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What changed in KEWAUNEE SCIENTIFIC CORP /DE/'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of KEWAUNEE SCIENTIFIC CORP /DE/'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+133 added−112 removedSource: 10-K (2023-06-30) vs 10-K (2022-07-01)

Top changes in KEWAUNEE SCIENTIFIC CORP /DE/'s 2023 10-K

133 paragraphs added · 112 removed · 82 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

10 edited+7 added−2 removed10 unchanged
Biggest changeOur products are sold primarily through purchase orders and contracts submitted by customers through our dealers, our subsidiaries in Singapore and India, and a national distributor. Products are sold principally to pharmaceutical, biotechnology, industrial, chemical and commercial research laboratories, educational institutions, healthcare institutions, governmental entities, and manufacturing facilities.
Biggest changeProducts are sold principally to pharmaceutical, biotechnology, industrial, chemical and commercial research laboratories, educational institutions, healthcare institutions, governmental entities, and manufacturing facilities. We consider the markets in which we compete to be highly competitive, with a significant amount of the business involving competitive public bidding.
Sales for two of the Company's domestic dealers and our national stocking distributor represented, in the aggregate, approximately 38% and 40% of the Company's sales in fiscal years 2022 and 2021, respectively. Loss of all or part of our sales to a large customer would have a material effect on our financial operations.
Sales for two of the Company's domestic dealers and our national stocking distributor represented, in the aggregate, approximately 35% and 38% of the Company's sales in fiscal years 2023 and 2022, respectively. Loss of all or part of our sales to a large customer would have a material effect on our financial operations.
Our order backlog at April 30, 2022 was $173.9 million, as compared to $114.5 million at April 30, 2021. Based on scheduled shipment dates and past experience, we estimate that not less than 86% of our order backlog at April 30, 2022 will be shipped during fiscal year 2023.
Our order backlog at April 30, 2023 was $147.9 million, as compared to $173.9 million at April 30, 2022. Based on scheduled shipment dates and past experience, we estimate that not less than 91% of our order backlog at April 30, 2023 will be shipped during fiscal year 2024.
RESEARCH AND DEVELOPMENT The amount spent and expensed by us during the fiscal year ended April 30, 2022 on research and development activities related to new or redesigned products was $990,000. The amount spent for similar purposes in the fiscal year ended April 30, 2021 was $1,406,000.
RESEARCH AND EXPERIMENTATION EXPENDITURES The amount spent and expensed by us during the fiscal year ended April 30, 2023 on research and experimentation expenditures activities related to new or redesigned products was $1,012,000. The amount spent for similar purposes in the fiscal year ended April 30, 2022 was $990,000.
We make available, free of charge through this website, our annual report to stockholders. Our Form 10-K and 10-Q financial reports may be obtained by stockholders by writing the Secretary of the Company, Kewaunee Scientific Corporation, P.O. Box 1842, Statesville, NC 28687-1842.
OTHER INFORMATION Our Internet address is www.kewaunee.com . We make available, free of charge through this website, our annual report to stockholders. Our Form 10-K and 10-Q financial reports may be obtained by stockholders by writing the Secretary of the 4 Table of Contents Company, Kewaunee Scientific Corporation, P.O. Box 1842, Statesville, NC 28687-1842.
Such materials and products are purchased from multiple suppliers and are typically readily available. Our need for working capital and our credit practices are comparable to those of other companies manufacturing, selling and installing similar products in similar markets.
Our need for working capital and our credit practices are comparable to those of other companies manufacturing, selling and installing similar products in similar markets.
ENVIRONMENTAL COMPLIANCE In the last two fiscal years, compliance with federal, state, or local provisions enacted or adopted regulating the discharge of materials into the environment has had no material effect on us.
ENVIRONMENTAL COMPLIANCE In the last two fiscal years, compliance with federal, state, or local provisions enacted or adopted regulating the discharge of materials into the environment has had no material effect on us and such regulation is not expected to have a material effect on our earnings or competitive position in the future.
The impact of such possible increases is considered when determining the sales price. The primary raw materials and products manufactured by others and used by us in our products are cold-rolled carbon and stainless steel, hardwood lumber and plywood, paint, chemicals, resins, hardware, plumbing and electrical fittings.
The primary raw materials and products manufactured by others and used by us in our products are cold-rolled carbon and stainless steel, hardwood lumber and plywood, paint, chemicals, resins, hardware, plumbing and electrical fittings. Such materials and products are purchased from multiple suppliers and are typically readily available.
Changes or delays in building construction may cause delays in delivery of the orders and our recognition of the sale. Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor and material costs between quotation of an order and delivery of the product.
Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor and material costs between quotation of an order and delivery of the product. The impact of such possible increases is considered when determining the sales price.
We consider the markets in which we compete to be highly competitive, with a significant amount of the business involving competitive public bidding. It is common in the laboratory and healthcare furniture industries for customer orders to require delivery at extended future dates, as products are frequently installed in buildings yet to be constructed.
It is common in the laboratory and healthcare furniture industries for customer orders to require delivery at extended future dates, as products are frequently installed in buildings yet to be constructed. Changes or delays in building construction may cause delays in delivery of the orders and our recognition of the sale.
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Our 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 and engineering services.
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Our products include steel and wood casework, fume hoods, adaptable modular systems, moveable workstations, stand-alone benches, biological safety cabinets, and epoxy resin work surfaces and sinks. Our products are sold primarily through purchase orders and contracts submitted by customers through our dealers, our subsidiaries in Singapore and India, and a national distributor.
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There is no material capital expenditure anticipated for such purposes, and accordingly, such regulation is not expected to have a material effect on our earnings or competitive position. EMPLOYEES At April 30, 2022, the Company had the following number of full-time employees: 575 (Domestic); 318 (International). OTHER INFORMATION Our Internet address is www.kewaunee.com .
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CULTURE AND WORKFORCE We are a company of passionate, talented, and motivated people. We embrace collaboration and creativity, and encourage the iteration of ideas to address complex challenges in technology and society. At April 30, 2023, the Company had 603 Domestic employees and 379 International employees.
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Our people are critical for our continued success, so we work hard to create an environment where employees can have fulfilling careers, and be happy, healthy, and productive.
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We offer competitive benefits and programs to take care of the diverse needs of our employees and their families, including opportunities for career growth and development, resources to support their financial health, and access to excellent healthcare choices and resources, including access to an onsite medical clinic and separate gym facility and regular access to onsite specialists.
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Our competitive compensation programs help us to attract and retain top candidates, and we will continue to invest in recruiting talented people to technical and non-technical roles, and rewarding them well. The Company believes that open and honest communication among team members, managers, and leaders helps create a collaborative work environment where everyone can contribute, grow, and succeed.
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Team members are encouraged to come to their managers with questions, feedback, or concerns, and the Company conducts surveys that gauge employee engagement. When necessary, we contract with businesses around the world to provide specialized services where we do not have appropriate in-house expertise or resources.
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We also contract with temporary staffing agencies when we need to cover short-term leaves, when we have spikes in business needs, or when we need to quickly incubate special projects. We choose our partners and staffing agencies carefully and continually make improvements to promote a respectful and positive working environment for everyone - employees, vendors, and temporary staff alike.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFurther, we cannot predict how legal and regulatory responses to concerns about COVID-19 or other major public health issues will impact our business; • A general decline in business activity, especially as it relates to our customers' expansion or consolidation activities; • The destabilization of the financial markets, which could negatively impact our customer growth and access to capital, along with our customers' ability to make payments for their purchase orders; • Severe disruptions to and instability in the global financial markets, and deterioration in credit and financing conditions, which could affect our access to capital necessary to fund business operations or current investment and growth strategies; • A material disruption in our supply chain, which could affect our ability to source products from vendors on a timely basis or on favorable terms.
Biggest changeAdditional factors related to major public health issues that could have material and adverse effects on our ability to successfully operate include, but are not limited to, the following: • The effectiveness of any governmental and non-governmental organizations in combating the spread and severity, including any legal and regulatory responses; • A general decline in business activity, especially as it relates to our customers' expansion or consolidation activities; • The destabilization of the financial markets, which could negatively impact our customer growth and access to capital, along with our customers' ability to make payments for their purchase orders; and • Severe disruptions to and instability in the global financial markets, and deterioration in credit and financing conditions, which could affect our access to capital necessary to fund business operations or current investment and growth strategies.
Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor, material and energy costs between the quotation of an order and the delivery of the products. Our principal raw materials are steel, including stainless steel, wood and epoxy resin.
Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor and material costs between the quotation of an order and the delivery of the products. Our principal raw materials are steel, including stainless steel, wood and epoxy resin.
Our actual results 4 Table of Contents could differ materially from those forward-looking statements as a result of many factors, including those more fully described below and elsewhere in our public reports. We do not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Our actual results could differ materially from those forward-looking statements as a result of many factors, including those more fully described below and elsewhere in our public reports. We do not undertake to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
The sweeping nature of pandemics makes it extremely difficult to predict how and to what extent our business and operations could be affected in the long run. Our workforce, and the workforce of our vendors, service providers, and counterparties, could be affected by COVID-19, which could result in an adverse impact on our ability to conduct business.
The sweeping nature of pandemics makes it extremely difficult to predict how and to what extent our business and operations could be affected in the long run. Our workforce, and the workforce of our vendors, service providers, and counterparties, could be affected by a pandemic, which could result in an adverse impact on our ability to conduct business.
The impact of COVID-19 and future pandemics could adversely affect our business, results of operations, financial condition, and liquidity.
The impact of future pandemics could adversely affect our business, results of operations, financial condition, and liquidity.
Sales to customers outside the United States or with international operations expose us to risks inherent in international sales. During fiscal year 2022, 26% of our revenues were derived from sales outside of the United States. A key element of our growth strategy is to expand our worldwide customer base and our international operations.
Risks Related to Operations Sales to customers outside the United States or with international operations expose us to risks inherent in international sales. During fiscal year 2023, 34% of our revenues were derived from sales outside of the United States. A key element of our growth strategy is to expand our worldwide customer base and our international operations.
If a significant segment of those communities were to decide that the design, materials, manufacturing, testing, or quality control of our products is inferior to that of any of our competitors, our sales and profits would be materially and adversely affected. If we lose a large customer, our sales and profits would decline.
If a significant segment of those communities were to decide that the design, materials, manufacturing, testing, or quality control of our products is inferior to that of any of our competitors, our sales and profits would be materially and adversely affected.
Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.
Legal and Regulatory Compliance Risks Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.
Our stock price is likely to be volatile and could drop.
General Risks Our stock price is likely to be volatile and could drop.
We face a variety of competition in all of the markets in which we participate. Competitive pricing, including price competition or the introduction of new products, could have material adverse effects on our revenues and profit margins. Our ability to compete effectively depends to a significant extent on the specification or approval of our products by architects, engineers, and customers.
Competitive pricing, including price competition or the introduction of new products, could have material adverse effects on our revenues and profit margins. Our ability to compete effectively depends to a significant extent on the specification or approval of our products by architects, engineers, and customers.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect material misstatements in the Company's consolidated financial statements.
Internal controls over financial reporting may not be effective at preventing or detecting material misstatements. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect material misstatements in the Company's consolidated financial statements.
We are subject to other risks that might also cause our actual results to vary materially from our forecasts, targets, or projections, including: • Failing to anticipate the need for, appropriately invest in and effectively manage the human, information technology and logistical resources necessary to support our business, including managing the costs associated with such resources; • Failing to generate sufficient future positive operating cash flows and, if necessary, secure adequate external financing to fund our growth; • Interruptions in service by common carriers that ship goods within our distribution channels; and Disruptions of our supply chain could have a material adverse effect on our operating and financial results.
We are subject to other risks that might also cause our actual results to vary materially from our forecasts, targets, or projections, including: • Failing to anticipate the need for and appropriately invest in information technology and logistical resources necessary to support our business, including managing the costs associated with such resources; • Failing to generate sufficient future positive operating cash flows and, if necessary, secure and maintain adequate external financing to fund our operations and any future growth; and • Interruptions in service by common carriers that ship goods within our distribution channels.
Significant challenges of conducting business in foreign countries include, among other factors, geopolitical tensions, local acceptance of our products, political instability, currency controls, changes in import and export regulations, changes in tariff and freight rates and fluctuations in foreign exchange rates. Events outside our control may affect our operating results.
Significant challenges of conducting business in foreign countries include, among other factors, geopolitical tensions, local 7 Table of Contents acceptance of our products, political instability, currency controls, changes in import and export regulations, changes in tariff and freight rates and fluctuations in foreign exchange rates.
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.
Future 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.
We have not always been able, and in the future we might not be able, to increase our product prices in amounts that correspond to increases in costs of raw materials, without materially and adversely affecting our sales and profits. Where we are not able to increase our prices, increases in our raw material costs will adversely affect our profitability.
We have not always been able, and in the future we might not be able, to increase our product prices in amounts that correspond to increases in costs of raw materials. Where we are not able to increase our prices, increases in our raw material costs will adversely affect our profitability. Events outside our control may affect our operating results.
We have little control over the timing of shipping customer orders, as customers' required delivery dates are subject to change by the customer. Construction delays and customer changes to product designs are among the factors that may delay the start of manufacturing and shipments of orders.
We have little control over the timing of shipping customer orders, as customers' required delivery dates are subject to change by the customer. Construction delays and customer changes to product designs are among the factors that may delay the start of manufacturing. Weather conditions, such as unseasonably warm, cold, or wet weather, can also affect and sometimes delay projects.
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. Internal Controls Over Financial Reporting.
Additionally, we expect to continue to make 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.
It is common in the laboratory and healthcare furniture industries for customers to require delivery at extended future dates, as products are frequently installed in buildings yet to be constructed.
An increase in the price of raw materials could negatively affect our sales and profits. 6 Table of Contents It is common in the laboratory and healthcare furniture industries for customers to require delivery at extended future dates, as products are frequently installed in buildings yet to be constructed.
Further, should any key employees become ill from COVID-19 and unable to work, our ability to operate our internal controls may be adversely impacted.
Further, should any key employees become ill during the course of a future health event and be unable to work, our ability to operate our internal controls may be adversely impacted.
Loss of all or a part of our sales to a large channel partner would have a material effect on our revenues and profits until an alternative channel partner could be developed. An increase in the price of raw materials and energy could negatively affect our sales and profits.
Loss of all or a part of our sales to a large channel partner would have a material effect on our revenues and profits until an alternative channel partner could be developed. We rely on the talents and efforts of key management and our Associates.
We have substantial sales to three of our domestic channel partners. The combined sales to two dealers and our national stocking distributor accounted for approximately 38% of our sales in fiscal year 2022.
Risks Specific to our Company If we lose a large customer, our sales and profits would decline. We have substantial sales to three of our domestic channel partners. The combined sales to two dealers and our national stocking distributor accounted for approximately 35% of our sales in fiscal year 2023.
We are unable to predict the likely occurrence or duration of these adverse economic conditions and the impact these events may have on our operations and the end users who purchase our products. If we fail to compete effectively, our revenue and profit margins could decline.
We are unable to predict the likely occurrence or duration of these adverse economic conditions and the impact these events may have on our operations and the end users who purchase our products. Our future growth may depend on our ability to penetrate new international markets.
Numerous factors beyond our control, such as general economic conditions, competition, worldwide demand, labor costs, energy costs, and import duties and other trade restrictions, influence prices for our raw materials. During the fiscal year ended April 30, 2022, prices for two of our principal raw materials, steel and epoxy resin, increased 149% and 162%, respectively.
Numerous factors beyond our control, such as general economic conditions, competition, worldwide demand, labor costs, energy costs, and import duties and other trade restrictions, influence prices for our raw materials.
Our international expansion efforts may not be successful in creating further demand for our products outside of the United States or in effectively selling our products in the international markets we enter.
Our international expansion efforts may not be successful in creating further demand for our products outside of the United States or in effectively selling our products in the international markets we enter. If we fail to compete effectively, our revenue and profit margins could decline. We face a variety of competition in all of the markets in which we participate.
Our future growth may depend on our ability to penetrate new international markets. International laws and regulations, construction customs, standards, techniques and methods differ from those in the United States.
International laws and regulations, construction customs, standards, techniques and methods differ from those in the United States.
However, no assurance can be given that these actions will be sufficient, nor can we predict the level of disruption that will occur to our employees' ability to provide customer support and service.
No assurance can be given that the actions we take to protect our Associates and our operations will be sufficient, nor can we predict the level of disruption that could occur to our employees' ability to provide customer support and service. New processes, procedures, and controls may be required to respond to any changes in our business environment.
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. 6 Table of Contents As disclosed in our Form 10-Q for the period ended October 31, 2021, on November 5, 2021, the Company experienced a criminal network cyber attack that led to a disruption of our domestic operations, including manufacturing, engineering, administration, and sales operations.
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.
Our principal markets are in the laboratory and healthcare building construction industry. This industry is subject to significant volatility due to various factors, none of which is within our control.
Political and economic events can also affect our revenues. When sales do not meet our expectations, our operating results will be reduced for the relevant quarters. Our principal markets are in the laboratory and healthcare building construction industry. This industry is subject to significant volatility due to various factors, none of which is within our control.
Disruptions in the financial markets have historically created, and may continue to create, uncertainty in economic conditions that may adversely affect our customers and our business. The financial markets in the United States, Europe and Asia have in the past been, and may in the future be, volatile.
The financial markets in the United States, Europe and Asia have in the past been, and may in the future be, volatile.
Thus far, throughout the pandemic, we believe we have successfully navigated the risks associated with COVID-19 and have been able to successfully maintain our business operations.
While we believe we successfully navigated the risks associated with the recent COVID-19 pandemic and were able to successfully maintain our business operations, the extent of the impact of future COVID-19 variations or other pandemics on our business and financial results is, by nature of this type of event, highly uncertain.
Declines in construction activity or demand for our products could materially and adversely affect our business and financial condition. 5 Table of Contents We depend on key management and technical personnel, the loss of whom could harm our business. We depend on certain key management and technical personnel.
Declines in construction activity or demand for our products could materially and adversely affect our business and financial condition. We face numerous manufacturing and supply chain risks. In addition, our reliance upon sole or limited sources of supply for certain materials, components, and services could cause production interruptions, delays and inefficiencies.
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Shipments that we anticipate in one quarter may occur in another quarter, affecting both quarters' results. Weather conditions, such as unseasonably warm, cold, or wet weather, can also affect and sometimes delay projects. Political and economic events can also affect our revenues. When sales do not meet our expectations, our operating results will be reduced for the relevant quarters.
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If we are unable to retain or motivate key personnel, hire qualified personnel, or maintain and continue to adapt our corporate culture, we may not be able to grow or operate effectively. Our performance largely depends on the talents and efforts of our Associates.
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The loss of one or more key employees may materially and adversely affect us. Our success also depends on our ability to attract and retain additional highly qualified technical, marketing, and management personnel necessary for the maintenance and expansion of our activities. We might not be able to attract or retain such personnel.
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Our ability to compete effectively and our future success depends on our continuing to identify, hire, develop, motivate, and retain key management and highly skilled personnel for all areas of our organization. In addition, our total compensation program may not always be successful in attracting new employees and retaining and motivating our existing employees.
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Disruption of our supply chain capabilities due to trade restrictions, political instability, severe weather, natural disasters, public health crises, war, terrorism, or labor supply could impair our ability to source key components. If we are required to obtain these components from an alternate source, we may not be able to obtain pricing on as favorable terms.
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Restrictive immigration policy and regulatory changes may also affect our ability to hire, mobilize, or retain some of our global talent. In addition, we believe that our corporate culture fosters innovation, creativity, and teamwork.
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Additionally, we may be forced to pay additional transportation costs and/or we may experience a delay in our ability to meet demand for our products. Any of the foregoing disruptions could exacerbate other risk factors and have an adverse effect on operating results and financial condition.
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As our organization grows and evolves, we may need to implement more complex organizational management structures or adapt our corporate culture and work environments to ever-changing circumstances, such as during times of a natural disaster or pandemic, and these changes could affect our ability to compete effectively or have an adverse effect on our corporate culture.
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During fiscal year 2022, we experienced increases in raw material costs as a result of supply chain disruptions, and we could continue to experience such increases. We recently experienced a network cyber attack that disrupted our domestic operations. Future cybersecurity incidents could expose us to liability and damage our reputation and our business.
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With the constant evolution of workforce dynamics, if we do not manage these changes effectively, it could materially adversely affect our culture, reputation, and operational flexibility.
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By November 15, 2021, we had substantially restored our operations. We engaged third party experts, including a cybersecurity firm, to perform a fulsome forensic investigation of this attack; among other things, the cybersecurity firm assessed whether any confidential or sensitive data had been compromised.
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Our business and reputation are impacted by information technology system failures and network disruptions. We, and our global supply chain, are exposed to information technology system failures or network disruptions caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, ransomware or other cybersecurity incidents, or other events or disruptions.
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Based on the results of the investigation, we do not believe any confidential or sensitive data has been downloaded, stolen from the Company's systems, or otherwise exfiltrated. The Company had insurance coverage against recovery costs and business interruption resulting from cyber attacks. However, the Company incurred expenses and losses in excess of its existing insurance coverage.
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System redundancy and other continuity measures may be ineffective or inadequate, and our, or our vendors', business continuity and disaster recovery planning may not be sufficient for all eventualities.
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As of April 30, 2022, the Company no longer had active insurance coverage against potential cyber attacks. While the Company will seek to obtain insurance for losses related to any similar future events, there can be no assurance that such insurance will be available to the Company.
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Such failures or disruptions can adversely impact our business by, among other things, 5 Table of Contents preventing access to our cloud-based systems, interfering with customer transactions or impeding the manufacturing and shipping of our products. These events could materially adversely affect our business, reputation, results of operations and financial condition.
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Any future such events, particularly if not covered by insurance, could have material adverse effects on the Company's business and/or results of operations. Additionally, we expect to continue to make investments in our information technology infrastructure.
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We purchase materials, components, and equipment from third parties for use in our manufacturing operations. Our results of operations could be adversely impacted if we are unable to adjust our purchases to reflect changes in customer demand and market fluctuations. Suppliers may extend lead times, limit supplies, or increase prices.
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We are continuing to closely monitor developments related to the COVID-19 pandemic to assess its impact on our business; however, due to the wide-ranging and highly uncertain nature of this event, it currently is not possible to estimate the ultimate direct and indirect impact of COVID-19 on our business, results of operations, financial condition, or liquidity with reasonable certainty.
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If we cannot purchase sufficient products at competitive prices and of sufficient quality on a timely enough basis to meet increasing demand, we may not be able to satisfy market demand, product shipments may be delayed, our costs may increase, or we may breach out contractual commitments and incur liabilities.
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The extent of the continued impact of COVID-19 on our business and financial results depends on future developments, including the emergence of new and different strains of the virus and the effectiveness of vaccinations and other public health measures. Other pandemics are also possible with similar or worse public health outcomes.
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In addition, some of our businesses purchase certain required products from sole or limited source suppliers for reasons of quality assurance, regulatory requirements, cost effectiveness, availability or uniqueness of design.
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We are continuing to take precautions to protect the safety and well-being of our employees while striving to provide uninterrupted services to our customers. Since the onset of the pandemic, we have continued to support our business operations.
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If these or other suppliers encounter financial, operating, or other difficulties, or if our relationship with them changes, we might not be able to quickly establish or qualify replacement sources of supply.
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In addition, the increase in the number of our employees working remotely has increased certain risks to our business, including increased demand on our information technology resources and systems, greater potential for phishing and other cyber attacks, and an increase in the number of points of potential attack.
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The supply chains for our businesses were impacted in fiscal year 2023 from factors outside our control and could also be disrupted in the future for such reasons as supplier capacity constraints, supplier bankruptcy or exiting of the business for other reasons, decreased availability of key raw materials or commodities and external events such as natural disasters, pandemics or other public health problems, war, terrorist actions, governmental actions and legislative or regulatory changes.
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Any failure to manage these risks effectively and to identify and respond to any cyber attacks on a timely basis may adversely affect our business. New processes, procedures, and controls may be required to respond to any changes in our business 7 Table of Contents environment.
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Any of these factors could result in production interruptions, delays, extended lead times and inefficiencies. Our revenues and other operating results depend in large part on our ability to manufacture our products in sufficient quantities and in a timely manner.
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Additional factors related to COVID-19 or other major public health issues that could have material and adverse effects on our ability to successfully operate include, but are not limited to, the following: • The efforts of governmental and non-governmental organizations in combating the spread and severity of COVID-19 or other major public health issues may not be effective.
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Any interruptions we experience in the manufacture of our products or changes to the way we manufacture products could delay our ability to recognize revenues in a particular period.
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In addition, we must maintain sufficient production capacity in order to meet anticipated customer demand, which carries fixed costs that we may not be able to offset because we cannot always immediately adapt our production capacity and related cost structures to changing market conditions, which would adversely affect our operating margins.
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If we are unable to manufacture our products consistently, in sufficient quantities, and on a timely basis, our revenues, gross margins, and our other operating results will be materially and adversely affected. Disruptions in the financial markets have historically created, and may continue to create, uncertainty in economic conditions that may adversely affect our customers and our business.
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The effects of geopolitical instability, including as a result of Russia's invasion of Ukraine, may adversely affect us and heighten significant risks and uncertainties for our business, with the ultimate impact dependent on future developments, which are highly uncertain and unpredictable.
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Ongoing geopolitical instability could negatively impact the global and U.S. economies in the future, including by causing supply chain disruptions, rising energy costs, volatility in capital markets and foreign currency exchange rates, rising interest rates, and heightened cybersecurity risks.
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The extent to which such geopolitical instability adversely affects our business, financial condition, and results of operations, as well as our liquidity and capital profile, is highly uncertain and unpredictable. If geopolitical instability adversely affects us, it may also have the effect of heightening other risks related to our business.
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In response to the military conflict between Russia and Ukraine that began in February 2022, the United States and other North Atlantic Treaty Organization member states, as well as non-member states, announced targeted economic sanctions on Russia.
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The long-term impact on our business resulting from the disruption of trade in the region caused by the conflict and associated sanctions and boycotts is uncertain at this time due to the fluid nature of the ongoing military conflict and response.
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The potential impacts include supply chain and logistics disruptions, financial impacts including volatility in foreign exchange and interest rates, increased inflationary pressure on raw materials and energy, and other risks, including an elevated risk of cybersecurity threats and the potential for further sanctions.
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Expectations related to environmental, social, and governance ("ESG") considerations could expose us to potential liabilities, increased costs, and reputational harm. We are subject to laws, regulations, and other measures that govern a wide range of topics, including those related to matters beyond our core products and services.
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For instance, new laws, regulations, policies, and international accords relating to ESG matters, including sustainability, climate change, human capital, and diversity, are being developed and formalized in Europe, the U.S., and elsewhere, which may entail specific, target-driven frameworks and/or disclosure requirements. The implementation of these may require considerable investments.
Added
Any failure, or perceived failure, by us to adhere to any public statements or initiatives, comply with federal, state or international environmental social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and could materially adversely affect the Company's business reputation, results of operations, financial condition, and stock price.
Added
We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation ("FDIC"), the loss of which would have a severe negative effect on our operations and liquidity. 8 Table of Contents We may maintain our cash assets at financial institutions in the U.S. in amounts that may be in excess of the FDIC insurance limit of $250,000.
Added
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry of the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems.
Added
In the event of a failure or liquidity issues of or at any of the financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition, and our results of operations.
Added
Similarly, if our customers or partners experience liquidity issues as a result of financial institution defaults or non-performance where they hold cash assets, their ability to pay us may become impaired and could have a material adverse effect on our results of operations, including the collection of accounts receivable and cash flows.
Added
The impact of investor concerns on U.S. or international financial systems could impact our ability to obtain favorable financing terms in the future.
Added
Investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us, or at all, and could have material adverse impacts on our liquidity, our business, financial condition or results of operations, and our prospects.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−1 removed2 unchanged
Biggest changeFurther, we lease an office facility in Charlotte, North Carolina, comprising 3,500 square feet. In Bangalore, India we lease and operate a manufacturing facility comprising 83,000 square feet and a facility comprising 16,000 square feet that houses sales and administrative offices. Our sales offices in Singapore and Saudi Arabia comprise 1,600 and 1,100 square feet, respectively.
Biggest changeWe also lease an office facility in Charlotte, North Carolina. In Bangalore, India, we lease and operate a manufacturing facility comprising 9 Table of Contents 119,000 square feet. Our international sales and administrative offices are located in Singapore, India, and Saudi Arabia. We believe our facilities are suitable for their respective uses and are adequate for our current needs.
Item 2. Properties We lease and operate three adjacent manufacturing facilities in Statesville, North Carolina. These facilities also house our corporate offices, as well as sales and marketing, administration, engineering and drafting personnel. These facilities together comprise 413,000 square feet and are located on 20 acres of land.
Item 2. Properties We lease and operate three adjacent manufacturing facilities in Statesville, North Carolina. These facilities also house our corporate offices, as well as sales and marketing, administration, engineering and drafting personnel. These facilities together comprise 414,000 square feet and are located on 20 acres of land.
Removed
We believe our facilities are suitable for their respective uses and are adequate for our current needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed1 unchanged
Biggest changeWe believe that any such matters presently pending will not, individually or in the aggregate, have a material adverse effect on our results of operations or financial condition. Item 4. Mine Safety Disclosures Not Applicable. 8 Table of Contents PART II
Biggest changeWe believe that any such matters presently pending will not, individually or in the aggregate, have a material adverse effect on our results of operations or financial condition. Item 4. Mine Safety Disclosures Not Applicable. 10 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NASDAQ Global Market, under the symbol KEQU. As of June 28, 2022, we estimate there were approximately 964 holders of our common shares, of which 118 were stockholders of record.
Biggest changeItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NASDAQ Global Market, under the symbol KEQU. As of June 26, 2023 , there were 111 stockholders of record.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS See Item 12 , Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters , in this Form 10-K for a discussion of securities authorized for issuance under our equity compensation plans. Item 6. Reserved 9 Table of Contents
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS See Item 12 , Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters , in this Form 10-K for a discussion of securities authorized for issuance under our equity compensation plans. Item 6. Reserved 11 Table of Contents
The declaration and payment of any future dividends is at the discretion of the Board of Directors and will depend upon many factors, including the Company's earnings, capital requirements, investment and growth strategies, financial conditions, the terms of the Company's indebtedness, which has contained, and may contain in the future, provisions that could limit the payment of dividends in certain circumstances, and other factors that the Board of Directors may deem to be relevant.
The declaration and payment of any future dividends is at the discretion of the Board of Directors and will depend upon many factors, including the Company's earnings, capital requirements, investment and growth strategies, financial conditions, the terms of the Company's indebtedness, which contains provisions that could limit the payment of dividends in certain circumstances, and other factors that the Board of Directors may deem to be relevant.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

30 edited+12 added−11 removed14 unchanged
Biggest changeThe increase in operating expense in fiscal year 2022 as compared to fiscal year 2021 was primarily for increases related to wages, benefits, incentive and stock-based compensation of $1,098,000, increases in international operating expenses of $693,000, and one-time costs in the amount of $325,000 related to both the Company's decision to exit certain markets where the Company had historically sold products directly and professional fees related to financing activities, partially offset by decreases of $545,000 in marketing expenses.
Biggest changeThese increases were partially offset by reductions in administrative wages, benefits, and stock-based compensation of $142,000, and marketing expense of $223,000. The increase in operating expenses for fiscal year 2023 also included a one-time charge related to the write-down of a prior year insurance claim in the amount of $260,000.
We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations, and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
We believe that the following discussion addresses our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations, and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
CRITICAL ACCOUNTING POLICIES In the ordinary course of business, we have made estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America. Actual results could differ significantly from those estimates.
CRITICAL ACCOUNTING ESTIMATES In the ordinary course of business, we have made estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America. Actual results could differ significantly from those estimates.
The majority of the April 30, 2022 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2023, with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner.
The majority of the April 30, 2023 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2024, with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner.
The declaration and payment of any future dividends is at the discretion of the Board of Directors and will depend upon many factors, including the Company's earnings, capital requirements, investment and growth strategies, financial condition, the terms of the Company's indebtedness, which has contained, and may in the future contain, provisions that could limit the payment of dividends in certain circumstances, and other factors that the Board of Directors may deem to be relevant.
The declaration and payment of any future dividends is at the discretion of the Board of Directors and will depend upon many factors, including the Company's earnings, capital requirements, investment and growth strategies, financial condition, the terms of the Company's indebtedness, which contains provisions that could limit the payment of dividends in certain circumstances, and other factors that the Board of Directors may deem to be relevant.
(federal and state) and numerous foreign jurisdictions. Tax laws, regulations, administrative practices, and interpretations in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes.
Tax laws, regulations, administrative practices, and interpretations in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes.
There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. In addition, our actual and forecasted earnings are subject to change due to economic, political, and other conditions, such as the COVID-19 pandemic.
There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. In addition, our actual and forecasted earnings are subject to change due to economic, political, and other conditions.
The effective rate change for fiscal year 2022 is primarily due to an increase in the valuation allowance primarily attributable to the increase in deferred taxes of $4,170,000 before valuation allowance as a result of the book to tax differences related to the Company's execution of a Sale-Leaseback transaction for owned real property, which was treated as a taxable sale transaction for tax purposes and a financing transaction for financial statement reporting purposes.
The effective rate change for fiscal year 2022 was also unfavorably impacted due to changes in the valuation allowance 13 Table of Contents attributable to the net increase in deferred tax assets of $4,170,000 before valuation allowance as a result of the book to tax differences primarily related to the Company's execution of a Sale-Leaseback transaction for owned real property, which was treated as a taxable sale transaction for tax purposes and a financing transaction for financial statement reporting purposes.
As discussed above, no further benefits have been, or will be, earned under our pension plans after April 30, 2005, and no additional participants have been, or will be, added to the plans. In fiscal year 2022, we made no contributions to the plans. In 12 Table of Contents fiscal year 2021, we made contributions to the plans of $30,000.
As discussed above, no further benefits have been, or will be, earned under our pension plans after April 30, 2005, and no additional participants have been, or will be, added to the plans. In fiscal years 2023 and 2022, we made no contributions to the plans. We expect to make no contributions to the plans for fiscal year 2024.
The actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants.
The actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. These differences may significantly affect the amount of pension income or expense recorded by us in future periods.
Income tax expense was $3.5 million and $990,000 for fiscal years 2022 and 2021, respectively, or 141.6% and 37.8% of pretax loss, respectively.
Income tax expense was $3.1 million and $3.5 million for fiscal years 2023 and 2022, respectively, or 69.8% and 141.6% of pretax earnings (loss), respectively.
Operating expenses were $26.8 million and $25.3 million in fiscal years 2022 and 2021, respectively, and 15.9% and 17.2% of sales, respectively.
Operating expenses were $30.2 million and $26.8 million in fiscal years 2023 and 2022, respectively, and 13.8% and 15.9% of sales, respectively.
Three manufacturing facilities are located in Statesville serving the domestic and international markets, and one manufacturing facility is located in Bangalore, India serving the local, Asian, and African markets. Kewaunee Scientific Corporation's website is located at www.kewaunee.com .
Three manufacturing facilities are located in Statesville serving the domestic and international markets, and one manufacturing facility is located in Bangalore, India serving the local, Asian, and African markets. Kewaunee Scientific Corporation's website is located at www.kewaunee.com . The reference to our website does not constitute incorporation by reference of any information contained at that site.
Estimated medical costs were accrued for claims incurred but not reported using assumptions based upon historical loss experiences. The Company's exposure reflected in the self-insurance reserves varies depending upon market conditions in the insurance industry, availability of cost-effective insurance coverage, and actual claims versus estimated future claims. Income Taxes We are subject to income taxes in the U.S.
The Company's exposure reflected in the self-insurance reserves varies depending upon market conditions in the insurance industry, availability of cost-effective insurance coverage, and actual claims versus estimated future claims. 12 Table of Contents Income Taxes We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions.
RESULTS OF OPERATIONS Sales for fiscal year 2022 were $168.9 million, an increase from fiscal year 2021 sales of $147.5 million. Domestic sales for fiscal year 2022 were $126.9 million, an increase of 14.2% compared to fiscal year 2021 sales of $111.0 million.
RESULTS OF OPERATIONS Sales for fiscal year 2023 were $219.5 million, an increase compared to fiscal year 2022 sales of $168.9 million. Domestic Segment sales for fiscal year 2023 were $146.7 million, an increase of 15.7% compared to fiscal year 2022 sales of $126.8 million.
The effective rate in fiscal year 2021 was also unfavorably impacted due to changes in the valuation allowance and reduced benefit on net operating loss carryback available. Net earnings attributable to the non-controlling interest related to our subsidiaries that are not 100% owned by the Company were $123,000 and $65,000 for fiscal years 2022 and 2021, respectively.
Net earnings attributable to the non-controlling interest related to our subsidiaries that are not 100% owned by the Company were $621,000 and $123,000 for fiscal years 2023 and 2022, respectively. The changes in the net earnings attributable to the non-controlling interest for each year were due to changes in the levels of net income of the subsidiaries.
We expect to make no contributions to the plans for fiscal year 2023. Capital expenditures were $1,908,000 and $2,397,000 in fiscal years 2022 and 2021, respectively. Capital expenditures in fiscal year 2022 were funded primarily from financing activities. Fiscal year 2023 capital expenditures are anticipated to be approximately $3.5 million.
Capital expenditures were $4,148,000 and $1,908,000 in fiscal years 2023 and 2022, respectively. Capital expenditures in fiscal year 2023 were funded primarily from financing activities. Fiscal year 2024 capital expenditures are anticipated to be 14 Table of Contents approximately $4.4 million.
Operating activities provided cash of $912,000 in fiscal year 2021, primarily from operations, and increases in accounts payable and accrued expenses of $4,567,000 and a decrease in income tax receivable of $1,762,000, partially offset by increases in inventories of $1,188,000 and receivables of $4,874,000.
Operating activities used cash of $7,885,000 in fiscal year 2022, primarily for operations, increases in inventories of $7,279,000 and receivables of $8,464,000, partially offset by increases in accounts payable and accrued expenses of $11,886,000 and a decrease in income tax receivable of $955,000.
The increase in other income in fiscal year 2022 was primarily due to the interest earned on the Note Receivable related to the Sale-Leaseback financing transaction that was executed on March 24, 2022.
The increase in other income in fiscal year 2023 was primarily due to interest income earned on the cash balances held by the Company's international subsidiaries and the increased interest earned on the Note Receivable related to the Sale-Leaseback financing transaction when compared to the prior fiscal year.
We did not have any off balance sheet arrangements at April 30, 2022 or 2021.
See Note 5 , Sale-Leaseback Financing Transaction for more information. We did not have any off balance sheet arrangements at April 30, 2023 or 2022.
The changes in the net earnings attributable to the non-controlling interest for each year were due to changes in the levels of net income of the subsidiaries. Net loss was $6,126,000, or $2.20 per diluted share, and $3,672,000, or $1.33 per diluted share, for fiscal years ended April 30, 2022 and April 30, 2021, respectively.
Net earnings were $738,000, or $0.25 per diluted share, as compared to net loss of $6,126,000, or $2.20 per diluted share, for fiscal years ended April 30, 2023 and April 30, 2022, respectively. The increase in net earnings was attributable to the factors discussed above.
See Note 5 , Sale-Leaseback Financing Transaction for additional information on this transaction. 11 Table of Contents Interest expense was $632,000 and $389,000 in fiscal years 2022 and 2021, respectively. The change in interest expense for fiscal year 2022 was primarily due to changes in the levels of bank borrowings and the Sale-Leaseback financing transaction.
See Note 5 , Sale-Leaseback Financing Transaction for additional information on this transaction. Interest expense was $1,734,000 and $632,000 in fiscal years 2023 and 2022, respectively. The increase in interest expense for fiscal year 2023 was primarily due to the Sale-Leaseback financing transaction noted above, partially offset by a decrease in interest expense related to the Company's revolving credit facility.
The increase in Domestic sales resulted from both higher volumes and the implementation of price increases in response to higher raw material input costs. International sales for fiscal year 2022 were $42.0 million, an increase of 15.3% from fiscal year 2021 sales of $36.5 million.
The increase in Domestic Segment sales is primarily driven by the pricing of new orders in response to higher raw material input costs. International Segment sales for fiscal year 2023 were $72.8 million, an increase of 73.2% from fiscal year 2022 sales of $42.0 million.
The Company's financing activities provided cash of $1,982,000 during fiscal year 2021 from proceeds from the net increase in short-term borrowings of $2,109,000, partially offset by cash dividends of $108,000 paid to minority interest holders and repayment of long-term debt of $19,000.
The Company's financing activities provided cash of $14,931,000 during fiscal year 2023 as a result of the collection of $13,629,000 in final proceeds from the Sale-Leaseback transaction executed in the prior fiscal year and proceeds from the net increase in short-term borrowings of $1,998,000, partially offset by repayment of long-term debt of $121,000.
At April 30, 2022, we had advances of $1.6 million and standby letters of credit aggregating $716,000 outstanding under our secured, $4.7 million revolving credit facility. See Note 4 , Long-term Debt and Other Credit Arrangements , of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report for additional information concerning our credit facility.
See Note 4 , Long-term Debt and Other Credit Arrangements , of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report for additional information concerning our credit facility. In fiscal year 2022, we executed a Sale-Leaseback financing transaction with respect to our manufacturing and corporate facilities in Statesville, North Carolina to provide additional liquidity.
The following table summarizes the cash payment obligations for our lease and financing arrangements as of April 30, 2022: PAYMENTS DUE BY PERIOD ($ in thousands) Contractual Cash Obligations Total 1 Year 2-3 Years 4-5 Years After 5 years Operating Leases $ 8,821 $ 1,849 $ 2,908 $ 2,217 $ 1,847 Financing Lease Obligations 399 148 180 71 — Sale-Leaseback Financing Transaction 45,811 1,893 3,901 4,059 35,958 Total Contractual Cash Obligations $ 55,031 $ 3,890 $ 6,989 $ 6,347 $ 37,805 The Company's operating activities used cash of $7,885,000 in fiscal year 2022, primarily for operations, and increases in inventories of $7,279,000 and receivables of $8,464,000, partially offset by increases in accounts payable and accrued expenses of $11,886,000 and a decrease in income tax receivable of $955,000.
The following table summarizes the cash payment obligations for our lease and financing arrangements as of April 30, 2023: PAYMENTS DUE BY PERIOD ($ in thousands) Contractual Cash Obligations Total 1 Year 2-3 Years 4-5 Years After 5 years Operating Leases $ 10,636 $ 2,373 $ 4,095 $ 2,788 $ 1,380 Financing Lease Obligations 254 91 163 — — Sale-Leaseback Financing Transaction 43,917 1,931 3,979 4,140 33,867 Total Contractual Cash Obligations $ 54,807 $ 4,395 $ 8,237 $ 6,928 $ 35,247 The Company's operating activities used cash of $3,790,000 in fiscal year 2023, primarily for increases in receivables of $4,947,000 and decreases in accounts payable and accrued expenses of $5,558,000, partially offset by cash from operations, decreases in inventories of $1,907,000, and increases in deferred revenue of $568,000.
These differences may significantly affect the amount of pension income or expense recorded by us in future periods. 10 Table of Contents Self-Insurance Reserves The Company's domestic operations are self-insured for employee health care costs. The Company has purchased specific stop-loss insurance policies to limit claims above a certain amount.
Self-Insurance Reserves The Company's domestic operations are self-insured for employee health care costs. The Company has purchased specific stop-loss insurance policies to limit claims above a certain amount. Estimated medical costs were accrued for claims incurred but not reported using assumptions based upon historical loss experiences.
Pension income was $355,000 in fiscal year 2022, compared to pension expense of $1,153,000 in fiscal year 2021. The decrease in pension expense was due to the favorable impact from pension accounting because of the recovery of the plan assets at previous fiscal year-ends. Other income, net was $400,000 and $241,000 in fiscal years 2022 and 2021, respectively.
The increase in pension expense was primarily due to the lower expected return on plan assets driven by a decrease in plan assets in the prior fiscal year. Other income, net was $939,000 and $400,000 in fiscal years 2023 and 2022, respectively.
The fiscal year 2023 expenditures are expected to be funded primarily by operating activities and proceeds from the sale-leaseback financing transaction. Working capital was $49.3 million at April 30, 2022, up from $26.3 million at April 30, 2021, and the ratio of current assets to current liabilities was 2.2-to-1.0 at April 30, 2022 and 1.8-to-1.0 at April 30, 2021.
Working capital was $47.9 million at April 30, 2023, down from $49.3 million at April 30, 2022, and the ratio of current assets to current liabilities was 2.2-to-1.0 at April 30, 2023 unchanged from April 30, 2022. No dividends were declared or paid on the Company's common stock during the last two fiscal years.
See Note 5 , Sale-Leaseback Financing Transaction for more information. Additionally, certain machinery and equipment are financed by non-cancelable operating leases. We believe that these sources of funds will be sufficient to support ongoing business requirements, including capital expenditures, through fiscal year 2023.
We believe that these sources of funds will be sufficient to support ongoing business requirements, including capital expenditures, through fiscal year 2024. At April 30, 2023, we had $3,548,000 outstanding under our $15.0 million revolving credit facility.
Removed
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.
Added
The increase in International Segment sales in fiscal year 2023 is due to the delivery of several large projects in India, Asia, and Africa that were awarded over the course of the past eighteen months. Our order backlog was $147.9 million at April 30, 2023, as compared to $173.9 million at April 30, 2022.
Removed
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.
Added
The decrease in backlog is primarily attributable to the substantial completion of the previously announced Dangote Oil project in Nigeria during the fiscal year and a reduction in new orders within the ASEAN marketplace.
Removed
The increase in International sales in fiscal year 2022 is a result of strong demand across the international markets, primarily in India, coupled with COVID-19 related restrictions on construction site access and government mandated shut-downs in India that significantly impacted the prior year sales.
Added
The Company's backlog for the United States and Indian markets on April 30, 2023 is similar to prior fiscal year levels as order rates in these markets remain strong. Gross profit represented 16.2% and 14.3% of sales in fiscal years 2023 and 2022, respectively.
Removed
Our order backlog was $173.9 million at April 30, 2022, as compared to $114.5 million at April 30, 2021. This is the highest order backlog in the Company's history. The increase in backlog is primarily attributable to strength in the life science and higher education end-use markets within the United States.
Added
The increase in gross profit margin percentage for fiscal year 2023 is driven by the significant increase in International Segment sales, which has a higher gross profit rate than the Domestic Segment, coupled with an increase in Domestic Segment sales that had improved pricing as noted above.
Removed
Internationally, customers continue to invest in large infrastructure projects requiring laboratories in India, the Middle East, and Africa and we were awarded multiple multi-year projects during the year. Gross profit represented 14.3% and 16.3% of sales in fiscal years 2022 and 2021, respectively.
Added
The increase in operating expense in fiscal year 2023 as compared to fiscal year 2022 was primarily due to increases in consulting and professional fees of $552,000, corporate governance expenses of $113,000, and increases in International Segment operating expenses of $2,286,000 as a result of the significant sales growth experienced.
Removed
The decrease in gross profit margin percentage for fiscal year 2022 is a result of supplier constraints resulting from COVID-19, as well as other supply chain disruptions, that led to increases in steel, wood, and epoxy resin raw material costs, when compared to the prior year, of $4,559,000 in excess of surcharges implemented and recorded as sales.
Added
The increase in international operating expenses for fiscal year 2023 is related to the continued sales growth in the International operating segment. Pension expense was $71,000 in fiscal year 2023, compared to pension income of $355,000 in fiscal year 2022.
Removed
The gross profit margin decrease was also impacted by the cyber attack that occurred during the third quarter, which resulted in $1,131,000 of margin loss due to disruption of production, loss of sales, and absorption of fixed overhead costs which were not covered by the Company's cyber insurance policy.
Added
The effective rate for fiscal year 2023 was unfavorably impacted by the increase in the valuation allowance attributable to changes to Internal Revenue Code Section 174 Research and Experimental Expenditures, which became effective in the current fiscal year.
Removed
The increase in net loss was attributable to the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity have historically been funds generated from operating activities. In addition, on March 24, 2022, we executed a Sale-Leaseback financing transaction with respect to our manufacturing and corporate facilities in Statesville, North Carolina to provide additional liquidity.
Added
The primary impact of this change is the amortization of current year expenditures over a five year period, as compared to prior fiscal years where research expenditures were deductible in the year incurred.
Removed
The increase in working capital for fiscal year 2022 was driven by a $13.5 million Note Receivable related to the sale-leaseback financing transaction, resulting in a $5.2 million reduction in short-term borrowing and a $5.2 million increase in managed working capital. No dividends were declared or paid on the Company's common stock during the last two fiscal years.
Added
LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity have historically been funds generated from operating activities, supplemented as needed by borrowings under our revolving credit facility. Additionally, certain machinery and equipment are financed by non-cancelable operating and financing leases.
Removed
As the fiscal year concluded, economic uncertainty remained from continued broad-based inflation, a challenging labor market, and a possible recession. With that being said, the Company believes the outlook is bright based on Kewaunee’s record backlog and improved operating performance during the fiscal year.
Added
The fiscal year 2024 expenditures are expected to be funded primarily by operating activities, supplemented as needed by borrowings under our revolving credit facility.
Removed
The Company believes the strength in its backlog demonstrates the confidence customers have in Kewaunee’s ability to meet their requirements. When combined with changes in its go-to-market strategy and continued investment in its manufacturing operations, the Company feels it is well-positioned for the next fiscal year .
Added
Fiscal year 2023 was a transition year for the Company as it emerged from a generally disruptive three-year period that included a global pandemic, rapid broad-based inflation, labor shortages, and supply chain disruptions.
Added
The Company believes it is well-positioned for the next fiscal year due to its strong global management team, a healthy backlog, improved manufacturing capabilities, and end-use markets that will continue to prioritize investment in projects that require the products Kewaunee designs and manufactures.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−1 removed2 unchanged
Biggest changeTo the extent we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets.
Biggest changeTo the extent we engage in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. This effect is also impacted by costs of raw materials from international sources and costs of our sales, service, and manufacturing locations outside the U.S.
For fiscal year 2022, 25% of net sales were derived in currencies other than U.S. dollars. We incur expenses in currencies other than U.S. dollars relating to specific contracts with customers and for our operations outside the U.S.
For fiscal year 2023, 27% of net sales were derived in currencies other than U.S. dollars. We incur expenses in currencies other than U.S. dollars relating to specific contracts with customers and for our operations outside the U.S.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rates We are exposed to market risk in the area of interest rates. This exposure is associated with advances outstanding under our bank line of credit and certain lease obligations for production machinery, all of which are priced on a floating rate basis.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rates We are exposed to market risk in the area of interest rates. This exposure is associated with balances outstanding under our revolving credit facility and certain lease obligations for production machinery, all of which are priced on a floating rate basis.
Advances outstanding under the bank line of credit were $1.6 million at April 30, 2022, bearing interest at floating rates. We believe that our current exposure to interest rate market risk is not material.
We had $3.5 million outstanding under our revolving credit facility at April 30, 2023, bearing interest at floating rates. We believe that our current exposure to interest rate market risk is not material.
Cash balances at April 30, 2022 of $6.1 million were held by our foreign subsidiaries and denominated in currencies other than U.S. dollars. 14 Table of Contents
We have foreign currency cash accounts to operate our global business. These accounts are impacted by changes in foreign currency rates. Cash balances at April 30, 2023 of $9.4 million were held by our foreign subsidiaries and denominated in currencies other than U.S. dollars. 15 Table of Contents
Removed
This effect is also impacted by costs of raw materials from international sources and costs of our sales, service, and manufacturing locations outside the U.S. 13 Table of Contents We have foreign currency cash accounts to operate our global business. These accounts are impacted by changes in foreign currency rates.

Other KEQU 10-K year-over-year comparisons