UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended JanuaryJuly 31, 2015
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-5286
KEWAUNEE SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 38-0715562 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
2700 West Front Street Statesville, North Carolina | 28677-2927 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (704) 873-7202
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of March 9,September 7, 2015, the registrant had outstanding 2,628,8382,678,305 shares of Common Stock.
KEWAUNEE SCIENTIFIC CORPORATION
FOR THE QUARTERLY PERIOD ENDED JANUARYJULY 31, 2015
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PART I. FINANCIAL INFORMATION | ||||||
Item 1. | ||||||
1 | ||||||
– Three months ended July 31, 2015 and 2014 | ||||||
2 | ||||||
– Three months ended July 31, 2015 and 2014 | ||||||
Consolidated Statement of Stockholders’ Equity | 3 | |||||
– Three months ended July 31, 2015 | ||||||
4 | ||||||
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Consolidated Statements of Cash Flows (unaudited) | 5 | |||||
– Three months ended July 31, 2015 and 2014 | ||||||
6 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8 | ||||
Item 3. | ||||||
Item 4. | ||||||
PART II. OTHER INFORMATION | ||||||
Item 6. | ||||||
i
Item 1. | Financial Statements |
Kewaunee Scientific Corporation
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
Three months ended January 31 | Nine months ended January 31 | Three months ended July 31 | ||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
Net sales | $ | 27,754 | $ | 26,013 | $ | 88,546 | $ | 84,114 | ||||||||||||||||
Net Sales | $ | 31,089 | $ | 30,534 | ||||||||||||||||||||
Costs of products sold | 23,298 | 21,302 | 72,120 | 67,934 | 25,246 | 24,386 | ||||||||||||||||||
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Gross profit | 4,456 | 4,711 | 16,426 | 16,180 | 5,843 | 6,148 | ||||||||||||||||||
Operating expenses | 3,872 | 3,773 | 12,170 | 11,676 | 4,319 | 4,348 | ||||||||||||||||||
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Operating earnings | 584 | 938 | 4,256 | 4,504 | 1,524 | 1,800 | ||||||||||||||||||
Other income | 134 | 95 | 385 | 265 | 102 | 126 | ||||||||||||||||||
Interest expense | (91 | ) | (116 | ) | (274 | ) | (276 | ) | (92 | ) | (81 | ) | ||||||||||||
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Earnings before income taxes | 627 | 917 | 4,367 | 4,493 | 1,534 | 1,845 | ||||||||||||||||||
Income tax expense | 109 | 292 | 1,361 | 1,505 | 571 | 585 | ||||||||||||||||||
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Net earnings | 518 | 625 | 3,006 | 2,988 | 963 | 1,260 | ||||||||||||||||||
Less: net earnings attributable to the noncontrolling interest | 34 | 21 | 86 | 72 | 23 | 26 | ||||||||||||||||||
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Net earnings attributable to Kewaunee Scientific Corporation | $ | 484 | $ | 604 | $ | 2,920 | $ | 2,916 | $ | 940 | $ | 1,234 | ||||||||||||
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Net earnings per share attributable to Kewaunee Scientific Corporation stockholders | ||||||||||||||||||||||||
Basic | $ | 0.18 | $ | 0.23 | $ | 1.11 | $ | 1.12 | $ | 0.36 | $ | 0.47 | ||||||||||||
Diluted | $ | 0.18 | $ | 0.22 | $ | 1.10 | $ | 1.11 | $ | 0.35 | $ | 0.47 | ||||||||||||
Weighted average number of common shares outstanding | ||||||||||||||||||||||||
Basic | 2,628 | 2,615 | 2,625 | 2,606 | 2,630 | 2,620 | ||||||||||||||||||
Diluted | 2,659 | 2,645 | 2,656 | 2,627 | 2,659 | 2,651 |
See accompanying notes to consolidated financial statements.
Kewaunee Scientific Corporation
Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
Three months ended January 31 | Nine months ended January 31 | Three months ended July 31 | ||||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
Net earnings | $ | 518 | $ | 625 | $ | 3,006 | $ | 2,988 | $ | 963 | $ | 1,260 | ||||||||||||
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Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||
Foreign currency translation adjustments | (130 | ) | (133 | ) | (246 | ) | (566 | ) | (19 | ) | 10 | |||||||||||||
Change in fair value of cash flow hedge | (17 | ) | 28 | (15 | ) | 70 | 12 | 13 | ||||||||||||||||
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Other comprehensive income (loss) | (147 | ) | (105 | ) | (261 | ) | (496 | ) | (7 | ) | 23 | |||||||||||||
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Comprehensive income, net of tax | 371 | 520 | 2,745 | 2,492 | 956 | 1,283 | ||||||||||||||||||
Less: comprehensive income attributable to the noncontrolling interest | 34 | 21 | 86 | 72 | 23 | 26 | ||||||||||||||||||
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Comprehensive income attributable to Kewaunee Scientific Corporation | $ | 337 | $ | 499 | $ | 2,659 | $ | 2,420 | $ | 933 | $ | 1,257 | ||||||||||||
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See accompanying notes to consolidated financial statements.
Kewaunee Scientific Corporation
Consolidated Statement of Stockholders’ Equity
(Unaudited)
(in thousands)
$ in thousands, except per share amounts | Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | ||||||||||||||||||
Balance at April 30, 2014 | $ | 6,557 | $ | 1,642 | $ | (57 | ) | $ | 32,090 | $ | (6,273 | ) | $ | 33,959 | ||||||||||
Net earnings attributable to Kewaunee Scientific Corporation | — | — | — | 2,920 | — | 2,920 | ||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | (261 | ) | (261 | ) | ||||||||||||||||
Cash dividends paid, $0.35 per share | — | — | — | (919 | ) | — | (919 | ) | ||||||||||||||||
Stock options exercised, 29,075 shares | 23 | 6 | 25 | — | — | 54 | ||||||||||||||||||
Stock based compensation | — | 154 | — | — | — | 154 | ||||||||||||||||||
Purchase of treasury stock, 1,159 shares | — | — | (21 | ) | — | — | (21 | ) | ||||||||||||||||
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Balance at January 31, 2015 | $ | 6,580 | $ | 1,802 | $ | (53 | ) | $ | 34,091 | $ | (6,534 | ) | $ | 35,886 | ||||||||||
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$ in thousands, except per share amounts | Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | ||||||||||||||||||
Balance at April 30, 2015 | $ | 6,583 | $ | 1,841 | $ | (53 | ) | $ | 34,385 | $ | (7,880 | ) | $ | 34,876 | ||||||||||
Net earnings attributable to Kewaunee Scientific Corporation | — | — | — | 940 | — | 940 | ||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | (7 | ) | (7 | ) | ||||||||||||||||
Cash dividends paid, $0.12 per share | — | — | — | (316 | ) | — | (316 | ) | ||||||||||||||||
Stock based compensation | — | 47 | — | — | — | 47 | ||||||||||||||||||
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Balance at July 31, 2015 | $ | 6,583 | $ | 1,888 | $ | (53 | ) | $ | 35,009 | $ | (7,887 | ) | $ | 35,540 | ||||||||||
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See accompanying notes to consolidated financial statements.
Kewaunee Scientific Corporation
($ and shares in thousands)thousands, except share amounts)
January 31, 2015 | April 30, 2014 | July 31, 2015 | April 30, 2015 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 3,863 | $ | 6,248 | $ | 2,899 | $ | 3,044 | ||||||||
Restricted cash | 2,524 | 368 | 1,964 | 2,276 | ||||||||||||
Receivables, less allowance | 25,062 | 23,473 | ||||||||||||||
Receivables, less allowance: $180; $171, on each respective date | 28,117 | 29,106 | ||||||||||||||
Inventories | 12,430 | 11,938 | 13,970 | 12,745 | ||||||||||||
Deferred income taxes | 655 | 646 | 845 | 856 | ||||||||||||
Prepaid expenses and other current assets | �� | 1,048 | 680 | 1,676 | 735 | |||||||||||
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Total Current Assets | 45,582 | 43,353 | 49,471 | 48,762 | ||||||||||||
Property, plant and equipment, at cost | 48,409 | 46,391 | 48,639 | 48,167 | ||||||||||||
Accumulated depreciation | (33,604 | ) | (31,821 | ) | (34,265 | ) | (33,644 | ) | ||||||||
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Net Property, Plant and Equipment | 14,805 | 14,570 | 14,374 | 14,523 | ||||||||||||
Deferred income taxes | 1,447 | 1,385 | 2,489 | 2,468 | ||||||||||||
Other | 3,616 | 3,409 | 3,742 | 3,737 | ||||||||||||
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Total Other Assets | 5,063 | 4,794 | 6,231 | 6,205 | ||||||||||||
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Total Assets | $ | 65,450 | $ | 62,717 | $ | 70,076 | $ | 69,490 | ||||||||
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Liabilities and Equity | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Short-term borrowings and interest rate swap | $ | 1,036 | $ | 3,150 | ||||||||||||
Short-term borrowings and interest rate swaps | $ | 4,901 | $ | 4,955 | ||||||||||||
Current portion of long-term debt | 421 | 421 | 421 | 421 | ||||||||||||
Accounts payable | 12,093 | 8,542 | 11,760 | 11,232 | ||||||||||||
Employee compensation and amounts withheld | 1,358 | 2,000 | 1,557 | 1,882 | ||||||||||||
Deferred revenue | 296 | 137 | 602 | 216 | ||||||||||||
Other accrued expenses | 3,026 | 1,913 | 1,707 | 2,349 | ||||||||||||
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Total Current Liabilities | 18,230 | 16,163 | 20,948 | 21,055 | ||||||||||||
Long-term debt | 3,876 | 4,192 | 3,665 | 3,771 | ||||||||||||
Accrued pension and deferred compensation costs | 7,152 | 7,250 | 9,655 | 9,465 | ||||||||||||
Other non-current liabilities | — | 888 | ||||||||||||||
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Total Liabilities | 29,258 | 28,493 | 34,268 | 34,291 | ||||||||||||
Commitments and Contingencies | ||||||||||||||||
Equity: | ||||||||||||||||
Common Stock | 6,580 | 6,557 | ||||||||||||||
Common Stock, $2.50 par value, Authorized – 5,000 shares; Issued – 2,633 shares; Outstanding – 2,630 shares, on each date | 6,583 | 6,583 | ||||||||||||||
Additional paid-in-capital | 1,802 | 1,642 | 1,888 | 1,841 | ||||||||||||
Retained earnings | 34,091 | 32,090 | 35,009 | 34,385 | ||||||||||||
Accumulated other comprehensive loss | (6,534 | ) | (6,273 | ) | (7,887 | ) | (7,880 | ) | ||||||||
Common stock in treasury, at cost | (53 | ) | (57 | ) | ||||||||||||
Common stock in treasury, at cost, 3 shares, on each date | (53 | ) | (53 | ) | ||||||||||||
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Total Kewaunee Scientific Corporation Stockholders’ Equity | 35,886 | 33,959 | 35,540 | 34,876 | ||||||||||||
Noncontrolling interest | 306 | 265 | 268 | 323 | ||||||||||||
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Total Equity | 36,192 | 34,224 | 35,808 | 35,199 | ||||||||||||
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Total Liabilities and Equity | $ | 65,450 | $ | 62,717 | $ | 70,076 | $ | 69,490 | ||||||||
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See accompanying notes to consolidated financial statements.
Kewaunee Scientific Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine months ended January 31 | Three months ended July 31 | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net earnings | $ | 3,006 | $ | 2,988 | $ | 963 | $ | 1,260 | ||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation | 1,900 | 1,846 | 621 | 628 | ||||||||||||
Bad debt provision | 34 | 109 | — | 26 | ||||||||||||
Stock based compensation expense | 154 | 186 | 47 | 58 | ||||||||||||
Provision for deferred income tax expense | (71 | ) | (80 | ) | (10 | ) | (15 | ) | ||||||||
Change in assets and liabilities: | ||||||||||||||||
(Increase) decrease in receivables | (1,623 | ) | 3,805 | |||||||||||||
(Increase) decrease in inventories | (492 | ) | 696 | |||||||||||||
Increase (decrease) in accounts payable and other accrued expenses | 4,022 | (2,127 | ) | |||||||||||||
Increase (decrease) in deferred revenue | 159 | (317 | ) | |||||||||||||
Decrease (increase) in receivables | 989 | (2,262 | ) | |||||||||||||
Increase in inventories | (1,225 | ) | (275 | ) | ||||||||||||
Increase in accounts payable and other accrued expenses | 449 | 877 | ||||||||||||||
Increase in deferred revenue | 386 | 146 | ||||||||||||||
Other, net | (750 | ) | 126 | (699 | ) | (638 | ) | |||||||||
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Net cash provided by operating activities | 6,339 | 7,232 | ||||||||||||||
Net cash provided by (used in) operating activities | 1,521 | (195 | ) | |||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Capital expenditures | (2,135 | ) | (1,614 | ) | (472 | ) | (541 | ) | ||||||||
(Increase) decrease in restricted cash | (2,156 | ) | 14 | |||||||||||||
Decrease (increase) in restricted cash | 312 | (1,968 | ) | |||||||||||||
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Net cash used in investing activities | (4,291 | ) | (1,600 | ) | (160 | ) | (2,509 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Dividends paid | (919 | ) | (834 | ) | (316 | ) | (288 | ) | ||||||||
Dividends paid to noncontrolling interest in subsidiaries | (38 | ) | (38 | ) | (75 | ) | — | |||||||||
Decrease in short-term borrowings and interest rate swap | (2,114 | ) | (2,828 | ) | ||||||||||||
Proceeds from long-term debt | — | 5,000 | ||||||||||||||
(Decrease) increase in short-term borrowings and interest rate swaps | (54 | ) | 2,064 | |||||||||||||
Payments on long-term debt | (316 | ) | (3,748 | ) | (106 | ) | (105 | ) | ||||||||
Payment toward purchase of noncontrolling interest in subsidiary | (888 | ) | (1,780 | ) | (888 | ) | (888 | ) | ||||||||
Net proceeds from exercise of stock options (including tax benefit) | 33 | 59 | ||||||||||||||
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Net cash used in financing activities | (4,242 | ) | (4,169 | ) | ||||||||||||
Net cash (used in) provided by financing activities | (1,439 | ) | 783 | |||||||||||||
Effect of exchange rate changes on cash | (191 | ) | (616 | ) | (67 | ) | 41 | |||||||||
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(Decrease) increase in cash and cash equivalents | (2,385 | ) | 847 | |||||||||||||
Decrease in cash and cash equivalents | (145 | ) | (1,880 | ) | ||||||||||||
Cash and cash equivalents, beginning of period | 6,248 | 5,811 | 3,044 | 6,248 | ||||||||||||
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Cash and cash equivalents, end of period | $ | 3,863 | $ | 6,658 | $ | 2,899 | $ | 4,368 | ||||||||
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Supplemental Disclosure of Cash Flow Information | ||||||||||||||||
Purchase of noncontrolling interest in subsidiary – Other accrued expenses and other non-current liabilities | $ | — | $ | 1,775 | ||||||||||||
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See accompanying notes to consolidated financial statements.
Kewaunee Scientific Corporation
Notes to Consolidated Financial Statements
(unaudited)
A.Financial Information
The unaudited interim consolidated financial statements of Kewaunee Scientific Corporation (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.Commission (the “Commission”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These interim 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 20142015 Annual Report to Stockholders. 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 consolidated balance sheet as of April 30, 20142015 included in this interim period filing has been derived from the audited financial statements at that date, but does not include all of the information and related notes required by generally accepted accounting principles (GAAP) for complete financial statements.
The preparation of the interim 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.Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during the three and nine month periods.period. Diluted earnings per share reflects the assumed exercise and conversion of outstanding options under the Company’s stock option plans, except when options have an anti-dilutive effect. Options to purchase 70,80029,276 shares were not included in the computation of diluted earnings per share for the three and nine month periodsperiod ended JanuaryJuly 31, 2015, because the option exercise prices were greater than the average market price of the common shares at that date,during the quarter, and accordingly, such options would have an antidilutive effect. Options to purchase 36,60036,200 shares were not included in the computation of diluted earnings per share for the three and nine month periodsperiod ended JanuaryJuly 31, 2014, because the effect would be anti-dilutive.
C.Inventories
Inventories consisted of the following (in thousands):
January 31, 2015 | April 30, 2014 | July 31, 2015 | April 30, 2015 | |||||||||||||
Finished products | $ | 3,137 | $ | 2,909 | $ | 3,611 | $ | 2,936 | ||||||||
Work in process | 1,412 | 1,550 | 1,634 | 1,422 | ||||||||||||
Raw materials | 7,881 | 7,479 | 8,725 | 8,387 | ||||||||||||
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$ | 12,430 | $ | 11,938 | $ | 13,970 | $ | 12,745 | |||||||||
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For interim reporting, LIFO inventories are computed based on year-to-date quantities and interim changes in price levels. Changes in quantities and price levels are reflected in the interim consolidated financial statements in the period in which they occur.
D.Segment Information
The following table provides financial information by business segments for the three and nine months ended JanuaryJuly 31, 2015 and 2014 (in thousands):
Domestic Operations | International Operations | Corporate | Total | Americas | International | Corporate | Total | |||||||||||||||||||||||||
Three months ended January 31, 2015 | ||||||||||||||||||||||||||||||||
Three months ended July 31, 2015 | ||||||||||||||||||||||||||||||||
Revenues from external customers | $ | 20,025 | $ | 7,729 | $ | — | $ | 27,754 | $ | 24,315 | $ | 6,774 | $ | — | $ | 31,089 | ||||||||||||||||
Intersegment revenues | 501 | 697 | (1,198 | ) | — | 286 | 521 | (807 | ) | — | ||||||||||||||||||||||
Earnings (loss) before income taxes | 264 | 1,046 | (683 | ) | 627 | 1,833 | 765 | (1,064 | ) | 1,534 | ||||||||||||||||||||||
Three months ended January 31, 2014 | ||||||||||||||||||||||||||||||||
Three months ended July 31, 2014 | ||||||||||||||||||||||||||||||||
Revenues from external customers | $ | 21,544 | $ | 4,469 | $ | — | $ | 26,013 | $ | 24,248 | $ | 6,286 | $ | — | $ | 30,534 | ||||||||||||||||
Intersegment revenues | 214 | 456 | (670 | ) | — | 124 | 532 | (656 | ) | — | ||||||||||||||||||||||
Earnings (loss) before income taxes | 1,227 | 678 | (988 | ) | 917 | 2,203 | 704 | (1,062 | ) | 1,845 |
Domestic Operations | International Operations | Corporate | Total | |||||||||||||
Nine months ended January 31, 2015 | ||||||||||||||||
Revenues from external customers | $ | 67,902 | $ | 20,644 | $ | — | $ | 88,546 | ||||||||
Intersegment revenues | 1,407 | 1,603 | (3,010 | ) | — | |||||||||||
Earnings (loss) before income taxes | 4,526 | 2,519 | (2,678 | ) | 4,367 | |||||||||||
Nine months ended January 31, 2014 | ||||||||||||||||
Revenues from external customers | $ | 70,678 | $ | 13,436 | $ | — | $ | 84,114 | ||||||||
Intersegment revenues | 2,150 | 1,704 | (3,854 | ) | — | |||||||||||
Earnings (loss) before income taxes | 5,791 | 1,819 | (3,117 | ) | 4,493 |
E.Defined Benefit Pension Plans
The Company has non-contributory defined benefit pension plans. 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. Contributions of $775,000 were paidThe Company did not make any contributions to the plans during the ninethree months ended JanuaryJuly 31, 2015 and the2014. The Company does not expect anyexpects to make contributions to be paidof $60,000 to the plans during the remainder of the fiscal year. Contributions of $300,000 were made during the nine months ended January 31, 2014.year 2016.
Pension expense consisted of the following (in thousands):
Three months ended January 31, 2015 | Three months ended January 31, 2014 | Three months ended July 31, 2015 | Three months ended July 31, 2014 | |||||||||||||
Service cost | $ | -0- | $ | -0- | $ | -0- | $ | -0- | ||||||||
Interest cost | 223 | 214 | 230 | 222 | ||||||||||||
Expected return on plan assets | (331 | ) | (321 | ) | (344 | ) | (325 | ) | ||||||||
Recognition of net loss | 233 | 286 | 294 | 234 | ||||||||||||
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Net periodic pension expense | $ | 125 | $ | 179 | $ | 180 | $ | 131 | ||||||||
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Nine months ended January 31, 2015 | Nine months ended January 31, 2014 | |||||||||||||||
Service cost | $ | -0- | $ | -0- | ||||||||||||
Interest cost | 670 | 643 | ||||||||||||||
Expected return on plan assets | (993 | ) | (962 | ) | ||||||||||||
Recognition of net loss | 700 | 857 | ||||||||||||||
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Net periodic pension expense | $ | 377 | $ | 538 | ||||||||||||
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The Company’s 20142015 Annual Report to Stockholders contains management’s discussion and analysis of financial condition and results of operations as of and for the year ended April 30, 2014.2015. The following discussion and analysis describes material changes in the Company’s financial condition since April 30, 2014.2015. The analysis of results of operations compares the three and nine months ended JanuaryJuly 31, 2015 with the comparable periodsperiod of the prior year.
Results of Operations
Sales for the three months ended JanuaryJuly 31, 2015 were $27,754,000,$31,089,000, an increase of 7%1.8% from sales of $26,013,000$30,534,000 in the comparable period of the prior year. SalesAmericas sales were $24,315,000, up from Domestic Operations were $20,025,000, down from $21,544,000$24,248,000 in the comparable period of the prior year. The decrease in Domestic Operations sales resultedyear, as opportunities increased from the challenging domesticimproving marketplace for laboratory construction marketplace, particularly for educational laboratory construction projects. Sales fromfurniture and scientific equipment in the United States. International Operationssales were $7,729,000,$6,774,000, up from $4,469,000sales of $6,286,000 in the comparable period of the prior year, as sales benefited fromwere favorably impacted by shipments of several large international orders received in earlier periods.
Sales forduring the nine months ended January 31, 2015 were $88,546,000, up 5% from sales of $84,114,000 in the same period last year. Domestic Operations sales for the nine-month period were $67,902,000, down from sales of $70,678,000 in the same period last year, due to the challenging laboratory construction marketplace. International Operations sales were $20,644,000, up 54% from sales of $13,436,000 in the same period last year, as several large orders taken in the prior year were shipped in the current year period.quarter.
The order backlog was $78.0$86.7 million at JanuaryJuly 31, 2015, as compared to $84.5$90.1 million at October 31, 2014April 30, 2015 and $69.8$82.7 million at JanuaryJuly 31, 2014.
The gross profit margin for the three months ended JanuaryJuly 31, 2015 was 16.1%18.8% of sales, as compared to 18.1%20.1% of sales in the comparable quarter of the prior year. The decrease in the margin was the result of highly-competitive pricing in the domestic marketplace and an unfavorable product mix. The gross profit margin percentage for the ninethree months ended January 31, 2015of the current period was 18.6%primarily due to the impact of sales, as compared to 19.2%shipments of the remaining orders in the comparable period ofbacklog that were bid in the prior year.year at extremely competitive pricing.
Operating expenses for the three months ended JanuaryJuly 31, 2015 were $3,872,000,$4,319,000, or 14.0%13.9% of sales, as compared to $3,773,000,$4,348,000, or 14.5%14.2% of sales, in the comparable period of the prior year. Operating expenses for the three months ended JanuaryJuly 31, 2015 reflect an increasea decrease of $47,000$202,000 in Americas sales and marketing expense and a $121,000 decrease in incentive compensation expense, partially offset by a $55,000 increase in employee separation costs, a $49,000 increase in pension expense, and a $194,000 increase in the operating expenses an increase of $235,000 for the Company’s International Operations and an increase of $95,000 in salaries and benefits, partially offset by a $54,000 reduction in defined benefit pensionprimarily related to increased International sales.
Interest expense a $275,000 reduction in incentive compensation and an $8,000 reduction in bad debt expense. Operating expenseswas $92,000 for the ninethree months ended JanuaryJuly 31, 2015, were $12,170,000, or 13.7% of sales, as compared to $11,676,000, or 13.9% of sales in$81,000 for the comparable period of the prior year. Operating expenses forThe higher interest expense resulted from higher borrowing levels in the ninefirst three months ended January 31, 2015 reflect an increase of $243,000 in sales and marketing expenses, an increase of $453,000 in operating expenses for the Company’s International Operations, and an increase of $191,000 in salaries and benefits, partially offset by a $161,000 reduction in defined benefit pension expense, a $214,000 reduction in incentive compensation and a $75,000 reduction in bad debt expense.
Interest expense was $91,000 and $274,000 for the three and nine months ended January 31, 2015, respectively, as compared to $116,000 and $276,000 for the comparable periods of the priorcurrent year. The decreases for the current year periods resulted primarily from lower borrowing levels.
Income tax expense of $109,000$571,000 was recorded for the three months ended JanuaryJuly 31, 2015, as compared to income tax expense of $292,000 recorded for the comparable period of the prior year. Income tax expense of $1,361,000 was recorded for the nine months ended January 31, 2015, as compared to income tax expense of $1,505,000$585,000 recorded for the comparable period of the prior year. The effective tax rates were 17.4%37.2% and 31.8%31.7% for each of the three-month periodsthree months ended JanuaryJuly 31, 2015 and 2014, respectively. The effective tax rates were 31.2% and 33.5% for the nine months ended January 31, 2015 and 2014, respectively. Thehigher effective tax rate for the current three month period was lower than the comparable period of the prior year primarily due to the impact of the reinstatement of the federal research and development (R&D) tax credit in January 2015 retroactive to 2014. The cumulative impact of these credits for the first six months of the fiscal year was considered in the third quarter effective rate calculation. Additionally, the effective tax rates in all of the reported periods were impacted by the varying ratiosresulted from a higher ratio of pretax earnings attributable to subsidiaries located in geographic locations with lowerhigher income tax rates.rates as compared to the comparable period of the prior year. Also, the effective tax rate in the prior period was reduced from statutory rates by the favorable impact of state and federal tax credits.
Noncontrolling interests related to the Company’s subsidiary that is not 100% owned by the Company reduced net earnings by $34,000$23,000 for the three months ended JanuaryJuly 31, 2015, as compared to $21,000$26,000 for the comparable period of the prior year. Net earnings were reduced by $86,000 and $72,000 for the nine months ended January 31, 2015 and 2014, respectively. The changeschange in the amounts between each of these periods were directlynet earnings attributable to changesthe noncontrolling interest in the amountscurrent period was due to change of net income reported forearnings of the Company’s one subsidiary that is not 100% owned byin the Company.related periods.
Net earnings of $484,000,$940,000, or $0.18$0.35 per diluted share, were reported for the three months ended JanuaryJuly 31, 2015, compared to net earnings of $604,000,$1,234,000, or $0.22$0.47 per diluted share, in the prior year period. Net earnings of $2,920,000, or $1.10 per diluted share, were reported for the nine months ended January 31, 2015, compared to net earnings of $2,916,000, or $1.11 per diluted share, for the same period last year.
Liquidity and Capital Resources
Historically, the Company’s principal sources of liquidity have been funds generated from operations, supplemented as needed by short-term borrowings under the Company’s revolving credit facility. Additionally, certain machinery and equipment are financed by non-cancellable operating leases or capital 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 $27,352,000$28,523,000 at JanuaryJuly 31, 2015, compared to $27,190,000$27,707,000 at April 30, 2014.2015. The ratio of current assets to current liabilities was 2.5-to-1.02.4-to-1.0 at JanuaryJuly 31, 2015, compared to 2.7-to-1.02.3-to-1.0 at April 30, 2014.2015. At JanuaryJuly 31, 2015, advances of $272,000$4,292,000 were outstanding under the Company’s bank revolving credit facility, as compared to advances of $2,900,000$4,583,000 outstanding as of April 30, 2014.2015. The Company had standby letters of credit outstanding of $4,210,000 at JanuaryJuly 31, 2015 compared to $4,305,000 atand April 30, 2014.2015. Amounts available under the $20 million revolving credit facility were $15.5$11.5 million and $12.8$11.2 million at JanuaryJuly 31, 2015 and April 30, 2014,2015, respectively. Outstanding short-term debt under credit arrangements with foreign banks at July 31, 2015 was $426,000, compared to $169,000 at April 30, 2015. Total bank borrowings and interest rate swaps were $5,333,000$8,987,000 at JanuaryJuly 31, 2015, as compared to $7,763,000$9,147,000 at April 30, 2014.2015.
The Company’s operations provided cash of $6,339,000$1,521,000 during the ninethree months ended JanuaryJuly 31, 2015. Cash was2015, with cash primarily provided from earnings and a decrease of $989,000 in receivables and an increase of $449,000 in accounts payable and other accrued expenses, of $4,022,000, which was partially
offset by an increase in accounts receivable of $1,623,000, and an increase in inventories of $492,000. The large increase in accounts payable and accrued expenses was primarily attributable to the start-up of a large international project during the current year.$1,225,000. The Company’s operations providedused cash of $7,232,000$195,000 during the ninethree months ended JanuaryJuly 31, 2014, with cash primarily provided from earnings and a decreasean increase of $877,000 in accounts payable and other accrued expenses, offset by an increase in accounts receivable of $3,805,000, partially offset by a decrease in accounts payable and accrued expenses of $2,127,000.$2,262,000.
During the ninethree months ended JanuaryJuly 31, 2015, net cash of $4,291,000$160,000 was used in investing activities, which included $472,000 for capital expenditures, offset by a $312,000 decrease in restricted cash. This compares to net cash used of $2,135,000$2,509,000, which included $541,000 for capital expenditures and an increase of $1,968,000 in restricted cash, of $2,156,000. The increase in restricted cash resulted from the Company’s pledge of cash to support bank guarantees required for the start-up of a large international project. This compares to the net use of cash of $1,600,000 for investing activities in the comparable period of the prior year for capital expenditures of $1,614,000, offset by a decreaseyear. The increase in restricted cash in the prior year period was related to an increase in the amount of $14,000.fixed deposits of the Company’s international subsidiaries pledged to support bank guarantees required under customer contracts.
The Company’s financing activities used cash of $4,242,000$1,439,000 during the ninethree months ended JanuaryJuly 31, 2015, primarily for the final payment of $888,000 toward the purchase of the noncontrolling interest in a subsidiary, cash dividends of $316,000 paid to stockholders, cash dividends of $75,000 paid to minority interest holders and repayment of long-term debt of $106,000. The Company’s financing activities provided cash of $783,000 during the three months ended July 31, 2014 with cash provided by an increase in short-term borrowings of $2,064,000, offset by payment of $888,000 for the second installment toward the purchase of the noncontrolling interest in a subsidiary, $2,114,000 for repayment of short-term borrowings, cash dividends of $919,000 paid to stockholders, cash dividends of $38,000 paid to minority interest holders, and payments of $316,000 on long-term debt. The Company’s financing activities used cash of $4,169,000 during the nine months ended January 31, 2014 for payment of $1,780,000 toward the purchase of the noncontrolling interest in a subsidiary, repayment of short-term borrowings of $2,828,000, cash dividends of $834,000$288,000 paid to stockholders, and cash dividendspayments of $38,000 paid to minority interest holders. This was partially offset by a net increase in$105,000 on long-term debt of $1,252,000 in conjunction with the replacement of the Company’s long-term loans with a new lender.debt.
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 stainless steel, wood, and epoxy resin, and whether the Company is able to increase product prices to customers in amounts that correspond to such increases without materially and adversely affecting sales. Additionally, since prices are normally quoted on a firm basis in the industry, the Company bears the burden of possible increases in labor and material costs between the quotation of an order and delivery of a product. The Company is also unable to predict the strength of the global economic recovery and its short-term and long-term impact on the Company’s operations and the markets in which it competes. Looking forward, the Company expects sales and earningsfiscal year 2016 to be a profitable year for the fourth quarter to improve over the third quarter of the current fiscal year.Company.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This report contains statements that the Company believes to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this 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. All forward-looking statements are subject to important factors, risks, uncertainties and assumptions, including industry and economic conditions that could cause actual results to differ materially from those described in the forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to, competitive and general economic conditions, both domestically and internationally; changes in customer demands; dependence on customers’ required delivery schedules; risks related to fluctuations in the Company’s operating results from quarter to quarter; risks related to international operations, including foreign currency fluctuations; changes in the legal and regulatory environment; changes in raw materials and commodity costs; and acts of terrorism, war, governmental action, natural disasters and other Force Majeure events. Many important factors that could cause such a difference are described under the caption “Risk Factors” in Item 1A in the Company’s 20142015 Annual Report on Form 10-K. 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.
REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
A review of the interim consolidated financial information included in this Quarterly Report on Form 10-Q for each of the three and nine month periods ended JanuaryJuly 31, 2015 and JanuaryJuly 31, 2014 has been performed by Cherry Bekaert LLP, the Company’s independent registered public accounting firm. Their report on the interim consolidated financial information follows.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have reviewed the accompanying consolidated balance sheet of Kewaunee Scientific Corporation and its subsidiaries (the “Company”) as of JanuaryJuly 31, 2015, the related consolidated statements of operations, and comprehensive income, and cash flows for the three-month and nine-month periods ended JanuaryJuly 31, 2015 and 2014, and the related consolidated statement of stockholders’ equity for the nine-monththree-month period ended JanuaryJuly 31, 2015, and the related consolidated statements of cash flows for the nine-month periods ended January 31, 2015 and 2014.2015. These interim consolidated financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the interim consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of April 30, 2014,2015, and the related consolidated statements of operations, comprehensive income and stockholders’ equity, and cash flows for the year then ended (not presented herein) and in our report dated July 17, 2014,20, 2015, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of April 30, 20142015 is fairly stated in all material respects in relation to the consolidated financial statement from which it has been derived.
/s/ Cherry Bekaert LLP |
Charlotte, North Carolina |
March 13,September 11, 2015
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, 2014.2015.
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 JanuaryJuly 31, 2015. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that, as of JanuaryJuly 31, 2015, 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.
Item 6. | Exhibits |
3.3 | Bylaws (As amended as of June 2, 2015) 1 | |
10.61C | Third Amendment to Credit and Security Agreement and First amendment to Revolving Credit Note dated as of June 3, 20151 | |
10.67* | Fiscal Year 2016 Incentive Bonus Plan2 | |
10.70* | Separation Agreement dated as of July 15, 2015 between Kewaunee Scientific Corporation and D. Michael Parker.3 | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | The referenced exhibit is a management contract or compensatory plan or arrangement. |
1 | Filed as an exhibit to the Kewaunee Scientific Corporation Current Report on Form 8-K (Commission File No. 0-5286) filed on June 3, 2015 and incorporated herein by reference. |
2 | Filed as an exhibit to the Kewaunee Scientific Corporation Current Report on Form 8-K (Commission File No. 0-5286) filed on June 29, 2015 and incorporated herein by reference. |
3 | Filed as an exhibit to the Kewaunee Scientific Corporation Current Report on Form 8-K (Commission File No. 0-5286) filed on July 20, 2015 and incorporated herein by reference. |
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
KEWAUNEE SCIENTIFIC CORPORATION (Registrant) | ||||||||
Date: | By | /s/ D. Michael Parker | ||||||
D. Michael Parker | ||||||||
(As duly authorized officer and Senior Vice President, Finance and Chief Financial Officer) |
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