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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 July 31, 2021
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
(Exact name of registrant as specified in its charter)
_________________________

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)

Registrant's telephone number, including area code: (704) 873-7202
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Exchange on which registered
Common Stock, $2.50 par value KEQU NASDAQ Global Market
_________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer |  | ☐ |  | Accelerated filer |  | ☐
Non-accelerated filer |  | ☒ |  | Smaller reporting company |  | ☒
|  |  |  | Emerging growth company |  | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of September 3, 2021, the registrant had outstanding 2,789,873 shares of Common Stock.

KEWAUNEE SCIENTIFIC CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2021

|  | Page Number
PART I. FINANCIAL INFORMATION |
Item 1. | Condensed Consolidated Financial Statements |
| Condensed Consolidated Statements of Operations (unaudited) – Three Months Ended J ul y 31, 2021 and 2020 | 1
| Condensed Consolidated Statements of Comprehensive Loss (unaudited) – Three Months Ended J ul y 31, 2021 and 2020 | 2
| Condensed Consolidated Statements of Stockholders' Equity (unaudited) – Three Months Ended J ul y 31, 2021 and 2020 | 3
| Condensed Consolidated Balance Sheets – J ul y 31, 2021 (unaudited) and April 30, 202 1 | 4
| Condensed Consolidated Statements of Cash Flows (unaudited) –Three Months Ended J uly 31, 2021 and 2020 | 5
| Notes to Condensed Consolidated Financial Statements (unaudited) | 6
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 11
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 13
Item 4. | Controls and Procedures | 13
PART II. OTHER INFORMATION |
Item 1A. | Risk Factors | 14
Item 6. | Exhibits | 14
SIGNATURES | 15

i

Part 1. Financial Information
Item 1. Condensed Consolidated Financial Statements
Kewaunee Scientific Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
($ and shares in thousands, except per share amounts)

| Three Months Ended July 31,
| 2021 |  | 2020
Net sales | $ | 39,493 |  |  | $ | 36,423 |
Cost of products sold | 33,819 |  |  | 30,542 |
Gross profit | 5,674 |  |  | 5,881 |
Operating expenses | 6,765 |  |  | 6,157 |
Operating loss | (1,091) |  |  | (276) |
Pension income (expense) | 89 |  |  | (288) |
Other income, net | 52 |  |  | 54 |
Interest expense | (106) |  |  | (77) |
Loss before income taxes | (1,056) |  |  | (587) |
Income tax expense | 251 |  |  | 21 |
Net loss | (1,307) |  |  | (608) |
Less: Net earnings (loss) attributable to the non-controlling interest | 38 |  |  | (10) |
Net loss attributable to Kewaunee Scientific Corporation | $ | (1,345) |  |  | $ | (598) |
Net loss per share attributable to Kewaunee Scientific Corporation stockholders |  |  |
Basic | $ | (0.48) |  |  | $ | (0.22) |
Diluted | $ | (0.48) |  |  | $ | (0.22) |
Weighted average number of common shares outstanding |  |  |
Basic | 2,777 |  |  | 2,756 |
Diluted | 2,777 |  |  | 2,756 |

See accompanying notes to Condensed Consolidated Financial Statements.
1

Kewaunee Scientific Corporation
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
($ in thousands)

| Three Months Ended July 31,
| 2021 |  | 2020
Net loss | $ | (1,307) |  |  | $ | (608) |
Other comprehensive loss, net of tax: |  |  |
Foreign currency translation adjustments | (76) |  |  | (13) |
Other comprehensive loss | (76) |  |  | (13) |
Comprehensive loss, net of tax | (1,383) |  |  | (621) |
Less: Comprehensive income (loss) attributable to the non-controlling interest | 38 |  |  | (10) |
Comprehensive loss attributable to Kewaunee Scientific Corporation | $ | (1,421) |  |  | $ | (611) |

See accompanying notes to Condensed Consolidated Financial Statements.
2

Kewaunee Scientific Corporation
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
($ in thousands, except per share amounts)

| Common Stock |  | Additional Paid-in Capital |  | Treasury Stock |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total Kewaunee Scientific Corporation Stockholders' Equity
Balance at April 30, 2021 | $ | 6,915 |  |  | $ | 3,807 |  |  | $ | (53) |  |  | $ | 34,149 |  |  | $ | (3,577) |  |  | $ | 41,241 |
Net loss attributable to Kewaunee Scientific Corporation | — |  |  | — |  |  | — |  |  | (1,345) |  |  | — |  |  | (1,345) |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (76) |  |  | (76) |
Stock-based compensation | 67 |  |  | 171 |  |  | — |  |  | — |  |  | — |  |  | 238 |
Balance at July 31, 2021 | $ | 6,982 |  |  | $ | 3,978 |  |  | $ | (53) |  |  | $ | 32,804 |  |  | $ | (3,653) |  |  | $ | 40,058 |

| Common Stock |  | Additional Paid-in Capital |  | Treasury Stock |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total Kewaunee Scientific Corporation Stockholders' Equity
Balance at April 30, 2020 | $ | 6,885 |  |  | $ | 3,360 |  |  | $ | (53) |  |  | $ | 37,821 |  |  | $ | (9,598) |  |  | $ | 38,415 |
Net loss attributable to Kewaunee Scientific Corporation | — |  |  | — |  |  | — |  |  | (598) |  |  | — |  |  | (598) |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (13) |  |  | (13) |
Stock-based compensation | 20 |  |  | 78 |  |  | — |  |  | — |  |  | — |  |  | 98 |
Balance at July 31, 2020 | $ | 6,905 |  |  | $ | 3,438 |  |  | $ | (53) |  |  | $ | 37,223 |  |  | $ | (9,611) |  |  | $ | 37,902 |

See accompanying notes to Condensed Consolidated Financial Statements.
3

Kewaunee Scientific Corporation
Condensed Consolidated Balance Sheets
($ and shares in thousands, except per share amounts)

| July 31, 2021 |  | April 30, 2021
| (Unaudited) |  |
Assets |  |  |
Current Assets: |  |  |
Cash and cash equivalents | $ | 4,985 |  |  | $ | 5,206 |
Restricted cash | 482 |  |  | 525 |
Receivables, less allowance; $618; $636, on each respective date | 34,932 |  |  | 34,095 |
Inventories | 17,852 |  |  | 16,517 |
Income tax receivable | 955 |  |  | 955 |
Prepaid expenses and other current assets | 2,763 |  |  | 3,159 |
Total Current Assets | 61,969 |  |  | 60,457 |
Property, plant and equipment, at cost | 59,295 |  |  | 58,804 |
Accumulated depreciation | (43,523) |  |  | (42,822) |
Net Property, Plant and Equipment | 15,772 |  |  | 15,982 |
Right of use assets | 8,838 |  |  | 9,279 |
Other assets | 3,720 |  |  | 3,666 |
Total Assets | $ | 90,299 |  |  | $ | 89,384 |
Liabilities and Stockholders' Equity |  |  |
Current Liabilities: |  |  |
Short-term borrowings | $ | 8,854 |  |  | $ | 6,828 |
Current portion of financing lease liability | 22 |  |  | 21 |
Current portion of operating lease liabilities | 1,349 |  |  | 1,348 |
Accounts payable | 17,487 |  |  | 16,780 |
Employee compensation and amounts withheld | 4,593 |  |  | 4,726 |
Deferred revenue | 2,555 |  |  | 3,123 |
Other accrued expenses | 1,400 |  |  | 1,355 |
Total Current Liabilities | 36,260 |  |  | 34,181 |
Long-term portion of financing lease liability | 86 |  |  | 91 |
Long-term portion of operating lease liabilities | 7,423 |  |  | 7,860 |
Accrued pension and deferred compensation costs | 4,611 |  |  | 4,652 |
Deferred income taxes | 344 |  |  | 307 |
Other non-current liabilities | 1,235 |  |  | 806 |
Total Liabilities | 49,959 |  |  | 47,897 |
Commitments and Contingencies |  |  |
Stockholders' Equity: |  |  |
Common stock, $2.50 par value, Authorized – 5,000 shares; Issued – 2,793 shares; 2,766 shares; – Outstanding – 2,790 shares; 2,763 shares, on each respective date | 6,982 |  |  | 6,915 |
Additional paid-in-capital | 3,978 |  |  | 3,807 |
Retained earnings | 32,804 |  |  | 34,149 |
Accumulated other comprehensive loss | (3,653) |  |  | (3,577) |
Common stock in treasury, at cost, 3 shares, on each date | (53) |  |  | (53) |
Total Kewaunee Scientific Corporation Stockholders' Equity | 40,058 |  |  | 41,241 |
Non-controlling interest | 282 |  |  | 246 |
Total Stockholders' Equity | 40,340 |  |  | 41,487 |
Total Liabilities and Stockholders' Equity | $ | 90,299 |  |  | $ | 89,384 |

See accompanying notes to Condensed Consolidated Financial Statements.
4

Kewaunee Scientific Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
($ in thousands)

| Three Months Ended July 31,
| 2021 |  | 2020
Cash flows from operating activities: |  |  |
Net loss | $ | (1,307) |  |  | $ | (608) |
Adjustments to reconcile net loss to net cash used by operating activities: |  |  |
Depreciation | 693 |  |  | 687 |
Bad debt provision | 3 |  |  | 8 |
Stock-based compensation expense | 216 |  |  | 112 |
Deferred income taxes | 37 |  |  | (27) |
Change in assets and liabilities: |  |  |
Receivables | (839) |  |  | (2,843) |
Inventories | (1,335) |  |  | (1,128) |
Accounts payable and other accrued expenses | 1,048 |  |  | 1,065 |
Deferred revenue | (568) |  |  | (1,076) |
Other, net | 276 |  |  | 542 |
Net cash used by operating activities | (1,776) |  |  | (3,268) |
Cash flows from investing activities: |  |  |
Capital expenditures | (484) |  |  | (922) |
Net cash used in investing activities | (484) |  |  | (922) |
Cash flows from financing activities: |  |  |
Proceeds from short-term borrowings | 12,303 |  |  | 23,885 |
Repayments on short-term borrowings | (10,277) |  |  | (20,080) |
Payments on long-term debt and lease obligations | (5) |  |  | (5) |
Net proceeds from exercise of stock options | — |  |  | (15) |
Net cash provided by financing activities | 2,021 |  |  | 3,785 |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (25) |  |  | 15 |
Decrease in cash, cash equivalents and restricted cash | (264) |  |  | (390) |
Cash, cash equivalents and restricted cash, beginning of period | 5,731 |  |  | 5,215 |
Cash, cash equivalents and restricted cash, end of period | $ | 5,467 |  |  | $ | 4,825 |

See accompanying notes to Condensed Consolidated Financial Statements.
5

Kewaunee Scientific Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
A. Financial Information
The unaudited interim Condensed Consolidated Financial Statements of Kewaunee Scientific Corporation (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These interim Condensed Consolidated Financial Statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of these financial statements and should be read in conjunction with the Consolidated Financial Statements and Notes included in the Company's 2021 Annual Report 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, 2021 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 GAAP for complete financial statements.
The preparation of the interim Condensed Consolidated Financial Statements requires management to make certain estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates.
B. Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. During the periods ended July 31, 2021 and April 30, 2021, the Company had cash deposits in excess of FDIC insured limits. The Company has not experienced any losses from such deposits. Restricted cash includes bank deposits of subsidiaries used for performance guarantees against customer orders.
The Company includes restricted cash along with the cash balance for presentation in the Condensed Consolidated Statements of Cash Flows. The reconciliation between the Condensed Consolidated Balance Sheet and the Condensed Consolidated Statement of Cash Flows is as follows:

|  | July 31, 2021 |  | April 30, 2021
Cash and cash equivalents |  | $ | 4,985 |  |  | $ | 5,206 |
Restricted cash |  | 482 |  |  | 525 |
Total cash, cash equivalents and restricted cash |  | $ | 5,467 |  |  | $ | 5,731 |

C. Revenue Recognition
The Company recognizes revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The majority of the Company's revenues are recognized over time as the customer receives control as the Company performs work under a contract. However, a portion of the Company's revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract.
6

Disaggregated Revenue
A summary of net sales transferred to customers over time and at a point in time for the periods ended July 31, 2021 and July 31, 2020 is as follows (in thousands):

| Three Months Ended
| July 31, 2021 |  | July 31, 2020
| Domestic |  | International |  | Total |  | Domestic |  | International |  | Total
Over Time | $ | 28,652 |  |  | $ | 9,830 |  |  | $ | 38,482 |  |  | $ | 29,080 |  |  | $ | 6,365 |  |  | $ | 35,445 |
Point in Time | 1,011 |  |  | — |  |  | 1,011 |  |  | 978 |  |  | — |  |  | 978 |
Total | $ | 29,663 |  |  | $ | 9,830 |  |  | $ | 39,493 |  |  | $ | 30,058 |  |  | $ | 6,365 |  |  | $ | 36,423 |

Contract Balances
The closing and opening balances of contract assets included in accounts receivable arising from contracts with customers were $8,677,000 at July 31, 2021 and $6,929,000 at April 30, 2021. The closing and opening balances of contract liabilities included in deferred revenue arising from contracts with customers were $2,555,000 at July 31, 2021 and $3,123,000 at April 30, 2021. The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, and deferred revenue which are disclosed in the Condensed Consolidated Balance Sheets and in the Notes to the Condensed Consolidated Financial Statements. In general, the Company receives payments from customers based on a billing schedule established in its contracts. Unbilled receivables represent amounts earned which have not yet been billed in accordance with contractually stated billing terms and are included in receivables on the Condensed Consolidated Balance Sheets. Receivables are recorded when the right to consideration becomes unconditional and the Company has a right to invoice the customer. Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract. Approximately 100% of the contract liability balances at April 30, 2021 and July 31, 2021 are expected to be recognized as revenue during the respective succeeding 12 months.
D. Inventories
The Company measures inventory using the first-in, first-out ("FIFO") method at the lower of cost or net realizable value. Inventories consisted of the following (in thousands):

| July 31, 2021 |  | April 30, 2021
Finished products | $ | 4,070 |  |  | $ | 2,988 |
Work in process | 2,170 |  |  | 1,832 |
Raw materials | 11,612 |  |  | 11,697 |
Total | $ | 17,852 |  |  | $ | 16,517 |

The Company's International subsidiaries' inventories were $2,395,000 at July 31, 2021 and $2,560,000 at April 30, 2021 and are included in the above tables.
7

E. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and equivalents, mutual funds, cash surrender value of life insurance policies, and short-term borrowings. The carrying value of these assets and liabilities approximates their fair value. The following tables summarize the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of July 31, 2021 and April 30, 2021 (in thousands):

|  | July 31, 2021
Financial Assets |  | Level 1 |  | Level 2 |  | Total
Trading securities held in non-qualified compensation plans (1) |  | $ | 1,319 |  |  | $ | — |  |  | $ | 1,319 |
Cash surrender value of life insurance policies (1) |  | — |  |  | 1,474 |  |  | 1,474 |
Total |  | $ | 1,319 |  |  | $ | 1,474 |  |  | $ | 2,793 |
Financial Liabilities |  |  |  |  |  |
Non-qualified compensation plans (2) |  | $ | — |  |  | $ | 3,216 |  |  | $ | 3,216 |
Total |  | $ | — |  |  | $ | 3,216 |  |  | $ | 3,216 |

|  | April 30, 2021
Financial Assets |  | Level 1 |  | Level 2 |  | Total
Trading securities held in non-qualified compensation plans (1) |  | $ | 1,299 |  |  | $ | — |  |  | $ | 1,299 |
Cash surrender value of life insurance policies (1) |  | — |  |  | 1,458 |  |  | 1,458 |
Total |  | $ | 1,299 |  |  | $ | 1,458 |  |  | $ | 2,757 |
Financial Liabilities |  |  |  |  |  |
Non-qualified compensation plans (2) |  | $ | — |  |  | $ | 3,169 |  |  | $ | 3,169 |
Total |  | $ | — |  |  | $ | 3,169 |  |  | $ | 3,169 |

(1)The Company maintains two non-qualified compensation plans which include investment assets in a rabbi trust. These assets consist of marketable securities, which are valued using quoted market prices multiplied by the number of shares owned, and life insurance policies, which are valued at their cash surrender value.
(2)Plan liabilities are equal to the individual participants' account balances and other earned retirement benefits.
F. Long-term Debt and Other Credit Arrangements
At July 31, 2021, advances of $8.9 million were outstanding under the Company's revolving credit facility, compared to advances of $6.8 million outstanding as of April 30, 2021. The Company had standby letters of credit outstanding of $704,000 at July 31, 2021, unchanged from April 30, 2021. Amounts available under the revolving credit facility were $5.6 million and $7.5 million at July 31, 2021 and April 30, 2021, respectively.
On July 30, 2021, the Company entered into a Twelfth Amendment to Credit and Security Agreement (the “Amendment”) with Wells Fargo Bank, National Association (the “Bank”). The Amendment made certain changes to the Credit and Security Agreement, dated as of May 6, 2013, as amended (the “Credit Agreement”), between the Company and the Bank, and to the Revolving Line of Credit Note, dated May 6, 2013, made by the Company and payable to the order of the Bank, as amended (the “Revolving Note”). The changes included (i) extending the maturity date under the Credit Agreement and Revolving Note from July 30, 2021 to April 30, 2022; (ii) removing the minimum EBITDA covenant; (iii) in addition to the existing Minimum Monthly Liquidity requirement as of the end of each calendar month of not less than $2,000,000, adding an additional covenant that the Company will maintain Supplemental Liquidity (as defined in the amended Credit Agreement) as of the first day of each calendar month not less than (a) during the period from August 1, 2021 through December 31, 2021, $1,000,000 and (b) thereafter $1,500,000; and (iv) restating the amended Credit Agreement to reflect all amendments to date.
At July 31, 2021 and April 30, 2021, the Company was in compliance with all the financial covenants under its revolving credit facility.
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G. Leases
In accordance with ASC 842, "Leases," the Company recognizes lease assets and lease liabilities reflecting the rights and obligations created by operating type leases for real estate and equipment in both the U.S. and internationally and a financing lease for a truck in the U.S. At July 31, 2021 and April 30, 2021, right-of-use assets totaled $8,838,000 and $9,279,000, respectively. Operating cash paid to settle lease liabilities was $500,000 and $410,000 for the three months ended July 31, 2021 and July 31, 2020, respectively. The Company's leases have remaining lease terms of up to 9 years. In addition, some of the leases may include options to extend the leases for up to 5 years or options to terminate the leases within 1 year. Operating lease expenses were $847,000 and $632,000 for the three months ended July 31, 2021 and 2020, respectively, inclusive of period cost for short-term leases, not included in lease liabilities, of $347,000 and $222,000, respectively.
At July 31, 2021, the weighted average remaining lease term for the capitalized operating leases was 5.8 years and the weighted average discount rate was 4.1%. For the financing lease, the remaining lease term was 4.1 years and the discount rate was 10.0%. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of those lease payments. The Company uses the implicit rate when readily determinable.
Future minimum lease payments under non-cancelable leases as of July 31, 2021 were as follows:

|  | Operating |  | Financing
Remainder of fiscal 2022 |  | $ | 1,831 |  |  | $ | 24 |
2023 |  | 1,473 |  |  | 32 |
2024 |  | 1,429 |  |  | 32 |
2025 |  | 1,218 |  |  | 32 |
2026 |  | 1,003 |  |  | 12 |
Thereafter |  | 3,362 |  |  | — |
Total Minimum Lease Payments |  | 10,316 |  |  | 132 |
Imputed Interest |  | (1,543) |  |  | (24) |
Total |  | $ | 8,773 |  |  | $ | 108 |

H. Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during the year. Diluted earnings per share reflects the assumed exercise of outstanding options and the conversion of restricted stock units ("RSUs") under the Company's various stock compensation plans, except when RSUs and options have an antidilutive effect. There were 128,701 and 118,696 antidilutive RSUs and options outstanding at July 31, 2021 and July 31, 2020, respectively. The following is a reconciliation of basic to diluted weighted average common shares outstanding (in thousands):

| Three Months Ended
| July 31, 2021 |  | July 31, 2020
Basic | 2,777 |  |  | 2,756 |
Dilutive effect of stock options and RSUs | — |  |  | — |
Weighted average common shares outstanding - diluted | 2,777 |  |  | 2,756 |

I. Stock Options and Stock-based Compensation
Under ASC 718, "Compensation-Stock Compensation," compensation costs related to stock options and other stock awards granted by the Company are charged against operating expenses during their vesting period.
In June 2021, the Company granted 5,500 RSUs under the 2017 Omnibus Incentive Plan ("2017 Plan"). These RSUs include a service component that vests over a two-year period. The Company also granted 51,471 RSUs under the 2017 Omnibus Incentive Plan in June 2021 that include a service component that vests over a three-year period. The recognized expense is based upon the vesting period for service criteria. The Company recorded stock-based compensation expense during the three months ended July 31, 2021 of $194,000, with the remaining estimated stock-based compensation expense of $1,325,000 to be recorded over the remaining vesting periods. The Company recorded stock-based compensation expense during the three months ended July 31, 2020 of $59,000. Directors' fees paid with shares of common stock in lieu of cash in accordance with
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Director compensation guidelines were $41,000 for each of the three month periods ended July 31, 2021 and July 31, 2020 and were also included in the stock-based compensation on the Condensed Consolidated Statements of Cash Flows.
J. Income Taxes
Income tax expense of $251,000 and $21,000 was recorded for the three months ended July 31, 2021 and 2020, respectively. The effective tax rates were (23.8)% and (3.6)% for the three months ended July 31, 2021 and 2020, respectively. The change in the effective tax rate for the three-month periods is primarily due to the impact of foreign operations which are taxed at different rates than the U.S. tax rate of 21% and the recording of a valuation allowance against the deferred tax asset which resulted in the elimination of any U.S. income tax benefit.
In August 2019, the Company revoked its indefinite reinvestment of foreign unremitted earnings position in compliance with ASC 740 "Income Taxes" and terminated its indefinite reinvestment of unremitted earnings assertion for the Singapore, China, and Kewaunee Labway India Pvt. Ltd. international subsidiaries. The Company has a deferred tax liability of $826,000 and $776,000 for the withholding tax related to Kewaunee Labway India Pvt. Ltd. as of July 31, 2021 and April 30, 2021, respectively. The Company recorded all deferred tax assets and liabilities related to its outside basis differences in its foreign subsidiaries consistent with ASC 740.
K. Defined Benefit Pension Plans
The Company has non-contributory defined benefit pension plans covering substantially all domestic salaried and hourly 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. There were no Company contributions paid to the plans for the three months ended July 31, 2021 and July 31, 2020. The Company assumed an expected long-term rate of return of 7.75% for the periods ended July 31, 2021 and July 31, 2020.
Pension (income) / expense consisted of the following (in thousands):

| Three Months Ended
| July 31, 2021 |  | July 31, 2020
Service cost | $ | 0 |  |  | $ | 0 |
Interest cost | 177 |  |  | 181 |
Expected return on plan assets | (401) |  |  | (321) |
Recognition of net loss | 135 |  |  | 428 |
Net periodic pension (income) expense | $ | (89) |  |  | $ | 288 |

L. Segment Information
The Company's operations are classified into two business segments: Domestic and International. The Domestic business segment principally designs, manufactures, and installs scientific and technical furniture, including steel and wood laboratory cabinetry, fume hoods, laminate casework, flexible systems, worksurfaces, workstations, workbenches, and computer enclosures. The International business segment, which consists of the Company's foreign subsidiaries, provides products and services, including facility design, detailed engineering, construction, and project management from the planning stage through testing and commissioning of laboratories. Intersegment transactions are recorded at normal profit margins. All intercompany balances and transactions have been eliminated. Certain corporate expenses shown below have not been allocated to the business segments.
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The following tables provide financial information by business segments for the periods ended July 31, 2021 and 2020 (in thousands):

| Domestic Operations |  | International Operations |  | Corporate / Eliminations |  | Total
Three months ended July 31, 2021 |  |  |  |  |  |  |
Revenues from external customers | $ | 29,663 |  |  | $ | 9,830 |  |  | $ | — |  |  | $ | 39,493 |
Intersegment revenues | 175 |  |  | 565 |  |  | (740) |  |  | — |
Earnings (loss) before income taxes | (209) |  |  | 664 |  |  | (1,511) |  |  | (1,056) |
Three months ended July 31, 2020 |  |  |  |  |  |  |
Revenues from external customers | $ | 30,058 |  |  | $ | 6,365 |  |  | $ | — |  |  | $ | 36,423 |
Intersegment revenues | 651 |  |  | 811 |  |  | (1,462) |  |  | — |
Earnings (loss) before income taxes | 993 |  |  | 135 |  |  | (1,715) |  |  | (587) |

M. New Accounting Standards
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which replaces the current incurred loss method used for determining credit losses on financial assets, including trade receivables, with an expected credit loss method. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company will adopt this standard in fiscal year 2024. The Company does not expect the adoption of this standard to have a significant impact on the Company's consolidated financial position or results of operations.
In 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 within those years, beginning after December 15, 2020. The Company adopted this standard effective May 1, 2021. The adoption of this standard did not have a significant impact on the Company's consolidated financial position or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Company's 2021 Annual Report to Stockholders on Form 10-K contains management's discussion and analysis of the Company's financial condition and results of operations as of and for the year ended April 30, 2021. The following discussion and analysis describes material changes in the Company's financial condition since April 30, 2021. The analysis of results of operations compares the three months ended July 31, 2021 with the comparable period of the prior year.
Results of Operations
Sales for the quarter were $39,493,000, an 8.4% increase from sales of $36,423,000 in the comparable period of the prior year. Domestic sales for the quarter were $29,663,000, down 1.3% from sales of $30,058,000 in the comparable period of the prior year. International sales for the quarter were $9,830,000, up 54.4% from sales of $6,365,000 in the comparable period of the prior year. Domestic sales were relatively flat while International sales increased when compared to the prior year period due to strong demand in the current period, coupled with reduced COVID-19 related restrictions on construction site access and government mandated shut-downs in India that significantly impacted the prior year period.
The Company's order backlog was $120.6 million at July 31, 2021, as compared to $101.2 million at July 31, 2020, and $114.5 million at April 30, 2021.
The gross profit margin for the three months ended July 31, 2021 was 14.4% of sales, as compared to 16.1% of sales in the comparable quarter of the prior year. The decrease in gross profit margin percentage for the three months ended July 31, 2021 is a result of supplier constraints resulting from COVID-19, as well as other supply disruptions, that led to an increase in steel and epoxy resin raw material costs when compared to the prior period of approximately $1.7 million, net of materials surcharges implemented during the quarter for shipments for certain orders.
Operating expenses for the three months ended July 31, 2021 were $6,765,000, or 17.1% of sales, as compared to $6,157,000, or 16.9% of sales, in the comparable period of the prior year. The increase in operating expenses for the three months ended July 31, 2021 was primarily related to increases of $396,000 for international expenses related to wages, travel, and professional fees that were significantly less during the prior year comparable period due to COVID-19 related restrictions on
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construction site access and government mandated shut-downs in India. Additional operating expense increases of $182,000 were related to administrative wages, benefits, incentive compensation and stock-based compensation.
Interest expense, net was $106,000 for the three months ended July 31, 2021, as compared to $77,000 for the comparable period of the prior year. The changes in interest expense were primarily attributable to changes in borrowing levels.
The effective income tax rate for the three months ended July 31, 2021 was (23.8)% as compared to (3.6)% for the three months ended July 31, 2020. Income tax expense of $251,000 and $21,000 was recorded for the three months ended July 31, 2021 and 2020, respectively. The change in the effective tax rate for the three months ended July 31, 2021 as compared to the three months ended July 31, 2020 reflects the impact of increased international operations which are taxed at different rates, combined with no U.S. tax benefit being recorded for the most recent quarter due to the Company's full valuation allowance position. See Note J, Income Taxes, of the Notes to Condensed Consolidated Financial Statements for additional information.
Non-controlling interests related to the Company's subsidiaries not 100% owned by the Company increased net loss by $38,000 for the three months ended July 31, 2021 as compared to a reduction of net loss of $10,000 for the comparable period of the prior year. The change in the net earnings attributable to the non-controlling interest in the current period was due to changes in earnings of the subsidiaries in the related period.
Net loss was $1,345,000, or $(0.48) per diluted share, for the three months ended July 31, 2021, compared to $598,000, or $(0.22) per diluted share, in the prior year period.
Liquidity and Capital Resources
Historically, the Company's principal sources of liquidity have been funds generated from operations, supplemented as needed by short-term borrowings under the Company's revolving credit facility. Additionally, certain machinery and equipment are financed by non-cancellable operating leases. The Company believes that these sources will be sufficient to support ongoing business requirements in the current fiscal year, including capital expenditures.
The Company had working capital of $25,709,000 at July 31, 2021, compared to $26,276,000 at April 30, 2021. The ratio of current assets to current liabilities was 1.7-to-1.0 at July 31, 2021, compared to 1.8-to-1.0 at April 30, 2021. At July 31, 2021, advances of $8.9 million were outstanding under the Company's credit facilities, compared to advances of $6.8 million outstanding as of April 30, 2021. The Company had standby letters of credit outstanding of $704,000 at July 31, 2021, unchanged from April 30, 2021. Amounts available under the $15.0 million revolving credit facility were $5.6 million and $7.5 million at July 31, 2021 and April 30, 2021, respectively. For additional information concerning our credit facility, see Note F, Long-Term Debt and Other Credit Arrangements.
As previously reported in the Company's 2021 Annual Report on Form 10-K, the Company was compliant at April 30, 2021 with all of the financial covenants under the revolving credit facility. At July 31, 2021, the Company was in compliance with all the financial covenants under its revolving credit facility.
The Company's operations used cash of $1,776,000 during the three months ended July 31, 2021. Cash was used primarily by increases in receivables of $839,000, inventory of $1,335,000, and deferred revenue of $568,000, partially offset by an increase in accounts payable and other accrued expenses of $1,048,000. During the three months ended July 31, 2021, the Company used net cash of $484,000 in investing activities, all of which was used for capital expenditures. The Company's financing activities provided cash of $2,021,000 during the three months ended July 31, 2021, primarily from net increases in short-term borrowings of $2,026,000.
Outlook
The Company continues to actively monitor the COVID-19 pandemic and its impact. Any future developments and effects will be highly uncertain and cannot be predicted, including: the scope and duration of the pandemic; further adverse revenue and net income effects; disruptions to our operations; closure of project sites; ability of suppliers to support our operations; the effectiveness of our work from home arrangements; employee impacts from illness, school closures and other community response measures; and any actions taken by governmental authorities and other third parties in response to the pandemic. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels. The Company will continue to work to ensure the safety of our people and our ability to serve our customers worldwide.
In addition, the Company's ability to predict future demand for its products continues to be limited given its role as subcontractor or supplier to dealers for subcontractors. Demand for the Company's products is also dependent upon the number
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of laboratory construction projects planned and/or current progress in projects already under construction. The Company's earnings are also impacted by fluctuations in prevailing pricing for projects in the laboratory construction marketplace and increased costs of raw materials, including stainless steel, wood, and epoxy resin, and whether the Company is able to increase product prices to customers in amounts that correspond to such increases without materially and adversely affecting sales. Additionally, since prices are normally quoted on a firm basis in the industry, the Company bears the burden of possible increases in labor and material costs between the quotation of an order and delivery of a product.
Looking forward, the Company is optimistic about opportunities for growth within existing end-markets. As the economy continues to re-open, the Company anticipates that project awards will accelerate and the pace of construction will increase. In the near-term, escalating raw material pricing will continue to unfavorably impact net earnings due to the fixed price nature of our contracts. The Company has, however, taken steps to implement surcharges on new orders with the goal of offsetting broad based price increases for materials including steel, aluminum, hard woods, and resin products. The impact of these surcharges, to the extent we are able to implement them successfully, will lag what has been an immediate impact of rising commodity prices. Over the long term, the Company expects its financial performance to continue to improve based upon its investments in modernizing its operations and reduced operating cost structure.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements included and referenced in this report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that could significantly impact results or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices, as well as prices for certain raw materials and energy. The cautionary statements made by us pursuant to the Reform Act herein and elsewhere should not be construed as exhaustive. We cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. Many important factors that could cause such differences are described under the caption "Risk Factors" in Item 1A in the Company's 2021 Annual Report on Form 10-K. In addition, readers are urged to consider statements that include the terms "believes," "belief," "expects," "plans," "objectives," "anticipates," "intends" or the like to be uncertain and forward-looking. 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
There are no material changes to the disclosures made on this matter in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2021.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of July 31, 2021. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that, as of July 31, 2021, the Company's disclosure controls and procedures were adequate and effective and designed to ensure that all material information required to be filed in this quarterly report is made known to them by others within the Company and its subsidiaries.
(b) Changes in internal controls
There was no significant change in the Company's internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1A. Risk Factors
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the Company's 2021 Annual Report on Form 10-K under the heading "Risk Factors," any one or more of which could, directly or indirectly, cause the Company's actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company's business, financial condition, operating results and stock price. There have been no material changes to the Company's risk factors from those set forth in the Company's Annual Report on Form 10-K for the year ended April 30, 2021 as filed with the SEC on July 15, 2021.
Item 6. Exhibits

10.1 |  | Twelfth Amendment to Credit and Security Agreement dated as of July 30, 2021. |
31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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 |
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |

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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | KEWAUNEE SCIENTIFIC CORPORATION (Registrant)
Date: September 10, 2021 |  | By | /s/ Donald T. Gardner III
|  |  | Donald T. Gardner III
|  |  | (As duly authorized officer and Vice President, Finance and Chief Financial Officer)

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