Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
The Companys 2012 Annual Report to Stockholders contains managements discussion and analysis of financial condition and results of operations at and for the year ended April 30, 2012. The
following discussion and analysis describes material changes in the Companys financial condition since April 30, 2012. The analysis of results of operations compares the three and six months ended October 31, 2012 with the comparable
periods of the prior year.
Results of Operations
Sales for the three months ended October 31, 2012 were $31,185,000, an increase of 20% from sales of $25,962,000 in the comparable period of the prior year. Sales from Domestic Operations were
$25,683,000, up from $23,826,000 in the comparable period of the prior year. The increase in Domestic Operations was primarily due to the Companys strengthened dealer network and the shipment of several large direct contracts during the
quarter. Sales from International Operations were $5,502,000, up from $2,136,000 in the comparable period of the prior year. The increase in International Operations sales was primarily due to the shipment of several large international projects
during the quarter.
Sales for the six months ended October 31, 2012 were $57,868,000, up 11% from sales of $52,283,000 in the same
period last year. Domestic Operations sales were $48,312,000, up from sales of $47,222,000 in the same period last year. The increase in Domestic Operations sales was primarily attributable to the Companys strengthened dealer network and the
order backlog. International Operation sales were $9,556,000, up from sales of $5,061,000 in the same period last year. The increase in International Operations sales was primarily due to shipments of several large projects in the current year.
The order backlog was $90.8 million at October 31, 2012, as compared to $86.2 million at April 30, 2012 and $78.0 million at
October 31, 2011.
The gross profit margin for the three months ended October 31, 2012 was 16.8% of sales, as compared to 14.8% of
sales in the comparable quarter of the prior year. The gross profit margin for the six months ended October 31, 2012 was 18.1% of sales, as compared to 15.4% of sales in the comparable period of the prior year. The increase in the gross profit
margin percentages for the current year periods was primarily due to a more favorable product mix and reduced manufacturing and overhead costs.
Operating expenses for the three months ended October 31, 2012 were $4,013,000, or 12.9% of sales, as compared to $4,005,000, or 15.4% of sales, in
the comparable period of the prior year. Operating expenses for the six months ended October 31, 2012 were $8,151,000, or 14.1% of sales, as compared to $7,960,000, or 15.2% of sales in the comparable period of the prior year. Lower costs
resulting from cost reduction actions initiated in the second half of the prior year substantially offset higher expenses associated with increased sales and increased pension expense of $109,000 and $221,000 for the three and six month periods of
the current year, respectively.
Interest expense was $101,000 and $215,000 for the three and six months ended October 31, 2012, as
compared to $128,000 and $223,000 for the comparable periods of the prior year. The decrease for the current year periods resulted from lower borrowing levels.
Income tax expense of $414,000 was recorded for the three months ended October 31, 2012, as compared to income tax benefit of $96,000 recorded for the comparable period of the prior year. An income
tax expense of $785,000 was recorded for the six months ended October 31, 2012, as compared to an income tax benefit of $67,000 recorded for the comparable period of the prior year. The effective tax rates were 33.9% and 38.1% for the three
months ended October 31, 2012 and 2011, respectively. The effective tax rates were 34.4% and 58.3% for the six months ended October 31, 2012 and 2011, respectively. The effective tax rate for the prior year periods benefited from the
favorable impact of federal and state income tax credits combined with the reported net loss.
Noncontrolling interests related to the
Companys two subsidiaries that are not 100% owned by the Company reduced net earnings by $158,000 for the three months ended October 31, 2012, as compared to an increase of net earnings by $31,000 for the comparable period of the prior
year. Net earnings were reduced by $212,000 and $55,000 for the six months ended October 31, 2012 and 2011, respectively. The changes in the net earnings attributable to the noncontrolling interest in the current periods were due to the change
in earnings of the two subsidiaries in the related periods.
Net earnings of $649,000, or $0.25 per diluted share, was reported for the three
months ended October 31, 2012, compared to a net loss of $125,000, or $0.05 per diluted share, in the prior year period. Net earnings of $1,283,000, or $0.50 per diluted share, was reported for the six months ended October 31, 2012,
compared to a net loss of $103,000, or $0.04 per diluted share, for the same period last year.
7
Liquidity and Capital Resources
Historically, the Companys principal sources of liquidity have been funds generated from operations, supplemented as needed by short-term borrowings under the Companys 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 year,
including capital expenditures.
The Company had working capital of $24.2 million at October 31, 2012, compared to $23.4 million at
April 30, 2012. The ratio of current assets to current liabilities was 2.1-to-1.0 at October 31, 2012, compared to 2.2-to-1.0 at April 30, 2012. At October 31, 2012, advances of $5,694,000 were outstanding under the
Companys bank revolving credit facility, as compared to advances of $6,816,000 outstanding as of April 30, 2012. Total bank borrowings and capital lease obligations were $9,261,000 at October 31, 2012, as compared to $10,519,000 at
April 30, 2012.
The Companys operations provided cash of $2,254,000 during the six months ended October 31, 2012. Cash was
primarily provided from earnings and an increase in accounts payable and other accrued expenses of $3,348,000, which was partially offset by an increase in accounts receivable of $1,647,000. The Companys operations provided cash of $1,926,000
during the six months ended October 31, 2011, with cash primarily provided from a decrease in accounts receivable of $3,851,000, partially offset by a decrease in accounts payable and accrued expenses of $2,475,000.
During the six months ended October 31, 2012, net cash of $664,000 was used in investing activities, primarily for capital expenditures. This
compares to the use of $1,074,000 for investing activities in the comparable period of the prior year for capital expenditures of $751,000 and an increase in restricted cash of $323,000.
The Companys financing activities used cash of $1,847,000 during the six months ended October 31, 2012, primarily for repayment of short-term borrowings of $1,122,000, cash dividends of
$517,000 paid to stockholders, and cash dividends of $139,000 paid to minority interest holders. Financing activities provided cash of $82,000 in the same period of the prior year, primarily from $738,000 received from short-term borrowings,
partially offset by cash dividends paid of $516,000.
Outlook
The Companys 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 Companys
products is also dependent upon the number of laboratory construction projects planned and/or current progress in projects already under construction. The Companys earnings are also impacted by 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. The Company is also unable to predict the timing and strength of the
global economic recovery and its short-term and long-term impact on its operations and the markets in which it competes.
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 Companys
operations, customer changes to product designs, customer changes to delivery dates, markets, products, services, and prices, as well as prices for certain raw materials and energy. The cautionary statements made pursuant to the Reform Act herein
and elsewhere by the Company should not be construed as exhaustive. 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.
Over time, the Companys actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by the Companys forward-looking statements, and such
difference might be significant and harmful to stockholders interests. Many important factors that could cause such a difference are described under the caption Risk Factors, in Item 1A of the Companys 2012 Annual Report
on Form 10-K.
8
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 six month periods
ended October 31, 2012 and October 31, 2011 has been performed by Cherry, Bekaert & Holland, L.L.P., the Companys independent registered public accounting firm. Their report on the interim consolidated financial information
follows.
9