UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JulyOctober 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 SeptemberDecember 7, 2015, the registrant had outstanding 2,678,3052,683,713 shares of Common Stock.

 

 

 


KEWAUNEE SCIENTIFIC CORPORATION

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JULYOCTOBER 31, 2015

 

     Page Number 

PART I. FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements

  
 

Consolidated Statements of Operations (unaudited) – Three and six months ended October 31, 2015 and 2014

   1

– Three months ended July 31, 2015 and 2014

  
 

Consolidated Statements of Comprehensive Income (unaudited) – Three and six months ended October  31, 2015 and 2014

   2

– Three months ended July 31, 2015 and 2014

  
 

Consolidated Statement of Stockholders’ Equity (unaudited) – Six months ended October 31, 2015

   3

– Three months ended July 31, 2015

  
 

Consolidated Balance Sheets

4

JulyOctober 31, 2015 (unaudited) and April 30, 2015

4  
 

Consolidated Statements of Cash Flows (unaudited) – Six months ended October 31, 2015 and 2014

   5

– Three months ended July 31, 2015 and 2014

  
 

Notes to Consolidated Financial Statements

   6  

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   8  
 

Review by Independent Registered Public Accounting Firm

   10  
 

Report of Independent Registered Public Accounting Firm

   11  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

   12  

Item 4.

 

Controls and Procedures

   12  

PART II. OTHER INFORMATION

  

Item 6.

 

Exhibits

   13  

SIGNATURE

   14  

 

i


Part 1. Financial Information

 

Item 1.Financial Statements

Kewaunee Scientific Corporation

Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

  Three months ended
July 31
   Three months ended
October 31
 Six months ended
October 31
 
  2015 2014   2015 2014 2015 2014 

Net Sales

  $31,089   $30,534  

Net sales

  $31,037   $30,258   $62,126   $60,792  

Costs of products sold

   25,246   24,386     25,505   24,436   50,751   48,822  
  

 

  

 

   

 

  

 

  

 

  

 

 

Gross profit

   5,843   6,148     5,532   5,822   11,375   11,970  

Operating expenses

   4,319   4,348     4,403   3,950   8,722   8,298  
  

 

  

 

   

 

  

 

  

 

  

 

 

Operating earnings

   1,524   1,800     1,129   1,872   2,653   3,672  

Other income

   102   126     85   125   187   251  

Interest expense

   (92 (81   (61 (102 (153 (183
  

 

  

 

   

 

  

 

  

 

  

 

 

Earnings before income taxes

   1,534   1,845     1,153   1,895   2,687   3,740  

Income tax expense

   571   585     446   667   1,017   1,252  
  

 

  

 

   

 

  

 

  

 

  

 

 

Net earnings

   963   1,260     707   1,228   1,670   2,488  

Less: net earnings attributable to the noncontrolling interest

   23   26     12   26   35   52  
  

 

  

 

   

 

  

 

  

 

  

 

 

Net earnings attributable to Kewaunee Scientific Corporation

  $940   $1,234    $695   $1,202   $1,635   $2,436  
  

 

  

 

   

 

  

 

  

 

  

 

 

Net earnings per share attributable to Kewaunee Scientific Corporation stockholders

        

Basic

  $0.36   $0.47    $0.26   $0.46   $0.62   $0.93  

Diluted

  $0.35   $0.47    $0.26   $0.45   $0.61   $0.92  

Weighted average number of common shares outstanding

        

Basic

   2,630   2,620     2,671   2,626   2,650   2,623  

Diluted

   2,659   2,651     2,690   2,659   2,674   2,655  

See accompanying notes to consolidated financial statements.

Kewaunee Scientific Corporation

Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)

 

  Three months ended
July 31
   Three months ended
October 31
 Six months ended
October 31
 
  2015 2014   2015 2014 2015 2014 

Net earnings

  $963   $1,260    $707   $1,228   $1,670   $2,488  
  

 

  

 

   

 

  

 

  

 

  

 

 

Other comprehensive income (loss), net of tax:

       

Foreign currency translation adjustments

   (19 10     (195 (126 (214 (116

Change in fair value of cash flow hedge

   12   13     (1 (11 11   2  
  

 

  

 

   

 

  

 

  

 

  

 

 

Other comprehensive income (loss)

   (7 23     (196 (137 (203 (114
  

 

  

 

   

 

  

 

  

 

  

 

 

Comprehensive income, net of tax

   956   1,283     511   1,091   1,467   2,374  

Less: comprehensive income attributable to the noncontrolling interest

   23   26     12   26   35   52  
  

 

  

 

   

 

  

 

  

 

  

 

 

Comprehensive income attributable to Kewaunee Scientific Corporation

  $933   $1,257    $499   $1,065   $1,432   $2,322  
  

 

  

 

   

 

  

 

  

 

  

 

 

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
   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    $6,583    $1,841    $(53 $34,385   $(7,880 $34,876  

Net earnings attributable to Kewaunee Scientific Corporation

   —      —      —    940    —    940     —      —      —    1,635    —    1,635  

Other comprehensive income (loss)

   —      —      —     —    (7 (7   —      —      —     —    (203 (203

Cash dividends paid, $0.12 per share

   —      —      —    (316  —    (316

Cash dividends paid, $0.25 per share

   —      —      —    (664  —    (664

Stock options exercised, 66,950 shares

   126     332     —     —     —    458  

Stock based compensation

   —      47     —     —     —    47     —      96     —     —     —    96  
  

 

   

 

   

 

  

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

 

Balance at July 31, 2015

  $6,583    $1,888    $(53 $35,009   $(7,887 $35,540  

Balance at October 31, 2015

  $6,709    $2,269    $(53 $35,356   $(8,083 $36,198  
  

 

   

 

   

 

  

 

  

 

  

 

   

 

   

 

   

 

  

 

  

 

  

 

 

See accompanying notes to consolidated financial statements.

Kewaunee Scientific Corporation

Consolidated Balance Sheets

($ and shares in thousands, except share amounts)thousands)

 

  July 31,
2015
 April 30,
2015
   October 31,
2015
 April 30,
2015
 
  (Unaudited)     (Unaudited)   

Assets

      

Current Assets:

      

Cash and cash equivalents

  $2,899   $3,044    $3,274   $3,044  

Restricted cash

   1,964   2,276     1,679   2,276  

Receivables, less allowance: $180; $171, on each respective date

   28,117   29,106  

Receivables, less allowance; $190; $171, on each respective date

   28,572   29,106  

Inventories

   13,970   12,745     13,740   12,745  

Deferred income taxes

   845   856     840   856  

Prepaid expenses and other current assets

   1,676   735     1,302   735  
  

 

  

 

   

 

  

 

 

Total Current Assets

   49,471   48,762     49,407   48,762  

Property, plant and equipment, at cost

   48,639   48,167     49,352   48,167  

Accumulated depreciation

   (34,265 (33,644   (34,795 (33,644
  

 

  

 

   

 

  

 

 

Net Property, Plant and Equipment

   14,374   14,523     14,557   14,523  

Deferred income taxes

   2,489   2,468     2,504   2,468  

Other

   3,742   3,737     3,730   3,737  
  

 

  

 

   

 

  

 

 

Total Other Assets

   6,231   6,205     6,234   6,205  
  

 

  

 

   

 

  

 

 

Total Assets

  $70,076   $69,490    $70,198   $69,490  
  

 

  

 

   

 

  

 

 

Liabilities and Equity

      

Current Liabilities:

      

Short-term borrowings and interest rate swaps

  $4,901   $4,955    $5,529   $4,955  

Current portion of long-term debt

   421   421     421   421  

Accounts payable

   11,760   11,232     9,654   11,232  

Employee compensation and amounts withheld

   1,557   1,882     2,244   1,882  

Deferred revenue

   602   216     693   216  

Other accrued expenses

   1,707   2,349     1,860   2,349  
  

 

  

 

   

 

  

 

 

Total Current Liabilities

   20,948   21,055     20,401   21,055  

Long-term debt

   3,665   3,771     3,560   3,771  

Accrued pension and deferred compensation costs

   9,655   9,465     9,765   9,465  
  

 

  

 

   

 

  

 

 

Total Liabilities

   34,268   34,291     33,726   34,291  

Commitments and Contingencies

      

Equity:

   

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  

Stockholders’ Equity:

   

Common Stock, $2.50 par value, Authorized – 5,000 shares; Issued – 2,684 shares; 2,633 shares – Outstanding – 2,681 shares; 2,630 shares, on each respective date

   6,709   6,583  

Additional paid-in-capital

   1,888   1,841     2,269   1,841  

Retained earnings

   35,009   34,385     35,356   34,385  

Accumulated other comprehensive loss

   (7,887 (7,880   (8,083 (7,880

Common stock in treasury, at cost, 3 shares, on each date

   (53 (53   (53 (53
  

 

  

 

   

 

  

 

 

Total Kewaunee Scientific Corporation Stockholders’ Equity

   35,540   34,876     36,198   34,876  

Noncontrolling interest

   268   323     274   323  
  

 

  

 

   

 

  

 

 

Total Equity

   35,808   35,199     36,472   35,199  
  

 

  

 

   

 

  

 

 

Total Liabilities and Equity

  $70,076   $69,490    $70,198   $69,490  
  

 

  

 

   

 

  

 

 

See accompanying notes to consolidated financial statements.

Kewaunee Scientific Corporation

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

  Three months ended
July 31
   Six months ended
October 31
 
  2015 2014   2015 2014 

Cash flows from operating activities:

      

Net earnings

  $963   $1,260    $1,670   $2,488  

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

   

Adjustments to reconcile net earnings to net cash provided by operating activities:

   

Depreciation

   621   628     1,227   1,263  

Bad debt provision

   —    26     24   4  

Stock based compensation expense

   47   58     96   108  

Provision for deferred income tax expense

   (10 (15   (20 (41

Change in assets and liabilities:

      

Decrease (increase) in receivables

   989   (2,262   510   (605

Increase in inventories

   (1,225 (275   (995 (261

Increase in accounts payable and other accrued expenses

   449   877  

(Decrease) increase in accounts payable and other accrued expenses

   (817 3,931  

Increase in deferred revenue

   386   146     477   101�� 

Other, net

   (699 (638   (311 (226
  

 

  

 

   

 

  

 

 

Net cash provided by (used in) operating activities

   1,521   (195

Net cash provided by operating activities

   1,861   6,762  

Cash flows from investing activities:

      

Capital expenditures

   (472 (541   (1,261 (1,626

Decrease (increase) in restricted cash

   312   (1,968   597   (2,501
  

 

  

 

   

 

  

 

 

Net cash used in investing activities

   (160 (2,509   (664 (4,127

Cash flows from financing activities:

      

Dividends paid

   (316 (288   (664 (603

Dividends paid to noncontrolling interest in subsidiaries

   (75  —      (75 (38

(Decrease) increase in short-term borrowings and interest rate swaps

   (54 2,064  

Increase (decrease) in short-term borrowings and interest rate swaps

   574   (2,209

Payments on long-term debt

   (106 (105   (211 (210

Payment toward purchase of noncontrolling interest in subsidiary

   (888 (888   (888 (888

Net proceeds from exercise of stock options (including tax benefit)

   458   32  
  

 

  

 

   

 

  

 

 

Net cash (used in) provided by financing activities

   (1,439 783  

Net cash used in financing activities

   (806 (3,916

Effect of exchange rate changes on cash

   (67 41     (161 (104
  

 

  

 

   

 

  

 

 

Decrease in cash and cash equivalents

   (145 (1,880

Increase (decrease) in cash and cash equivalents

   230   (1,385

Cash and cash equivalents, beginning of period

   3,044   6,248     3,044   6,248  
  

 

  

 

   

 

  

 

 

Cash and cash equivalents, end of period

  $2,899   $4,368    $3,274   $4,863  
  

 

  

 

   

 

  

 

 

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 (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 2015 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, 2015 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 six month period.periods. 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 29,276113,000 shares were not included in the computation of diluted earnings per share for the three and six month periodperiods ended JulyOctober 31, 2015, because the option exercise prices were greater than the average market price of the common shares during the quarter,at that date, and accordingly, such options would have an antidilutive effect. Options to purchase 36,20070,800 shares were not included in the computation of diluted earnings per share for the three and six month periodperiods ended JulyOctober 31, 2014, because the effect would be anti-dilutive.

C.Inventories

Inventories consisted of the following (in thousands):

 

  July 31, 2015   April 30, 2015   October 31, 2015   April 30, 2015 

Finished products

  $3,611    $2,936    $3,082    $2,936  

Work in process

   1,634     1,422     1,885     1,422  

Raw materials

   8,725     8,387     8,773     8,387  
  

 

   

 

   

 

   

 

 
  $13,970    $12,745    $13,740    $12,745  
  

 

   

 

   

 

   

 

 

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 six months ended JulyOctober 31, 2015 and 2014 (in thousands):

 

   Americas   International   Corporate   Total 

Three months ended July 31, 2015

        

Revenues from external customers

  $24,315    $6,774    $—     $31,089  

Intersegment revenues

   286     521     (807   —   

Earnings (loss) before income taxes

   1,833     765     (1,064   1,534  

Three months ended July 31, 2014

        

Revenues from external customers

  $24,248    $6,286    $—     $30,534  

Intersegment revenues

   124     532     (656   —   

Earnings (loss) before income taxes

   2,203     704     (1,062   1,845  

   Domestic
Operations
   International
Operations
   Corporate  Total 

Three months ended October 31, 2015

       

Revenues from external customers

  $26,279    $4,758    $—    $31,037  

Intersegment revenues

   160     752     (912  —   

Earnings (loss) before income taxes

   1,927     535     (1,309  1,153  

Three months ended October 31, 2014

       

Revenues from external customers

  $23,629    $6,629    $—    $30,258  

Intersegment revenues

   782     374     (1,156  —    

Earnings (loss) before income taxes

   2,059     769     (933  1,895  
   Domestic
Operations
   International
Operations
   Corporate  Total 

Six months ended October 31, 2015

       

Revenues from external customers

  $50,594    $11,532    $—    $62,126  

Intersegment revenues

   446     1,273     (1,719  —   

Earnings (loss) before income taxes

   3,760     1,300     (2,373  2,687  

Six months ended October 31, 2014

       

Revenues from external customers

  $47,877    $12,915    $—     $60,792  

Intersegment revenues

   906     906     (1,812  —    

Earnings (loss) before income taxes

   4,262     1,473     (1,995  3,740  

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 $64,000 were paid to the plans during the six months ended October 31, 2015 and the Company does not expect any contributions to be paid to the plans during the remainder of the fiscal year. The Company did not make any contributions to the plans during the threesix months ended JulyOctober 31, 2015 and 2014. The Company expects to make contributions of $60,000 to the plans during fiscal year 2016.

Pension expense consisted of the following (in thousands):

 

  Three months ended
July 31, 2015
   Three months ended
July 31, 2014
   Three months ended
October 31, 2015
   Three months ended
October 31, 2014
 

Service cost

  $-0-    $-0-    $-0-    $-0-  

Interest cost

   230     222     230     225  

Expected return on plan assets

   (344   (325   (344   (337

Recognition of net loss

   294     234     294     233  
  

 

   

 

   

 

   

 

 

Net periodic pension expense

  $180    $131    $180    $121  
  

 

   

 

   

 

   

 

 
  Six months ended
October 31, 2015
   Six months ended
October 31, 2014
 

Service cost

  $-0-    $-0-  

Interest cost

   460     447  

Expected return on plan assets

   (688   (662

Recognition of net loss

   588     467  
  

 

   

 

 

Net periodic pension expense

  $360    $252  
  

 

   

 

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company’s 2015 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, 2015. The following discussion and analysis describes material changes in the Company’s financial condition since April 30, 2015. The analysis of results of operations compares the three and six months ended JulyOctober 31, 2015 with the comparable periodperiods of the prior year.

Results of Operations

Sales for the three months ended JulyOctober 31, 2015 were $31,089,000,$31,037,000, an increase of 1.8%2.6% from sales of $30,534,000$30,258,000 in the comparable period of the prior year. Americas salesSales from Domestic Operations were $24,315,000,$26,279,000, up from $24,248,000$23,629,000 in the comparable period of the prior year, as opportunitiesyear. The increase in domestic sales reflects the increased demand for the Company’s products across the country. Sales from the improving marketplace for laboratory furniture and scientific equipment in the United States. International salesOperations were $6,774,000, up$4,758,000, down 28.2% from sales of $6,286,000$6,629,000 in the comparable period of the prior year, asyear. The decrease in international sales were favorably impacted by shipmentsis a result of several large orders duringthat shipped in the quarter.comparable period of the prior year.

Sales for the six months ended October 31, 2015 were $62,126,000, up 2.2% from sales of $60,792,000 in the same period last year. Domestic Operations sales for the six-month period were $50,594,000, up 5.7% from sales of $47,877,000 in the same period last year. International Operations sales were $11,532,000, down 10.7% from sales of $12,915,000 in the same period last year.

The order backlog was $92.4 million at October 31, 2015, as compared to $86.7 million at July 31, 2015 as compared to $90.1and $84.5 million at April 30, 2015 and $82.7 million at JulyOctober 31, 2014.

The gross profit margin for the three months ended JulyOctober 31, 2015 was 18.8%17.8% of sales, as compared to 20.1%19.2% of sales in the comparable quarter of the prior year. The decrease in the margin was the result of the competitiveness of the environment over the past year. The gross profit margin percentage for the threesix months ended October 31, 2015 was 18.3% of the current period was primarily duesales, as compared to the impact of shipments of the remaining orders19.7% in the backlog that were bid in the prior year at extremely competitive pricing.same period last year.

Operating expenses for the three months ended JulyOctober 31, 2015 were $4,319,000,$4,403,000, or 13.9%14.2% of sales, as compared to $4,348,000,$3,950,000, or 14.2%13.1% of sales, in the comparable period of the prior year. Operating expenses for the three months ended JulyOctober 31, 2015 reflect non-recurring expenses of $413,000 related to the retirement and replacement of a decrease of $202,000 in Americas sales and marketing expense andkey executive, a $121,000 decrease in incentive compensation expense, partially offset by a $55,000 increase in employee separation costs, a $49,000$59,000 increase in pension expense, and a $194,000$46,000 increase in the operatingbad debt expense, partially offset by a $48,000 decrease in sales and marketing expenses.

Operating expenses of the Company’s International Operations primarily related to increased International sales.

Interest expense was $92,000 for the threesix months ended JulyOctober 31, 2015 were $8,722,000, or 14.0% of sales, as compared to $81,000 for$8,298,000, or 13.6% of sales in the comparable period of the prior year. The higher interestOperating expenses for the six months ended October 31, 2015 reflectnon-recurring expenses of $524,000 related to the retirement and replacement of a key executive, a $108,000 increase in pension expense, resulted from higher borrowing levelsand a $20,000 increase in bad debt expense, partially offset by a $250,000 decrease in sales and marketing expenses.

Interest expense was $61,000 and $153,000 for the first three and six months ended October 31, 2015, respectively, as compared to $102,000 and $183,000 for the comparable periods of the prior year. The decreases for the current year.year periods resulted primarily from lower borrowing levels.

Income tax expense of $571,000$446,000 was recorded for the three months ended JulyOctober 31, 2015, as compared to income tax expense of $585,000$667,000 recorded for the comparable period of the prior year. Income tax expense of $1,017,000 was recorded for the six months ended October 31, 2015, as compared to income tax expense of $1,252,000 recorded for the comparable period of the prior year. The effective tax rate was 38.7% and 35.2% for the three-month periods ended October 31, 2015 and 2014, respectively. The effective tax rates were 37.2%37.8% and 31.7%33.5% for the threesix months ended JulyOctober 31, 2015 and 2014, respectively. The higher effective tax rate for the current periodyear periods resulted from a higher ratio of pretax earnings attributable to subsidiaries located in geographic locations with higher income tax rates as compared to the comparable periodperiods of the prior year. Also, the effective tax raterates in the prior period wasyear periods were 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 $23,000$12,000 for the three months ended JulyOctober 31, 2015, as compared to $26,000 for the comparable period of the prior year. Net earnings were reduced by $35,000 and $52,000 for the six months ended October 31, 2015 and 2014, respectively. The changechanges in the net earningsamounts between each of these periods were directly attributable to the noncontrolling interestchanges in the current period was due to changeamounts of earnings ofnet income reported for the Company’s one subsidiary inthat is not 100% owned by the related periods.Company.

Net earnings of $940,000,$695,000, or $0.35$0.26 per diluted share, were reported for the three months ended JulyOctober 31, 2015, compared to net earnings of $1,234,000,$1,202,000, or $0.47$0.45 per diluted share, in the prior year period. Net earnings of $1,635,000, or $0.61 per diluted share, were reported for the six months ended October 31, 2015, compared to net earnings of $2,436,000, or $0.92 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 $28,523,000$29,006,000 at JulyOctober 31, 2015, compared to $27,707,000 at April 30, 2015. The ratio of current assets to current liabilities was 2.4-to-1.0 at JulyOctober 31, 2015, compared to 2.3-to-1.0 at April 30, 2015. At JulyOctober 31, 2015, advances of $4,292,000$4,476,000 were outstanding under the Company’s bank revolving credit facility, compared to advances of $4,583,000 outstanding as of April 30, 2015. The Company had standby letters of credit outstanding of $4,210,000 at JulyOctober 31, 2015 and April 30, 2015. Amounts available under the $20 million revolving credit facility were $11.5$11.3 million and $11.2 million at JulyOctober 31, 2015 and April 30, 2015, respectively. Outstanding short-term debt under credit arrangements with foreign banks at JulyOctober 31, 2015 was $426,000,$869,000, compared to $169,000 at April 30, 2015. Total bank borrowings and interest rate swaps were $8,987,000$9,510,000 at JulyOctober 31, 2015, compared to $9,147,000 at April 30, 2015.

The Company’s operations provided cash of $1,521,000$1,861,000 during the threesix months ended JulyOctober 31, 2015, with cash2015. Cash was primarily provided from earnings, and a decrease of $989,000 in receivables of $510,000, and an increase in deferred revenue of $449,000$477,000, which was partially offset by an increase in inventories of $995,000 and a decrease in accounts payable and other accrued expenses

offset by an increase in inventories of $1,225,000.$817,000. The Company’s operations usedprovided cash of $195,000$6,762,000 during the threesix months ended JulyOctober 31, 2014, with cash2014. Cash was primarily provided from earnings and an increase of $877,000 in accounts payable and other accrued expenses of $3,931,000, which was partially offset by an increase in receivables of $605,000, and an increase in inventories of $261,000. The large increase in accounts receivablepayable and accrued expenses in the prior year period was primarily attributable to the start-up of $2,262,000.a large international project.

During the threesix months ended JulyOctober 31, 2015, net cash of $160,000$664,000 was used in investing activities which included $472,000 for capital expenditures of $1,261,000, partially offset by a $312,000 decrease in restricted cash.cash of $597,000. This compares to the net use of cash used of $2,509,000, which included $541,000$4,127,000 for capital expenditures and an increase of $1,968,000 in restricted cash,investing activities in the comparable period of the prior year. Theyear for capital expenditures of $1,626,000, and an increase in restricted cash in the prior year period was related to an increase in the amount of fixed deposits of the Company’s international subsidiaries pledged to support bank guarantees required under customer contracts.$2,501,000.

The Company’s financing activities used cash of $1,439,000$806,000 during the threesix months ended JulyOctober 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$664,000 paid to stockholders, cash dividends of $75,000 paid to minority interest holders, and repaymentpayments of $211,000 on 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 providedpartially offset by an increase in short-term borrowings of $2,064,000, offset by payment$574,000. The Company’s financing activities used cash of $888,000$3,916,000 during the six months ended October 31, 2014 for the second installment payment of $888,000 toward the purchase of the noncontrolling interest in a subsidiary, $2,209,000 for repayment of short-term borrowings, cash dividends of $288,000$603,000 paid to stockholders, cash dividends of $38,000 paid to minority interest holders, and payments of $105,000$210,000 on long-term 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. Looking forward, the Company expects fiscal year 2016 to be a profitable year for the 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 2015 Annual Report on Form 10-K. Theseforward-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 six month periods ended JulyOctober 31, 2015 and JulyOctober 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 JulyOctober 31, 2015, the related consolidated statements of operations, and comprehensive income and cash flows for thethree-month and six-month periods ended JulyOctober 31, 2015 and 2014, and the related consolidated statement of stockholders’ equity for the three-monthsix-month period ended JulyOctober 31, 2015.2015, and the related consolidated statements of cash flows for the six-month periods ended October 31, 2015 and 2014. 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, 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 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, 2015 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
December 15, 2015

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, 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 JulyOctober 31, 2015. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that, as of JulyOctober 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.

PART II. OTHER INFORMATION

 

Item 6.Exhibits

 

    3.3Bylaws (As amended as of June 2, 2015) 1
  10.61C
10.1*
  Third Amendment to Credit401(k) Incentive Savings Plan for Salaried and Security AgreementHourly Employees of Kewaunee Scientific Corporation (as amended and First amendment to Revolving Credit Note dated as ofrestated effective June 3, 201529, 2015)1
  10.67*10.2*  Fiscal Year 2016 Incentive BonusAmended and Restated 2008 Key Employee Stock Option Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement dated July 24, 2015, for its Annual meeting of Stockholders on August 26, 2015)2
  10.70*10.3*  SeparationOffer Letter to Thomas D. Hull dated October 14, 20153
  10.4*Change of Control Employment Agreement dated as of July 15,November 2, 2015 between Kewaunee Scientific Corporation and Thomas D. Michael Parker.Hull.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.
11. Filed as an exhibit towith this Form 10-Q with the Kewaunee Scientific Corporation Current Report on Form 8-K (Commission File No. 0-5286) filed on June 3, 2015Securities and incorporated herein by reference.Exchange Commission.
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,August 28, 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,November 3, 2015 and incorporated herein by reference.

SIGNATURE

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

 

 

KEWAUNEE SCIENTIFIC CORPORATION

(Registrant)

Date: September 11,December 15, 2015 By 

/s/ Thomas D. Michael ParkerHull III

  

Thomas D. Michael Parker

Hull III

(As duly authorized officer and Senior Vice President, Finance and Chief Financial Officer)

 

14