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 July 31, 2001 ----- | | 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 August 31, 2001, the Registrant had outstanding 2,470,246 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 JULY 31, 2001 Page ---- PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements Condensed Statements of Operations - Three months ended July 31, 2001 and 2000 3 Condensed Balance Sheets - July 31, 2001 and April 30, 2001 4 Condensed Statements of Cash Flows - Three months ended July 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 11 Report of Independent Accountants 12 PART II. OTHER INFORMATION - --------------------------- Item 4. Submission of Matters to a Vote of Security Holders 13 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) (in thousands, except per share data) Three months ended July 31 ---------------------- 2001 2000 ---------- ---------- Net sales $19,740 $19,370 Costs of products sold 16,533 15,692 ---------- ---------- Gross profit 3,207 3,678 Operating expenses 2,752 3,281 ---------- ---------- Operating earnings 455 397 Interest expense (60) (47) Other income (expense) 63 (15) ---------- ---------- Earnings before income taxes 458 335 Income tax expense 165 121 ---------- ---------- Net earnings $293 $214 ========= ========= Net earnings per share Basic $0.12 $0.09 Diluted $0.12 $0.09 Average number of common shares outstanding (in thousands) Basic 2,472 2,466 Diluted 2,486 2,491 See accompanying notes to condensed financial statements. 3
Kewaunee Scientific Corporation Condensed Balance Sheets (in thousands) July 31 April 30 2001 2001 ------------- ------------- Assets (Unaudited) Current assets: Cash and cash equivalents $ 349 $ 488 Receivables, less allowance 17,585 17,629 Inventories 5,330 4,370 Deferred income taxes 915 915 Prepaid income taxes 215 758 Prepaid expenses and other current assets 857 498 ------------- ------------- Total current assets 25,251 24,658 ------------- ------------- Property, plant and equipment, at cost 35,066 34,744 Accumulated depreciation (22,349) (21,825) ------------- ------------- Net property, plant and equipment 12,717 12,919 ------------- ------------- Other assets 2,977 3,292 ------------- ------------- Total Assets $ 40,945 $ 40,869 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $ 200 $ - Current portion of long-term debt 620 620 Accounts payable 5,245 5,334 Employee compensation and amounts withheld 1,373 1,446 Deferred Revenue 639 1,024 Other accrued expenses 1,848 1,549 ------------- ------------- Total current liabilities 9,925 9,973 ------------- ------------- Long-term debt 2,222 2,377 Deferred income taxes 1,063 1,063 Accrued employee benefit plan costs 1,696 1,695 Other long-term liabilities 187 - ------------- ------------- Total Liabilities 15,093 15,108 ------------- ------------- Stockholders' equity: Common stock 6,550 6,550 Additional paid-in-capital 150 150 Retained earnings 20,058 19,938 Common stock in treasury, at cost (906) (877) ------------- ------------- Total stockholders' equity 25,852 25,761 ------------- ------------- Total Liabilities and Stockholders' Equity $ 40,945 $ 40,869 ============= ============= See accompanying notes to condensed financial statements. 4
Kewaunee Scientific Corporation Condensed Statements of Cash Flows (Unaudited) (in thousands) Three months ended July 31 ------------------ 2001 2000 -------- -------- Cash flows from operating activities: Net earnings $ 293 $ 214 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation 524 562 Provision for bad debts 33 33 Decrease in prepaid income taxes 543 - Decrease in receivables 11 1,356 Increase in inventories (960) (1,428) Increase in accounts payable and other current liabilities 137 127 Other, net (241) (212) ------ ------- Net cash provided by operating activities 340 652 ------ ------- Cash flows from investing activities: Capital expenditures (322) (907) ------ ------- Net cash used in investing activities (322) (907) ------ ------- Cash flows from financing activities: Payments on long-term debt (155) - Increase in short-term borrowings 200 426 Dividends paid (173) (172) Purchase of treasury stock (29) - ------ ------- Net cash (used in) provided by financing activities (157) 254 ------ ------- Decrease in cash and cash equivalents (139) (1) Cash and cash equivalents, beginning of period 488 9 ------ ------- Cash and cash equivalents, end of period $ 349 $ 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 accounting principles generally accepted in the United States of America 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 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 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): July 31, 2001 April 30, 2001 ------------- -------------- Finished products $1,459 $1,023 Work in process 1,532 1,455 Raw materials 2,339 1,892 ------ ------ $5,330 $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. 6
D. Segment Information - ----------------------- The following table shows net sales and profits by business segment for three months ended July 31, 2001 and 2000. Laboratory Technical Products Products Corporate Total ---------- -------- --------- ----- Three months ended July 31, 2001 - ------------- Revenues from external customers $17,844 $1,896 -- $19,740 Intersegment revenues -- -- -- -- Segment profit 825 (184) (183) 458 Three months ended July 31, 2000 - ------------- Revenues from external customers $14,259 $5,111 -- $19,370 Intersegment revenues -- 114 (114) -- Segment profit (loss) (193) 684 (156) 335 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 ended July 31, 2001 with the comparable period of the prior fiscal year. Results of Operations - --------------------- The Company recorded sales of $19.7 million for the three months ended July 31, 2001, up 1.9% from sales of $19.4 million for the comparable period of the prior year. Sales of laboratory products increased 25.1% during the quarter over the same period last year, as the industrial research market for these products continued to improve. Sales of technical products, which are sold primarily to customers in the high-tech industry, declined 62.9% during the quarter from the same period last year, as the slowdown in high-tech capital spending reduced demand for these products. The Company's gross profit margin for the three months ended July 31, 2001 was 16.2%, compared to 19.0% for the comparable period of the prior year. The decrease in the gross profit margin for the quarter resulted primarily from differences in the product sales mix, as sales of laboratory products increased during the quarter, while sales of technical products, which typically have higher profit margins, declined. Operating expenses for the three months ended July 31, 2001 were $2.8 million, compared to $3.3 million for the comparable period of the prior year. As a percent of sales, operating expenses for the three months ended July 31, 2001 were 13.9% of sales, as compared to 16.9% of sales for the comparable period of the prior year. The decrease in operating expenses resulted primarily from lower sales commissions attributable to a change in product sales mix and lower marketing and administrative expenses. Operating earnings of $455,000 were recorded for the three months ended July 31, 2001, as compared to $397,000 recorded in the comparable period of the prior year. 8
Interest expense was $60,000 for the three months ended July 31, 2001, compared to $47,000 for the comparable period of the prior year. The increase in interest expense for the current quarter resulted primarily from increased bank borrowings during the quarter, partially offset by lower interest rates. Other income was $63,000 for the three months ended July 31, 2001, compared to other expense of $15,000 for the comparable period of the prior year. Income tax expense of $165,000 was recorded for the three months ended July 31, 2001, as compared to an income tax expense of $121,000 recorded for the comparable period of the prior year. The effective tax rate was 36.0% for each of these periods. Net earnings of $293,000, or $.12 per diluted share, was recorded for the three months ended July 31, 2001, compared to net earnings of $214,000, or $.09 per diluted share, for the comparable period of the prior year, as a result of the factors discussed above. Liquidity and Capital Resources - ------------------------------- Historically, the Company's principal sources of liquidity have been funds generated from operations, supplemented as needed by the Company's credit facility. 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 $15.3 million at July 31, 2001, as compared to $14.7 million at April 30, 2001. The ratio of current assets to current liabilities was 2.5-to-1 at July 31, 2001, unchanged from April 30, 2001. At July 31, 2001, advances of $200,000 were outstanding under the Company's $6.0 million revolving credit loan. 9
The Company's operations provided cash of $340,000 during the three months ended July 31, 2001. The cash provided was primarily attributable to operating earnings before depreciation and a reduction in prepaid income taxes, reduced by cash requirements associated with increased inventory levels. The Company's operations provided cash of $652,000 during the three months ended July 31, 2000, primarily attributable to operating earnings before depreciation, reduced by the net impact of cash requirements associated with reduced customer receivable balances and increased inventory levels. During the three months ended July 31, 2001, the Company used cash of $322,000 for capital expenditures, primarily production equipment, compared to the use of $907,000 for such 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. 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 ended July 31, 2001 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 July 31, 2001, and the related statements of operations for the three-month period ended July 31, 2001 and the condensed statement of cash flows for the three-month period ended July 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 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 condensed interim 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 stockholder's 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 August 15, 2001 12
PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on August 22, 2001. Each of the nominees for Class III directors was re-elected. The votes cast for and withheld from each such director were as follows: Director For Withheld -------- --------- -------- Kingman Douglass 2,025,840 120,094 Eli Manchester, Jr. 2,081,826 64,108 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 July 31, 2001. 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: September 13, 2001 By /s/ D. Michael Parker -------------------------------- D. Michael Parker Senior Vice President, Finance Chief Financial Officer 14