate | $— | $(6,211) | | **Total** | **$146,550** | **$2,134** | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=46&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No changes in or disagreements with accountants on accounting and financial disclosure were reported - None reported[221](index=221&type=chunk) [Controls and Procedures](index=46&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective, despite a late filing - Management concluded that disclosure controls and procedures are effective, despite a late Form 8-K filing due to an administrative error[221](index=221&type=chunk) - Management concluded that the company maintained effective internal control over financial reporting as of April 30, 2019[222](index=222&type=chunk) [Other Information](index=46&type=section&id=Item%209B.%20Other%20Information) No other information was reported for this period - None[226](index=226&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=47&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section details executive officers and incorporates director and corporate governance information by reference from the proxy statement Executive Officers (as of June 30, 2019) | Name | Age | Position | | :--- | :--- | :--- | | Thomas D. Hull III | 43 | President and Chief Executive Officer | | Donald T. Gardner III | 40 | Vice President, Finance, CFO, Treasurer and Secretary | | Ryan S. Noble | 41 | Vice President, Sales and Marketing—Americas | | Elizabeth D. Phillips | 42 | Vice President, Human Resources | | Kurt P. Rindoks | 61 | Vice President, Product Development and International Sourcing | | Michael G. Rok | 53 | Vice President, Manufacturing Operations | | Lisa L. Ryan | 41 | Vice President of Construction and Customer Operations | | Boopathy Sathyamurthy | 50 | Vice President, Kewaunee Scientific Corporation Singapore Pte. Ltd. | - Information regarding Directors and the Audit Committee is incorporated by reference from the company's Proxy Statement[233](index=233&type=chunk)[240](index=240&type=chunk) [Executive Compensation](index=48&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information, including discussion and tables, is incorporated by reference from the company's Proxy Statement - All information for this item is incorporated by reference from the company's Proxy Statement[241](index=241&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=48&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details equity compensation plans and incorporates security ownership information by reference from the company's Proxy Statement Equity Compensation Plan Information (as of April 30, 2019) | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity Compensation Plans approved by Security Holders | 127,658 | $17.79 (calculated) | 272,178 | | Equity Compensation Plans not approved by Security Holders | — | — | — | - Information regarding security ownership of directors, executive officers, and certain beneficial owners is incorporated by reference from the company's Proxy Statement[242](index=242&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=49&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the company's Proxy Statement - All information for this item is incorporated by reference from the company's Proxy Statement[244](index=244&type=chunk) [Principal Accountant Fees and Services](index=49&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the company's Proxy Statement - All information for this item is incorporated by reference from the company's Proxy Statement[245](index=245&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=50&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists consolidated financial statements, auditor consent, and exhibits filed as part of the Annual Report - This section lists the consolidated financial statements, consent of the independent auditor, and all exhibits filed with the Form 10-K[248](index=248&type=chunk)[249](index=249&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ FORM 10-Q _________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 0-5286 _________________________ KEWAUNEE SCIENTIFIC CORPORATION (E ...