UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
_________________________
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended OctoberJuly 31, 20222023
or
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☐ | 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)
_________________________
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Delaware | | 38-0715562 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
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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.
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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 December 6, 2022,August 29, 2023, the registrant had outstanding 2,830,2002,904,094 shares of Common Stock.
KEWAUNEE SCIENTIFIC CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED OCTOBERJULY 31, 20222023
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 October 31, | | Six Months Ended October 31, | | Three Months Ended July 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
Net sales | Net sales | $ | 54,564 | | | $ | 39,031 | | | $ | 104,687 | | | $ | 78,524 | | Net sales | $ | 49,839 | | | $ | 50,123 | | |
Cost of products sold | Cost of products sold | 45,863 | | | 35,434 | | | 89,790 | | | 69,253 | | Cost of products sold | 37,925 | | | 43,927 | | |
Gross profit | Gross profit | 8,701 | | | 3,597 | | | 14,897 | | | 9,271 | | Gross profit | 11,914 | | | 6,196 | | |
Operating expenses | Operating expenses | 7,946 | | | 6,487 | | | 14,538 | | | 13,252 | | Operating expenses | 8,106 | | | 6,592 | | |
Operating profit (loss) | Operating profit (loss) | 755 | | | (2,890) | | | 359 | | | (3,981) | | Operating profit (loss) | 3,808 | | | (396) | | |
Pension (expense) income | (8) | | | 89 | | | (35) | | | 178 | | |
Pension expense | | Pension expense | (41) | | | (27) | | |
Other income, net | Other income, net | 79 | | | 46 | | | 546 | | | 98 | | Other income, net | 75 | | | 467 | | |
Interest expense | Interest expense | (370) | | | (132) | | | (754) | | | (238) | | Interest expense | (430) | | | (384) | | |
Profit (Loss) before income taxes | 456 | | | (2,887) | | | 116 | | | (3,943) | | |
Profit (loss) before income taxes | | Profit (loss) before income taxes | 3,412 | | | (340) | | |
Income tax expense | Income tax expense | 570 | | | 195 | | | 949 | | | 446 | | Income tax expense | 897 | | | 379 | | |
Net loss | (114) | | | (3,082) | | | (833) | | | (4,389) | | |
Net earnings (loss) | | Net earnings (loss) | 2,515 | | | (719) | | |
Less: Net earnings attributable to the non-controlling interest | Less: Net earnings attributable to the non-controlling interest | 129 | | | 18 | | | 157 | | | 56 | | Less: Net earnings attributable to the non-controlling interest | 41 | | | 28 | | |
Net loss attributable to Kewaunee Scientific Corporation | $ | (243) | | | $ | (3,100) | | | $ | (990) | | | $ | (4,445) | | |
Net earnings (loss) attributable to Kewaunee Scientific Corporation | | Net earnings (loss) attributable to Kewaunee Scientific Corporation | $ | 2,474 | | | $ | (747) | | |
| Net loss per share attributable to Kewaunee Scientific Corporation stockholders | | |
Net earnings (loss) per share attributable to Kewaunee Scientific Corporation stockholders | | Net earnings (loss) per share attributable to Kewaunee Scientific Corporation stockholders | | |
Basic | Basic | $ | (0.09) | | | $ | (1.11) | | | $ | (0.35) | | | $ | (1.60) | | Basic | $ | 0.87 | | | $ | (0.27) | | |
Diluted | Diluted | $ | (0.09) | | | $ | (1.11) | | | $ | (0.35) | | | $ | (1.60) | | Diluted | $ | 0.86 | | | $ | (0.27) | | |
Weighted average number of common shares outstanding | Weighted average number of common shares outstanding | | Weighted average number of common shares outstanding | | |
Basic | Basic | 2,830 | | | 2,789 | | | 2,819 | | | 2,783 | | Basic | 2,860 | | | 2,807 | | |
Diluted | Diluted | 2,830 | | | 2,789 | | | 2,819 | | | 2,783 | | Diluted | 2,885 | | | 2,807 | | |
See accompanying notes to Condensed Consolidated Financial Statements.
Kewaunee Scientific Corporation
Condensed Consolidated Statements of Comprehensive LossEarnings (Loss)
(Unaudited)
($ in thousands)
| | | Three Months Ended October 31, | | Six Months Ended October 31, | | Three Months Ended July 31, | |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | |
Net loss | $ | (114) | | | $ | (3,082) | | | $ | (833) | | | $ | (4,389) | | |
Net earnings (loss) | | Net earnings (loss) | $ | 2,515 | | | $ | (719) | | |
Other comprehensive loss, net of tax: | Other comprehensive loss, net of tax: | | | | | | | | Other comprehensive loss, net of tax: | | | | |
Foreign currency translation adjustments | Foreign currency translation adjustments | (237) | | | (83) | | | (461) | | | (159) | | Foreign currency translation adjustments | (144) | | | (224) | | |
Other comprehensive loss | Other comprehensive loss | (237) | | | (83) | | | (461) | | | (159) | | Other comprehensive loss | (144) | | | (224) | | |
Comprehensive loss, net of tax | (351) | | | (3,165) | | | (1,294) | | | (4,548) | | |
Comprehensive earnings (loss), net of tax | | Comprehensive earnings (loss), net of tax | 2,371 | | | (943) | | |
Less: Comprehensive income attributable to the non-controlling interest | Less: Comprehensive income attributable to the non-controlling interest | 129 | | | 18 | | | 157 | | | 56 | | Less: Comprehensive income attributable to the non-controlling interest | 41 | | | 28 | | |
Comprehensive loss attributable to Kewaunee Scientific Corporation | $ | (480) | | | $ | (3,183) | | | $ | (1,451) | | | $ | (4,604) | | |
Comprehensive earnings (loss) attributable to Kewaunee Scientific Corporation | | Comprehensive earnings (loss) attributable to Kewaunee Scientific Corporation | $ | 2,330 | | | $ | (971) | | |
See accompanying notes to Condensed Consolidated Financial Statements.
Kewaunee Scientific Corporation
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
($ in thousands, except per share amounts)
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| Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Kewaunee Scientific Corporation Stockholders' Equity |
Balance at April 30, 2022 | $ | 6,983 | | | $ | 4,483 | | | $ | (53) | | | $ | 28,023 | | | $ | (3,742) | | | $ | 35,694 | |
Net loss attributable to Kewaunee Scientific Corporation | — | | | — | | | — | | | (747) | | | — | | | (747) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (224) | | | (224) | |
Stock-based compensation | 97 | | | (134) | | | — | | | — | | | — | | | (37) | |
Balance at July 31, 2022 | $ | 7,080 | | | $ | 4,349 | | | $ | (53) | | | $ | 27,276 | | | $ | (3,966) | | | $ | 34,686 | |
Net loss attributable to Kewaunee Scientific Corporation | — | | | — | | | — | | | (243) | | | — | | | (243) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (237) | | | (237) | |
Stock-based compensation | 4 | | | 192 | | | — | | | — | | | — | | | 196 | |
Balance at October 31, 2022 | $ | 7,084 | | | $ | 4,541 | | | $ | (53) | | | $ | 27,033 | | | $ | (4,203) | | | $ | 34,402 | |
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| Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Kewaunee Scientific Corporation Stockholders' Equity |
Balance at April 30, 2023 | $ | 7,084 | | | $ | 5,059 | | | $ | (53) | | | $ | 28,761 | | | $ | (3,442) | | | $ | 37,409 | |
Net earnings attributable to Kewaunee Scientific Corporation | — | | | — | | | — | | | 2,474 | | | — | | | 2,474 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (144) | | | (144) | |
Stock-based compensation | 185 | | | (494) | | | — | | | — | | | — | | | (309) | |
Balance at July 31, 2023 | $ | 7,269 | | | $ | 4,565 | | | $ | (53) | | | $ | 31,235 | | | $ | (3,586) | | | $ | 39,430 | |
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| | | Common Stock | | Additional Paid-in Capital | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Kewaunee Scientific Corporation Stockholders' Equity | | 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 | | |
Balance at April 30, 2022 | | Balance at April 30, 2022 | $ | 6,983 | | | $ | 4,483 | | | $ | (53) | | | $ | 28,023 | | | $ | (3,742) | | | $ | 35,694 | |
Net loss attributable to Kewaunee Scientific Corporation | Net loss attributable to Kewaunee Scientific Corporation | — | | | — | | | — | | | (1,345) | | | — | | | (1,345) | | Net loss attributable to Kewaunee Scientific Corporation | — | | | — | | | — | | | (747) | | | — | | | (747) | |
Other comprehensive loss | Other comprehensive loss | — | | | — | | | — | | | — | | | (76) | | | (76) | | Other comprehensive loss | — | | | — | | | — | | | — | | | (224) | | | (224) | |
Stock-based compensation | Stock-based compensation | 67 | | | 171 | | | — | | | — | | | — | | | 238 | | Stock-based compensation | 97 | | | (134) | | | — | | | — | | | — | | | (37) | |
Balance at July 31, 2021 | $ | 6,982 | | | $ | 3,978 | | | $ | (53) | | | $ | 32,804 | | | $ | (3,653) | | | $ | 40,058 | | |
Net loss attributable to Kewaunee Scientific Corporation | — | | | — | | | — | | | (3,100) | | | — | | | (3,100) | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (83) | | | (83) | | |
Stock-based compensation | 1 | | | 129 | | | — | | | — | | | — | | | 130 | | |
Balance at October 31, 2021 | $ | 6,983 | | | $ | 4,107 | | | $ | (53) | | | $ | 29,704 | | | $ | (3,736) | | | $ | 37,005 | | |
Balance at July 31, 2022 | | Balance at July 31, 2022 | $ | 7,080 | | | $ | 4,349 | | | $ | (53) | | | $ | 27,276 | | | $ | (3,966) | | | $ | 34,686 | |
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See accompanying notes to Condensed Consolidated Financial Statements.
Kewaunee Scientific Corporation
Condensed Consolidated Balance Sheets
($ and shares in thousands, except per share amounts) | | | October 31, 2022 | | April 30, 2022 | | July 31, 2023 | | April 30, 2023 |
| | (Unaudited) | | | | (Unaudited) | | |
Assets | Assets | | Assets | |
Current Assets: | Current Assets: | | Current Assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 9,419 | | | $ | 4,433 | | Cash and cash equivalents | $ | 12,699 | | | $ | 8,078 | |
Restricted cash | Restricted cash | 6,898 | | | 2,461 | | Restricted cash | 8,869 | | | 5,737 | |
Receivables, less allowance; $379; $357, on each respective date | 41,472 | | | 41,254 | | |
Receivables, less allowance; $560; $476, on each respective date | | Receivables, less allowance; $560; $476, on each respective date | 42,461 | | | 46,081 | |
Inventories | Inventories | 24,502 | | | 23,796 | | Inventories | 22,126 | | | 21,889 | |
| Note Receivable | — | | | 13,457 | | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 8,323 | | | 6,164 | | Prepaid expenses and other current assets | 7,365 | | | 6,135 | |
Total Current Assets | Total Current Assets | 90,614 | | | 91,565 | | Total Current Assets | 93,520 | | | 87,920 | |
Property, plant and equipment, at cost | Property, plant and equipment, at cost | 61,246 | | | 60,326 | | Property, plant and equipment, at cost | 63,023 | | | 61,368 | |
Accumulated depreciation | Accumulated depreciation | (46,639) | | | (45,205) | | Accumulated depreciation | (45,684) | | | (44,966) | |
Net Property, Plant and Equipment | Net Property, Plant and Equipment | 14,607 | | | 15,121 | | Net Property, Plant and Equipment | 17,339 | | | 16,402 | |
Right of use assets | Right of use assets | 9,908 | | | 7,573 | | Right of use assets | 8,612 | | | 9,170 | |
| Other assets | Other assets | 3,989 | | | 4,514 | | Other assets | 5,347 | | | 5,406 | |
Total Assets | Total Assets | $ | 119,118 | | | $ | 118,773 | | Total Assets | $ | 124,818 | | | $ | 118,898 | |
| Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | | Liabilities and Stockholders' Equity | |
Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
Short-term borrowings | Short-term borrowings | $ | — | | | $ | 1,588 | | Short-term borrowings | $ | 5,054 | | | $ | 3,587 | |
Current portion of financing liability | Current portion of financing liability | 608 | | | 575 | | Current portion of financing liability | 659 | | | 642 | |
Current portion of financing lease liability | 74 | | | 126 | | |
Current portion of financing lease liabilities | | Current portion of financing lease liabilities | 86 | | | 85 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | 1,999 | | | 1,319 | | Current portion of operating lease liabilities | 1,912 | | | 1,967 | |
Accounts payable | Accounts payable | 23,050 | | | 27,316 | | Accounts payable | 22,140 | | | 23,599 | |
Employee compensation and amounts withheld | Employee compensation and amounts withheld | 4,309 | | | 4,504 | | Employee compensation and amounts withheld | 4,903 | | | 4,304 | |
Deferred revenue | Deferred revenue | 11,398 | | | 3,529 | | Deferred revenue | 7,067 | | | 4,097 | |
Other accrued expenses | Other accrued expenses | 1,420 | | | 3,336 | | Other accrued expenses | 2,408 | | | 1,772 | |
Total Current Liabilities | Total Current Liabilities | 42,858 | | | 42,293 | | Total Current Liabilities | 44,229 | | | 40,053 | |
Long-term portion of financing liability | Long-term portion of financing liability | 28,459 | | | 28,775 | | Long-term portion of financing liability | 27,958 | | | 28,132 | |
Long-term portion of financing lease liability | 219 | | | 228 | | |
Long-term portion of financing lease liabilities | | Long-term portion of financing lease liabilities | 143 | | | 148 | |
Long-term portion of operating lease liabilities | Long-term portion of operating lease liabilities | 7,746 | | | 6,179 | | Long-term portion of operating lease liabilities | 6,645 | | | 7,136 | |
Accrued pension and deferred compensation costs | Accrued pension and deferred compensation costs | 3,924 | | | 4,159 | | Accrued pension and deferred compensation costs | 3,861 | | | 3,546 | |
Deferred income taxes | Deferred income taxes | 406 | | | 428 | | Deferred income taxes | 989 | | | 943 | |
Other non-current liabilities | Other non-current liabilities | 497 | | | 531 | | Other non-current liabilities | 453 | | | 455 | |
Total Liabilities | Total Liabilities | 84,109 | | | 82,593 | | Total Liabilities | 84,278 | | | 80,413 | |
Commitments and Contingencies | Commitments and Contingencies | | Commitments and Contingencies | |
Stockholders' Equity: | Stockholders' Equity: | | Stockholders' Equity: | |
Common stock, $2.50 par value, Authorized – 5,000 shares; Issued – 2,833 shares; 2,793 shares; – Outstanding – 2,830 shares; 2,790 shares, on each respective date | 7,084 | | | 6,983 | | |
Common stock, $2.50 par value, Authorized – 5,000 shares; Issued – 2,907 shares; 2,833 shares; – Outstanding – 2,904 shares; 2,830 shares, on each respective date | | Common stock, $2.50 par value, Authorized – 5,000 shares; Issued – 2,907 shares; 2,833 shares; – Outstanding – 2,904 shares; 2,830 shares, on each respective date | 7,269 | | | 7,084 | |
Additional paid-in-capital | Additional paid-in-capital | 4,541 | | | 4,483 | | Additional paid-in-capital | 4,565 | | | 5,059 | |
Retained earnings | Retained earnings | 27,033 | | | 28,023 | | Retained earnings | 31,235 | | | 28,761 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (4,203) | | | (3,742) | | Accumulated other comprehensive loss | (3,586) | | | (3,442) | |
Common stock in treasury, at cost, 3 shares, on each respective date | Common stock in treasury, at cost, 3 shares, on each respective date | (53) | | | (53) | | Common stock in treasury, at cost, 3 shares, on each respective date | (53) | | | (53) | |
Total Kewaunee Scientific Corporation Stockholders' Equity | Total Kewaunee Scientific Corporation Stockholders' Equity | 34,402 | | | 35,694 | | Total Kewaunee Scientific Corporation Stockholders' Equity | 39,430 | | | 37,409 | |
Non-controlling interest | Non-controlling interest | 607 | | | 486 | | Non-controlling interest | 1,110 | | | 1,076 | |
Total Stockholders' Equity | Total Stockholders' Equity | 35,009 | | | 36,180 | | Total Stockholders' Equity | 40,540 | | | 38,485 | |
Total Liabilities and Stockholders' Equity | Total Liabilities and Stockholders' Equity | $ | 119,118 | | | $ | 118,773 | | Total Liabilities and Stockholders' Equity | $ | 124,818 | | | $ | 118,898 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Kewaunee Scientific Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
($ in thousands)
| | | Six Months Ended October 31, | | Three Months Ended July 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net loss | $ | (833) | | | $ | (4,389) | | |
Adjustments to reconcile net loss to net cash used in operating activities: | | |
Net earnings (loss) | | Net earnings (loss) | $ | 2,515 | | | $ | (719) | |
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | | Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | |
Depreciation | Depreciation | 1,433 | | | 1,396 | | Depreciation | 718 | | | 725 | |
Bad debt provision | Bad debt provision | (8) | | | (2) | | Bad debt provision | 125 | | | 23 | |
Stock-based compensation expense | Stock-based compensation expense | 368 | | | 366 | | Stock-based compensation expense | 183 | | | 172 | |
Deferred income taxes | Deferred income taxes | (22) | | | 72 | | Deferred income taxes | 46 | | | 23 | |
Change in assets and liabilities: | Change in assets and liabilities: | | Change in assets and liabilities: | |
Receivables | Receivables | (209) | | | (2,971) | | Receivables | 3,496 | | | 516 | |
Inventories | Inventories | (706) | | | (1,603) | | Inventories | (237) | | | (1,304) | |
Income tax receivable | — | | | 180 | | |
| Accounts payable and other accrued expenses | Accounts payable and other accrued expenses | (6,412) | | | 3,145 | | Accounts payable and other accrued expenses | (226) | | | (2,117) | |
Deferred revenue | Deferred revenue | 7,869 | | | (72) | | Deferred revenue | 2,970 | | | 10,587 | |
Other, net | Other, net | (2,066) | | | (2,193) | | Other, net | (1,418) | | | (4,221) | |
Net cash used in operating activities | (586) | | | (6,071) | | |
Net cash provided by operating activities | | Net cash provided by operating activities | 8,172 | | | 3,685 | |
Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
Capital expenditures | Capital expenditures | (919) | | | (930) | | Capital expenditures | (1,654) | | | (390) | |
Net cash used in investing activities | Net cash used in investing activities | (919) | | | (930) | | Net cash used in investing activities | (1,654) | | | (390) | |
Cash flows from financing activities: | Cash flows from financing activities: | | Cash flows from financing activities: | |
| Proceeds from short-term borrowings | Proceeds from short-term borrowings | 4,431 | | | 28,641 | | Proceeds from short-term borrowings | 40,597 | | | 4,431 | |
Repayments on short-term borrowings | Repayments on short-term borrowings | (6,019) | | | (21,774) | | Repayments on short-term borrowings | (39,130) | | | (6,019) | |
Proceeds from sale-leaseback financing transaction | Proceeds from sale-leaseback financing transaction | 13,456 | | | — | | Proceeds from sale-leaseback financing transaction | — | | | 13,456 | |
Payments on sale-leaseback financing transaction | Payments on sale-leaseback financing transaction | (282) | | | — | | Payments on sale-leaseback financing transaction | (157) | | | (140) | |
Payments on long-term lease obligations | Payments on long-term lease obligations | (61) | | | (10) | | Payments on long-term lease obligations | (4) | | | (58) | |
| Net cash provided by financing activities | Net cash provided by financing activities | 11,525 | | | 6,857 | | Net cash provided by financing activities | 1,306 | | | 11,670 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (597) | | | (55) | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (71) | | | (325) | |
Increase (decrease) in cash, cash equivalents and restricted cash | 9,423 | | | (199) | | |
Increase in cash, cash equivalents and restricted cash | | Increase in cash, cash equivalents and restricted cash | 7,753 | | | 14,640 | |
Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | 6,894 | | | 5,731 | | Cash, cash equivalents and restricted cash, beginning of period | 13,815 | | | 6,894 | |
Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | $ | 16,317 | | | $ | 5,532 | | Cash, cash equivalents and restricted cash, end of period | $ | 21,568 | | | $ | 21,534 | |
See accompanying notes to Condensed Consolidated Financial Statements.
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. 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 20222023 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, 20222023 included in this interim period filing has been derived from the audited consolidated 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 periodsthree months ended OctoberJuly 31, 20222023 and twelve months ended April 30, 2022,2023, 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.orders and domestic bank deposits used as collateral for an outstanding letter of credit.
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:
| | | October 31, 2022 | | April 30, 2022 | | July 31, 2023 | | April 30, 2023 |
Cash and cash equivalents | Cash and cash equivalents | | $ | 9,419 | | | $ | 4,433 | | Cash and cash equivalents | | $ | 12,699 | | | $ | 8,078 | |
Restricted cash | Restricted cash | | 6,898 | | | 2,461 | | Restricted cash | | 8,869 | | | 5,737 | |
Total cash, cash equivalents and restricted cash | Total cash, cash equivalents and restricted cash | | $ | 16,317 | | | $ | 6,894 | | Total cash, cash equivalents and restricted cash | | $ | 21,568 | | | $ | 13,815 | |
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.
Disaggregated Revenue
A summary of net sales transferred to customers over time and at a point in time for the periods ended OctoberJuly 31, 20222023 and OctoberJuly 31, 20212022 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| October 31, 2022 | | October 31, 2021 |
| Domestic | | International | | Total | | Domestic | | International | | Total |
Over Time | $ | 36,374 | | | $ | 16,573 | | | $ | 52,947 | | | $ | 28,450 | | | $ | 9,097 | | | $ | 37,547 | |
Point in Time | 1,617 | | | — | | | 1,617 | | | 1,484 | | | — | | | 1,484 | |
Total | $ | 37,991 | | | $ | 16,573 | | | $ | 54,564 | | | $ | 29,934 | | | $ | 9,097 | | | $ | 39,031 | |
| | | Six Months Ended | | Three Months Ended |
| | October 31, 2022 | | October 31, 2021 | | July 31, 2023 | | July 31, 2022 |
| | Domestic | | International | | Total | | Domestic | | International | | Total | | Domestic | | International | | Total | | Domestic | | International | | Total |
Over Time | Over Time | $ | 71,727 | | | $ | 29,228 | | | $ | 100,955 | | | $ | 57,102 | | | $ | 18,927 | | | $ | 76,029 | | Over Time | $ | 33,904 | | | $ | 14,419 | | | $ | 48,323 | | | $ | 35,353 | | | $ | 12,655 | | | $ | 48,008 | |
Point in Time | Point in Time | 3,732 | | | — | | | 3,732 | | | 2,495 | | | — | | | 2,495 | | Point in Time | 1,516 | | | — | | | 1,516 | | | 2,115 | | | — | | | 2,115 | |
Total | Total | $ | 75,459 | | | $ | 29,228 | | | $ | 104,687 | | | $ | 59,597 | | | $ | 18,927 | | | $ | 78,524 | | Total | $ | 35,420 | | | $ | 14,419 | | | $ | 49,839 | | | $ | 37,468 | | | $ | 12,655 | | | $ | 50,123 | |
Contract Balances
The closing balances of contract assets included $12,742,000$13,621,000 in accounts receivable and $1,629,000$928,000 in other assets at OctoberJuly 31, 2022.2023. The opening balance of contract assets arising from contracts with customers included $9,287,000$13,459,000 in accounts receivable and $1,293,000$1,191,000 in other assets at April 30, 2022.2023. The closing and opening balances of contract liabilities included in deferred revenue arising from contracts with customers were $11,398,000$7,067,000 at OctoberJuly 31, 20222023 and $3,529,000$4,097,000 at April 30, 2022.2023. 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, 20222023 and OctoberJuly 31, 20222023 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):
| | | October 31, 2022 | | April 30, 2022 | | July 31, 2023 | | April 30, 2023 |
Finished products | Finished products | $ | 4,250 | | | $ | 4,555 | | Finished products | $ | 3,537 | | | $ | 3,412 | |
Work in process | Work in process | 3,266 | | | 2,893 | | Work in process | 2,138 | | | 2,380 | |
Raw materials | Raw materials | 16,986 | | | 16,348 | | Raw materials | 16,451 | | | 16,097 | |
Total | Total | $ | 24,502 | | | $ | 23,796 | | Total | $ | 22,126 | | | $ | 21,889 | |
The Company's International subsidiaries' inventories were $3,224,000$2,902,000 at OctoberJuly 31, 20222023 and $2,811,000$2,740,000 at April 30, 20222023 and are included in the above tables.
E. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and equivalents, mutual funds, short-term borrowings, and the cash surrender value of life insurance policies. 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 OctoberJuly 31, 20222023 and April 30, 20222023 (in thousands):
| | | | October 31, 2022 | | | July 31, 2023 |
Financial Assets | Financial Assets | | Level 1 | | Level 2 | | Total | Financial Assets | | Level 1 | | Level 2 | | Total |
Trading securities held in non-qualified compensation plans (1) | Trading securities held in non-qualified compensation plans (1) | | $ | 979 | | | $ | — | | | $ | 979 | | Trading securities held in non-qualified compensation plans (1) | | $ | 1,324 | | | $ | — | | | $ | 1,324 | |
Cash surrender value of life insurance policies (1) | Cash surrender value of life insurance policies (1) | | — | | | 1,317 | | | 1,317 | | Cash surrender value of life insurance policies (1) | | — | | | 1,401 | | | 1,401 | |
Total | Total | | $ | 979 | | | $ | 1,317 | | | $ | 2,296 | | Total | | $ | 1,324 | | | $ | 1,401 | | | $ | 2,725 | |
Financial Liabilities | Financial Liabilities | | | | | | | Financial Liabilities | | | | | | |
Non-qualified compensation plans (2) | Non-qualified compensation plans (2) | | $ | — | | | $ | 2,733 | | | $ | 2,733 | | Non-qualified compensation plans (2) | | $ | — | | | $ | 3,185 | | | $ | 3,185 | |
Total | Total | | $ | — | | | $ | 2,733 | | | $ | 2,733 | | Total | | $ | — | | | $ | 3,185 | | | $ | 3,185 | |
| | | | April 30, 2022 | | | April 30, 2023 |
Financial Assets | Financial Assets | | Level 1 | | Level 2 | | Total | Financial Assets | | Level 1 | | Level 2 | | Total |
Trading securities held in non-qualified compensation plans (1) | Trading securities held in non-qualified compensation plans (1) | | $ | 1,219 | | | $ | — | | | $ | 1,219 | | Trading securities held in non-qualified compensation plans (1) | | $ | 1,105 | | | $ | — | | | $ | 1,105 | |
Cash surrender value of life insurance policies (1) | Cash surrender value of life insurance policies (1) | | — | | | 1,371 | | | 1,371 | | Cash surrender value of life insurance policies (1) | | — | | | 1,358 | | | 1,358 | |
Total | Total | | $ | 1,219 | | | $ | 1,371 | | | $ | 2,590 | | Total | | $ | 1,105 | | | $ | 1,358 | | | $ | 2,463 | |
Financial Liabilities | Financial Liabilities | | | | | | | Financial Liabilities | | | | | | |
Non-qualified compensation plans (2) | Non-qualified compensation plans (2) | | $ | — | | | $ | 3,003 | | | $ | 3,003 | | Non-qualified compensation plans (2) | | $ | — | | | $ | 2,910 | | | $ | 2,910 | |
Total | Total | | $ | — | | | $ | 3,003 | | | $ | 3,003 | | Total | | $ | — | | | $ | 2,910 | | | $ | 2,910 | |
(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 April 30, 2022,2023, advances of $1.6$3.5 million were outstanding under the Company's revolving credit facility. The Company had standby letters of credit outstanding of $716,000 at April 30, 2022.Revolving Credit Facility. Amounts available under the revolving credit facilityRevolving Credit Facility were $2.4$10.3 million at April 30, 2022.2023. The borrowing rate under the Revolving Credit Facility was 9.02% as of April 30, 2023. The Company's International subsidiaries had a balance outstanding of $39,000 in short-term borrowings related to overdraft protection and short-term loan arrangements. At April 30, 2022,2023, the Company was in compliance with all of the financial covenants under its revolving credit facility.Revolving Credit Facility.
On June 27, 2022,At July 31, 2023, there were $5.0 million outstanding under the Revolving Credit Facility, with remaining borrowing capacity under the Revolving Credit Facility of $8.3 million. The borrowing rate under the Revolving Credit Facility was 9.33% as of July 31, 2023. In addition, the Company's International subsidiaries have a balance outstanding of $54,000 in short-term borrowings related to overdraft protection and short-term loan arrangements. As of July 31, 2023, the Company terminated the Credit Agreementwas in compliance with Wells Fargo, National Bank. At the time of termination, there were no borrowings under the Credit Agreement, and the Company did not incur any material termination penalties as a resultall of the termination.financial covenants under its Revolving Credit Facility.
G. Sale-Leaseback Financing Transaction
On December 22, 2021, the Company entered into an Agreement for Purchase and Sale of Real Property with CAI Investments Sub-Series 100 LLC, a Nevada limited liability company (the "Buyer"), for the Company’s headquarters and manufacturing facilities (the "Property") located at 2700 West Front Street in Statesville, North Carolina (the "Sale Agreement").
The Sale Agreement was finalized on March 24, 2022 and coincided with the Company and the Buyer entering into a 20-year lease, effective on such date, between the Company and CAI Investments Medical Products I Master Lessee LLC ("Lessor"), an affiliate of Buyer (the "Lease Agreement"). At the same time, the Buyer and its affiliates formed entering into a new, debt-financed affiliate, CAI Investments Medical Products I, DST ("Trust"), and contributed the Property to the Trust. According to the terms of the contemporaneous lease the Trust leased the Property to its affiliated Lessor, which in turn sub-leased the Property to the Company (together with the Sale Agreement, the "Sale-Leaseback Arrangement").
agreement. The Sale-Leaseback Arrangementlease arrangement is repayable overfor a 20-year term, with four renewal options of five years each. Under the terms of the Lease Agreement,lease agreement, the Company’s initial basic rent is approximately $158,000 per month, with annual increases of approximately 2% each year of the initial term.
The Company accounted for the Sale-Leaseback Arrangement as a financing transaction with the Buyer in accordance with ASC 842, "Leases," as the Lease Agreementlease agreement was determined to be a finance lease. The Company concluded the Lease Agreement met the qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using a discount rate of 4.75% to reflect
the Company’s incremental borrowing rate, compared to the fair value of the leased property as of the lease commencement date. In measuring the lease payments for the present value analysis, the Company elected the practical expedient to combine the lease component (the leased facilities) with the non-lease component (property management provided by the Buyer/Lessor) into a single lease component.
The presence of a finance lease indicates that control of the Propertyproperty has not transferred to the Buyer/Lessor and, as such, the transaction was deemed a failed sale-leaseback and must be accounted for as a financing arrangement. As a result of this determination, the Company is viewed as having received the sale proceeds from the Buyer/Lessor in the form of a hypothetical loan collateralized by its leased facilities. The hypothetical loan is payable as principal and interest in the form of “lease payments” to the Buyer/Lessor. As such, the Company will not derecognize the Propertyproperty from its books for accounting purposes until the lease ends. No gain or loss was recognized under GAAP related to the Sale-Leaseback Arrangement.
As of OctoberJuly 31, 2022,2023, the carrying value of the financing liability was $29,067,000,$28,617,000, net of $738,000$692,000 in debt issuance costs, of which $608,000$659,000 was classified as current on the Consolidated Balance Sheet with $28,459,000$27,958,000 classified as long-term. As of April 30, 2022,2023, the carrying value of the financing liability was $29,350,000,$28,774,000, net of $768,000$708,000 in debt issuance costs, of which $575,000$642,000 was classified as current on the Consolidated Balance Sheet with $28,775,000$28,132,000 classified as long-term. The monthly lease payments are split between a reduction of principal and interest expense using the effective interest rate method. Interest expense associated with the financing arrangement was $330,000$325,000 and $662,000$332,000 for the three and six months ended OctoberJuly 31, 2023 and July 31, 2022, respectively.
The Company will depreciate the building down to zero over the 20-year assumed economic life of the Property so that at the end of the lease term, the remaining carrying amount of the financing liability will equal the carrying amount of the land of $41,000.
Remaining future cash payments related to the financing liability as of OctoberJuly 31, 20222023 are as follows:
| ($ in thousands) | ($ in thousands) | | ($ in thousands) | |
Remainder of 2023 | | $ | 948 | | |
2024 | | 1,931 | | |
Remainder of 2024 | | Remainder of 2024 | | $ | 1,449 | |
2025 | 2025 | | 1,970 | | 2025 | | 1,970 | |
2026 | 2026 | | 2,009 | | 2026 | | 2,009 | |
2027 | 2027 | | 2,050 | | 2027 | | 2,050 | |
2028 | | 2028 | | 2,090 | |
Thereafter | Thereafter | | 35,958 | | Thereafter | | 33,867 | |
Total Minimum Liability Payments | Total Minimum Liability Payments | | 44,866 | | Total Minimum Liability Payments | | 43,435 | |
Imputed Interest | Imputed Interest | | (15,799) | | Imputed Interest | | (14,818) | |
Total | Total | | $ | 29,067 | | Total | | $ | 28,617 | |
H. 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 financing leases for a truck and IT equipment in the U.S. At OctoberJuly 31, 20222023 and April 30, 2022,2023, right-of-use assets totaled $9,908,000$8,612,000 and $7,573,000,$9,170,000, respectively. Operating cash paid to settle lease liabilities was $1,026,000$639,000 and $1,006,000$524,000 for the sixthree months ended OctoberJuly 31, 20222023 and OctoberJuly 31, 2021,2022, 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 $900,000 and $1,734,000$867,000 for the three and six months ended OctoberJuly 31, 2023, inclusive of period cost for short-term leases, not included in lease liabilities, of $228,000. Operating lease expenses were $835,000 for the three months ended July 31, 2022, inclusive of period cost for short-term leases, not included in lease liabilities, of $398,000 and $708,000. Operating lease expenses were $707,000 and $1,555,000 for the three and six months ended October 31, 2021, inclusive of period cost for short-term leases, not included in lease liabilities, of $201,000 and $549,000.$311,000.
At OctoberJuly 31, 2022,2023, the weighted average remaining lease term for the capitalized operating leases was 5.54.9 years and the weighted average discount rate was 4.9%5.0%. For the financing leases, the weighted average remaining lease term was 3.62.9 years and the weighted average discount rate was 7.0%6.7%. 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 OctoberJuly 31, 20222023 were as follows:
| | | Operating | | Financing | | Operating | | Financing |
| Remainder of fiscal 2023 | | $ | 1,213 | | | $ | 16 | | |
2024 | | 2,254 | | | 90 | | |
Remainder of fiscal 2024 | | Remainder of fiscal 2024 | | $ | 1,730 | | | $ | 83 | |
2025 | 2025 | | 2,100 | | | 90 | | 2025 | | 2,172 | | | 91 | |
2026 | 2026 | | 1,915 | | | 71 | | 2026 | | 1,917 | | | 71 | |
2027 | 2027 | | 1,652 | | | — | | 2027 | | 1,654 | | | — | |
2028 | | 2028 | | 1,127 | | | — | |
Thereafter | Thereafter | | 2,500 | | | — | | Thereafter | | 1,377 | | | — | |
Total Minimum Lease Payments | Total Minimum Lease Payments | | 11,634 | | | 267 | | Total Minimum Lease Payments | | 9,977 | | | 245 | |
Imputed Interest | Imputed Interest | | (1,889) | | | (32) | | Imputed Interest | | (1,421) | | | (16) | |
Total | Total | | $ | 9,745 | | | $ | 235 | | Total | | $ | 8,556 | | | $ | 229 | |
I. 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 94,93033,700 and 128,704104,141 antidilutive RSUs and options outstanding at OctoberJuly 31, 20222023 and OctoberJuly 31, 2021,2022, respectively. The following is a reconciliation of basic to diluted weighted average common shares outstanding (in thousands):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | |
| | October 31, 2022 | | October 31, 2021 | | October 31, 2022 | | October 31, 2021 | | July 31, 2023 | | July 31, 2022 | |
Basic | Basic | 2,830 | | | 2,789 | | | 2,819 | | | 2,783 | | Basic | 2,860 | | | 2,807 | | |
Dilutive effect of stock options and RSUs | Dilutive effect of stock options and RSUs | — | | | — | | | — | | | — | | Dilutive effect of stock options and RSUs | 25 | | | — | | |
Weighted average common shares outstanding - diluted | Weighted average common shares outstanding - diluted | 2,830 | | | 2,789 | | | 2,819 | | | 2,783 | | Weighted average common shares outstanding - diluted | 2,885 | | | 2,807 | | |
J. Stock Options and Stock-based Compensation
The Company recognizes compensation costs related to stock options and other stock awards granted by the Company as operating expenses over their vesting period.
In June 2022,2023, the Company granted 54,27987,220 RSUs under the 2017 Omnibus Incentive Plan ("2017 Plan"). These RSUs include both a service and a performance component, that vestsvesting over a three-year period. The recognized expense is based upon the vesting period for service criteria.criteria and estimated attainment of the performance criteria at the end of the three-year period, based on the ratio of cumulative days of service to total days over the three-year period. The Company recorded stock-based compensation expense during the three and six months ended OctoberJuly 31, 20222023 of $196,000 and $327,000, respectively,$173,000 with the remaining estimated stock-based compensation expense of $1,173,000$2,032,000 to be recorded over the remaining vesting periods. The Company recorded stock-based compensation expense during the three and six months ended OctoberJuly 31, 20212022 of $131,000 and $325,000, respectively.$131,000. Directors' fees paid with shares of common stock in lieu of cash in accordance with Director compensation guidelines were $10,000 and $41,000 for each of the sixthree month periods ended OctoberJuly 31, 2023 and July 31, 2022, and October 31, 2021respectively, and were also included in the stock-based compensation on the Condensed Consolidated Statements of Cash Flows.
K. Income Taxes
Income tax expense of $570,000$897,000 and $949,000$379,000 was recorded for the three and six months ended OctoberJuly 31, 2022, respectively. Income tax expense of $195,0002023 and $446,000 was recorded for the three and six months ended October 31, 2021, respectively. The effective tax rate was 125.0% and 818.1% for the three and six months ended OctoberJuly 31, 2022, respectively. The effective tax rate was (6.8)%26.3% and (11.3)(111.5)% for the three and six months ended OctoberJuly 31, 2021,2023 and July 31, 2022, respectively. The change in the effective tax rate for the period is primarily due tothree months ended July 31, 2023 reflects the impact of foreign operations which are taxed at different rates than the U.S. tax rate of 21%, combined with expected current year tax expense for the Company's domestic operations in excess of the change in domestic valuation allowance required for the fiscal year. The effective tax rate for the three months ended July 31, 2022 reflected the impact of foreign operations and the recording of a valuation allowance against the deferred tax asset which resulted in the elimination of any U.S. income tax benefit.benefit for pretax losses incurred during the period.
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 $1,117,000$1,363,000 and $976,000$1,318,000 for the withholding tax related to Kewaunee Labway India Pvt. Ltd. as of OctoberJuly 31, 20222023 and April 30, 2022,
2023, respectively. The Company recorded all deferred tax assets and liabilities related to its outside basis differences in its foreign subsidiaries consistent with ASC 740.
L. 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 and six months ended OctoberJuly 31, 20222023 and OctoberJuly 31, 2021.2022. The Company assumed an expected long-term rate of return of 7.75% for the periods ended OctoberJuly 31, 20222023 and OctoberJuly 31, 2021.2022.
Pension expense / (income) consisted of the following (in thousands):
| | | | | | | | | | | |
| Three Months Ended |
| October 31, 2022 | | October 31, 2021 |
Service cost | $ | — | | | $ | — | |
Interest cost | 100 | | | 177 | |
Expected return on plan assets | (166) | | | (401) | |
Recognition of net loss | 74 | | | 135 | |
Net periodic pension expense (income) | $ | 8 | | | $ | (89) | |
| | | Six Months Ended | | Three Months Ended |
| | October 31, 2022 | | October 31, 2021 | | July 31, 2023 | | July 31, 2022 |
Service cost | Service cost | $ | — | | | $ | — | | Service cost | $ | — | | | $ | — | |
Interest cost | Interest cost | 422 | | | 354 | | Interest cost | 224 | | | 322 | |
Expected return on plan assets | Expected return on plan assets | (701) | | | (802) | | Expected return on plan assets | (328) | | | (535) | |
Recognition of net loss | Recognition of net loss | 314 | | | 270 | | Recognition of net loss | 145 | | | 240 | |
Net periodic pension expense (income) | $ | 35 | | | $ | (178) | | |
Net periodic pension expense | | Net periodic pension expense | $ | 41 | | | $ | 27 | |
M. 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.
The following tables provide financial information by business segmentssegment and unallocated corporate expenses for the periods ended OctoberJuly 31, 20222023 and 20212022 (in thousands):
| | | Domestic Operations | | International Operations | | Corporate / Eliminations | | Total | | Domestic Operations | | International Operations | | Corporate / Eliminations | | Total |
Three months ended October 31, 2022 | | | | | | | | |
Three months ended July 31, 2023 | | Three months ended July 31, 2023 | | | | | | | |
Revenues from external customers | Revenues from external customers | $ | 37,991 | | | $ | 16,573 | | | $ | — | | | $ | 54,564 | | Revenues from external customers | $ | 35,420 | | | $ | 14,419 | | | $ | — | | | $ | 49,839 | |
Intersegment revenues | Intersegment revenues | 650 | | | 3,335 | | | (3,985) | | | — | | Intersegment revenues | 51 | | | 661 | | | (712) | | | — | |
Earnings (loss) before income taxes | Earnings (loss) before income taxes | 491 | | | 1,856 | | | (1,891) | | | 456 | | Earnings (loss) before income taxes | 3,623 | | | 793 | | | (1,004) | | | 3,412 | |
| Three months ended October 31, 2021 | | |
Three months ended July 31, 2022 | | Three months ended July 31, 2022 | |
Revenues from external customers | Revenues from external customers | $ | 29,934 | | | $ | 9,097 | | | $ | — | | | $ | 39,031 | | Revenues from external customers | $ | 37,468 | | | $ | 12,655 | | | $ | — | | | $ | 50,123 | |
Intersegment revenues | Intersegment revenues | 170 | | | 571 | | | (741) | | | — | | Intersegment revenues | 796 | | | 1,621 | | | (2,417) | | | — | |
Earnings (loss) before income taxes | Earnings (loss) before income taxes | (2,095) | | | 578 | | | (1,370) | | | (2,887) | | Earnings (loss) before income taxes | 98 | | | 1,094 | | | (1,532) | | | (340) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Operations | | International Operations | | Corporate / Eliminations | | Total |
Six months ended October 31, 2022 | | | | | | | |
Revenues from external customers | $ | 75,459 | | | $ | 29,228 | | | $ | — | | | $ | 104,687 | |
Intersegment revenues | 1,446 | | | 4,956 | | | (6,402) | | | — | |
Earnings (loss) before income taxes | 589 | | | 2,950 | | | (3,423) | | | 116 | |
| | | | | | | |
Six months ended October 31, 2021 | | | | | | | |
Revenues from external customers | $ | 59,597 | | | $ | 18,927 | | | $ | — | | | $ | 78,524 | |
Intersegment revenues | 345 | | | 1,136 | | | (1,481) | | | — | |
Earnings (loss) before income taxes | (2,304) | | | 1,242 | | | (2,881) | | | (3,943) | |
N. 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 adoptadopted this standard in fiscal year 2024. The Company does not expect the adoption of this standard todid 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 20222023 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 fiscal year ended April 30, 2022.2023. The following discussion and analysis describes material changes in the Company's financial condition since April 30, 2022.2023. The analysis of results of operations compares the three and six months ended OctoberJuly 31, 20222023 with the comparable periods of the prior year. Results of Operations
Sales for the quarter were $54,564,000,$49,839,000, an increasedecrease from sales of $39,031,000$50,123,000 in the comparable period of the prior year. Domestic sales for the quarter were $37,991,000, up 26.9%$35,420,000, down 5.5% from sales of $29,934,000$37,468,000 in the comparable period of the prior year. The increasedecrease in Domestic sales was predominantly from higher input costs being rolled into product pricing.related to the reduction of installation revenue related to the Company's decision to no longer sell directly to end users, which typically included installation services. International sales for the quarter were $16,573,000,$14,419,000, up 82.2%13.9% from sales of $9,097,000$12,655,000 in the comparable period of the prior year. International sales increased when compared to the prior year period due to the commencement of delivery of several large projects booked in the prior fiscal year.
Sales for the six months ended October 31, 2022that were $104,687,000, an increase from sales of $78,524,000 in the comparable period of the prior year. Domestic sales for the quarter were $75,459,000, up 26.6% from sales of $59,597,000 in the comparable period of the prior year. The increase in Domestic sales was predominantly from higher input costs being rolled into product pricing. International sales for the quarter were $29,228,000, up 54.4% from sales of $18,927,000 in the comparable period of the prior year. International sales increased when compared to the prior year period due to the commencement of delivery of large projects booked in the prior fiscal year.
The Company's order backlog was $157.8$140.8 million at OctoberJuly 31, 2022,2023, as compared to $139.7$174.0 million at OctoberJuly 31, 2021,2022, and $173.9$147.9 million at April 30, 2022.2023.
The gross profit margin for the three months ended OctoberJuly 31, 20222023 was 15.9%23.9% of sales, as compared to 9.2% of sales in the comparable quarter of the prior year. The gross profit margin for the six months ended October 31, 2022 was 14.2% of sales, as compared to 11.8%12.4% of sales in the comparable quarter of the prior year. The increase in gross profit margin percentage for the three and six months ended OctoberJuly 31, 20222023 is primarily duebeing generated from Domestic operations. The increase is driven by the pricing of new orders in response to higher raw material input costs being rolled into domestic pricing for the current fiscal year aswhen compared to the prior year comparable periods. Duringperiod, during which 25% of Domestic revenue related to direct orders that, in aggregate, were delivered at a loss for the three and six months ended October 31, 2021, the Company's gross profit margin percentage was unfavorably impacted by increases in steel, wood, and epoxy resin raw material costs that could not be added to existing fixed-price contracts of $2,112,000 and $3,763,000, respectively.Company.
Operating expenses for the three months ended OctoberJuly 31, 20222023 were $7,946,000,$8,106,000, or 14.6%16.3% of sales, as compared to $6,487,000,$6,592,000, or 16.6% of sales, in the comparable period of the prior year. Operating expenses for the six months ended October 31, 2022 were $14,538,000, or 13.9% of sales, as compared to $13,252,000, or 16.9%13.2% of sales, in the comparable period of the prior year. The increase in operating expenses for the three months ended OctoberJuly 31, 20222023 was primarily due to increases in
consulting SG&A wages, benefits, incentive and professional feesstock-based compensation of $278,000,$823,000, bad debt expense primarily related to a single job dispute of $102,000, travel and entertainment expenses of $102,000, and increases in international operating expenses of $940,000, partially offset by reductions in administrative wages, benefits, incentive and stock-based compensation of $70,000, marketing expense of $62,000, and corporate governance expenses of $36,000. The increase in operating expenses for the six months ended October 31, 2022 was primarily due to increases in consulting and professional fees of $476,000, and increases in international operating expenses of $1,308,000, partially offset by reductions in administrative wages, benefits, incentive and stock-based compensation of $700,000, marketing expense of $190,000, and corporate governance expenses of $11,000. The increase in operating expenses for the three and six months ended October 31, 2022 also included a one-time charge related to the write-down of a prior year insurance claim in the amount of $260,000. The increase in international operating expenses for the three and six months ended October 31, 2022 is related to the continued sales growth in the International operating segment.$170,000.
Interest expense, net was $370,000 and $754,000$430,000 for the three and six months ended OctoberJuly 31, 2022,2023, as compared to $132,000 and $238,000$384,000 for the comparable periodsperiod of the prior year. The changes in interest expense were primarily due to changes in the levels of bank borrowings and the Sale-Leaseback financing transaction.interest rates.
The effective income tax rate for the three and six months ended OctoberJuly 31, 20222023 was 125.0% and 818.1%26.3%, respectively, as compared to (6.8)% and (11.3)(111.5)% for the three and six months ended OctoberJuly 31, 2021, respectively.2022. Income tax expense of $570,000$897,000 and $195,000$379,000 was recorded for the three months ended OctoberJuly 31, 2023 and 2022, and 2021, respectively. Income tax expense of $949,000 and $446,000 was recorded for the six months ended October 31, 2022 and 2021, respectively.The change in theThe effective tax rate for the three and six months ended OctoberJuly 31, 20222023 reflects the impact of internationalforeign operations which are taxed at different rates than the U.S. tax rate of 21%, combined with noexpected current year tax expense for the Company's domestic operations in excess of the change in domestic valuation allowance required for the fiscal year. The effective rate for the three months ended July 31, 2022 reflected the impact of the domestic valuation allowance against the deferred tax asset, which resulted in the elimination of any U.S. income tax benefit being recorded for the most recent quarter due tolosses incurred during the Company's full valuation allowance position.period. See Note K, 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 increaseddecreased net lossearnings by $129,000 and $157,000$41,000 for the three and six months ended OctoberJuly 31, 2022,2023, compared to $18,000 and $56,000$28,000, for the comparable periodsperiod 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 lossearnings was $243,000,$2,474,000, or $(0.09)$0.86 per diluted share, for the three months ended OctoberJuly 31, 2022,2023, compared to $3,100,000,a net loss of $747,000, or $(1.11) per diluted share, in the prior year period. Net loss was $990,000, or $(0.35) per diluted share, for the six months ended October 31, 2022, compared to $4,445,000, or $(1.60)$(0.27) per diluted share, in the prior year period.
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 toactivities, supplemented as needed by borrowings under our manufacturing and corporate facilities in Statesville, North Carolina to provide additional liquidity. See Note G, Sale-Leaseback Financing Transaction for more information.Revolving Credit Facility. Additionally, certain machinery and equipment are financed by non-cancellable operating and financing 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 $47,756,000$49,291,000 at OctoberJuly 31, 2022,2023, compared to $49,272,000$47,867,000 at April 30, 2022.2023. The ratio of current assets to current liabilities was 2.1-to-1.0 at OctoberJuly 31, 2022,2023, compared to 2.2-to-1.0 at April 30, 2022.2023.
As previously reported in the Company's 2022 Annual Report on
Form 10-K, the Company was compliant at April 30, 2022 with all of the financial covenants under the revolving credit facility. On June 27, 2022, the Company terminated the Credit Agreement with Wells Fargo, National Bank. At the time of termination, there were no borrowings under the Credit Agreement, and the Company did not incur any material termination penalties as a result of the termination. For additional information concerning our credit facility, see Note F, Long-Term Debt and Other Credit Arrangements.The Company usedprovided cash of $586,000$8,172,000 during the sixthree months ended OctoberJuly 31, 2022,2023, primarily forfrom operations and decreases in accounts payable and other accrued expensesreceivable of $6.4$3.5 million and increases in prepaid expenses anddeferred revenue of $3.0 million, partially offset by increases in other current assets of $2.2 million, partially offset by an increase in deferred revenue$999,000 and accrued employee compensation and amounts withheld of $7.9 million. The increase in deferred revenue is primarily related to advance payments received for a large international order.$315,000. During the sixthree months ended OctoberJuly 31, 2022,2023, the Company used net cash of $919,000$1,654,000 in investing activities, all of which was used for capital expenditures. The Company's financing activities provided cash of $11,525,000$1,306,000 during the sixthree months ended OctoberJuly 31, 2022,2023, primarily from proceeds ofa net increase in borrowings under the sale-leaseback financing transaction that was previously recorded as a note receivable at April 30, 2022.Revolving Credit Facility.
Outlook
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 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 steel, wood, and epoxy resin, and whether the Company can 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.resin.
The Company continues to improve the quality of the order backlog by delivering a portion of the lower margin direct sales orders and replacing those ordersis operating more efficiently than in the backlog with higher margin product orders. This dynamic, as well as the Company’spast due to its ability to focus solely on supporting its dealers and distribution channel partners domestically while continuing to provide turnkey solutions in the international markets it serves. The improved focus of the organization, combined with a strong global management team, a healthy backlog, improved manufacturing capabilities, and end-use markets that continue to prioritize investment in projects that require the continued growth of its International business,products Kewaunee designs and manufactures positions Kewaunee well as the Company moves through the balance of the fiscal year.well.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements in this document constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). All statements other than statements of historical fact included in this QuarterlyAnnual Report, including statements regarding the Company's future financial condition, results of operations, business operations and business prospects, are forward-looking statements. Words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "predict," "believe" and similar words, expressions and variations of these words and expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions, and other important factors that could significantly impact results or achievements expressed or implied by such forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to: competitive and general economic conditions, and the ongoing impact of the COVID-19 pandemic, including disruptions from government mandates, both domestically and internationally, as well as supplier constraints and other supply disruptions; changes in customer demands; technological changes in our operations or in our industry; dependence on customers’ required delivery schedules; risks related to fluctuations in the Company’s operating results from quarter to quarter; risks related to international operations, including foreign currency fluctuations; changes in the legal and regulatory environment; changes in raw materials and commodity costs; acts of terrorism, war, governmental action, and natural disasters and other Force Majeure events. The cautionary statements made pursuant to the Reform Act herein and elsewhere by us 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. Over time, our actual results, performance, or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differencesdifference might be significant and harmful to our stockholders' interest. Many important factors that could cause such differences are described under the caption "Risk Factors" in Item 1A in the Company's 20222023 Annual Report on Form 10-K, which you should review carefully. 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, 2022.2023. 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 OctoberJuly 31, 2022.2023. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that, as of OctoberJuly 31, 2022,2023, 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.
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 20222023 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 its 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, 20222023 as filed with the SEC on July 1, 2022.June 30, 2023. Item 5. Other Information
On August 31, 2023, the Board of Directors of Kewaunee Scientific Corporation (the "Company") adopted a new share repurchase program to take effect starting September 1, 2023. The Board of Directors authorized the repurchase of up to 100,000 shares of the Company's common stock under the new program, which does not have a specified expiration date.
The timing and amount of any repurchases under this program will be determined by the Company's management at its discretion based upon its ongoing assessments of the capital needs of the business, the market price of the Company's common stock and general market conditions. Share repurchases under this program may be made through a variety of methods including open-market purchases, block trades, exchange transactions or any combination thereof. The program does not obligate the Company to acquire any particular amount of its common stock, and the share repurchase program may be suspended or discontinued at any time at the Company's discretion.
Item 6. Exhibits
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31.1 | | | |
31.2 | | | |
32.1 | | | |
32.2 | | | |
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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10.1 | | | (1) | |
31.1 | | | |
31.2 | | | |
32.1 | | | |
32.2 | | | |
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) | |
(1) Filed as an exhibit to the Kewaunee Scientific Corporation Current Report on Form 8-K (Commission File No. 0-5286) filed with the Securities and Exchange Commission on August 25, 2023, and incorporated herein by reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | KEWAUNEE SCIENTIFIC CORPORATION �� (Registrant) |
| | |
Date: December 9, 2022September 1, 2023 | | By | /s/ Donald T. Gardner III |
| | | Donald T. Gardner III |
| | | (As duly authorized officer and Vice President, Finance and Chief Financial Officer) |