10-Q 1 d10q.txt FORM 10-Q 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 ------------------------------- (Exact name of registrant as specified in its charter) Delaware 38-0715562 ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 2700 West Front Street Statesville, North Carolina 28677 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (704) 873-7202 ------------------ (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 _______ ----- 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 ----------- PART I. FINANCIAL INFORMATION ------------------------------ 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 --------------------------- Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURE 14 --------- 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) ------ 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 - ----------------- ---------------- Total Liabilities 16,186 15,108 ----------------- ---------------- 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) ----------------- ---------------- 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 ----------- ------------ 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) ----------- ------------ Net cash provided by operating activities 581 2,399 ----------- ------------ Cash flows from investing activities: Capital expenditures (1,347) (1,469) ----------- ------------ 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) ----------- ------------ (Decrease) increase in cash and cash equivalents (127) (1) Cash and cash equivalents, beginning of period 488 9 ----------- ------------ 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 ------ ------ $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 ------------------------------- 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 -------------------------------------------------------------------------------- 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 ------------------------------- (Registrant) Date: March 15, 2002 By /s/ D. Michael Parker -------------------------------- D. Michael Parker Senior Vice President Finance Chief Financial Officer 14