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KEWAUNEE SCIENTIFIC CORP /DE/ - Quarter Report: 2016 January (Form 10-Q)

Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 2016

or

 

¨ 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)

 

(IRS Employer

Identification No.)

2700 West Front Street

Statesville, North Carolina

  28677-2927
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (704) 873-7202

 

 

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer     ¨    Accelerated filer     ¨
Non-accelerated filer     ¨  (Do not check if a smaller reporting company)    Smaller reporting company     x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of March 7, 2016, the registrant had outstanding 2,684,580 shares of Common Stock.

 

 

 

 


KEWAUNEE SCIENTIFIC CORPORATION

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2016

 

         Page Number  

PART I. FINANCIAL INFORMATION

  
Item 1.  

Financial Statements

  
 

Consolidated Statements of Operations (unaudited) – Three and nine months ended January  31, 2016 and 2015

     1   
 

Consolidated Statements of Comprehensive Income (unaudited) – Three and nine months ended January  31, 2016 and 2015

     2   
  Consolidated Statement of Stockholders’ Equity (unaudited) – Nine months ended January 31, 2016      3   
  Consolidated Balance Sheets – January 31, 2016 (unaudited) and April 30, 2015      4   
  Consolidated Statements of Cash Flows (unaudited) – Nine months ended January 31, 2016 and 2015      5   
  Notes to Consolidated Financial Statements      6   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      8   
  Review by Independent Registered Public Accounting Firm      11   
  Report of Independent Registered Public Accounting Firm      12   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      13   
Item 4.   Controls and Procedures      13   

PART II. OTHER INFORMATION

  
Item 6.   Exhibits      14   

SIGNATURE

     15   

 

i


Part 1. Financial Information

 

Item 1. Financial Statements

Kewaunee Scientific Corporation

Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share data)

 

     Three months ended
January 31
    Nine months ended
January 31
 
     2016     2015     2016     2015  

Net sales

   $ 32,410      $ 27,754      $ 94,536      $ 88,546   

Costs of products sold

     26,922        23,298        77,673        72,120   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     5,488        4,456        16,863        16,426   

Operating expenses

     4,441        3,872        13,163        12,170   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating earnings

     1,047        584        3,700        4,256   

Other income

     109        134        296        385   

Interest expense

     (83     (91     (236     (274
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before income taxes

     1,073        627        3,760        4,367   

Income tax expense

     225        109        1,242        1,361   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

     848        518        2,518        3,006   

Less: net earnings attributable to the noncontrolling interest

     18        34        53        86   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings attributable to Kewaunee Scientific Corporation

   $ 830      $ 484      $ 2,465      $ 2,920   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings per share attributable to Kewaunee Scientific Corporation stockholders

        

Basic

   $ 0.31      $ 0.18      $ 0.93      $ 1.11   

Diluted

   $ 0.31      $ 0.18      $ 0.92      $ 1.10   

Weighted average number of common shares outstanding

        

Basic

     2,682        2,628        2,661        2,625   

Diluted

     2,699        2,659        2,683        2,656   

See accompanying notes to consolidated financial statements.

 

1


Kewaunee Scientific Corporation

Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)

 

     Three months ended
January 31
    Nine months ended
January 31
 
     2016     2015     2016     2015  

Net earnings

   $ 848      $ 518      $ 2,518      $ 3,006   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax:

        

Foreign currency translation adjustments

     (221     (130     (435     (246

Change in fair value of cash flow hedge

     —         (17     11        (15
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (221     (147     (424     (261
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income, net of tax

     627        371        2,094        2,745   

Less: comprehensive income attributable to the noncontrolling interest

     18        34        53        86   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Kewaunee Scientific Corporation

   $ 609      $ 337      $ 2,041      $ 2,659   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

2


Kewaunee Scientific Corporation

Consolidated Statement of Stockholders’ Equity

(Unaudited)

(in thousands, except shares and per share data)

 

$ in thousands, except per share amounts

   Common
Stock
     Additional
Paid-in
Capital
     Treasury
Stock
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Stockholders’
Equity
 

Balance at April 30, 2015

   $ 6,583       $ 1,841       $ (53   $ 34,385      $ (7,880   $ 34,876   

Net earnings attributable to Kewaunee Scientific Corporation

     —          —          —         2,465        —         2,465   

Other comprehensive income (loss)

     —          —          —         —         (424     (424

Cash dividends paid, $0.38 per share

     —          —          —         (1,012     —         (1,012

Stock options exercised, 84,000 shares

     137         322         —         —         —         459   

Stock based compensation

     —          146         —         —         —         146   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 31, 2016

   $ 6,720       $ 2,309       $ (53   $ 35,838      $ (8,304   $ 36,510   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Kewaunee Scientific Corporation

Consolidated Balance Sheets

(in thousands, except per share data)

 

     January 31,
2016
    April 30,
2015
 
     (Unaudited)        

Assets

    

Current Assets:

    

Cash and cash equivalents

   $ 3,709      $ 3,044   

Restricted cash

     1,444        2,276   

Receivables, less allowance: $171; $171, on each respective date

     29,409        29,106   

Inventories

     16,154        12,745   

Deferred income taxes

     814        856   

Prepaid expenses and other current assets

     891        735   
  

 

 

   

 

 

 

Total Current Assets

     52,421        48,762   

Property, plant and equipment, at cost

     49,798        48,167   

Accumulated depreciation

     (35,417     (33,644
  

 

 

   

 

 

 

Net Property, Plant and Equipment

     14,381        14,523   

Deferred income taxes

     2,470        2,468   

Other

     3,567        3,737   
  

 

 

   

 

 

 

Total Other Assets

     6,037        6,205   
  

 

 

   

 

 

 

Total Assets

   $ 72,839      $ 69,490   
  

 

 

   

 

 

 

Liabilities and Equity

    

Current Liabilities:

    

Short-term borrowings and interest rate swaps

   $ 5,538      $ 4,955   

Current portion of long-term debt

     421        421   

Accounts payable

     12,215        11,232   

Employee compensation and amounts withheld

     1,813        1,882   

Deferred revenue

     683        216   

Other accrued expenses

     2,210        2,349   
  

 

 

   

 

 

 

Total Current Liabilities

     22,880        21,055   

Long-term debt

     3,455        3,771   

Accrued pension and deferred compensation costs

     9,712        9,465   
  

 

 

   

 

 

 

Total Liabilities

     36,047        34,291   

Commitments and Contingencies

    

Equity:

    

Common Stock, $2.50 par value, Authorized – 5,000 shares; Issued – 2,688 shares; 2,633 shares; Outstanding - 2,685 shares; 2,630 shares, on each respective date

     6,720        6,583   

Additional paid-in-capital

     2,309        1,841   

Retained earnings

     35,838        34,385   

Accumulated other comprehensive loss

     (8,304     (7,880

Common stock in treasury, at cost, 3 shares, on each date

     (53     (53
  

 

 

   

 

 

 

Total Kewaunee Scientific Corporation Stockholders’ Equity

     36,510        34,876   

Noncontrolling interest

     282        323   
  

 

 

   

 

 

 

Total Equity

     36,792        35,199   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 72,839      $ 69,490   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4


Kewaunee Scientific Corporation

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

     Nine months ended
January 31
 
     2016     2015  

Cash flows from operating activities:

    

Net earnings

   $ 2,518      $ 3,006   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation

     1,850        1,900   

Bad debt provision

     7        34   

Stock based compensation expense

     146        154   

Provision for deferred income tax expense

     40        (71

Change in assets and liabilities:

    

Increase in receivables

     (310     (1,623

Increase in inventories

     (3,409     (492

Increase in accounts payable and other accrued expenses

     1,663        4,022   

Increase in deferred revenue

     467        159   

Other, net

     164        (750
  

 

 

   

 

 

 

Net cash provided by operating activities

     3,136        6,339   

Cash flows from investing activities:

    

Capital expenditures

     (1,708     (2,135

Decrease (increase) in restricted cash

     832        (2,156
  

 

 

   

 

 

 

Net cash used in investing activities

     (876     (4,291

Cash flows from financing activities:

    

Dividends paid

     (1,012     (919

Dividends paid to noncontrolling interest in subsidiaries

     (75     (38

Increase (decrease) in short-term borrowings and interest rate swaps

     583        (2,114

Payments on long-term debt

     (316     (316

Payment toward purchase of noncontrolling interest in subsidiary

     (888     (888

Net proceeds from exercise of stock options (including tax benefit)

     459        33   
  

 

 

   

 

 

 

Net cash used in financing activities

     (1,249     (4,242

Effect of exchange rate changes on cash

     (346     (191
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     665        (2,385

Cash and cash equivalents, beginning of period

     3,044        6,248   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 3,709      $ 3,863   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Kewaunee Scientific Corporation

Notes to Consolidated Financial Statements

(unaudited)

A. Financial Information

The unaudited interim consolidated financial statements of Kewaunee Scientific Corporation (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange 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, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These interim consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of these financial statements and should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2015 Annual Report to Stockholders. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. The consolidated balance sheet as of April 30, 2015 included in this interim period filing has been derived from the audited financial statements at that date, but does not include all of the information and related notes required by generally accepted accounting principles (GAAP) for complete financial statements.

The preparation of the interim consolidated financial statements requires management to make certain estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates.

B. Summary of Significant Accounting Policies

Insurance – Effective January 1, 2016, the Company moved from a fully insured health care program to that of a self-insured program. The Company has also purchased specific stop-loss insurance to limit claims above certain amounts. The Company accrues estimated losses using actuarial models and assumptions based on historical loss experience. The Company records the insurance reserve within other accrued expenses on the consolidated balance sheets.

C. Earnings Per Share

Basic earnings per share is based on the weighted average number of common shares outstanding during the three and nine month periods. Diluted earnings per share reflects the assumed exercise and conversion of outstanding options under the Company’s stock option plans, except when options have an anti-dilutive effect. Options to purchase 111,400 shares were not included in the computation of diluted earnings per share for the three and nine month periods ended January 31, 2016, because the option exercise prices were greater than the average market price of the common shares at that date, and accordingly, such options would have an anti-dilutive effect. Options to purchase 70,800 shares were not included in the computation of diluted earnings per share for the three and nine month periods ended January 31, 2015, because the effect would be anti-dilutive.

D. Inventories

Inventories consisted of the following (in thousands):

 

     January 31, 2016      April 30, 2015  

Finished products

   $ 4,117       $ 2,936   

Work in process

     1,633         1,422   

Raw materials

     10,404         8,387   
  

 

 

    

 

 

 
   $ 16,154       $ 12,745   
  

 

 

    

 

 

 

For interim reporting, LIFO inventories are computed based on year-to-date quantities and interim changes in price levels. Changes in quantities and price levels are reflected in the interim consolidated financial statements in the period in which they occur.

 

6


E. Segment Information

The following table provides financial information by business segments for the three and nine months ended January 31, 2016 and 2015 (in thousands):

 

     Domestic
Operations
     International
Operations
     Corporate      Total  

Three months ended January 31, 2016

           

Revenues from external customers

   $ 25,423       $ 6,987       $ —        $ 32,410   

Intersegment revenues

     1,196         421         (1,617      —    

Earnings (loss) before income taxes

     1,586         702         (1,215      1,073   

Three months ended January 31, 2015

           

Revenues from external customers

   $ 20,025       $ 7,729       $ —        $ 27,754   

Intersegment revenues

     501         697         (1,198      —    

Earnings (loss) before income taxes

     264         1,046         (683      627   

 

     Domestic
Operations
     International
Operations
     Corporate      Total  

Nine months ended January 31, 2016

           

Revenues from external customers

   $ 76,017       $ 18,519       $ —        $ 94,536   

Intersegment revenues

     1,642         1,694         (3,336      —    

Earnings (loss) before income taxes

     5,346         2,002         (3,588      3,760   

Nine months ended January 31, 2015

           

Revenues from external customers

   $ 67,902       $ 20,644       $ —        $ 88,546   

Intersegment revenues

     1,407         1,603         (3,010      —    

Earnings (loss) before income taxes

     4,526         2,519         (2,678      4,367   

F. Defined Benefit Pension Plans

The Company has non-contributory defined benefit pension plans. These plans were amended as of April 30, 2005, no further benefits have been, or will be, earned under the plans, subsequent to the amendment date, and no additional participants will be added to the plans. Contributions of $64,000 were paid to the plans during the nine months ended January 31, 2016, and the Company does not expect any contributions to be paid to the plans during the remainder of the fiscal year. Contributions of $775,000 were made during the nine months ended January 31, 2015.

Pension expense consisted of the following (in thousands):

 

     Three months ended
January 31, 2016
     Three months ended
January 31, 2015
 

Service cost

   $ -0-       $ -0-   

Interest cost

     224         223   

Expected return on plan assets

     (334      (331

Recognition of net loss

     329         233   
  

 

 

    

 

 

 

Net periodic pension expense

   $ 219       $ 125   
  

 

 

    

 

 

 
     Nine months ended
January 31, 2016
     Nine months ended
January 31, 2015
 

Service cost

   $ -0-       $ -0-   

Interest cost

     684         670   

Expected return on plan assets

     (1,022      (993

Recognition of net loss

     917         700   
  

 

 

    

 

 

 

Net periodic pension expense

   $ 579       $ 377   
  

 

 

    

 

 

 

 

7


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

The Company’s 2015 Annual Report to Stockholders contains management’s discussion and analysis of financial condition and results of operations as of and for the year ended April 30, 2015. The following discussion and analysis describes material changes in the Company’s financial condition since April 30, 2015. The analysis of results of operations compares the three and nine months ended January 31, 2016 with the comparable periods of the prior year.

Results of Operations

Sales for the three months ended January 31, 2016 were $32,410,000, an increase of 17% from sales of $27,754,000 in the comparable period of the prior year. Sales from Domestic Operations were $25,423,000, up from $20,025,000 in the comparable period of the prior year. The increase in Domestic Operations sales resulted from stronger than typical third quarter opportunities in the laboratory furniture and casework marketplace. Sales from International Operations were $6,987,000, down from $7,729,000 in the comparable period of the prior year, due to a large order shipped in the prior year period that did not repeat.

Sales for the nine months ended January 31, 2016 were $94,536,000, up 7% from sales of $88,546,000 in the same period last year. Domestic Operations sales for the nine-month period were $76,017,000, up from sales of $67,902,000 in the same period last year. International Operations sales were $18,519,000, down from sales of $20,644,000 in the same period last year.

The order backlog was $95.2 million at January 31, 2016, as compared to $92.4 million at October 31, 2015 and $78.0 million at January 31, 2015.

The gross profit margin for the three months ended January 31, 2016 was 16.9% of sales, as compared to 16.1% of sales in the comparable quarter of the prior year. The increase in the margin was the result of a favorable product mix. The gross profit margin for the nine months ended January 31, 2016 was 17.8% of sales, as compared to 18.6% in the comparable period of the prior year.

Operating expenses for the three months ended January 31, 2016 were $4,441,000, or 13.7% of sales, as compared to $3,872,000, or

14.0% of sales, in the comparable period of the prior year. Operating expenses for the three months ended January 31, 2016 reflect

nonrecurring expenses of $154,000 related to the retirement and replacement of a key executive, an increase of $247,000 in incentive compensation and a $94,000 increase in pension expense when compared to the prior period. Operating expenses for the nine months ended January 31, 2016 were $13,163,000, or 13.9% of sales, as compared to $12,170,000, or 13.7% of sales in the comparable period of the prior year. Operating expenses for the nine months ended January 31, 2016 reflect nonrecurring expenses of $678,000 related to the retirement and replacement of a key executive, and a $202,000 increase in pension expense.

Interest expense was $83,000 and $236,000 for the three and nine months ended January 31, 2016, respectively, as compared to $91,000 and $274,000 for the comparable periods of the prior year. The decreases for the current year periods resulted primarily from lower borrowing levels.

Income tax expense of $225,000 was recorded for the three months ended January 31, 2016, as compared to income tax expense of $109,000 recorded for the comparable period of the prior year. Income tax expense of $1,242,000 was recorded for the nine months ended January 31, 2016, as compared to income tax expense of $1,361,000 recorded for the comparable period of the prior year. The effective tax rates were 21.0% and 17.4% for each of the three-month periods ended January 31, 2016 and 2015, respectively. The effective tax rates were 33.0% and 31.2% for the nine months ended January 31, 2016 and 2015, respectively. The effective tax rates for the three month periods ended January 31, 2016 and 2015 were favorably impacted due to the reinstatement of the federal research and development (R&D) tax credit in January 2016 retroactive to 2015 and January 2015 retroactive to 2014. The cumulative impact of these credits was included in the third quarter effective rate calculation for each fiscal year. The increase in the effective rate for the current three month period compared to the prior year was primarily due the higher ratio of pretax earnings recorded at the statutory tax rate. The higher effective tax rate for the current year periods resulted from a higher ratio of pretax earnings attributable to subsidiaries located in geographic locations with higher income tax rates as compared to the comparable periods of the prior year.

Noncontrolling interests related to the Company’s subsidiary that is not 100% owned by the Company reduced net earnings by $18,000 for the three months ended January 31, 2016, as compared to $34,000 for the comparable period of the prior year. Net earnings were reduced by $53,000 and $86,000 for the nine months ended January 31, 2016 and 2015, respectively. The changes in the amounts between each of these periods were directly attributable to changes in the amounts of net income reported for the Company’s one subsidiary that is not 100% owned by the Company.

Net earnings of $830,000, or $0.31 per diluted share, were reported for the three months ended January 31, 2016, compared to net earnings of $484,000, or $0.18 per diluted share, in the prior year period. Net earnings of $2,465,000, or $0.92 per diluted share, were reported for the nine months ended January 31, 2016, compared to net earnings of $2,920,000, or $1.10 per diluted share, for the same period last year.

 

8


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 under the Company’s revolving credit facility. Additionally, certain machinery and equipment are financed by non-cancellable operating leases or capital leases. The Company believes that these sources will be sufficient to support ongoing business requirements in the current fiscal year, including capital expenditures.

The Company had working capital of $29,541,000 at January 31, 2016, compared to $27,707,000 at April 30, 2015. The ratio of current assets to current liabilities was 2.3-to-1.0 at January 31, 2016 and April 30, 2015. At January 31, 2016, advances of $4,808,000 were outstanding under the Company’s bank revolving credit facility, as compared to advances of $4,583,000 outstanding as of April 30, 2015. The Company had standby letters of credit outstanding of $4,210,000 at January 31, 2016, and April 30, 2015. Amounts available under the $20 million revolving credit facility were $11.0 million and $11.2 million at January 31, 2016 and April 30, 2015, respectively. Total bank borrowings were $9,414,000 at January 31, 2016, as compared to $9,147,000 at April 30, 2015.

The Company’s operations provided cash of $3,136,000 during the nine months ended January 31, 2016. Cash was primarily provided from earnings and an increase in accounts payable and other accrued expenses of $1,663,000, and deferred revenue of $467,000, which was partially offset by an increase in accounts receivable of $310,000, and an increase in inventories of $3,409,000. The Company’s operations provided cash of $6,339,000 during the nine months ended January 31, 2015. Cash was primarily provided from earnings and an increase in accounts payable and other accrued expense of $4,022,000, which was partially offset by an increase in accounts receivable of $1,623,000, and an increase in inventories of $492,000. The large increase in accounts payable and accrued expenses in the prior year period was primarily attributable to the start-up of a large international project.

During the nine months ended January 31, 2016, net cash of $876,000 was used in investing activities for capital expenditures of $1,708,000, offset by a decrease in restricted cash of $832,000. This compares to the net use of cash of $4,291,000 for investing activities in the comparable period of the prior year for capital expenditures of $2,135,000, and an increase in restricted cash of $2,156,000.

The Company’s financing activities used cash of $1,249,000 during the nine months ended January 31, 2016 for the final payment of $888,000 toward the purchase of the noncontrolling interest in a foreign subsidiary, cash dividends of $1,012,000 paid to stockholders, cash dividends of $75,000 paid to minority interest holders, and payments of $316,000 on long-term debt, partially offset by an increase in short-term borrowings of $583,000 and net proceeds of $459,000 from the exercise of stock options. The Company’s financing activities used cash of $4,242,000 during the nine months ended January 31, 2015 for payment of $888,000 for the second installment toward the purchase of the noncontrolling interest in a foreign subsidiary, repayment of short-term borrowings of $2,114,000, cash dividends of $919,000 paid to stockholders, cash dividends of $38,000 paid to minority interest holders, and payments of $316,000 on long-term debt.

Outlook

The Company’s ability to predict future demand for its products continues to be limited given its role as subcontractor or supplier to dealers for subcontractors. 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 earnings are also impacted by fluctuations in prevailing pricing for projects in the laboratory construction marketplace and increased costs of raw materials, including stainless steel, wood, and epoxy resin, and whether the Company is able to increase product prices to customers in amounts that correspond to such increases without materially and adversely affecting sales. Additionally, since prices are normally quoted on a firm basis in the industry, the Company bears the burden of possible increases in labor and material costs between the quotation of an order and delivery of a product. Looking forward, the Company expects fiscal year 2016 to be a profitable year for the Company.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This report contains statements that the Company believes to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this report, including statements regarding the Company’s future financial condition, results of operations, business operations and business prospects, are forward-looking statements. Words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “predict,” “believe” and similar words, expressions and variations of these words and expressions are intended to identify forward-looking statements. All forward-looking statements are subject to important factors, risks, uncertainties and assumptions, including industry and economic conditions that could cause actual results to differ materially from those described in the forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to, competitive and general economic conditions, both domestically and internationally; changes in customer demands; dependence on customers’ required delivery schedules; risks related to fluctuations in the Company’s operating results from quarter to quarter; risks related to international operations, including foreign currency

 

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fluctuations; changes in the legal and regulatory environment; changes in raw materials and commodity costs; and acts of terrorism, war, governmental action, natural disasters and other Force Majeure events. Many important factors that could cause such a difference are described under the caption “Risk Factors” in Item 1A in the Company’s 2015 Annual Report on Form 10-K. These forward-looking statements speak only as of the date of this document. The Company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

A review of the interim consolidated financial information included in this Quarterly Report on Form 10-Q for each of the three and nine month periods ended January 31, 2016 and January 31, 2015 has been performed by Cherry Bekaert LLP, the Company’s independent registered public accounting firm. Their report on the interim consolidated financial information follows.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have reviewed the accompanying consolidated balance sheet of Kewaunee Scientific Corporation and its subsidiaries (the “Company”) as of January 31, 2016, the related consolidated statements of operations, and comprehensive income for the three-month and nine-month periods ended January 31, 2016 and 2015, the related consolidated statement of stockholders’ equity for the nine-month period ended January 31, 2016, and the related consolidated statements of cash flows for the nine-month periods ended January 31, 2016 and 2015. These interim consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews 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 (United States), 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 reviews, we are not aware of any material modifications that should be made to the interim consolidated financial statements referred to above 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, 2015, and the related consolidated statements of operations, comprehensive income and stockholders’ equity, and cash flows for the year then ended (not presented herein) and in our report dated July 20, 2015, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of April 30, 2015 is fairly stated in all material respects in relation to the consolidated financial statement from which it has been derived.

 

/s/ Cherry Bekaert LLP

Charlotte, North Carolina

March 10, 2016

 

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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, 2015.

 

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

An evaluation was performed under the supervision and with 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, 2016. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that, as of January 31, 2016, 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 was no significant change in the Company’s internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 6. Exhibits

 

    3.4    Bylaws (As amended as of December 9, 2015) 1
  31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), 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.
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

1 Filed as an exhibit to the Kewaunee Scientific Corporation Current Report on Form 8-K (Commission File No. 0-5286) filed on December 10, 2015 and incorporated herein by reference.

 

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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 10, 2016     By  

/s/ Thomas D. Hull III

      Thomas D. Hull III
      (As duly authorized officer and Vice President, Finance and Chief Financial Officer)

 

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