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, 2005
| ¨ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission file number 0-5286
KEWAUNEE SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 38-0715562 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer 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 1, 2005, the Registrant had outstanding 2,491,770 shares of Common Stock.
Pages: This report, excluding exhibits, contains 21 pages numbered sequentially from this cover page.
KEWAUNEE SCIENTIFIC CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2005
2
Kewaunee Scientific Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
| Three months ended January 31 |
Nine months ended January 31 |
|||||||||||||||
| 2005 |
2004 |
2005 |
2004 |
|||||||||||||
| ($ in thousands, except per share data) | ||||||||||||||||
| Net sales |
$ | 15,623 | $ | 21,454 | $ | 54,276 | $ | 70,051 | ||||||||
| Cost of products sold |
13,586 | 17,736 | 45,310 | 58,626 | ||||||||||||
| Gross profit |
2,037 | 3,718 | 8,966 | 11,425 | ||||||||||||
| Operating expenses |
3,030 | 3,206 | 9,336 | 9,528 | ||||||||||||
| Operating earnings (loss) |
(993 | ) | 512 | (370 | ) | 1,897 | ||||||||||
| Interest expense |
(84 | ) | (71 | ) | (254 | ) | (232 | ) | ||||||||
| Other (expense) income |
(47 | ) | 14 | (44 | ) | 163 | ||||||||||
| Earnings (loss) before income taxes |
(1,124 | ) | 455 | (668 | ) | 1,828 | ||||||||||
| Income tax expense (benefit) |
(382 | ) | 164 | (227 | ) | 658 | ||||||||||
| Net earnings (loss) |
$ | (742 | ) | $ | 291 | $ | (441 | ) | $ | 1,170 | ||||||
| Net earnings (loss) per share- |
||||||||||||||||
| Basic |
$ | (0.30 | ) | $ | 0.12 | $ | (0.18 | ) | $ | 0.47 | ||||||
| Diluted |
$ | (0.30 | ) | $ | 0.12 | $ | (0.18 | ) | $ | 0.47 | ||||||
| Weighted average number of common shares outstanding (in thousands)- |
||||||||||||||||
| Basic |
2,492 | 2,486 | 2,491 | 2,485 | ||||||||||||
| Diluted |
2,493 | 2,499 | 2,495 | 2,493 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
Kewaunee Scientific Corporation
Condensed Consolidated Balance Sheets
(in thousands)
| January 31 2005 |
April 30 2004 |
|||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 1,128 | $ | 1,167 | ||||
| Receivables, less allowance |
18,756 | 24,987 | ||||||
| Inventories |
3,953 | 4,285 | ||||||
| Deferred income taxes |
517 | 517 | ||||||
| Prepaid income taxes |
251 | 165 | ||||||
| Prepaid expenses and other current assets |
523 | 415 | ||||||
| Total current assets |
25,128 | 31,536 | ||||||
| Property, plant and equipment, at cost |
34,144 | 33,246 | ||||||
| Accumulated depreciation |
(23,415 | ) | (21,884 | ) | ||||
| Net property, plant and equipment |
10,729 | 11,362 | ||||||
| Other assets |
6,513 | 7,563 | ||||||
| Total Assets |
$ | 42,370 | $ | 50,461 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Short-term borrowings |
$ | 3,263 | $ | 6,996 | ||||
| Current portion of long-term debt |
1,118 | 1,118 | ||||||
| Current obligations under capital leases |
51 | 0 | ||||||
| Accounts payable |
5,189 | 6,924 | ||||||
| Employee compensation and amounts withheld |
623 | 1,507 | ||||||
| Deferred Revenue |
1,230 | 1,152 | ||||||
| Other accrued expenses |
682 | 1,222 | ||||||
| Total current liabilities |
12,156 | 18,919 | ||||||
| Long-term debt |
93 | 931 | ||||||
| Obligations under capital leases |
164 | 0 | ||||||
| Deferred income taxes |
1,013 | 1,013 | ||||||
| Accrued employee benefit plan costs |
2,603 | 2,325 | ||||||
| Other long-term liabilities |
537 | 482 | ||||||
| Total Liabilities |
16,566 | 23,670 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock |
6,550 | 6,550 | ||||||
| Additional paid-in-capital |
132 | 141 | ||||||
| Retained earnings |
19,912 | 20,876 | ||||||
| Accumulated other comprehensive income |
0 | 36 | ||||||
| Common stock in treasury, at cost |
(790 | ) | (812 | ) | ||||
| Total stockholders’ equity |
25,804 | 26,791 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 42,370 | $ | 50,461 | ||||
See accompanying notes to condensed consolidated financial statements.
4
Kewaunee Scientific Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Nine months ended January 31 |
||||||||
| 2005 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net earnings (loss) |
$ | (441 | ) | $ | 1,170 | |||
| Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: |
||||||||
| Depreciation |
1,531 | 1,543 | ||||||
| Provision for bad debts |
516 | 62 | ||||||
| (Increase) decrease in prepaid income taxes |
(86 | ) | 1,133 | |||||
| Decrease (increase) in receivables |
5,715 | (6,581 | ) | |||||
| Decrease in inventories |
332 | 1,373 | ||||||
| Decrease in accounts payable and other current liabilities |
(3,159 | ) | (3,150 | ) | ||||
| Increase in deferred revenue |
78 | 882 | ||||||
| Other, net |
1,239 | 853 | ||||||
| Net cash provided by (used in) operating activities |
5,725 | (2,715 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures |
(674 | ) | (1,310 | ) | ||||
| Net cash used in investing activities |
(674 | ) | (1,310 | ) | ||||
| Cash flows from financing activities: |
||||||||
| (Decrease) increase in short-term borrowings |
(3,733 | ) | 4,668 | |||||
| Proceeds from long-term debt |
0 | 1,200 | ||||||
| Payments of long-term debt |
(838 | ) | (801 | ) | ||||
| Payments of capital leases |
(9 | ) | 0 | |||||
| Dividends paid |
(523 | ) | (522 | ) | ||||
| Proceeds from exercise of stock option |
13 | 23 | ||||||
| Net cash (used in) provided by financing activities |
(5,090 | ) | 4,568 | |||||
| (Decrease) increase in cash and cash equivalents |
(39 | ) | 543 | |||||
| Cash and cash equivalents, beginning of period |
1,167 | 520 | ||||||
| Cash and cash equivalents, end of period |
$ | 1,128 | $ | 1,063 | ||||
See accompanying notes to condensed consolidated financial statements.
5
Kewaunee Scientific Corporation
Notes to Condensed Financial Statements
(unaudited)
A. Financial Information
The unaudited interim condensed consolidated 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 accounting principles generally accepted in the United States of America have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s 2004 Annual Report to Stockholders.
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated 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. Revenue Recognition
Product sales are generally recognized at the date of shipment, or when customers have purchased and accepted title to the goods, but because of construction delays, have requested the Company to temporarily store the finished goods on the customer’s behalf. Deferred revenue consists of customer deposits and advance billings of the Company’s products where sales have not yet been recognized. Service revenue for installation of product sold is recognized as the installation services are performed.
6
Product Sales for Fixed-Price Construction Contracts. Product sales for 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. The Company usually is in the role as a subcontractor, but in some cases may enter into a contract directly with the end-user of the products. Product sales for fixed-price construction contracts are generated from multiple-element arrangements that require separate units of accounting and estimates regarding the fair value of individual elements.
The Company determined that its multiple-element arrangements are generally comprised of the following elements that would qualify as separate units of accounting: product sales and installation services. Each of these elements represent individual units of accounting as the delivered item has value to a customer on a stand-alone basis, objective and reliable evidence of fair value exists for undelivered items, and arrangements normally do not contain a general right of return relative to the delivered item. The Company determines fair value based on the price of the deliverable when it is sold separately or based on third-party evidence. In accordance with the guidance in EITF 00-21, the Company uses the residual method to allocate the arrangement consideration when it does not have fair value of the product sale. Under the residual method, the amount of consideration allocated to the delivered item equals the total arrangement consideration less the aggregate fair value of the undelivered items. Assuming all other criteria for revenue recognition have been met, the Company recognizes revenue for product sales at the date of shipment.
Product Sales for Purchase Orders. Product sales for purchase orders involve a purchase order received by the Company from its dealers and its stocking distributor. This category includes product sales for standard products, as well as products which require some customization. These sales are recognized under the terms of the purchase order which generally are freight on board (“FOB”) shipping point and do not include rights of return. Accordingly, sales are recognized at the time of shipment.
C. Principles of Consolidation
The Company’s consolidated financial statements include the accounts of Kewaunee Scientific Corporation and its three subsidiaries. A brief description of each subsidiary, along with the amount of the Company’s controlling financial interests, is as follows:
(1) Kewaunee Labway Asia Pte. Ltd., a dealer for the Company’s products in Singapore, is 51% owned by the Company; (2) Labway Scientific India Pvt. Ltd., a dealer for the Company’s products in Bangalore, India, is 95% owned by Kewaunee Labway Asia; and (3) Kewaunee Scientific Corporation India Pvt. Ltd. in Bangalore, India, an assembly operation, is 100% owned by the Company. All intercompany balances, transactions, and profits have been eliminated.
7
D. Inventories
Inventories consisted of the following (in thousands):
| January 31, 2005 |
April 30, 2004 | |||||
| Finished products |
$ | 1,062 | $ | 1,364 | ||
| Work in process |
1,046 | 1,373 | ||||
| Raw materials |
1,845 | 1,548 | ||||
| $ | 3,953 | $ | 4,285 | |||
E. Balance Sheet
The Company’s April 30, 2004 condensed consolidated balance sheet as presented herein is derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles.
F. Long-Term Debt
At January 31, 2005, long-term debt of the Company included $1,211,000 of obligations under a bank note, of which $1,118,000 was due within one year and classified as a current liability in the balance sheet. The note includes certain covenants as to tangible net worth, funds flow coverage, current ratio and ratio of liabilities to tangible net worth. At January 31, 2005, the Company’s funds flow coverage ratio fell below the minimum required under the financial covenant at the beginning of the quarter because of the net loss reported by the Company in the third quarter. The bank has waived the funds flow coverage ratio requirement for the period ended January 31, 2005 and amended the ratio calculation for the period ending April 30, 2005 to lower the required ratio for that period. The Company expects to be in compliance with all covenants, as amended, under the note in future periods.
8
G. Comprehensive Income (Loss)