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 October 31, 1996 [_] 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 November 30, 1996, the Registrant had outstanding 2,365,796 shares of Common Stock. Pages: This report, including exhibits, contains 15 pages numbered sequentially from this cover page.
KEWAUNEE SCIENTIFIC CORPORATION INDEX TO FORM 10-Q FOR THE QUARTERLY PERIOD ENDED October 31, 1996 <TABLE> <CAPTION> Page Number ------ <S> <C> PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements Condensed Statements of Income - Three and six months ended October 31, 1996 and 1995 3 Condensed Balance Sheets - October 31, 1996 and April 30, 1996 4 Condensed Statements of Cash Flows - Six months ended October 31, 1996 and 1995 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 Independent Accountants' Review Report 13 PART II. OTHER INFORMATION - --------------------------- Item 4. Submission of matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURE 15 - --------- </TABLE> 2
Part 1. Financial Information Item 1. Financial Statements Kewaunee Scientific Corporation Condensed Statements of Income (Unaudited) <TABLE> <CAPTION> Three months ended Six months ended October 31 October 31 ------------------ ------------------- 1996 1995 1996 1995 --------- -------- --------- --------- <S> <C> <C> <C> <C> ($ in thousands, except per share data) Net sales $15,928 $15,385 $32,208 $30,933 Cost of products sold 12,190 12,389 25,179 25,264 ------- ------- ------- ------- Gross profit 3,738 2,996 7,029 5,669 Operating expenses 3,090 2,680 5,838 5,095 ------- ------- ------- ------- Operating profit 648 316 1,191 574 Interest expense (108) (191) (243) (395) Other income, net 14 23 19 39 ------- ------- ------- ------- Income before income taxes 554 148 967 218 Income tax benefit (205) - (330) - ------- ------- ------- ------- Net income $759 $148 $1,297 $218 ======= ======= ======= ======= Per share data: Net income per common share $0.32 $0.06 $0.55 $0.09 Average number of common shares outstanding (in thousands) 2,366 2,367 2,366 2,367 </TABLE> See accompanying notes to condensed financial statements. 3
Kewaunee Scientific Corporation Condensed Balance Sheets ($ in thousands) <TABLE> <CAPTION> October 31 April 30 1996 1996 ---------- -------- Assets (Unaudited) <S> <C> <C> Current assets: Cash $32 $16 Receivables 13,898 13,212 Inventories 2,649 1,213 Prepaid expenses and other current assets 1,433 1,205 ---------- -------- Total current assets 18,012 15,646 ---------- -------- Property, plant and equipment, at cost 26,619 25,840 Accumulated depreciation (16,388) (15,532) ---------- -------- Net property, plant and equipment 10,231 10,308 ---------- -------- Other assets 536 550 ---------- -------- $28,779 $26,504 ========== ======== Liabilities and Stockholders' Equity Current liabilities: Short-term borrowings $2,246 $2,320 Current portion of long-term debt 180 180 Accounts payable 5,118 4,505 Other current liabilities 4,399 3,594 ---------- -------- Total current liabilities 11,943 10,599 ---------- -------- Long-term debt 241 328 ---------- -------- Deferred income taxes and other non-current liabilities 787 1,062 ---------- -------- Stockholders' equity: Common stock 6,550 6,550 Additional paid-in-capital 116 116 Retained earnings 10,658 9,361 Common stock in treasury, at cost (1,516) (1,512) ---------- -------- Total stockholders' equity 15,808 14,515 ---------- -------- $28,779 $26,504 ========== ======== </TABLE> See accompanying notes to condensed financial statements. 4
Kewaunee Scientific Corporation Condensed Statements of Cash Flows (Unaudited) <TABLE> <CAPTION> Six months ended October 31, ---------------- 1996 1995 ------- ------- ($ in thousands) <S> <C> <C> Cash flows from operating activities Net income $ 1,297 $ 218 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 941 808 Provision for bad debts 145 18 (Increase) decrease in receivables (831) 1,191 Increase in inventories (1,436) (365) Increase (decrease) in accounts payable and other current liabilities 1,418 (946) Other, net (493) 147 ------- ------- Net cash provided by operating activities 1,041 1,071 ------- ------- Cash flows from investing activities Capital expenditures (864) (439) Decrease in short-term investments -- 350 ------- ------- Net cash used in investing activities (864) (89) ------- ------- Cash flows from financing activities Net decrease in short-term borrowings (74) (971) Repayment of long-term debt (87) (64) ------- ------- Net cash used in financing activities (161) (1,035) ------- ------- Increase (decrease) in cash and cash equivalents 16 (53) Cash and cash equivalents, beginning of period 16 58 ------- ------- Cash and cash equivalents, end of period $ 32 $ 5 ======= ======= Supplemental disclosure of cash flow information Interest paid $ 214 $ 326 Income taxes paid (refunded), net $ 33 $ (36) Supplemental disclosure of non-cash financing activities Equipment acquired under financing arrangements -- $338 </TABLE> 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 1996 Annual Report to Stockholders. 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): <TABLE> <CAPTION> October 31, 1996 April 30, 1996 ---------------- -------------- <S> <C> <C> Finished products $ 737 $ 253 Work-in-process 566 280 Raw materials 1,346 680 ------ ------ $2,649 $1,213 ====== ====== </TABLE> C. Balance Sheet - ----------------- The Company's April 30, 1996 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. Financing Arrangements - -------------------------- During the current quarter, the Company amended and renewed its revolving credit facility. The facility allows the Company to borrow the lesser of $8.5 million, or that available under certain eligibility formulas using qualifying receivables and inventories, as defined under the credit arrangement. Under the facility, as amended, the Company makes monthly interest payments at a rate of the greater of 6% or the lender's prime rate (8.25% at October 31, 1996), calculated on the average loan balance outstanding during each month. The Company's receivables and inventories continue to be pledged to the lender as collateral securing borrowings under the facility, but other collateral has been released. The facility extends through January 1999. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's 1996 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, 1996. The following discussion and analysis describes material changes in the Company's financial condition since April 30, 1996. The analysis of results of operations compares the three months and six months ended October 31, 1996 with the comparable periods of the prior fiscal year. Results of Operations - --------------------- The Company recorded sales of $15.9 million for the three months ended October 31, 1996, up 3.5% from sales of $15.4 million for the comparable period of the prior year. Sales for the six months ended October 31, 1996 were $32.2 million, up 4.1% from sales of $30.9 million in the comparable period of the prior year. The sales increases for the three months and six months ended October 31, 1996 were attributable to increased sales of end-user products, partially offset by decreased sales of contract-bid laboratory furniture. The Company's gross profit margins for the three months and six months ended October 31, 1996 were 23.5 percent and 21.8 percent, respectively, compared with 19.5 percent and 18.3 percent for the comparable periods of the prior fiscal year. Current year gross profit margins were favorably affected by an improved product sales mix and higher selling prices for contract-bid laboratory furniture. Operating expenses for the three months and six months ended October 31, 1996 were $3.1 million and $5.8 million, respectively, compared to $2.7 million and $5.1 million for the comparable periods of the prior fiscal year. As a percent of sales, operating expenses for the three months and six months ended October 31, 1996 were 19.4 percent and 18.1 percent of sales, respectively, compared to 17.4 percent and 16.5 percent of sales for the comparable periods of the prior fiscal year. The increases in operating expenses for the three months and six months ended October 31, 1996 were primarily attributable to increased sales and marketing expenses, mainly sales commissions associated with the improved product sales mix. 8
Operating profits of $648,000 and $1.2 million were recorded for the three months and six months ended October 31, 1996, respectively. This compares to operating profits of $316,000 and $574,000 for the comparable periods of the prior fiscal year. Interest expense was $108,000 and $243,000 for the three months and six months ended October 31, 1996, respectively, compared to $191,000 and $395,000 for the comparable periods of the prior fiscal year. The decreases in interest expense for the current year resulted from lower levels of average debt, assisted by lower interest rates during the second quarter under the new terms of the revolving credit facility. Other income was $14,000 and $19,000 for the three months and six months ended October 31, 1996, respectively, compared to $23,000 and $39,000 for the comparable periods of the prior fiscal year. Income tax benefits of $205,000 and $330,000, respectively, resulting from adjustments to the Company's valuation allowance on deferred tax assets were recorded for the three months and six months ended October 31, 1996. No income tax expense or benefit was recorded for the three and six months ended October 31, 1995. The effective tax rate for each of these periods differs from the related statutory rates due to adjustments to the deferred tax valuation allowance. Net income of $759,000 and $1.3 million or 32 cents per share and 55 cents per share, were recorded for the three months and six months ended October 31, 1996, respectively. This compares to net income of $148,000 and $218,000, or 6 cents per share and 9 cents per share, respectively, for the comparable periods of the prior fiscal year. Lower sales and income are anticipated for the quarter ending January 31, 1997, as compared to the first two quarters, as construction activity typically slows during the winter months. See section titled Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. 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 and debt service requirements. 9
The Company had working capital of $6.1 million at October 31, 1996, as compared to $5.0 million at April 30, 1996. The ratio of current assets to current liabilities was 1.5-to-1 at October 31, 1996, unchanged from April 30, 1996. The debt-to-equity ratio was .17-to-1 at October 31, 1996, as compared to .19-to-1 at April 30, 1996. The Company had unused credit available under a revolving credit facility of $5.8 million at October 31, 1996, as compared to unused credit available under this facility of $4.0 million at April 30, 1996. The Company's operations provided cash of $1.0 million during the six months ended October 31, 1996, primarily from operating income and an increase in accounts payable, partially offset by an increase in customer receivables and inventory. The Company's operations provided cash of $1.1 million during the six months ended October 31, 1995 primarily from a decrease in customer receivables. As discussed in Note D to the condensed financial statements, in September 1996, the Company amended and renewed its revolving credit facility. The facility allows the Company to borrow the lesser of $8.5 million, or that available under certain eligibility formulas using qualifying receivables and inventories, as defined under the credit arrangement. Under the facility, as amended, the Company makes monthly interest payments at a rate of the greater of 6% or the lender's prime rate, calculated on the average loan balance outstanding during each month. The Company's receivables and inventories continue to be pledged to the lender as collateral securing borrowings under the facility, but other collateral has been released. The Company used cash of $864,000 for capital expenditures during the six months ended October 31, 1996 and used cash of $439,000 for such expenditures during the comparable period of the prior fiscal year, in both instances primarily for the purchase of production machinery. The Company does not anticipate an abnormal level of capital expenditures for the remainder of the current fiscal year. The Company decreased its short-term borrowings during the six months ended October 31, 1996 by $74,000. The Company used cash of $87,000 for scheduled principal payments on long-term debt during the six months ended October 31, 1996, as compared to scheduled principal payments of $64,000 during the comparable period of the prior fiscal year. 10
No common stock dividends were paid during the six months ended October 31, 1996, or the six months ended October 31, 1995. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------------------------- The information included in the Results of Operations section is forward looking and involves risk and uncertainties that could significantly impact results. These factors include, but are not limited to, economic, competitive, governmental, and technological factors affecting the Company's operations, markets, products, services, and prices. Recent Accounting Standards - --------------------------- In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which was effective for the Company beginning May 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share in its year-end financial statements. 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 six months ended October 31, 1996 has been performed by Deloitte & Touche LLP, the Company's independent accountants. Their report on the interim financial information follows. There have been no adjustments or disclosures proposed by Deloitte & Touche LLP which have not been reflected in the interim financial information. 12
INDEPENDENT ACCOUNTANTS' REPORT 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 October 31, 1996, and the related condensed statements of operations for the three-month and six-month periods ended October 31, 1996 and 1995, and the condensed of cash flows for the six-month period ended October 31, 1996 and 1995. 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 of 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 such condensed financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of Kewaunee Scientific Corporation as of April 30, 1996, and the related statements of operations and retained earnings and of cash flows for the year then ended (not presented herein); and in our report dated May 31, 1996, 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, 1996 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. Deloitte & Touche LLP December 11, 1996 13
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 28, 1996. The results of this meeting are incorporated by reference from the Company's Report on Form 10-Q for the three months ended October 31, 1996. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed with the Commission during the three months ended October 31, 1996. 14
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: December 11, 1996 By /s/ D. Michael Parker -------------------------------- D. Michael Parker Vice President of Finance Chief Financial Officer 15