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, 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 December 10, 2001, the Registrant had outstanding 2,463,996 shares of Common Stock. Pages: This report, excluding exhibits, contains 14 pages numbered sequentially from this cover page. 1
KEWAUNEE SCIENTIFIC CORPORATION INDEX TO FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2001 <TABLE> <CAPTION> Page Number ----------- <S> <C> PART I. FINANCIAL INFORMATION - ----------------------------- Item 1. Financial Statements Condensed Statements of Operations - Three months and six months ended October 31, 2001 and 2000 3 Condensed Balance Sheets - October 31, 2001 and April 30, 2001 4 Condensed Statements of Cash Flows - Six months ended October 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 by 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 - --------- </TABLE> 2
Part 1. Financial Information Item 1. Financial Statements Kewaunee Scientific Corporation Condensed Statements of Operations (Unaudited) <TABLE> <CAPTION> Three months ended Six months ended October 31 October 31 --------------------------- -------------------------- 2001 2000 2001 2000 --------- ----------- ---------- ---------- ($ in thousands, except per share data) <S> <C> <C> <C> <C> Net sales $ 22,525 $ 21,416 $ 42,265 $ 40,786 Cost of products sold 18,591 17,100 35,124 32,792 --------- --------- --------- --------- Gross profit 3,934 4,316 7,141 7,994 Operating expenses 2,858 3,018 5,610 6,299 --------- --------- --------- --------- Operating earnings 1,076 1,298 1,531 1,695 Interest expense (59) (85) (119) (132) Other (expense) income (25) 8 38 (7) --------- --------- --------- --------- Earnings before income taxes 992 1,221 1,450 1,556 Income tax expense 354 439 519 560 --------- --------- --------- --------- Net earnings $ 638 $ 782 $ 931 $ 996 ========= ========= ========= ========= Net earnings per share- Basic $ 0.26 $ 0.32 $ 0.38 $ 0.40 Diluted $ 0.26 $ 0.31 $ 0.38 $ 0.40 Weighted average number of common shares outstanding (in thousands)- Basic 2,470 2,466 2,471 2,466 Diluted 2,481 2,491 2,483 2,491 </TABLE> See accompanying notes to condensed financial statements. 3
Kewaunee Scientific Corporation Condensed Balance Sheets (in thousands) <TABLE> <CAPTION> October 31 April 30 2001 2001 ----------- -------- Assets (Unaudited) - ------ <S> <C> <C> Current assets: Cash and cash equivalents $ 409 $ 488 Receivables, less allowance 21,065 17,629 Inventories 5,042 4,370 Deferred income taxes 915 915 Prepaid income taxes - 758 Prepaid expenses and other current assets 835 498 -------- -------- Total current assets 28,266 24,658 -------- -------- Property, plant and equipment, at cost 35,773 34,744 Accumulated depreciation (22,867) (21,825) -------- -------- Net property, plant and equipment 12,906 12,919 -------- -------- Other assets 2,955 3,292 -------- -------- Total Assets $ 44,127 $ 40,869 ======== ======== Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities: Short-term borrowings $ 1,714 $ - Current portion of long-term debt 620 620 Accounts payable 6,145 5,334 Employee compensation and amounts withheld 1,357 1,446 Deferred Revenue 1,019 1,024 Other accrued expenses 2,016 1,549 -------- -------- Total current liabilities 12,871 9,973 -------- -------- Long-term debt 2,067 2,377 Deferred income taxes 1,070 1,063 Accrued employee benefit plan costs 1,696 1,695 Other long-term liabilities 175 - -------- -------- Total Liabilities 17,879 15,108 -------- -------- Stockholders' equity: Common stock 6,550 6,550 Additional paid-in-capital 137 150 Retained earnings 20,522 19,938 Common stock in treasury, at cost (961) (877) -------- -------- Total stockholders' equity 26,248 25,761 -------- -------- Total Liabilities and Stockholders' Equity $ 44,127 $ 40,869 ======== ======== </TABLE> See accompanying notes to condensed financial statements. 4
Kewaunee Scientific Corporation Condensed Statements of Cash Flows (Unaudited) ($ in thousands ) <TABLE> <CAPTION> Six months ended October 31 --------------------- 2001 2000 ------- -------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 931 $ 996 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 1,042 944 Provision for bad debts 63 42 Decrease in prepaid income taxes 758 - Increase in receivables (3,499) (230) Increase in inventories (672) (1,033) Increase in accounts payable and other current liabilities 1,189 313 Other, net 177 (286) ------- -------- Net cash (used) provided by operating activities (11) 746 ------- -------- Cash flows from investing activities: Capital expenditures (1,029) (1,513) ------- -------- Net cash used in investing activities (1,029) (1,513) ------- -------- Cash flows from financing activities: Payments on long-term debt (310) - Net increase in short-term borrowings 1,714 1,104 Dividends paid (346) (345) Proceeds from exercise of stock options 9 - Purchase of Treasury Stock (106) - ------- -------- Net cash provided by financing activities 961 759 ------- -------- (Decrease) increase in cash and cash equivalents (79) (8) Cash and cash equivalents, beginning of period 488 9 ------- -------- Cash and cash equivalents, end of period $ 409 $ 1 ======= ======== </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 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): Oct. 31, 2001 April 30,2001 ------------- ------------- Finished products $1,465 $1,023 Work in process 1,282 1,455 Raw materials 2,295 1,892 ------ ------ $5,042 $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 accounting principles generally accepted in the United States of America. 6
D. Segment Information - ----------------------- The following table shows net sales and profits by business segment for three months and six months ended October 31, 2001 and 2000. <TABLE> <CAPTION> Laboratory Technical Products Products Corporate Total -------- -------- --------- ----- <S> <C> <C> <C> <C> Three months ended October 31, 2001 - ---------------- Revenues from external customers $20,951 $1,574 -- $22,525 Intersegment revenue 347 -- (347) -- Segment profit 1,260 (90) (178) 992 Three months ended October 31, 2000 - ---------------- Revenues from external customers $17,532 $3,884 -- $21,416 Intersegment revenues -- 70 (70) -- Segment profit 1,052 345 (176) 1,221 Six months ended October 31, 2001 - ---------------- Revenues from external customers $38,795 $3,470 -- $42,265 Intersegment revenues 451 -- (451) -- Segment profit 2,085 (274) (361) 1,450 Six months ended October 31, 2000 - ---------------- Revenues from external customers $31,791 $8,995 -- $40,786 Intersegment revenues -- 184 (184) -- Segment profit 859 1,029 (332) 1,556 </TABLE> 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 six months ended October 31, 2001 with the comparable periods of the prior fiscal year. Results of Operations - --------------------- The Company recorded sales of $22.5 million for the three months ended October 31, 2001, up 5.2% from sales of $21.4 million for the comparable period of the prior year. Sales for the six months ended October 31, 2001 were $42.3 million, up 3.6% from sales of $40.8 million in the comparable period of the prior year. Sales of laboratory products increased 19.5% and 22.0% during the three months and six months ended October 31, 2001, respectively over the same periods last year, reflecting the continuing improvement in the industrial research market and a healthy education market. Sales of technical products declined 59.5% and 61.4% during the three months and six months ended October 21, 2001, respectively, from the same periods last year, as the slowdown in high-tech capital spending reduced demand for these products. The gross profit margin for the three months ended October 31, 2001 was 17.5% of sales, as compared to 20.2% of sales in the comparable quarter of the prior year. The gross profit margin for the six months ended October 31, 2001 was 16.9%, as compared to 19.6% in the comparable period of the prior year. The decrease in the gross profit margins for the three months and six months resulted primarily from differences in product sales mix, as sales of laboratory products increased, while sales of technical products, which typically have higher profit margins, declined. Additionally, gross profit margins were adversely affected by an unfavorable product sales mix within the laboratory products segment. Operating expenses for the three months ended October 31, 2001 were $2.9 million, or 12.7% of sales, as compared to $3.0 million, or 14.1% of sales, in the comparable period of the prior year. Operating expenses for the six months ended October 31, 2001 were $5.6 million, or 13.3% of sales, as compared to $6.3 million, or 15.4% of sales, in the comparable period of the prior 8
year. The decrease in operating expenses for the three months and six months was primarily attributable to lower marketing expenses, as well as lower general and administrative expenses. Operating earnings of $1.0 million and $1.5 million were recorded for the three months and six months ended October 31, 2001, respectively. This compares to operating earnings of $1.3 million and $1.7 million for the comparable periods of the prior year. Interest expense was $59,000 and $119,000 for the three months and six months ended October 31, 2001, respectively, compared to $85,000 and $132,000 for the comparable periods of the prior year. The decrease in interest expense for the current quarter and year resulted from lower interest rates in the current year, partially offset by increased bank borrowings during the current year. Other expenses were $25,000 in the three months ended October 31, 2001 and other income of $38,000 for the six months ended October 31, 2001, compared to other income of $8,000 and other expense of $7,000 for the comparable periods of the prior year. Income tax expense of $354,000 and $519,000 was recorded for the three months and six months ended October 31, 2001, respectively, as compared to income tax expense of $439,000 and $560,000 recorded for the comparable periods of the prior year. The effective tax rate was approximately 35.7% and 35.8% for the three and six months ended October 31, 2001 and 36.0% for the three and six months period ended October 31, 2000. Net earnings of $638,000 and $931,000, or $.26 per diluted share and $.38 per diluted share, were recorded for the three months and six months ended October 31, 2001, respectively. This compares to net earnings of $782,000 and $996,000, or $.31 per diluted share and $.40 per diluted share, respectively, for the comparable periods of the prior year. 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 $15.4 million at October 31, 2001, as compared to $14.7 million at April 30, 2001. The ratio of current assets to current liabilities was 2.2-to-1 at October 9
31, 2001, as compared to 2.5-to-1 at April 30, 2001. At October 31, 2001, advances of $1,714,000 were outstanding under the Company's $6.0 million revolving credit loan. The Company's operations used cash of $11,000 during the six months ended October 31, 2001. The net cash used was required to support increases in customer receivables and inventories, offset by funds provided through operating earnings and an increase in accounts payable. The Company's operations provided cash of $746,000 during six months ended October 31, 2000, primarily from operating earnings, partially offset by funds required to support increases in customer receivables and inventories. During the six months ended October 31, 2001, the Company used cash of $1,029,000 for capital expenditures, primarily production equipment, compared to the use of $1,513,000 for such expenditures in the comparable period of the prior fiscal 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 six months ended October 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 October 31, 2001 and April 30, 2001, and the related condensed statements of operations for each of the three and six-month periods ended October 31, 2001 and October 31, 2000 and the condensed statement of cash flows for the six-month periods ended October 31, 2001 and October 31, 2000. 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 them 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 November 19, 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. Information regarding the results of this meeting are incorporated by reference from the Company's Report on Form 10-Q for the three months ended July 31, 2001. 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 October 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: December 12, 2001 By /s/ D. Michael Parker ----------------------- D. Michael Parker Senior Vice President,Finance Chief Financial Officer 14