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, 2000 ----- |_____| 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 10, 2000, the Registrant had outstanding 2,465,871 shares of Common Stock. Pages: This report, excluding exhibits, contains 15 pages numbered sequentially from this cover page.
KEWAUNEE SCIENTIFIC CORPORATION INDEX TO FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2000 <TABLE> <CAPTION> Page Number ------ <S> <C> PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements Condensed Statements of Operations - Three months and nine months ended January 31, 2000 and 1999 3 Condensed Balance Sheets - January 31, 2000 and April 30, 1999 4 Condensed Statements of Cash Flows - Nine months ended January 31, 2000 and 1999 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 Report by Independent Accountants 13 PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURE 15 </TABLE>
Part 1. Financial Information Item 1. Financial Statements Kewaunee Scientific Corporation Condensed Statements of Operations (UNAUDITED) <TABLE> <CAPTION> Three months ended Nine Months ended January 31 January 31 ---------- ---------- 2000 1999 2000 1999 ---- ---- ---- ---- ($ IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> Net sales $ 16,945 $ 18,404 $ 56,561 $ 57,281 Cost of products sold 12,768 14,302 43,408 44,733 -------- -------- -------- -------- Gross profit 4,177 4,102 13,153 12,548 Operating expenses 3,070 3,000 9,522 9,108 -------- -------- -------- -------- Operating earnings 1,107 1,102 3,631 3,440 Interest expense (32) (37) (123) (63) Other income (expense), net 24 (5) 266 (33) -------- -------- -------- -------- Earnings before income taxes 1,099 1,060 3,774 3,344 Income tax expense 220 425 1,250 1,338 -------- -------- -------- -------- Net earnings $ 879 $ 635 $ 2,524 $ 2,006 ======== ======== ======== ======== Net earnings per share- Basic $ 0.36 $ 0.26 $ 1.03 $ 0.83 Diluted 0.35 0.26 1.02 0.81 Average number of common shares outstanding (in thousands)- Basic 2,464 2,436 2,453 2,431 Diluted 2,482 2,467 2,475 2,464 </TABLE> SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS. 3
Kewaunee Scientific Corporation Condensed Balance Sheets ($ IN THOUSANDS) <TABLE> <CAPTION> January 31 April 30 2000 1999 ----------- -------- (Unaudited) <S> <C> <C> ASSETS - ------ Current assets: Cash and cash equivalents $ 8 $ 8 Receivables 14,731 17,231 Inventories 3,498 2,940 Deferred income taxes 1,026 1,026 Prepaid expenses and other current assets 518 626 -------- -------- Total current assets 19,781 21,831 -------- -------- Property, plant and equipment, at cost 32,931 30,302 Accumulated depreciation (19,632) (18,177) -------- -------- Net property, plant and equipment 13,299 12,125 -------- -------- Other assets 2,329 2,079 -------- -------- Total Assets $ 35,409 $ 36,035 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Short-term borrowings $ 458 $ 939 Accounts payable 4,776 6,566 Employee compensation and amounts 1,643 1,973 withheld Other current liabilities 1,998 2,194 -------- -------- Total current liabilities 8,875 11,672 -------- -------- Deferred income taxes 1,074 1,074 Accrued employee benefit plan costs 1,257 1,257 Total Liabilities 11,206 14,003 -------- -------- Stockholders' equity: Common stock 6,550 6,550 Additional paid-in-capital 83 148 Retained earnings 18,487 16,429 Common stock in treasury, at cost (917) (1,095) -------- -------- Total stockholders' equity 24,203 22,032 -------- -------- Total Liabilities and Stockholders' Equity 35,409 36,035 ======== ======== </TABLE> SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS. 4
Kewaunee Scientific Corporation Condensed Statements of Cash Flows (Unaudited) ($ IN THOUSANDS) <TABLE> <CAPTION> Nine months ended January 31 ---------- 2000 1999 ---- ---- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 2,524 $ 2,006 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 1,496 1,262 Provision for bad debts 72 107 (Increase) decrease in receivables 2,428 (2,744) (Increase) decrease in inventories (558) 130 Decrease in accounts payable and other current liabilities (2,316) (959) Other, net (143) (245) ------- ------- Net cash provided by (used in) operating activities 3,503 (443) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,670) (2,969) ------- ------- Net cash used in investing activities (2,670) (2,969) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in short-term (481) 2,422 borrowings Dividends paid (466) (389) Proceeds from exercise of stock options 114 70 ------- ------- Net cash provided by (used in) financing activities (833) 2,103 ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 0 (1,309) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8 1,809 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8 $ 500 ======= ======= SUPPLEMENTAL DISCLOSURE: Interest paid $ 134 $ 49 Income taxes paid $ 739 $ 1,732 </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 1999 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): <TABLE> <CAPTION> Jan. 31, 2000 April 30,1999 ------------- ------------- <S> <C> <C> Finished products $ 575 $ 594 Work in process 968 911 Raw materials 1,955 1,435 ------ ------ $3,498 $2,940 ====== ====== </TABLE> C. Balance Sheet - ----------------- The Company's April 30, 1999 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 and nine months ended January 31, 2000 and 1999. <TABLE> <CAPTION> Laboratory Technical Products Products Corporate Total ---------- --------- --------- ----- <S> <C> <C> <C> <C> Three months ended January 31, 2000 - ------------------ Revenues from external customers $14,926 $ 2,019 $-- $16,945 Intersegment revenues -- 85 (85) -- Segment profit 1,204 194 (299) 1,099 Three months ended January 31, 1999 - ------------------ Revenues from external customers $15,826 $ 2,578 $-- $18,404 Intersegment revenues -- 90 (90) -- Segment profit 1,142 111 (193) 1,060 Nine months ended January 31, 2000 - ----------------- Revenues from external customers $47,349 $ 9,212 $-- $56,561 Intersegment revenues -- 262 (262) -- Segment profit 3,286 810 (322) 3,774 Nine months ended January 31, 1999 - ----------------- Revenues from external customers $50,168 $ 7,113 $-- $57,281 Intersegment revenues -- 366 (366) -- Segment profit 3,224 421 (301) 3,344 </TABLE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's 1999 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, 1999. The following discussion and analysis describes material changes in the Company's financial condition since April 30, 1999. The analysis of results of operations compares the three months and nine months ended January 31, 2000 with the comparable periods of the prior fiscal year. Results of Operations - --------------------- The Company recorded sales of $16.9 million for the three months ended January 31, 2000, down 7.9% from sales of $18.4 million for the comparable period of the prior year. Sales for the nine months ended January 31, 2000 were $56.6 million, down 1.3% from sales of $57.3 million in the comparable period of the prior year. The lower sales for the quarter reflect a softer industrial research market for laboratory products, as well as the impact of customer delays in placing orders for technical furniture products until after the beginning of the calendar year due to Y2K concerns. The softer industrial research market was also the primary factor in the lower sales for the nine months ended January 31, 2000. The gross profit margin for the quarter ended January 31, 2000 was 24.7% of sales, as compared to 22.3% of sales in the comparable quarter of the prior year. The gross profit margin for the nine months ended January 31, 2000 was 23.3%, as compared to 21.9% in the comparable period of the prior year. The increase in the gross profit margins for the quarter was a result of improved manufacturing efficiencies and reduced manufacturing costs provided by the Company's capital investments at its Statesville location. Operating expenses for the quarter ended January 31, 2000 were $3.1 million, or 18.1% of sales, as compared to $3.0 million, or 16.3% of sales, in the comparable quarter of the prior year. Operating expenses for the nine months ended January 31, 2000 were $9.5 million, or 16.8% of sales, as compared to $9.1 million, or 15.9% of sales, in the comparable period of the prior year. The increase in operating expenses for the quarter and nine months was primarily attributable to increased compensation and other employee costs. 8
Operating earnings of $1.1 million and $3.6 million were recorded for the three months and nine months ended January 31, 2000, respectively. This compares to operating earnings of $1.1 million and $3.4 million for the comparable periods of the prior year. Interest expense was $32,000 and $123,000 for the three months and nine months ended January 31, 2000, respectively, compared to $37,000 and $63,000 for the comparable periods of the prior year. The increase in interest expense in the current year resulted primarily from higher levels of debt under the Company's revolving credit facility. Other income was $24,000 and $266,000 for the three months and nine months ended January 31, 2000, respectively, compared to other expenses of $5,000 and $33,000 for the comparable periods of the prior year. Other income of $19,000 and $244,000 for the three months and nine months of the current year, respectively, was recorded resulting from collections associated with litigation settlements with certain suppliers for overcharges in earlier years. No significant additional collections are expected in this matter. Income tax expense of $220,000 and $1,250,000 was recorded for the three months and nine months ended January 31, 2000, respectively, as compared to income tax expense of $425,000 and $1,338,000 recorded for the comparable periods of the prior year. The effective tax rate was approximately 20% for the three months ended January 31, 2000 and 33.1% for the nine months ended January 31, 2000. The effective tax rate was 40% for the three and nine months ended January 31, 1999. The lower effective tax rate for the current quarter is a result of tax credits available due to the Company's increased research and development expenditures and increased purchases of new manufacturing machinery at the Statesville location. The Company is continuing to quantify earned tax credits, and anticipates that additional credits will favorably affect the Company's effective tax rate for the fourth quarter of the current year, with a return to a normal tax rate thereafter. Net earnings of $879,000 and $2.5 million, or $.35 per diluted share and $1.02 per diluted share, were recorded for the three months and nine months ended January 31, 2000, respectively. This compares to net earnings of $635,000 and $2.0 million, or $.26 per diluted share and $.81 per diluted share, respectively, for the 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 $10.9 million at January 31, 2000, as compared to $10.2 million at April 30, 1999. The ratio of current assets to current liabilities was 2.23-to-1 at January 31, 2000, as compared to 1.87-to-1 at April 30, 1999. At January 31, 2000, advances of $458,000 were outstanding under the Company's revolving credit facility, as compared to advances of $939,000 outstanding at April 30, 1999. No advances were outstanding under the Company's equipment loan component of the credit facility at January 31, 2000 or April 30, 1999. The Company's operations provided cash of $3,503,000 during the nine months ended January 31, 2000, primarily from operating earnings and a reduction in accounts receivable, partially offset by a decrease in accounts payable. The Company's operations used cash of $443,000 during the nine months ended January 31, 1999, primarily to support increases in customer receivables and reductions in accounts payable and other current liabilities. During the nine months ended January 31, 2000, the Company used cash of $2,670,000 for capital expenditures, primarily production equipment, compared to the use of $2,969,000 for capital expenditures in the comparable period of the prior year. Year 2000 - --------- As of the date of this Form 10-Q, the Company believes it has resolved the potential impact of the year 2000 issue on its processing of date-sensitive information in its operation and control systems. The Company, to date, has not experienced any negative effects due to Y2K problems, either internally or with its customers or vendors. The Company's expenditures related to Y2K compliance have been less than $100,000, and substantially all of these expenditures were expensed in fiscal year 2000. 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 10
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. 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 nine months ended January 31, 2000 has been performed by PricewaterhouseCoopers LLP, the Company's independent accountants. Their report on the interim financial information follows. 12
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, 2000, and the related statements of operations for each of the three-month and nine-month periods ended January 31, 2000 and 1999 and the statements of cash flows for the nine-month periods ended January 31, 2000 and 1999. 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 interim financial information for it to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the balance sheet as of April 30, 1999 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 3, 1999 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, 1999, 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 11, 2000 13
PART II. OTHER INFORMATION Item 5. Other Information William A. Shumaker, President and Chief Operating Officer of the Company, was elected a director of the Company on February 23, 2000. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.38 Agreement dated as of November 12, 1999 between William A. Shumaker and the Registrant. 10.39 Agreement dated as of November 12, 1999 between D. Michael Parker and the Registrant. 10.40 Agreement dated as of November 12, 1999 between James J. Rossi and the Registrant. 10.41 Agreement dated as of January 20, 2000 between Kurt P. Rindoks and the Registrant. 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 January 31, 2000. 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: March 13, 2000 By /s/ D. Michael Parker -------------------------------- D. Michael Parker Vice President of Finance Chief Financial Officer 15