☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
__________
Delaware | 38-0715562 | |||||||
(State or other jurisdiction of
| (IRS Employer
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2700 West Front Street Statesville, North Carolina | 28677-2927 | |||||||
(Address of principal executive offices) | (Zip Code) |
Registrant’s
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
Non-accelerated filer | Smaller reporting company | ☒ | ||||||||||||||||||
Emerging growth company | ☐ |
Page Number | |||||||||||||
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– Three and Six Months Ended October 31, 2022 and 2021 | |||||||||||||
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Three months ended January 31 | Nine months ended January 31 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net sales | $ | 38,190 | $ | 30,371 | $ | 113,542 | $ | 103,979 | ||||||||
Costs of products sold | 29,836 | 25,339 | 90,456 | 84,704 | ||||||||||||
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Gross profit | 8,354 | 5,032 | 23,086 | 19,275 | ||||||||||||
Operating expenses | 5,971 | 4,590 | 16,360 | 14,484 | ||||||||||||
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Operating earnings | 2,383 | 442 | 6,726 | 4,791 | ||||||||||||
Other income | 179 | 120 | 524 | 358 | ||||||||||||
Interest expense | (78 | ) | (71 | ) | (226 | ) | (229 | ) | ||||||||
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Earnings before income taxes | 2,484 | 491 | 7,024 | 4,920 | ||||||||||||
Income tax expense | 1,566 | 133 | 3,149 | 1,695 | ||||||||||||
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Net earnings | 918 | 358 | 3,875 | 3,225 | ||||||||||||
Less: net earnings attributable to the noncontrolling interest | 35 | 17 | 120 | 98 | ||||||||||||
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Net earnings attributable to Kewaunee Scientific Corporation | $ | 883 | $ | 341 | $ | 3,755 | $ | 3,127 | ||||||||
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Net earnings per share attributable to Kewaunee Scientific Corporation stockholders | ||||||||||||||||
Basic | $ | 0.32 | $ | 0.13 | $ | 1.38 | $ | 1.16 | ||||||||
Diluted | $ | 0.31 | $ | 0.13 | $ | 1.35 | $ | 1.15 | ||||||||
Weighted average number of common shares outstanding | ||||||||||||||||
Basic | 2,722 | 2,711 | 2,717 | 2,703 | ||||||||||||
Diluted | 2,784 | 2,734 | 2,772 | 2,724 |
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 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net earnings | $ | 918 | $ | 358 | $ | 3,875 | $ | 3,225 | ||||||||
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Other comprehensive income (loss), net of tax: | ||||||||||||||||
Foreign currency translation adjustments | 203 | (63 | ) | 49 | (232 | ) | ||||||||||
Change in fair value of cash flow hedge | 12 | 35 | 30 | 53 | ||||||||||||
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Other comprehensive income (loss) | 215 | (28 | ) | 79 | (179 | ) | ||||||||||
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Comprehensive income, net of tax | 1,133 | 330 | 3,954 | 3,046 | ||||||||||||
Less: comprehensive income attributable to the noncontrolling interest | 35 | 17 | 120 | 98 | ||||||||||||
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Comprehensive income attributable to Kewaunee Scientific Corporation | $ | 1,098 | $ | 313 | $ | 3,834 | $ | 2,948 | ||||||||
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See accompanying notes to consolidated financial statements.
Kewaunee Scientific Corporation
Consolidated Statement of Stockholders’ Equity
(Unaudited)
(in thousands, except share$ and 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, 2017 | $ | 6,789 | $ | 2,695 | $ | (53 | ) | $ | 39,771 | $ | (6,319 | ) | $ | 42,883 | ||||||||||
Net earnings attributable to Kewaunee Scientific Corporation | — | — | — | 3,755 | — | 3,755 | ||||||||||||||||||
Other comprehensive income | — | — | — | — | 79 | 79 | ||||||||||||||||||
Cash dividends paid, $0.49 per share | — | — | — | (1,331 | ) | — | (1,331 | ) | ||||||||||||||||
Stock options exercised, 22,600 shares | 28 | (20 | ) | — | — | — | 8 | |||||||||||||||||
Stock based compensation | 4 | 272 | — | — | — | 276 | ||||||||||||||||||
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Balance at January 31, 2018 | $ | 6,821 | $ | 2,947 | $ | (53 | ) | $ | 42,195 | $ | (6,240 | ) | $ | 45,670 | ||||||||||
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See accompanying notes to consolidated financial statements.
Kewaunee Scientific Corporation
(shares in thousands, except per share amounts)
January 31, 2018 | April 30, 2017 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 9,178 | $ | 12,506 | ||||
Restricted cash | 1,493 | 1,435 | ||||||
Receivables, less allowance; $224; $191, on each respective date | 30,843 | 29,889 | ||||||
Inventories | 17,680 | 14,935 | ||||||
Prepaid expenses and other current assets | 3,083 | 1,047 | ||||||
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Total Current Assets | 62,277 | 59,812 | ||||||
Property, plant and equipment, at cost | 53,418 | 51,568 | ||||||
Accumulated depreciation | (39,588 | ) | (37,541 | ) | ||||
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Net Property, Plant and Equipment | 13,830 | 14,027 | ||||||
Deferred income taxes | 2,519 | 3,158 | ||||||
Other | 4,068 | 3,919 | ||||||
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Total Other Assets | 6,587 | 7,077 | ||||||
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Total Assets | $ | 82,694 | $ | 80,916 | ||||
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Liabilities and Equity | ||||||||
Current Liabilities: | ||||||||
Short-term borrowings and interest rate swaps | $ | 4,778 | $ | 3,591 | ||||
Current portion of long-term debt | 1,167 | 918 | ||||||
Accounts payable | 12,631 | 11,995 | ||||||
Employee compensation and amounts withheld | 2,848 | 2,765 | ||||||
Deferred revenue | 1,959 | 5,806 | ||||||
Other accrued expenses | 2,667 | 1,852 | ||||||
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Total Current Liabilities | 26,050 | 26,927 | ||||||
Long-term debt | 1,556 | 2,431 | ||||||
Accrued pension and deferred compensation costs | 8,509 | 8,301 | ||||||
OtherNon-Current Liabilities | 486 | — | ||||||
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Total Liabilities | 36,601 | 37,659 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity: | ||||||||
Common Stock, $2.50 par value, Authorized – 5,000 shares; Issued – 2,728 shares; 2,715 shares; – Outstanding – 2,725 shares; 2,712 shares, on each respective date | 6,821 | 6,789 | ||||||
Additionalpaid-in-capital | 2,947 | 2,695 | ||||||
Retained earnings | 42,195 | 39,771 | ||||||
Accumulated other comprehensive loss | (6,240 | ) | (6,319 | ) | ||||
Common stock in treasury, at cost, 3 shares, on each date | (53 | ) | (53 | ) | ||||
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Total Kewaunee Scientific Corporation Stockholders’ Equity | 45,670 | 42,883 | ||||||
Noncontrolling interest | 423 | 374 | ||||||
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Total Equity | 46,093 | 43,257 | ||||||
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Total Liabilities and Equity | $ | 82,694 | $ | 80,916 | ||||
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Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net sales | $ | 54,564 | $ | 39,031 | $ | 104,687 | $ | 78,524 | |||||||||||||||
Cost of products sold | 45,863 | 35,434 | 89,790 | 69,253 | |||||||||||||||||||
Gross profit | 8,701 | 3,597 | 14,897 | 9,271 | |||||||||||||||||||
Operating expenses | 7,946 | 6,487 | 14,538 | 13,252 | |||||||||||||||||||
Operating profit (loss) | 755 | (2,890) | 359 | (3,981) | |||||||||||||||||||
Pension (expense) income | (8) | 89 | (35) | 178 | |||||||||||||||||||
Other income, net | 79 | 46 | 546 | 98 | |||||||||||||||||||
Interest expense | (370) | (132) | (754) | (238) | |||||||||||||||||||
Profit (Loss) before income taxes | 456 | (2,887) | 116 | (3,943) | |||||||||||||||||||
Income tax expense | 570 | 195 | 949 | 446 | |||||||||||||||||||
Net loss | (114) | (3,082) | (833) | (4,389) | |||||||||||||||||||
Less: Net earnings attributable to the non-controlling interest | 129 | 18 | 157 | 56 | |||||||||||||||||||
Net loss attributable to Kewaunee Scientific Corporation | $ | (243) | $ | (3,100) | $ | (990) | $ | (4,445) | |||||||||||||||
Net loss per share attributable to Kewaunee Scientific Corporation stockholders | |||||||||||||||||||||||
Basic | $ | (0.09) | $ | (1.11) | $ | (0.35) | $ | (1.60) | |||||||||||||||
Diluted | $ | (0.09) | $ | (1.11) | $ | (0.35) | $ | (1.60) | |||||||||||||||
Weighted average number of common shares outstanding | |||||||||||||||||||||||
Basic | 2,830 | 2,789 | 2,819 | 2,783 | |||||||||||||||||||
Diluted | 2,830 | 2,789 | 2,819 | 2,783 |
Condensed Consolidated Financial Statements.
Three Months Ended October 31, | Six Months Ended October 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net loss | $ | (114) | $ | (3,082) | $ | (833) | $ | (4,389) | |||||||||||||||
Other comprehensive loss, net of tax: | |||||||||||||||||||||||
Foreign currency translation adjustments | (237) | (83) | (461) | (159) | |||||||||||||||||||
Other comprehensive loss | (237) | (83) | (461) | (159) | |||||||||||||||||||
Comprehensive loss, net of tax | (351) | (3,165) | (1,294) | (4,548) | |||||||||||||||||||
Less: Comprehensive income attributable to the non-controlling interest | 129 | 18 | 157 | 56 | |||||||||||||||||||
Comprehensive loss attributable to Kewaunee Scientific Corporation | $ | (480) | $ | (3,183) | $ | (1,451) | $ | (4,604) |
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 | |||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Kewaunee Scientific Corporation Stockholders' Equity | ||||||||||||||||||||||||||||||
Balance at April 30, 2021 | $ | 6,915 | $ | 3,807 | $ | (53) | $ | 34,149 | $ | (3,577) | $ | 41,241 | |||||||||||||||||||||||
Net loss attributable to Kewaunee Scientific Corporation | — | — | — | (1,345) | — | (1,345) | |||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (76) | (76) | |||||||||||||||||||||||||||||
Stock-based compensation | 67 | 171 | — | — | — | 238 | |||||||||||||||||||||||||||||
Balance at July 31, 2021 | $ | 6,982 | $ | 3,978 | $ | (53) | $ | 32,804 | $ | (3,653) | $ | 40,058 | |||||||||||||||||||||||
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 | |||||||||||||||||||||||
October 31, 2022 | April 30, 2022 | ||||||||||
(Unaudited) | |||||||||||
Assets | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 9,419 | $ | 4,433 | |||||||
Restricted cash | 6,898 | 2,461 | |||||||||
Receivables, less allowance; $379; $357, on each respective date | 41,472 | 41,254 | |||||||||
Inventories | 24,502 | 23,796 | |||||||||
Note Receivable | — | 13,457 | |||||||||
Prepaid expenses and other current assets | 8,323 | 6,164 | |||||||||
Total Current Assets | 90,614 | 91,565 | |||||||||
Property, plant and equipment, at cost | 61,246 | 60,326 | |||||||||
Accumulated depreciation | (46,639) | (45,205) | |||||||||
Net Property, Plant and Equipment | 14,607 | 15,121 | |||||||||
Right of use assets | 9,908 | 7,573 | |||||||||
Other assets | 3,989 | 4,514 | |||||||||
Total Assets | $ | 119,118 | $ | 118,773 | |||||||
Liabilities and Stockholders' Equity | |||||||||||
Current Liabilities: | |||||||||||
Short-term borrowings | $ | — | $ | 1,588 | |||||||
Current portion of financing liability | 608 | 575 | |||||||||
Current portion of financing lease liability | 74 | 126 | |||||||||
Current portion of operating lease liabilities | 1,999 | 1,319 | |||||||||
Accounts payable | 23,050 | 27,316 | |||||||||
Employee compensation and amounts withheld | 4,309 | 4,504 | |||||||||
Deferred revenue | 11,398 | 3,529 | |||||||||
Other accrued expenses | 1,420 | 3,336 | |||||||||
Total Current Liabilities | 42,858 | 42,293 | |||||||||
Long-term portion of financing liability | 28,459 | 28,775 | |||||||||
Long-term portion of financing lease liability | 219 | 228 | |||||||||
Long-term portion of operating lease liabilities | 7,746 | 6,179 | |||||||||
Accrued pension and deferred compensation costs | 3,924 | 4,159 | |||||||||
Deferred income taxes | 406 | 428 | |||||||||
Other non-current liabilities | 497 | 531 | |||||||||
Total Liabilities | 84,109 | 82,593 | |||||||||
Commitments and Contingencies | |||||||||||
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 | |||||||||
Additional paid-in-capital | 4,541 | 4,483 | |||||||||
Retained earnings | 27,033 | 28,023 | |||||||||
Accumulated other comprehensive loss | (4,203) | (3,742) | |||||||||
Common stock in treasury, at cost, 3 shares, on each respective date | (53) | (53) | |||||||||
Total Kewaunee Scientific Corporation Stockholders' Equity | 34,402 | 35,694 | |||||||||
Non-controlling interest | 607 | 486 | |||||||||
Total Stockholders' Equity | 35,009 | 36,180 | |||||||||
Total Liabilities and Stockholders' Equity | $ | 119,118 | $ | 118,773 |
Nine months ended January 31 | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 3,875 | $ | 3,225 | ||||
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: | ||||||||
Depreciation | 2,104 | 1,960 | ||||||
Bad debt provision | 71 | (42 | ) | |||||
Stock based compensation expense | 276 | 150 | ||||||
Expense (benefit) for deferred income taxes | 639 | (12 | ) | |||||
Change in assets and liabilities: | ||||||||
Increase (decrease) in receivables | (1,025 | ) | 2,090 | |||||
Increase in inventories | (2,745 | ) | (105 | ) | ||||
Increase (decrease) in accounts payable and other accrued expenses | 2,020 | (1,189 | ) | |||||
Decrease in deferred revenue | (3,847 | ) | (237 | ) | ||||
Other, net | (2,013 | ) | 11 | |||||
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Net cash (used in) provided by operating activities | (645 | ) | 5,851 | |||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (1,907 | ) | (2,190 | ) | ||||
Decrease (increase) in restricted cash | (58 | ) | 129 | |||||
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Net cash used in investing activities | (1,965 | ) | (2,061 | ) | ||||
Cash flows from financing activities: | ||||||||
Dividends paid | (1,331 | ) | (1,163 | ) | ||||
Dividends paid to holders of noncontrolling interest in subsidiaries | (74 | ) | — | |||||
Proceeds from short-term borrowings | 44,639 | 39,804 | ||||||
Repayments on short-term borrowings | (43,452 | ) | (38,943 | ) | ||||
Payments on long-term debt | (626 | ) | (316 | ) | ||||
Net proceeds from exercise of stock options | 8 | 141 | ||||||
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Net cash used in financing activities | (836 | ) | (477 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 118 | (281 | ) | |||||
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(Decrease) increase in cash and cash equivalents | (3,328 | ) | 3,032 | |||||
Cash and cash equivalents, beginning of period | 12,506 | 5,222 | ||||||
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Cash and cash equivalents, end of period | $ | 9,178 | $ | 8,254 | ||||
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Six Months Ended October 31, | |||||||||||
2022 | 2021 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net loss | $ | (833) | $ | (4,389) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
Depreciation | 1,433 | 1,396 | |||||||||
Bad debt provision | (8) | (2) | |||||||||
Stock-based compensation expense | 368 | 366 | |||||||||
Deferred income taxes | (22) | 72 | |||||||||
Change in assets and liabilities: | |||||||||||
Receivables | (209) | (2,971) | |||||||||
Inventories | (706) | (1,603) | |||||||||
Income tax receivable | — | 180 | |||||||||
Accounts payable and other accrued expenses | (6,412) | 3,145 | |||||||||
Deferred revenue | 7,869 | (72) | |||||||||
Other, net | (2,066) | (2,193) | |||||||||
Net cash used in operating activities | (586) | (6,071) | |||||||||
Cash flows from investing activities: | |||||||||||
Capital expenditures | (919) | (930) | |||||||||
Net cash used in investing activities | (919) | (930) | |||||||||
Cash flows from financing activities: | |||||||||||
Proceeds from short-term borrowings | 4,431 | 28,641 | |||||||||
Repayments on short-term borrowings | (6,019) | (21,774) | |||||||||
Proceeds from sale-leaseback financing transaction | 13,456 | — | |||||||||
Payments on sale-leaseback financing transaction | (282) | — | |||||||||
Payments on long-term lease obligations | (61) | (10) | |||||||||
Net cash provided by financing activities | 11,525 | 6,857 | |||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (597) | (55) | |||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | 9,423 | (199) | |||||||||
Cash, cash equivalents and restricted cash, beginning of period | 6,894 | 5,731 | |||||||||
Cash, cash equivalents and restricted cash, end of period | $ | 16,317 | $ | 5,532 |
Condensed Consolidated Financial Statements.
October 31, 2022 | April 30, 2022 | |||||||||||||
Cash and cash equivalents | $ | 9,419 | $ | 4,433 | ||||||||||
Restricted cash | 6,898 | 2,461 | ||||||||||||
Total cash, cash equivalents and restricted cash | $ | 16,317 | $ | 6,894 |
Product sales
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 | |||||||||||||||||||||||||||||||||||
October 31, 2022 | October 31, 2021 | ||||||||||||||||||||||||||||||||||
Domestic | International | Total | Domestic | International | Total | ||||||||||||||||||||||||||||||
Over Time | $ | 71,727 | $ | 29,228 | $ | 100,955 | $ | 57,102 | $ | 18,927 | $ | 76,029 | |||||||||||||||||||||||
Point in Time | 3,732 | — | 3,732 | 2,495 | — | 2,495 | |||||||||||||||||||||||||||||
Total | $ | 75,459 | $ | 29,228 | $ | 104,687 | $ | 59,597 | $ | 18,927 | $ | 78,524 |
Deferred revenue consists of customer deposits and advance billings of the Company’s products where sales Unbilled receivables represent amounts earned which have not yet been recognized. Shippingbilled in accordance with contractually stated billing terms and handling costs are included in costsreceivables 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 product sales. Becauseperformance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract. Approximately 100% of the naturecontract liability balances at April 30, 2022 and qualityOctober 31, 2022 are expected to be recognized as revenue during the respective succeeding 12 months.
October 31, 2022 | April 30, 2022 | ||||||||||
Finished products | $ | 4,250 | $ | 4,555 | |||||||
Work in process | 3,266 | 2,893 | |||||||||
Raw materials | 16,986 | 16,348 | |||||||||
Total | $ | 24,502 | $ | 23,796 |
Product sales resulting from fixed-price construction contracts involve a signed contract for a fixed price to provide the Company’s laboratory furniture and fume hoods for a construction project. In these instances, the Company is usuallyincluded in the roleabove tables.
October 31, 2022 | ||||||||||||||||||||
Financial Assets | Level 1 | Level 2 | Total | |||||||||||||||||
Trading securities held in non-qualified compensation plans (1) | $ | 979 | $ | — | $ | 979 | ||||||||||||||
Cash surrender value of life insurance policies (1) | — | 1,317 | 1,317 | |||||||||||||||||
Total | $ | 979 | $ | 1,317 | $ | 2,296 | ||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Non-qualified compensation plans (2) | $ | — | $ | 2,733 | $ | 2,733 | ||||||||||||||
Total | $ | — | $ | 2,733 | $ | 2,733 |
April 30, 2022 | ||||||||||||||||||||
Financial Assets | Level 1 | Level 2 | Total | |||||||||||||||||
Trading securities held in non-qualified compensation plans (1) | $ | 1,219 | $ | — | $ | 1,219 | ||||||||||||||
Cash surrender value of life insurance policies (1) | — | 1,371 | 1,371 | |||||||||||||||||
Total | $ | 1,219 | $ | 1,371 | $ | 2,590 | ||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Non-qualified compensation plans (2) | $ | — | $ | 3,003 | $ | 3,003 | ||||||||||||||
Total | $ | — | $ | 3,003 | $ | 3,003 |
Product sales resulting from purchase orders involve a purchase order received byhad standby letters of credit outstanding of $716,000 at April 30, 2022. Amounts available under the revolving credit facility were $2.4 million at April 30, 2022. At April 30, 2022, the Company fromwas in compliance with all the financial covenants under its dealers or stocking distributor. This category includes product sales for standard products, as well as products which require some customization. Any customization requirements are approved byrevolving credit facility.
C.Derivative Financial Instruments
Thetermination, there were no borrowings under the Credit Agreement, and the Company records derivatives on the consolidated balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The naturedid not incur any material termination penalties as a result of the Company’s business activities involves the management of various financial and market risks, including those related to changes in interest rates. The Company does not enter into derivative instruments for speculative purposes. In May 2013,termination.
($ in thousands) | ||||||||
Remainder of 2023 | $ | 948 | ||||||
2024 | 1,931 | |||||||
2025 | 1,970 | |||||||
2026 | 2,009 | |||||||
2027 | 2,050 | |||||||
Thereafter | 35,958 | |||||||
Total Minimum Liability Payments | 44,866 | |||||||
Imputed Interest | (15,799) | |||||||
Total | $ | 29,067 |
D.of October 31, 2022 were as follows:
Operating | Financing | |||||||||||||
Remainder of fiscal 2023 | $ | 1,213 | $ | 16 | ||||||||||
2024 | 2,254 | 90 | ||||||||||||
2025 | 2,100 | 90 | ||||||||||||
2026 | 1,915 | 71 | ||||||||||||
2027 | 1,652 | — | ||||||||||||
Thereafter | 2,500 | — | ||||||||||||
Total Minimum Lease Payments | 11,634 | 267 | ||||||||||||
Imputed Interest | (1,889) | (32) | ||||||||||||
Total | $ | 9,745 | $ | 235 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
October 31, 2022 | October 31, 2021 | October 31, 2022 | October 31, 2021 | ||||||||||||||||||||
Basic | 2,830 | 2,789 | 2,819 | 2,783 | |||||||||||||||||||
Dilutive effect of stock options and RSUs | — | — | — | — | |||||||||||||||||||
Weighted average common shares outstanding - diluted | 2,830 | 2,789 | 2,819 | 2,783 |
E.Inventories
InventoriesOctober 31, 2021.
January 31, 2018 | April 30, 2017 | |||||||
Finished products | $ | 3,778 | $ | 3,179 | ||||
Work in process | 2,133 | 1,950 | ||||||
Raw materials | 11,769 | 9,806 | ||||||
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| |||||
$ | 17,680 | $ | 14,935 | |||||
|
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|
|
The Company uses thelast-in,first-out (LIFO) method of valuing inventory for its domestic operations, which represents $15,833,000 of inventory at January 31, 2018 and $12,730,000 at April 30, 2017. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Interim LIFO calculations are based on management’s estimates of expectedyear-end inventory levels and costs, and are subject to the finalyear-end LIFO inventory valuation. The Company’s international subsidiaries’ inventories were $1,847,000 at January 31, 2018 and $2,205,000, at April 30, 2017, measured using thefirst-in,first-out (“FIFO”) method at the lower of cost and net realizable value.
F.
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 | |||||||||||
October 31, 2022 | October 31, 2021 | ||||||||||
Service cost | $ | — | $ | — | |||||||
Interest cost | 422 | 354 | |||||||||
Expected return on plan assets | (701) | (802) | |||||||||
Recognition of net loss | 314 | 270 | |||||||||
Net periodic pension expense (income) | $ | 35 | $ | (178) |
Domestic Operations | International Operations | Corporate / Eliminations | Total | |||||||||||||
Three months ended January 31, 2018 | ||||||||||||||||
Revenues from external customers | $ | 29,734 | $ | 8,456 | $ | — | $ | 38,190 | ||||||||
Intersegment revenues | 1,145 | 1,361 | (2,506 | ) | — | |||||||||||
Earnings (loss) before income taxes | 2,959 | 1,363 | (1,838 | ) | 2,484 | |||||||||||
Three months ended January 31, 2017 | ||||||||||||||||
Revenues from external customers | $ | 25,313 | $ | 5,058 | $ | — | $ | 30,371 | ||||||||
Intersegment revenues | 344 | 538 | (882 | ) | — | |||||||||||
Earnings (loss) before income taxes | 563 | 943 | (1,015 | ) | 491 | |||||||||||
Domestic Operations | International Operations | Corporate/ Eliminations | Total | |||||||||||||
Nine months ended January 31, 2018 | ||||||||||||||||
Revenues from external customers | $ | 80,420 | $ | 33,122 | $ | — | $ | 113,542 | ||||||||
Intersegment revenues | 10,298 | 3,291 | (13,589 | ) | — | |||||||||||
Earnings (loss) before income taxes | 7,720 | 4,019 | (4,715 | ) | 7,024 | |||||||||||
Nine months ended January 31, 2017 | ||||||||||||||||
Revenues from external customers | $ | 83,161 | $ | 20,818 | $ | — | $ | 103,979 | ||||||||
Intersegment revenues | 3,781 | 2,936 | (6,717 | ) | — | |||||||||||
Earnings (loss) before income taxes | 5,580 | 3,010 | (3,670 | ) | 4,920 |
G.Defined Benefit Pension Plans
The Company hasnon-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. Company contributions of $600,000 were paid to the plans during the nine months ended January 31, 2018, and the Company does not expect any contributions to be paid to the plans during the remainder of the fiscal year. Contributions of $555,000 were paid to the plans during the nine months ended January 31, 2017. The Company assumed an expected long-term rate of return of 7.75% for the period ended January 31, 2018 as compared to 8.0% for the period ended January 31, 2017. Pension expense consisted of the following (in thousands):
Three months ended January 31, 2018 | Three months ended January 31, 2017 | |||||||
Service cost | $ | -0- | $ | -0- | ||||
Interest cost | 219 | 232 | ||||||
Expected return on plan assets | (328 | ) | (311 | ) | ||||
Recognition of net loss | 283 | 314 | ||||||
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|
|
| |||||
Net periodic pension expense | $ | 174 | $ | 235 | ||||
|
|
|
|
Service cost Interest cost Expected return on plan assets Recognition of net loss Net periodic pension expense Nine months ended
January 31, 2018 Nine months ended
January 31, 2017 $ -0- $ -0- 687 695 (984 ) (932 ) 849 942 $ 522 $ 705
H.Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash and equivalents, mutual funds, cash surrender value of life insurance policies, term loans and short-term borrowings. The carrying value of these assets and liabilities approximate 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 January 31, 2018 and April 30, 2017 (in thousands):
January 31, 2018 | ||||||||||||
Level 1 | Level 2 | Total | ||||||||||
Financial Assets | ||||||||||||
Trading securities held innon-qualified compensation plans (1) | $ | 3,994 | $ | — | $ | 3,994 | ||||||
Cash surrender value of life insurance policies (1) | — | 75 | 75 | |||||||||
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|
|
|
| |||||||
Total | $ | 3,994 | $ | 75 | $ | 4,069 | ||||||
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|
|
| |||||||
Financial Liabilities | ||||||||||||
Non-qualified compensation plans (2) | $ | — | $ | 4,472 | $ | 4,472 | ||||||
Interest rate swap derivatives | — | 14 | 14 | |||||||||
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Total | $ | — | $ | 4,486 | $ | 4,486 | ||||||
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April 30, 2017 | ||||||||||||
Level 1 | Level 2 | Total | ||||||||||
Financial Assets | ||||||||||||
Trading securities held innon-qualified compensation plans (1) | $ | 3,748 | $ | — | $ | 3,748 | ||||||
Cash surrender value of life insurance policies (1) | — | 75 | 75 | |||||||||
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|
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| |||||||
Total | $ | 3,748 | $ | 75 | $ | 3,823 | ||||||
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| |||||||
Financial Liabilities | ||||||||||||
Non-qualified compensation plans (2) | $ | — | $ | 4,186 | $ | 4,186 | ||||||
Interest rate swap derivatives | — | 62 | 62 | |||||||||
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Total | $ | — | $ | 4,248 | $ | 4,248 | ||||||
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I.Share-based Compensation
The stockholders approved the 2017 Omnibus Incentive Plan (“2017 Plan”) on August 30, 2017, which enables the Company to grant a broad range of equity, equity-related, andnon-equity types of awards, with potential recipients including directors, consultants and employees. This plan replaces the 2010 Stock Option Plan for Directors and the 2008 Key Employee Stock Option Plan. No new awards will be granted under the prior plans. All outstanding options granted under the prior plans will remain subject to the prior plans. At the date of approval of the 2017 Plan there were 280,100 shares available for issuance under the prior plans. These shares and any outstanding awards that subsequently cease to be subject to such awards are available under the 2017 Plan. The 2017 Plan did not increase the total number of shares available for issuance under the Company’s equity compensation plans.
The Company issued restricted stock units (“RSUs”) under the 2017 Plan and recorded stock-based compensation expense of $60,000 and $100,000 during the three and nine months ended January 31, 2018 in accordance with ASC 718, “Compensation—Stock Compensation.” The RSUs include both a service and performance component vesting over a three year period. The recognized expense is based upon the vesting period for service criteria and estimated attainment of the performance criteria at the end of the three year period based on cumulative days incurred and remaining over the three year period. The remaining estimated compensation expense of $510,000 will be recorded over the remaining three year period.
J.Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (the ��2017 Tax Act”) was signed into law. The 2017 Tax Act includes a broad range of tax reform provisions affecting businesses, including lower corporate tax rates, changes in business deductions, and international tax provisions. In response to the 2017 Tax Act, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. SAB 118 provides that the measurement period is complete when a company’s accounting is complete and that the measurement period shall not extend beyond one year from the enactment date. SAB 118 provides guidance for registrants under three scenarios: (i) measurement of certain income tax effects is complete, (ii) measurement of certain income tax effects can be reasonably estimated, and (iii) measurement of certain income tax effects cannot be reasonably estimated.
The 2017 Tax Act lowered the federal statutory tax rate from 35% to 21%. As the Company has a fiscal year ending April 30, it is subject to a blended tax rate for the current fiscal year. Therefore, a blended rate of 29.73% was computed as the federal statutory rate for this year.
The Company has analyzed the income tax effects of the 2017 Tax Act and determined that (ii) measurement of the income tax effects can be reasonably estimated, and, as such, provisional amounts have been recorded. The Company believes that all provisional amounts reflected in its financial statements are based on the best estimates that can be made at this time. The Company will continue to analyze all impacts of the 2017 Tax Act and will update provisional amounts as required. The Company recognized income tax expense of $1,566,000 and $3,149,000 for the three and nine months ended January 31, 2018. The effective tax rate was 63.0% and 44.8% for the three and nine months ended January 31, 2018.
In accordance with ASC 740, ”Income Taxes”, which requires deferred taxes to bere-measured in the year of an income tax rate change, the Company recorded a provisional discrete deferred income tax expense of $587,000 in the three months ended January 31, 2018 as a result of applying a lower U.S. federal income tax rate to the Company’s net deferred tax assets.
The Company revalued the U.S. deferred tax balances based on the tax rates effective for the following fiscal year at the new federal rate of 21% for amounts that are not expected to reverse during the current fiscal year and revalued the deferred tax balances expected to reverse in the current fiscal year at the Company’s current fiscal year blended rate of 29.73%. The Company has not yet completed the revaluation of the deferred tax balances due to estimates which are being used during interim periods until finalization of the balances can occur at the Company’s fiscal year end.
The 2017 Tax Act also includes aone-time transition tax on accumulated unrepatriated foreign earnings. In the three months ended January 31, 2018, the Company recorded a provisional discrete current income tax expense of $528,000 on accumulated unrepatriated foreign earnings, including estimates for foreign earnings through April 30, 2018. In addition, the Company has not yet completed the calculation of the related income tax pools for its foreign subsidiaries. The Company is entitled to elect to pay theone-time transition tax over a period of eight years. The Company intends to make this election and has recorded $486,000 of the provisional expense as othernon-current liabilities in the Company’s Consolidated Balance Sheet for January 31, 2018. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.
The Company is currently in the process of evaluating the new Global IntangibleLow-Taxed Income (“GILTI”) provisions and has not yet elected an accounting policy with respect to whether to reflect GILTI in its deferred tax calculations or not. Therefore, the Company has not made any adjustments related to the GILTI tax in its financial statements. Under the SEC guidance noted above, the Company will continue to analyze and assess the effects of the GILTI provisions of the Act.
The Company anticipates future impacts at a U.S., state and local tax level related to the 2017 Tax Act as statutory and interpretive guidance is not available from applicable tax authorities needed to reasonably estimate the impact. Consequently, the Company has not recorded provisional amounts for this statutory and interpretive guidance and has continued to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the 2017 Tax Act enactment.
K.Reclassifications
Certain 2017 amounts have been reclassified to conform to the 2018 presentation in the consolidated statements of cash flows. Such reclassifications had no impact on net earnings.
L.
Domestic Operations | International Operations | Corporate / Eliminations | Total | ||||||||||||||||||||
Three months ended October 31, 2022 | |||||||||||||||||||||||
Revenues from external customers | $ | 37,991 | $ | 16,573 | $ | — | $ | 54,564 | |||||||||||||||
Intersegment revenues | 650 | 3,335 | (3,985) | — | |||||||||||||||||||
Earnings (loss) before income taxes | 491 | 1,856 | (1,891) | 456 | |||||||||||||||||||
Three months ended October 31, 2021 | |||||||||||||||||||||||
Revenues from external customers | $ | 29,934 | $ | 9,097 | $ | — | $ | 39,031 | |||||||||||||||
Intersegment revenues | 170 | 571 | (741) | — | |||||||||||||||||||
Earnings (loss) before income taxes | (2,095) | 578 | (1,370) | (2,887) |
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) |
In July 2015,June 2016, the FASB issued ASU2015-11, “Inventory – Simplifying 2016-13, "Measurement of Credit Losses on Financial Instruments," which replaces the Measurement of Inventory.” This guidance changes the measurement principlecurrent incurred loss method used for inventory from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.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, 2016.2022. The Company adoptedwill adopt this standard effective May 1, 2017.in fiscal year 2024. The Company does not expect the adoption of this standard did notto have a significant impact on the Company’sCompany's consolidated financial position or results of operations.
In March 2016, the FASB issued ASU2016-9, “Stock Compensation – Improvements to Employee Share-Based Payment Accounting.” This guidance simplifies various aspects related to how share-based payments are accounted for and presented in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company adopted this standard prospectively effective May 1, 2017. Prior periods were not retrospectively adjusted. The adoption of this standard did not have a significant impact on the Company’s consolidated financial position or results of operations.
fiscal year.
prior fiscal year.
2022.
Theyear comparable periods. During 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.
Operating expenses for the threesix months ended JanuaryOctober 31, 20182022 were $5,971,000,$14,538,000, or 15.6%13.9% of sales, as compared to $4,590,000,$13,252,000, or 15.1%16.9% of sales, in the comparable period of the prior year. The increase in operating expenses for the three months ended JanuaryOctober 31, 2018 related2022 was primarily due to increases in
Operating expenses for the nine months ended January 31, 2018 were $16,360,000, or 14.4% of sales, as compared to $14,484,000, or 13.9% of sales, in the comparable period of the prior year.$36,000. The increase in operating expenses for the ninesix months ended JanuaryOctober 31, 2018 related2022 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 $144,000, compensation expense of $676,000, bad debt expense of $113,000, International operating expenses of $432,000,$190,000, and corporate governance expenses of $319,000 and professional services of $78,000, partially offset by a decrease$11,000. The increase in pension expense $183,000.
Interest expense was $78,000 and $226,000operating expenses for the three and ninesix months ended JanuaryOctober 31, 2018,2022 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.
levels of bank borrowings and the Sale-Leaseback financing transaction.
Income tax expense of $3,149,000$949,000 and $1,695,000$446,000 was recorded for the ninesix months ended JanuaryOctober 31, 20182022 and 2017, respectively. The2021, respectively.The change in the effective tax rates were 44.8% and 34.5%rate for the ninethree and six months ended JanuaryOctober 31, 2018 and 2017, respectively.
Noncontrolling2022 reflects the impact of international operations which are taxed at different rates, combined with no U.S. tax benefit being recorded for the most recent quarter due to the Company's full valuation allowance position. See
Historically, the Company’s
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.$7.9 million. The increase in deferred revenue is primarily related to advance payments received for a large international order. During the ninesix months ended JanuaryOctober 31, 2018,2022, the Company used net cash of $1,965,000$919,000 in investing activities, all of which included $1,907,000was used for capital expenditures, and a $58,000 increase in restricted cash. During the nine months ended January 31, 2017, netexpenditures. The Company's financing activities provided cash of $2,061,000 was used in investing activities, which included $2,190,000 for capital expenditures, offset by a $129,000 decrease in restricted cash.
The Company’s financing activities used cash of $836,000$11,525,000 during the ninesix months ended January 31, 2018, primarily for cash dividends of $1,331,000 paid to stockholders, cash dividends of $74,000 paid to minority interest holders, and payments of $626,000 on long-term debt, partially offset by an increase in net short-term borrowings of $1,187,000. The Company’s financing activities used cash of $477,000 during the nine months ended January 31, 2017, primarily for cash dividends of $1,163,000 and payments on long-term debt of $316,000, partially offset by an increase in short-term borrowings of $861,000.
Financial Outlook
As disclosed in the Company’s Report on Form10-Q for the period ended October 31, 2017, on December 7, 2017, the Company experienced a criminal network cyber-attack that led to a disruption of its domestic operations, including manufacturing, engineering, administration, and sales operations. The temporary production disruption had an immaterial impact on sales and earnings for the period ended January 31, 2018, and the Company believes it will have an immaterial impact for the remainder2022, primarily from proceeds of the fiscal year. sale-leaseback financing transaction that was previously recorded as a note receivable at April 30, 2022.
year.
This report contains
that could cause actualsignificantly impact results to differ materially from those described in theor achievements expressed or implied by such forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to,to: competitive and general economic conditions and the ongoing impact of the COVID-19 pandemic, including disruptions from government mandates, both domestically and internationally;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; and 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 differences might be significant and harmful to our stockholders' interest. Many important factors that could cause such a differencedifferences are described under the caption “Risk Factors”"Risk Factors" in
Evaluation of Disclosure
As
As disclosed under Item 9A. Controls and Procedures in our Annual Report on Form10-K for the year ended April 30, 2017, management identified a material weakness inCompany's internal control over financial reporting relatingthat occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the misapplication of certain aspects of the Company’s multi-element and percentage of completion revenue recognition policies.
The Company has implemented changes to the design of its controls and procedures surrounding the execution of the Company’s multi-element and percentage of completion revenue recognition policies, which included, but were not limited to, drafting additional policy guidance, training key personnel and developing additional detective and monitoring controls. The material weakness cannot be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We currently expect to complete remediation of the material weakness by April 30, 2018.
In addition, as disclosed in the Company’sForm 10-Q for the period ended October 31, 2017, on December 7, 2017, the Company experienced a criminal network cyber-attack that led to a disruption of its domestic operations, including manufacturing, engineering, administration, and sales operations. The Company engaged a leading cybersecurity firm to perform a forensic investigation of this attack and as a result of the investigation has identified a material weakness in its logical accessCompany's internal control over its IT systems. We currently expect to complete remediation of this material weakness by April 30, 2018.
Other than as set forth below, as
Cybersecurity incidents could expose us to liability and damage our reputation and our business.
We collect, process, store, and transmit large amounts of data, and it is critical to our business strategy that our facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Our information technology systems are essential to our efforts to manufacture our products, process customer sales transactions, manage inventory levels, conduct business with our suppliers and other business partners, and record, summarize and analyze the results of our operations. These systems contain, among other things, material operational, financial and administrative information related to our business. As with most companies there will always be some risk of physical or electronicbreak-ins, computer viruses, or similar disruptions.
In addition, we like all entities, are the target of cybercriminals who attempt to compromise our systems. From time to time, we experience threats and intrusions that may require remediation to protect sensitive information, including our intellectual property and personal information, and our overall business. Any physical or electronicbreak-in, computer virus, cybersecurity attack or other security breach or compromise of the information handled by us or our service providers may jeopardize the security or integrity of information in our computer systems and networks or those of our customers and cause significant interruptions in our and our customers’ operations.
Any systems and processes that we have developed that are designed to protect customer, associate and vendor information, intellectual property, and prevent data loss and other security attacks cannot provide absolute security. In addition, we may not successfully implement remediation plans to address all potential exposures. It is possible that we may have to expend additional financial and other resources to address these problems. Failure to prevent or mitigate data loss or other security incidents could expose us or our customers, associates and vendors to a risk of loss or misuse of such information, cause customers to lose confidence in our data protection measures, damage our reputation, adversely affect our operating results or result in litigation or potential liability for us. While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, this insurance coverage is subject to a retention amount and may not be applicable to a particular incident or otherwise may be insufficient to cover all our losses beyond any retention. Similarly, we expect to continue to make significant investments in our information technology infrastructure. The implementation of these investments may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact our financial position, results of operations or cash flows.
We recently experienced a network cyber-attack that disrupted our domestic operations.
As disclosed in ourForm 10-Q for the period ended October 31, 2017, on December 7, 2017, the Company experienced a criminal network cyber-attack that led to a disruption of its domestic operations, including manufacturing, engineering, administration, and sales operations. As of December 12, 2017 the Company had restored its domestic operations. The Company engaged third party experts, including a leading cybersecurity firm, to perform a forensic investigation of this attack and as a result of the investigation has identified a material weakness in internal control over financial reporting relating to its logical access control over its IT systems. While the Company currently expects to complete remediation of this weakness by April 30, 2018, there can be no assurance that such remediation will be completed by such date. The Company has insurance coverage against recovery costs and business interruption resulting from cyber-attacks. However, the Company may have incurred, and may incur in the future, expenses and losses related to this attack that are not covered by insurance.
July 1, 2022.
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) |
KEWAUNEE SCIENTIFIC CORPORATION
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Date: | By | /s/ | |||||||||||||
Donald T. Gardner III | |||||||||||||||
(As duly authorized officer and Vice President, Finance and Chief Financial Officer) |
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