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KEWAUNEE SCIENTIFIC CORP /DE/ - Quarter Report: 2005 January (Form 10-Q)

For The Quarterly Period Ended January 31, 2005
Table of Contents

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.

 



Table of Contents

KEWAUNEE SCIENTIFIC CORPORATION

 

INDEX TO FORM 10-Q

 

FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2005

 

    

Page

Number


PART I. FINANCIAL INFORMATION

    

Item 1. Financial Statements

    

Condensed Consolidated Statements of Operations -
Three months and nine months ended January 31, 2005 and 2004

   3

Condensed Consolidated Balance Sheets
January 31, 2005 and April 30, 2004

   4

Condensed Consolidated Statements of Cash Flows -
Nine months ended January 31, 2005 and 2004

   5

Notes to Condensed Consolidated Financial Statements

   6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

   12

Review by Independent Registered Public Accounting Firm

   17

Report of Independent Registered Public Accounting Firm

   18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

   19

Item 4. Controls and Procedures

   19

PART II. OTHER INFORMATION

    

Item 6. Exhibits and Reports on Form 8-K

   20

SIGNATURE

   21

 

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Table of Contents

Part 1. Financial Information

 

Item 1. Financial Statements

 

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.

 

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Table of Contents

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.

 

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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.

 

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Table of Contents

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.

 

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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.

 

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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.

 

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Table of Contents

G. Comprehensive Income (Loss)

 

A reconciliation of net earnings (loss) and total comprehensive income (loss) for the three months and nine months ended January 31, 2005 and 2004 is as follows (in thousands):

 

    Three months ended
January 31, 2005


    Three months ended
January 31, 2004


 

Net earnings (loss)

  $ (742 )   $ 291  

Change in fair value of cash flow hedge, net of income tax

    3       (12 )

Change in cumulative foreign currency translation adjustments

    (70 )     12  
   


 


Total comprehensive income (loss)

  $ (809 )   $ 291  
   

Nine months ended

January 31, 2005


   

Nine months ended

January 31, 2004


 

Net earnings (loss)

  $ (441 )   $ 1,170  

Change in fair value of cash flow hedge, net of income tax

    10       (3 )

Change in cumulative foreign currency translation adjustments

    (46 )     45  
   


 


Total comprehensive income (loss)

  $ (477 )   $ 1,212  

 

Statement and Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” requires that the Company record derivatives on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The nature of the Company’s business activities involves the management of various financial and market risks, including those related to changes in interest rates. The Company may from time-to-time employ derivative financial instruments, such as interest rate swap contracts, to mitigate or eliminate certain of those risks. The Company does not enter into derivative instruments for speculative purposes. The Company had one interest rate swap agreement outstanding at January 31, 2005.

 

For the Company’s foreign subsidiaries, assets and liabilities are translated at exchange rates prevailing on the balance sheet date. Revenues and expenses are translated at weighted average exchange rates prevailing during the period and any resulting translation adjustments are reported separately in shareholders’ equity.

 

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Table of Contents

H. Stock Options

 

The Company has not granted stock options to employees or directors since fiscal year 2004. The Company accounts for stock options using the intrinsic value method. Under this method no compensation expense is recorded since the exercise price of the stock options is equal to the market price of the underlying stock on the grant date. Had compensation expense for the stock options issued been determined consistent with Financial Accounting Standards Board (“FASB”) Statement No. 123, “Accounting for Stock-Based Compensation,” net earnings (loss) and net earnings (loss) per share would have been reduced (increased) to the following pro forma amounts (in thousands, except per share data):

 

    

Three months ended

January 31, 2005


   

Three months ended

January 31, 2004


 

Net earnings (loss)as reported

   $ (742 )   $ 291  

Pro forma compensation cost

     (9 )     (20 )
    


 


Net earnings (loss) pro forma

     (751 )     271  

Net earnings (loss) per share – Basic

                

As reported

   $ (0.30 )   $ 0.12  

Pro forma

     (0.30 )     0.11  

Net earnings (loss) per share – Diluted

                

As reported

   $ (0.30 )   $ 0.12  

Pro forma

     (0.30 )     0.11  
    

Nine months ended

January 31, 2005


   

Nine months ended

January 31, 2004


 

Net earnings (loss) as reported

   $ (441 )   $ 1,170  

Pro forma compensation cost

     (26 )     (60 )
    


 


Net earnings (loss) pro forma

     (467 )     1,110  

Net earnings (loss) per share – Basic

                

As reported

   $ (0.18 )   $ 0.47  

Pro forma

     (0.19 )     0.45  

Net earnings (loss) per share – Diluted

                

As reported

   $ (0.18 )   $ 0.47  

Pro forma

     (0.19 )     0.45  

 

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I. Pension Plans

 

The Company has non-contributory defined benefit pension plans covering substantially all salaried and hourly employees. Pension expense consisted of the following (in thousands):

 

    

Three months ended

January 31, 2005


   

Three months ended

January 31, 2004


 

Service Cost

   $ 129     $ 121  

Interest Cost

     213       200  

Expected return on plan assets

     (251 )     (207 )

Amortization of prior service costs

     3       3  

Recognition of net loss

     59       80  
    


 


Net periodic cost

   $ 153     $ 197  
    

Nine months ended

January 31, 2005


   

Nine months ended

January 31, 2004


 

Service Cost

   $ 386     $ 362  

Interest Cost

     639       599  

Expected return on plan assets

     (753 )     (621 )

Amortization of prior service costs

     8       8  

Recognition of net loss

     178       241  
    


 


Net periodic cost

   $ 458     $ 589  

 

No contributions were paid to the plan during the nine months ended January 31, 2005. Contributions of approximately $1 million are expected to be paid to the plans in the fourth quarter of the current year.

 

At the Company’s Board of Directors meeting of February 22, 2005, the Board approved amendments to the Company’s two defined benefit pension plans to suspend (“freeze”) benefits earned under each of the plans, effective April 30, 2005. The amendments to suspend benefits under the plans will result in an expense of approximately $28,000, all of which will be recorded in the fourth quarter of the current year.

 

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Table of Contents

Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations

 

The Company’s 2004 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, 2004. The following discussion and analysis describes material changes in the Company’s financial condition since April 30, 2004. The analysis of results of operations compares the three months and nine months ended January 31, 2005 with the comparable period of the prior fiscal year.

 

Results of Operations

 

Sales for the quarter were $15,623,000, a decrease of 27% from sales of $21,454,000 in the same period last year. Sales for the nine months ended January 31, 2005 were $54,276,000, a decrease of 23% from sales of $70,051,000 in the comparable period last year.

 

Sales for the quarter were adversely affected by a continuing soft marketplace for laboratory furniture. Spending for new research projects by pharmaceutical companies continued to be below levels of recent years. Additionally, the number of projects generally available in the marketplace was reduced, or construction was delayed, by the significant increases in the cost of construction materials over the past year. Funding available for education construction projects also continued to be affected by reduced state spending budgets. However, order activity for the quarter increased over the two previous quarters, as activity in the marketplace showed some improvement after the Presidential election in November 2004. The order backlog at January 31, 2005 was $41.7 million, up from $38.6 million at October 31, 2004.

 

The gross profit margin for the three months ended January 31, 2005 was 13.0% of sales, as compared to 17.3% of sales in the comparable quarter of the prior year. The gross profit margin for the nine months ended January 31, 2005 was 16.5%, as compared to 16.3% in the comparable period of the prior year. The gross profit margin for the current quarter was adversely affected by manufacturing inefficiencies resulting from the low sales and cost overruns on several completed projects. Additionally, gross profit margins for each of the current year periods were adversely affected by higher costs in the current year for raw materials, particularly steel and epoxy resin. The impact of the above items was partially offset by continuing cost reduction activities.

 

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Operating expenses for the three months ended January 31, 2005 were $3.0 million, or 19.4% of sales, as compared to $3.2 million, or 14.9% of sales, in the comparable period of the prior year. Operating expenses for the nine months ended January 31, 2005 were $9.3 million, or 17.2% of sales, as compared to $9.5 million, or 13.6% of sales, in the comparable period of the prior year.

 

Operating expenses for the current year reflect a decline in sales commissions of $196,000 and $458,000 for the three and nine months ended January 31, 2005, respectively, as compared to the same periods last year. The decline in sales commissions was primarily attributable to the lower sales volumes. Operating expenses also benefited from continuing cost reduction activities, including reduced salaries and benefits of $269,000 and $361,000 for the three and nine months ended January 31, 2005, respectively, resulting from the workforce reduction made during the second quarter of the current year. These expense reductions were partially offset by increases in bad debt expense over the prior year comparable periods of $139,000 and $454,000 for the three and nine months ended January 31, 2005, respectively. The increase in operating expenses as a percent of sales for each of the current year periods resulted as operating expenses were not reduced in proportion to the decline in sales.

 

Operating losses of $993,000 and $370,000 were recorded for the three months and nine months ended January 31, 2005, respectively, compared to operating earnings of $512,000 and $1,897,000 recorded for the comparable periods of the prior year.

 

Interest expense was $84,000, and $254,000 for the three months and nine months ended January 31, 2005, respectively, compared to $71,000 and $232,000 for the same periods of the prior year. The impacts of increased borrowing rates for each of the periods of the current year were substantially offset by lower levels of borrowings.

 

Other expense was $47,000 and $44,000 in the three months and nine months ended January 31, 2005, respectively, compared to other income of $14,000 and other income of $163,000 for the comparable periods of the prior year. Other income for the nine months of the prior year was increased by $295,000 from a payment received from the resolution of a disputed claim for laboratory furniture sold by the Company several years earlier.

 

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Income tax benefits of $382,000 and $227,000 were recorded for the three months and nine months ended January 31, 2005, respectively, as compared to an income tax expense of $164,000 and $658,000 recorded for the comparable periods of the prior year. The effective tax rate was approximately 34.0% for the three and nine months ended January 31, 2005, and 36.0% for the three and nine months ended January 31, 2004.

 

A net loss of $742,000, or $0.30 per diluted share, was reported for the three months ended January 31, 2005. A net loss of $441,000, or $0.18 per diluted share, was reported for the nine months ended January 31, 2005. This compares to net earnings of $291,000, or $0.12 per diluted share, and net earnings of $1,170,000, or $.47 per diluted share, recorded 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 and fiscal year 2006.

 

The Company had working capital of $13.0 million at January 31, 2005, as compared to $12.6 million at April 30, 2004. The ratio of current assets to current liabilities was 2.1-to-1.0 at January 31, 2005, as compared to 1.7-to-1.0 at April 30, 2004. At January 31, 2005, advances of $3,263,000 were outstanding under the Company’s revolving credit bank loan, leaving available advances under this line in the amount of $5,737,000. The term of this loan is through December 31, 2006.

 

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.

 

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The Company’s operations provided cash of $5.7 million during the nine months ended January 31, 2005. The cash provided was primarily attributable to a $5.7 million decrease in receivables, which benefited from the lower sales volumes, and depreciation expense of $1.5 million. Cash was used by a $3.2 million reduction in accounts payable and other current liabilities, and the $441,000 net loss after taxes.

 

The Company’s operations used cash of $2.7 million during the nine months ended January 31, 2005, primarily due to a $6.6 million increase in accounts receivable and a $3.2 million decrease in accounts payable and other current liabilities. The impact of these items was partially offset by cash provided from net earnings after taxes of $1.2 million, depreciation expense of $1.5 million, a decrease in inventories of $1.4 million, and a decrease in prepaid income taxes of $1.1 million.

 

During the nine months ended January 31, 2005, the Company used cash of $674,000 in investing activities, primarily for purchases of production equipment. This compares to the use of $1,310,000 for similar investing activities in the same period of the prior year.

 

The Company’s financing activities used cash of $5.1 million during the nine months ended January 31, 2005, with $3.7 million of this amount for the repayment of short-term borrowings. Additionally, $838,000 was used for long-term debt repayments and $523,000 was used for the payment of cash dividends. Financing activities provided cash of $4.6 million in the same period of the prior year. This included cash of $4.7 million provided from short-term borrowings and $1.2 million provided from an increase in long-term debt. In the prior year period, $801,000 was used for long-term debt repayments and $522,000 was used for the payment of cash dividends.

 

In the third quarter of the current year, the Company began a project to upgrade its enterprise resource planning (ERP) software at an estimated project cost of $1.8 million. The Company has entered into a lease arrangement to fund the majority of the expected costs of the project, as such costs are incurred. Costs of $375,000 were incurred and funded under the lease arrangement during the third quarter ended January 31, 2005. The project is expected to be completed during the second quarter of fiscal year 2006.

 

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Outlook for Remainder of Fiscal Year 2005

 

In addition to general economic factors affecting the Company and its markets, demand for the Company’s products is also dependent upon the number of laboratory construction projects planned and/or current progress in projects already under construction. The Company’s ability to predict future demand is very limited given, among other general economic factors affecting the Company and its markets, the Company’s role as subcontractor or supplier to dealers of subcontractors.

 

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.

 

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REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

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, 2005 has been performed by PricewaterhouseCoopers LLP, the Company’s independent auditors. Their report on the interim financial information follows.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Kewaunee Scientific Corporation

Statesville, North Carolina

 

We have reviewed the accompanying condensed consolidated balance sheet of Kewaunee Scientific Corporation as of January 31, 2005 and April 30, 2004, and the related condensed consolidated statements of operations for each of the three and nine-month periods ended January 31, 2005 and January 31, 2004 and the condensed consolidated statement of cash flows for the nine-month periods ended January 31, 2005 and January 31, 2004. These interim financial statements are the responsibility of the Company’s management.

 

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, 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 consolidated interim financial statements information for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of April 30, 2004, and the related consolidated 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 4, 2004 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of April 30, 2004, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

 

PricewaterhouseCoopers LLP

Charlotte, North Carolina

February 22, 2005

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

There are no material changes to the disclosures made on this matter in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2004.

 

Item 4. Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures

 

An evaluation was performed under the supervision and the participation of the company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of January 31, 2005. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that, as of January 31, 2005, the Company’s disclosure controls and procedures were adequate and effective and designed to ensure that all material information required to be filed in this quarterly report is made known to them by others within the Company and its subsidiaries.

 

(b) Changes in internal controls

 

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to January 31, 2005. As no significant deficiencies or material weaknesses were found, no corrective actions were taken.

 

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PART II. OTHER INFORMATION

 

Item 6. Exhibits and Reports on Form 8-K

 

  (a) Exhibits
10.1A   First Amendment to the Re-Established Retirement Plan for Salaried Employees of Kewaunee Scientific Corporation.
10.2B   Second Amendment to the Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation.
10.21   Kewaunee Scientific Corporation 401Plus Executive Deferred Compensation Plan (Restated effective January 1, 2005)
31.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

  (b) Reports on Form 8-K

 

A Form 8-K was filed on November 24, 2004 with the Commission which included as an exhibit the Company’s Press Release announcing the financial results for the second quarter ended October 31, 2004.

 

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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 15, 2005

 

By

 

/s/ D. Michael Parker


       

D. Michael Parker

       

Senior Vice President, Finance and

       

Chief Financial Officer

 

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