UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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| X | Quarterly Report Pursuant to Section 13 or 15(d)
----- of the Securities Exchange Act of 1934
For the quarterly period ended January 31, 2001
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|_____| Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number 0-5286
KEWAUNEE SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-0715562
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
2700 West Front Street
Statesville, North Carolina 28677
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(Address of principal executive offices) (Zip Code)
(704) 873-7202
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(Registrant's telephone number, including area code)
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 _______
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As of March 9, 2001, the Registrant had outstanding 2,465,871 shares of Common
Stock.
Pages: This report, excluding exhibits, contains 15 pages numbered sequentially
from this cover page.
KEWAUNEE SCIENTIFIC CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2001
Page Number
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Statements of Operations -
Three months and nine months
ended January 31, 2001 and 2000 3
Condensed Balance Sheets - January 31, 2001
and April 30, 2000 4
Condensed Statements of Cash Flows -
Nine months ended January 31, 2001 and 2000 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Review by Independent Accountants 12
Report by Independent Accountants 13
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
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Part 1. Financial Information
Item 1. Financial Statements
Kewaunee Scientific Corporation
Condensed Statements of Operations
(Unaudited)
Three months ended Nine months ended
January 31 January 31
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
($ in thousands, except per share data)
Net sales $ 17,632 $ 16,945 $ 58,418 $ 56,561
Cost of products sold 14,627 12,768 47,419 43,408
-------- -------- -------- --------
Gross profit 3,005 4,177 10,999 13,153
Operating expenses 2,923 3,070 9,222 9,522
-------- -------- -------- --------
Operating earnings 82 1,107 1,777 3,631
Interest expense (64) (32) (196) (123)
Other income (expense), net (327) 24 (334) 266
-------- -------- -------- --------
Earnings (loss) before income taxes (309) 1,099 1,247 3,774
Income tax expense (benefit) (111) 220 449 1,250
-------- -------- -------- --------
Net earnings (loss) ($ 198) $ 879 $ 798 $ 2,524
======== ======== ======== ========
Net earnings (loss) per share-
Basic ($ 0.08) $ 0.36 $ 0.32 $ 1.03
Diluted ($ 0.08) $ 0.35 $ 0.32 $ 1.02
Average number of common shares
outstanding (in thousands)-
Basic 2,466 2,464 2,466 2,453
Diluted 2,466 2,482 2,492 2,475
See accompanying notes to condensed financial statements.
3
Kewaunee Scientific Corporation
Condensed Balance Sheets
($ in thousands)
January 31 April 30
2001 2000
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Assets (Unaudited)
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Current assets:
Cash and cash equivalents $ 8 $ 9
Receivables, less allowances 15,776 17,993
Inventories 4,136 3,499
Deferred income taxes 1,151 1,151
Prepaid expenses and other current assets 425 380
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Total current assets 21,496 23,032
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Property, plant and equipment, at cost 34,695 33,242
Accumulated depreciation (21,342) (19,736)
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Net property, plant and equipment 13,353 13,506
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Other assets 2,828 2,778
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Total Assets $37,677 $39,316
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Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $2,142 $2,555
Accounts payable 4,567 5,412
Employee compensation and amounts withheld 1,449 1,352
Other current liabilities 1,486 2,241
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Total current liabilities 9,644 11,560
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Deferred income taxes 944 944
Accrued employee benefit plan costs 1,673 1,677
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Total Liabilities 12,261 14,181
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Stockholders' equity:
Common stock 6,550 6,550
Additional paid-in-capital 154 154
Retained earnings 19,632 19,351
Common stock in treasury, at cost (920) (920)
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Total stockholders' equity 25,416 25,135
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Total Liabilities and Stockholders' Equity $37,677 $39,316
============= =============
See accompanying notes to condensed financial statements.
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Kewaunee Scientific Corporation
Condensed Statements of Cash Flows
(Unaudited)
($ in thousands )
Nine months ended
January 31
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2001 2000
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Cash flows from operating activities:
Net earnings $ 798 $ 2,524
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 1,619 1,496
Provision for bad debts 70 72
Decrease in receivables 2,147 2,428
Increase in inventories (637) (558)
Decrease in accounts payable and
other current liabilities (1,503) (2,316)
Other, net (95) (143)
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Net cash provided by operating activities 2,399 3,503
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Cash flows from investing activities:
Capital expenditures (1,469) (2,670)
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Net cash used in investing activities (1,469) (2,670)
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Cash flows from financing activities:
Net decrease in short-term borrowings (413) (481)
Dividends paid (518) (466)
Proceeds from exercise of stock options - 114
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Net cash used in financing activities (931) (833)
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Decrease in cash and cash equivalents (1) -
Cash and cash equivalents, beginning of period 9 8
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Cash and cash equivalents, end of period $ 8 $ 8
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See accompanying notes to condensed financial statements.
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Kewaunee Scientific Corporation
Notes to Condensed Financial Statements
(unaudited)
A. Financial Information
- -------------------------
The unaudited interim condensed financial statements of Kewaunee Scientific
Corporation (the "Company" or "Kewaunee") 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 generally
accepted accounting principles have been condensed or omitted. These interim
condensed financial statements should be read in conjunction with the financial
statements and notes included in the Company's 2000 Annual Report to
Stockholders.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect reported amounts and disclosures. Actual results could
differ from those estimates.
In the opinion of management, the interim condensed financial statements reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the interim periods. The results of operations for the
interim periods are not necessarily indicative of the results of operations to
be expected for the full year.
B. New Accounting Pronouncements
- ---------------------------------
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The statement as amended by SFAS No. 137
and SFAS No. 138 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company expects that the adoption of SFAS No.
133 will not have a material effect on its financial condition or results of
operations.
C. Inventories
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Inventories consisted of the following (in thousands):
Jan. 31, 2001 April 30,2000
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Finished products $ 851 $ 673
Work in process 1,119 932
Raw materials 2,166 1,894
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$4,136 $3,499
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D. Balance Sheet
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The Company's April 30, 2000 condensed balance sheet as presented herein is
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
E. Segment Information
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The following table shows net sales and earnings (loss) before income taxes by
business segment for three months and nine months ended January 31, 2001 and
2000 (in thousands):
Laboratory Technical
Products Products Corporate Total
----------- --------- --------- -----
Three months ended
January 31, 2001
- ----------------
Revenues from
external customers $ 14,365 $ 3,267 $ -- $ 17,632
Intersegment revenues -- 52 (52) --
Earnings (loss)
before income taxes (53) 222 (478) (309)
Three months ended
January 31, 2000
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Revenues from
external customers $ 14,926 $ 2,019 $ -- $ 16,945
Intersegment revenues -- 85 (85) --
Earnings (loss)
before income taxes 1,204 194 (299) 1,099
Nine months ended
January 31, 2001
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Revenues from
external customers $ 46,156 $ 12,262 $ -- $ 58,418
Intersegment revenues -- 236 (236) --
Earnings (loss)
before income taxes 806 1,251 (810) 1,247
Nine months ended
January 31, 2000
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Revenues from
external customers $ 47,349 $ 9,212 $ -- $ 56,561
Intersegment revenues -- 262 (262) --
Earnings (loss)
before income taxes 3,286 810 (322) 3,774
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Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
The Company's 2000 Annual Report to Stockholders contains management's
discussion and analysis of financial condition and results of operations at and
for the year ended April 30, 2000. The following discussion and analysis
describes material changes in the Company's financial condition since April 30,
2000. The analysis of results of operations compares the three months and nine
months ended January 31, 2001 with the comparable periods of the prior fiscal
year.
Results of Operations
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The Company recorded sales of $17.6 million for the three months ended January
31, 2001, up 4.1% from sales of $16.9 million for the comparable period of the
prior year. Sales for the nine months ended January 31, 2001 were $58.4 million,
up 3.3% from sales of $56.6 million in the comparable period of the prior year.
The increase in sales for the current quarter and nine months ended January 31,
2001 resulted principally from continued strong demand for the Company's
technical products, partially offset by lower sales of laboratory products.
The gross profit margin for the quarter ended January 31, 2001 was 17.0% of
sales, as compared to 24.7% of sales in the comparable quarter of the prior
year. The gross profit margin for the nine months ended January 31, 2001 was
18.8%, as compared to 23.3% in the comparable period of the prior year. The
lower gross profit margins experienced during the current year resulted
primarily from lower selling prices of laboratory products, an unfavorable mix
between higher margin industrial research projects and lower margin educational
projects, and a significant increase in healthcare costs. Prices in the
educational laboratory market were pressured further during the year as
companies pursued this business due to the continuing weakness in the industrial
research market.
Operating expenses for the quarter ended January 31, 2001 were $2.9 million, or
16.6% of sales, as compared to $3.1 million, or 18.1% of sales, in the
comparable quarter of the prior year. Operating expenses for the nine months
ended January 31, 2001 were $9.2 million, or 15.8% of sales, as compared to $9.5
million, or 16.8% of sales, in the comparable period of the prior year. The
decrease in operating expenses for the quarter and nine months reflect the
impact of a series of actions to reduce selling and administrative costs during
the year.
8
Operating earnings of $82,000 and $1.8 million were recorded for the three
months and nine months ended January 31, 2001, respectively. This compares to
operating earnings of $1.1 million and $3.6 million for the comparable periods
of the prior year.
Interest expense was $64,000 and $196,000 for the three months and nine months
ended January 31, 2001, respectively, compared to $32,000 and $123,000 for the
similar periods of the prior year. The increase in interest expense in the
current year resulted primarily from higher levels of debt under the Company's
revolving credit facility.
Combined other income and expense resulted in an expense of $327,000 and
$334,000 for the three months and nine months ended January 31, 2001,
respectively, compared to income of $24,000 and $266,000 for the comparable
periods of the prior year. Other expense for the three and nine month periods of
the current year include a charge of $391,000 associated with a dispute between
the Company and a general contractor on a construction project completed in
1990. The charge was based on an arbitrator's decision during the current
quarter regarding the dispute.
An income tax benefit of $111,000 and an expense of $449,000 were recorded for
the three months and nine months ended January 31, 2001, respectively, as
compared to income tax expense of $220,000 and $1,250,000 recorded for the
comparable periods of the prior year. The effective tax rate was approximately
36% for the three and nine months ended January 31, 2001. The effective tax rate
was 20% for the three months ended January 31, 2000 and 33.1% for the nine
months ended January 31, 2000. The lower effective tax rates for the periods of
the prior year were the result of tax credits available due to the high levels
of research and development expenditures and purchases of new manufacturing
machinery during the year.
A net loss of $198,000, or $.08 per diluted share, was recorded for the three
months ended January 31, 2001. Excluding the charge associated with the
construction project dispute, net earnings for the current quarter were $52,000,
or $.02 per diluted share. Net earnings for the third quarter of the prior year
were $879,000, or $.35 per diluted share. Net earnings of $798,000, or $.32 per
diluted share, were recorded for the nine months ended January 31, 2001.
Excluding the charge associated with the construction project dispute, net
earnings for the nine months were $1,048,000, or $.42 per diluted share. Net
earnings for the comparable period of the prior year were $2,524,000, or $1.02
per diluted share.
9
Liquidity and Capital Resources
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Historically, the Company's principal sources of liquidity have been funds
generated from operations, supplemented as needed by short-term borrowings. The
Company believes that these sources will be sufficient to support ongoing
business levels, including capital expenditures.
The Company had working capital of $11.9 million at January 31, 2001, as
compared to $11.5 million at April 30, 2000. The ratio of current assets to
current liabilities was 2.23-to-1 at January 31, 2001, as compared to 1.99-to-1
at April 30, 2000. At January 31, 2001, advances of $642,000 were outstanding
under the Company's revolving credit facility, and advances of $1,500,000 were
outstanding under the Company's equipment loan component of the credit facility.
During the quarter, the Company's unsecured revolving credit arrangement with
its bank was extended for two years, and the maximum amount of advances
available under the arrangement was increased to $6 million from $3 million.
The Company's operations provided cash of $2.4 million during the nine months
ended January 31, 2001, primarily from earnings and a reduction in accounts
receivable, partially offset by a decrease in accounts payable and other current
liabilities. The Company's operations provided cash of $3.5 million during the
nine months ended January 31, 2000, primarily from earnings and a reduction in
accounts receivable, partially offset by a decrease in accounts payable and
other current liabilities.
During the nine months ended January 31, 2001, the Company used cash of $1.5
million for capital expenditures, primarily production equipment, compared to
the use of $2.7 million for capital expenditures in the comparable period of the
prior year.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
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Certain statements in this report constitute "forward-looking" statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that could significantly impact results or
achievements expressed or implied by such forward-looking statements. These
factors include, but are not limited to, economic, competitive, governmental,
and technological factors affecting the Company's operations, markets, products,
services, and prices. The cautionary statements made pursuant to the Reform Act
herein and elsewhere by the Company should not be
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construed as exhaustive.
The Company cannot always predict what factors would cause actual
results to differ materially from those indicated by the forward-looking
statements. In addition, readers are urged to consider statements that include
the terms "believes", "belief", "expects", "plans", "objectives", "anticipates",
"intends" or the like to be uncertain and forward-looking.
11
REVIEW BY INDEPENDENT ACCOUNTANTS
A review of the interim financial information included in this Quarterly Report
on Form 10-Q for the three months and nine months ended January 31, 2001 has
been performed by PricewaterhouseCoopers LLP, the Company's independent
accountants. Their report on the interim financial information follows.
12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Kewaunee Scientific Corporation
Statesville, North Carolina
We have reviewed the accompanying condensed balance sheet of Kewaunee Scientific
Corporation as of January 31, 2001, and the related condensed statements of
operations and of cash flows for the three and nine month periods then ended.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, 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 review, we are not aware of any material modifications that should
be made to the accompanying interim condensed financial information for it to be
in conformity with accounting principles generally accepted in the United States
of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the balance sheet as of April 30, 2000 and the
related statements of operations, of stockholders' equity, and of cash flows for
the year then ended (not presented herein), and in our report dated May 31, 2000
we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of April 30, 2000, is fairly stated in all material respects in relation to
the balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
Charlotte, North Carolina
February 16, 2001
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 First Amendment to Loan Documents and Amended and
Restated Revolving Credit Note dated as of November 30,
2000 between the Registrant and First Union National
Bank.
10.2 Second Amendment to Loan Documents dated as of November
30, 2000 between the Registrant and First Union National
Bank.
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Commission during the
three months ended January 31, 2001.
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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
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(Registrant)
Date: March 12, 2001 By /s/ D. Michael Parker
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D. Michael Parker
Senior Vice President Finance
Chief Financial Officer
15