UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended January 31, 2002
[_] 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
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(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 8, 2002, the Registrant had outstanding 2,468,996 shares of Common
Stock.
Pages: This report, excluding exhibits, contains 14 pages numbered sequentially
from this cover page.
KEWAUNEE SCIENTIFIC CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2002
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, 2002 and 2001 3
Condensed Balance Sheets - January 31, 2002
and April 30, 2001 4
Condensed Statements of Cash Flows -
Nine months ended January 31, 2002 and 2001 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 11
Report by Independent Accountants 12
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
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2
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
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------- -------------
($ in thousands, except per share data)
Net sales $20,798 $17,632 $63,063 $58,418
Cost of products sold 17,113 14,627 52,237 47,419
------------ ------------ ------------- -------------
Gross profit 3,685 3,005 10,826 10,999
Operating expenses 3,081 2,923 8,691 9,222
------------ ------------ ------------- -------------
Operating earnings 604 82 2,135 1,777
Interest expense (50) (64) (169) (196)
Other (expense) income, net (6) (327) 32 (334)
------------ ------------ ------------- -------------
Earnings (loss) before income taxes 548 (309) 1,998 1,247
Income tax expense (benefit) 132 (111) 651 449
------------ ------------ ------------- -------------
Net earnings (loss) $ 416 ($198) $ 1,347 $ 798
============ ============ ============= =============
Net earnings (loss) per share-
Basic $ 0.17 ($0.08) $ 0.55 $ 0.32
Diluted $ 0.17 ($0.08) $ 0.54 $ 0.32
Weighted average number of common shares
outstanding (in thousands)-
Basic 2,464 2,466 2,468 2,466
Diluted 2,474 2,466 2,480 2,492
See accompanying notes to condensed financial statements.
3
Kewaunee Scientific Corporation
Condensed Balance Sheets
(in thousands)
January 31 April 30
2002 2001
----------------- ----------------
Assets (Unaudited)
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Current assets:
Cash and cash equivalents $ 361 $ 488
Receivables, less allowance 20,152 17,629
Inventories 4,772 4,370
Deferred income taxes 915 915
Prepaid income taxes 41 758
Prepaid expenses and other current assets 808 498
----------------- ----------------
Total current assets 27,049 24,658
----------------- ----------------
Property, plant and equipment, at cost 36,091 34,744
Accumulated depreciation (23,414) (21,825)
----------------- ----------------
Net property, plant and equipment 12,677 12,919
----------------- ----------------
Other assets 2,952 3,292
----------------- ----------------
Total Assets $42,678 $40,869
================= ================
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Short-term borrowings $ 1,471 $ -
Current portion of long-term debt 681 620
Accounts payable 5,549 5,334
Employee compensation and amounts withheld 1,695 1,446
Deferred Revenue 593 1,024
Other accrued expenses 1,151 1,549
----------------- ----------------
Total current liabilities 11,140 9,973
----------------- ----------------
Long-term debt 2,100 2,377
Deferred income taxes 1,070 1,063
Accrued employee benefit plan costs 1,695 1,695
Other long-term liabilities 181 -
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Total Liabilities 16,186 15,108
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Stockholders' equity:
Common stock 6,550 6,550
Additional paid-in-capital 137 150
Retained earnings 20,766 19,938
Common stock in treasury, at cost (961) (877)
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Total stockholders' equity 26,492 25,761
----------------- ----------------
Total Liabilities and Stockholders' Equity $42,678 $40,869
================= ================
See accompanying notes to condensed financial statements.
4
Kewaunee Scientific Corporation
Condensed Statements of Cash Flows
(Unaudited)
($ in thousands)
Nine months ended
January 31
----------------------------
2002 2001
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Cash flows from operating activities:
Net earnings $1,347 $ 798
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 1,589 1,619
Provision for bad debts 94 70
Decrease in prepaid income taxes 717 -
(Increase) decrease in receivables (2,617) 2,147
Increase in inventories (402) (637)
Increase (decrease) in accounts payable and
other current liabilities 67 (1,503)
Other, net (214) (95)
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Net cash provided by operating activities 581 2,399
----------- ------------
Cash flows from investing activities:
Capital expenditures (1,347) (1,469)
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Net cash used in investing activities (1,347) (1,469)
----------- ------------
Cash flows from financing activities:
Proceeds from Long-Term Debt 250 -
Payments on long-term debt (466) -
Net increase (decrease) in short-term borrowings 1,471 (413)
Dividends paid (519) (518)
Proceeds from exercise of stock options 9 -
Purchase of Treasury Stock (106) -
----------- ------------
Net cash provided (used) by financing activities 639 (931)
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(Decrease) increase in cash and cash equivalents (127) (1)
Cash and cash equivalents, beginning of period 488 9
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Cash and cash equivalents, end of period $ 361 $ 8
=========== ============
See accompanying notes to condensed financial statements.
5
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 2001 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. Inventories
- ---------------
Inventories consisted of the following (in thousands):
Jan. 31, 2002 April 30,2001
------------- -------------
Finished products $1,113 $1,023
Work in process 1,696 1,455
Raw materials 1,963 1,892
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$4,772 $4,370
====== ======
C. Balance Sheet
- -----------------
The Company's April 30, 2001 condensed balance sheet as presented herein is
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles, in the United States of
America.
6
D. Segment Information
- ------------------------
The following table shows net sales and earnings (loss) before income taxes by
business segment for three months and nine months ended January 31, 2002 and
2001 (in thousands):
Laboratory Technical
Products Products Corporate Total
-------- -------- --------- -----
Three months ended
January 31, 2002
- ----------------
Revenues from
external customers $ 19,377 $ 1,421 $ -- $ 20,798
Intersegment revenues 237 -- (237) --
Earnings (loss)
before income taxes 896 (142) (206) 548
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)
Nine months ended
January 31, 2002
- ----------------
Revenues from
external customers $ 58,172 $ 4,891 $ -- $ 63,063
Intersegment revenues 688 -- (688) --
Earnings (loss)
before income taxes 2,981 (416) (567) 1,998
Nine months ended
January 31, 2001
- ----------------
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
7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
The Company's 2001 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, 2001. The following discussion and analysis
describes material changes in the Company's financial condition since April 30,
2001. The analysis of results of operations compares the three months and nine
months ended January 31, 2002 with the comparable periods of the prior fiscal
year.
Results of Operations
- ---------------------
The Company recorded sales of $20.8 million for the three months ended January
31, 2002, up 18.0% from sales of $17.6 million for the comparable period of the
prior year. Sales for the nine months ended January 31, 2002 were $63.1 million,
up 8.0% from sales of $58.4 million in the comparable period of the prior year.
Sales of laboratory products increased 34.9% and 26.0% during the three months
and nine months ended January 31, 2002, respectively, over the same periods last
year, reflecting the continuing strong industrial research market and healthy
education markets. Sales of technical products declined 56.5% and 60.9% during
the three months and nine months ended January 31, 2002, respectively, over the
same periods last year, as the high-tech sector of the economy remained
depressed.
The gross profit margin for the quarter ended January 31, 2002 was 17.7% of
sales, as compared to 17.0% of sales in the comparable quarter of the prior
year. The gross profit margin for the nine months ended January 31, 2002 was
17.2%, as compared to 18.8% in the comparable period of the prior year. The
improved gross profit margins experienced during the current quarter resulted
primarily from an improved sales product mix of laboratory products, which more
than offset the unfavorable impact of lower sales of technical products, which
typically have higher profit margins. The lower gross profit margins experienced
during the nine months resulted primarily from an unfavorable product sales mix
between the two business segments.
8
Operating expenses for the current quarter ended January 31, 2002 were $3.1
million, or 14.8% of sales, as compared to $2.9 million, or 16.6% of sales, in
the comparable quarter of the prior year. Operating expenses for the nine months
ended January 31, 2002 were $8.7 million, or 13.8% of sales, as compared to $9.2
million, or 15.8% of sales, in the comparable period of the prior year. The
increase in operating expenses for the current quarter reflect an increase in
general and administrative costs. The decrease in operating expenses for the
nine months was primarily attributable to lower commission expenses resulting
from the decline in sales of technical products, partially offset by higher
commission expenses resulting from the increase in sales of laboratory products.
Operating earnings of $604,000 and $2.1 million were recorded for the three
months and nine months ended January 31, 2002, respectively. This compares to
operating earnings of $82,000 and $1.8 million for the comparable periods of the
prior year.
Interest expense was $50,000 and $169,000 for the three months and nine months
ended January 31, 2002, respectively, compared to $64,000 and $196,000 for the
similar periods of the prior year. The decrease in interest expense in the
current quarter and nine months resulted primarily from lower interest rates
during the current year.
Other expense was $6,000 for the three months ended January 31, 2002, and other
income of $32,000 for nine months ended January 31, 2002, compared to other
expense of $327,000 and $334,000 for comparable periods for prior year,
respectively. Other expense for the three and nine month periods of the prior
year include a charge of $391,000 associated with the resolution of a dispute
between the Company and a general contractor.
An income tax expense of $132,000 and $651,000 was recorded for the three months
and nine months ended January 31, 2002, respectively, as compared to income tax
benefit of $111,000 and an expense of $449,000 recorded for the comparable
periods of the prior year. The effective tax rate was approximately 24.1% for
the three months and 32.6% for the nine months ended January 31, 2002. The
effective tax rate was 36% for the three and nine months ended January 31, 2001.
The lower effective tax rate for the three and nine month periods of the current
year reflect the impact of state income tax credits earned by the Company from
investments in certain qualifying machinery and equipment.
Net earnings of $416,000 and $1,347,000, or $.17 per diluted share and $.54 per
diluted share, were recorded for the three and nine months ended January 31,
2002. This compares to a net loss of $198,000, or $.08 per diluted share, and
net earnings of $798,000, or $.32 per diluted share, respectively, for
comparable periods of the prior year.
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 through the current fiscal year.
The Company had working capital of $15.9 million at January 31, 2002, as
compared to $14.7 million at April 30, 2001. The ratio of current assets to
current liabilities was 2.4-to-1 at January 31, 2002, as compared to 2.5-to-1 at
April 30, 2001. At January 31, 2002, advances of $1,471,000 were outstanding
under the Company's $6.0 million revolving credit loan.
The Company's operations provided cash of $581,000 during the nine months ended
January 31, 2002, primarily from earnings, partially offset by an increase in
accounts receivable. 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.
During the nine months ended January 31, 2002, the Company used cash of $1.3
million for capital expenditures, primarily production equipment, compared to
the use of $1.5 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 construed as exhaustive or as
any admission regarding the adequacy of disclosures made by the Company prior to
the effective date of the Reform Act. 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.
10
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, 2002 has
been performed by PricewaterhouseCoopers LLP, the Company's independent
accountants. Their report on the interim financial information follows.
11
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, 2002 and April 30, 2001, and the related condensed
statements of operations for each of the three and nine-month periods ended
January 31, 2002 and January 31, 2001 and the condensed statement of cash flows
for the nine-month periods ended January 31, 2002 and January 31, 2001. 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 auditing standards, 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, 2001 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 June 1, 2001
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, 2001, 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 14, 2002
12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
No reports on Form 8-K were filed with the Commission
during the three months ended January 31, 2002.
13
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 15, 2002 By /s/ D. Michael Parker
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D. Michael Parker
Senior Vice President Finance
Chief Financial Officer
14