NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1Summary of Significant Accounting Policies
Kewaunee Scientific Corporation (the Company) designs, manufactures, and installs laboratory, healthcare, and technical
furniture products. Laboratory furniture products include both steel and wood cabinetry, fume hoods, adaptable modular systems, moveable workstations, biological safety cabinets, and epoxy resin counters and sinks. Healthcare furniture products
include laminate casework, storage systems, and related products for healthcare applications. Technical furniture products include column systems, slotted-post systems, pedestal systems, and stand-alone benches. The Companys sales are made
through purchase orders and contracts submitted by customers, dealers and agents, a national stocking distributor, competitive bids submitted by the Company and its subsidiaries located in Singapore and Bangalore, India. The majority of the
Companys products are sold to customers located in North America, primarily within the United States. The Companys laboratory products are used in chemistry, physics, biology and other general science laboratories in the pharmaceutical,
biotechnology, industrial, chemical, commercial, educational, government and health care markets. Technical products are used in facilities manufacturing computers and light electronics and by users of computer and networking furniture. Laminate
casework is used in educational, healthcare and industrial applications.
Principles of Consolidation
The Companys consolidated
financial statements include the accounts of Kewaunee Scientific Corporation and its four international subsidiaries. A brief description of each subsidiary, along with the amount of the Companys controlling financial interests, is as follows:
(1) Kewaunee Labway Asia Pte. Ltd., a dealer for the Companys products in Singapore, is 51% owned by the Company; (2) Kewaunee Labway India Pvt. Ltd., a dealer for the Companys products in Bangalore, India, is 90% owned by
Kewaunee Labway Asia, Pte. Ltd.; (3) Kewaunee Scientific Corporation India Pvt. Ltd. in Bangalore, India, a manufacturing and assembly operation, is 100% owned by the Company, and (4) Kewaunee Scientific Corporation Singapore Pte. Ltd., a
holding company in Singapore, is 100% owned by the Company. All intercompany balances, transactions, and profits have been eliminated. Included in the consolidated financial statements are net assets of $11,189,000 and $9,648,000 at April 30,
2013 and 2012, respectively, of the Companys subsidiaries. Net sales by the Companys subsidiaries in the amount of $23,602,000, $18,876,000 and $15,882,000 were included in the consolidated statements of operations for fiscal years 2013,
2012 and 2011, respectively. On June 24, 2013, the Company entered into an agreement to purchase the minority shareholders interest in Kewaunee Labway Asia Pte. Ltd. See Note 10 Subsequent Event for additional information.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of
three months or less. During the years ended April 30, 2013 and 2012, the Company had cash deposits in excess of FDIC insured limits. The Company has not experienced any losses from such deposits.
Restricted Cash
Restricted cash includes bank deposits of a subsidiary used for performance guarantees against customer orders.
Allowance for Doubtful Accounts
The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In
circumstances where management is aware of a customers inability to meet its financial obligations to the Company, or a project dispute makes it unlikely that all of the receivable owed by a customer will be collected, a specific reserve for
bad debts is estimated and recorded to reduce the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, a general reserve for bad
debts is estimated and recorded based on the customers recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding. Accounts are written off when it is clearly established that the
receivable is a bad debt. Recoveries of receivables previously written off are recorded when received. The activity in the allowance for doubtful accounts for each of the three years ended April 30 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Balance at beginning of year
|
|
$
|
311
|
|
|
$
|
250
|
|
|
$
|
259
|
|
Bad debt provision
|
|
|
34
|
|
|
|
214
|
|
|
|
60
|
|
Doubtful accounts written off (net)
|
|
|
(151
|
)
|
|
|
(153
|
)
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
194
|
|
|
$
|
311
|
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
The majority of inventories are valued at the lower of cost or market under the last-in, first-out
(LIFO) method. The LIFO method allocates the most recent costs to cost of products sold; and, therefore, recognizes into operating results fluctuations in costs of raw materials more quickly than other methods. Inventories at our
international subsidiaries are measured on the first-in, first-out (FIFO) method.
21
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is determined for financial reporting purposes principally on the straight-line method over the estimated useful lives of the individual assets or, for leaseholds, over the terms of the related leases, if shorter.
Property, plant and equipment consisted of the following at April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2013
|
|
|
2012
|
|
|
Useful Life
|
|
Land
|
|
$
|
41
|
|
|
$
|
41
|
|
|
|
N/A
|
|
Building and improvements
|
|
|
14,921
|
|
|
|
14,626
|
|
|
|
10-40 years
|
|
Machinery and equipment
|
|
|
30,147
|
|
|
|
28,889
|
|
|
|
5-10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
45,109
|
|
|
|
43,556
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(30,011
|
)
|
|
|
(28,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
15,098
|
|
|
$
|
15,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At April 30, 2012, equipment financed under capital leases with a cost of $307,000 was included in machinery and
equipment. Management reviews the carrying value of property, plant and equipment for impairment whenever changes in circumstances or events indicate that such carrying value may not be recoverable. If projected undiscounted cash flows are not
sufficient to recover the carrying value of the potentially impaired asset, the carrying value is reduced to estimated fair value. There were no impairments in fiscal years 2013, 2012 and 2011.
Other Assets
Other assets at April 30, 2013 and 2012 included $4,077,000 and $3,454,000, respectively, of assets held in a trust account for
non-qualified benefit plans and $96,000 and $83,000, respectively, of cash surrender values of life insurance policies. Life insurance policies are recorded at the amount that could be realized under the insurance contract as of the date of the
Companys consolidated balance sheet with the change in cash surrender or contract value being recorded as income or expense during each period.
Use of Estimates
The presentation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Significant estimates impacting the accompanying consolidated financial
statements include the allowance for uncollectible accounts receivable, inventory valuation, and pension liabilities.
Fair Value of
Financial Instruments
A financial instrument is defined as cash equivalents, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument
from another party. The Companys financial instruments consist primarily of cash and equivalents, mutual funds, cash surrender value of life insurance policies and short-term borrowings. The carrying value of these assets and liabilities
approximate their fair value.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and
establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:
|
|
|
Level 1
|
|
Quoted prices in active markets for identical assets or liabilities as of the reporting date.
|
Level 2
|
|
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities as of the reporting date.
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
22
The following tables summarize the Companys fair value hierarchy for its financial assets and
liabilities measured at fair value on a recurring and nonrecurring basis as of April 30, 2013 and 2012 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
Financial Assets
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Trading securities held in deferred compensation plan (1)
|
|
|
|
$
|
4,077
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,077
|
|
Cash surrender value of life insurance policies (1)
|
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
4,077
|
|
|
$
|
96
|
|
|
$
|
|
|
|
$
|
4,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plans (2)
|
|
|
|
$
|
|
|
|
$
|
4,399
|
|
|
$
|
|
|
|
$
|
4,399
|
|
Interest rate swap derivative
|
|
|
|
|
|
|
|
|
344
|
|
|
|
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
$
|
4,743
|
|
|
$
|
|
|
|
$
|
4,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
Financial Assets
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Trading securities held in deferred compensation plan (1)
|
|
|
|
$
|
3,454
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,454
|
|
Cash surrender value of life insurance policies (1)
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
3,454
|
|
|
$
|
83
|
|
|
$
|
|
|
|
$
|
3,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plans (2)
|
|
|
|
$
|
|
|
|
$
|
3,717
|
|
|
$
|
|
|
|
$
|
3,717
|
|
Interest rate swap derivative
|
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
$
|
4,095
|
|
|
$
|
|
|
|
$
|
4,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company maintains an executive compensation plan which includes investment assets in a rabbi trust. These assets consist of marketable securities, which are valued
using quoted market prices multiplied by the number of shares owned, and the cash surrender value of life insurance policies.
|
|
|
(2)
|
The deferred compensation plan liability is equal to the individual participants account balances under the plan.
|
|
Revenue Recognition
Product sales and installation revenue are recognized when all
of the following criteria have been met: (1) products have been shipped, or customers have purchased and accepted title to the goods, but because of construction delays, have requested that the Company temporarily store the finished goods on
the customers behalf; service revenue for installation of products sold is recognized as the installation services are performed, (2) persuasive evidence of an arrangement exists, (3) the price to the customer is fixed, and
(4) collectability is reasonably assured.
Deferred revenue consists of customer deposits and advance billings of the Companys
products where sales have not yet been recognized. Accounts receivable includes retainage in the amounts of $2,659,000 and $2,015,000 at April 30, 2013 and 2012, respectively. Shipping and handling costs are included in cost of sales. Because
of the nature and quality of the Companys products, any warranty issues are determined in a relatively short period after the sale and are infrequent in nature, and as such, warranty costs are immaterial to the Companys consolidated
financial position and results of operations and are expensed as incurred.
Product sales resulting from fixed-price construction contracts
involve a signed contract for a fixed price to provide the Companys laboratory furniture and fume hoods for a construction project. In these instances, the Company is usually in the role of a subcontractor, but in some cases may enter into a
contract directly with the end-user of the products. Contract arrangements normally do not contain a general right of return relative to the delivered items. Product sales resulting from 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 has determined that its multiple-element arrangements that qualify as separate units of accounting are
(1) product sales and (2) installation services. There is objective and reliable evidence of fair value for both the product sales and installation services and allocation of arrangement consideration for each of these units is based on
23
their relative fair values. Each of these elements represent individual units of accounting, as the delivered item has value to a customer on a stand-alone basis. The Companys products are
regularly sold on a stand-alone basis to customers which provides vendor-specific objective evidence of fair value. The fair value of installation services is separately calculated using expected costs of installation services. Many times the value
of installation services is calculated using price quotations from subcontractors to the Company who perform installation services on a stand-alone basis.
Product sales resulting from purchase orders involve a purchase order received by the Company from its dealers or its stocking distributor. This category includes product sales for standard products, as
well as products which require some customization. Any customization requirements are approved by the customer prior to manufacture of the customized product. Sales from purchase orders 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, these sales are recognized at the time of shipment.
Credit Concentration
Credit risk is generally not concentrated with any one customer or industry, although the Company does enter into large contracts with individual customers from time to time.
The Company performs credit evaluations of its customers. Revenues from the Companys national stocking distributor, VWR International, LLC, represented approximately 11%, 12% and 14% of the Companys total sales in fiscal years 2013, 2012
and 2011, respectively.
Income Taxes
In accordance with ASC 740, Income Taxes, the Company uses the liability method in
measuring the provision for income taxes and recognizing deferred tax assets and liabilities on the balance sheet. ASC 740 clarifies the financial statement recognition threshold and measurement attribute of a tax position taken or expected to be
taken in a tax return. Under ASC 740, the Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC 740 only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained
upon examination by the taxing authorities. The Company does not have any significant uncertain tax positions at April 30, 2013 and 2012.
Research and Development Costs
Research and development costs are charged to expense in the periods incurred. Expenditures for research and
development costs were $872,000, $941,000 and $1,181,000 for the fiscal years ended April 30, 2013, 2012 and 2011, respectively.
Advertising Costs
Advertising costs are expensed as incurred, and include trade shows, training materials, sales samples, and other related
expenses. Advertising costs for the years ended April 30, 2013, 2012 and 2011 were $395,000, $344,000 and $398,000, respectively.
Derivative Financial Instruments
The Company records derivatives on the balance sheet at fair value and establishes criteria for designation and
effectiveness of hedging relationships. The nature of the Companys business activities involves the management of various financial and market risks, including those related to changes in interest rates. The Company does not enter into
derivative instruments for speculative purposes. In June 2010, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on the outstanding balance of the term loan was effectively converted to a fixed
rate of 4.875% beginning August 2, 2010. In July 2009, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on $2 million of outstanding advances under the revolving credit facility was
effectively converted to a fixed interest rate of 3.9% for the period beginning August 3, 2009 and ending August 1, 2012. The Company entered into these interest rate swap arrangements to mitigate future interest rate risk associated with
its loan balances and has designated these as cash flow hedges. (See Note 3.)
Foreign Currency Translation
The financial statements of
subsidiaries located outside the United States are measured using the local currency as the functional currency. Assets and liabilities of the Companys foreign subsidiaries are translated into United States dollars at fiscal year-end exchange
rates. Sales, expenses, and cash flows are translated at weighted average exchange rates for each period. Net translation gains or losses are included in other comprehensive income, a separate component of stockholders equity. The Company does
not provide for U.S. income taxes on foreign currency translation adjustments, since it does not provide for taxes on undistributed earnings of foreign subsidiaries. Gains and losses from foreign currency transactions of these subsidiaries are
included in net earnings.
Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares
outstanding during the year. Diluted earnings per share reflects the assumed exercise and conversion of outstanding options under the Companys stock option plans, except when options have an antidilutive effect. Accordingly, options to
purchase 72,850, 253,050 and 118,900 shares at April 30, 2013, 2012 and 2011, respectively, were not included in earnings per share. These options were not included in the computation of diluted earnings per share 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 antidilutive effect.
24
The following is a reconciliation of basic to diluted weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares in thousands
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,587
|
|
|
|
2,579
|
|
|
|
2,575
|
|
Dilutive effect of stock options
|
|
|
13
|
|
|
|
1
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstandingdiluted
|
|
|
2,600
|
|
|
|
2,580
|
|
|
|
2,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting for Stock Options
Compensation costs related to all stock awards granted by the Company are charged
against income during their vesting period, under ASC 718, Compensation Stock Compensation, for stock options. The Company granted stock options for 40,000, 55,000 and 136,400 shares during fiscal years 2013, 2012 and 2011,
respectively. (See Note 5.)
Reclassifications
Certain 2012 amounts have been reclassified to conform with the 2013 presentation in the
consolidated balance sheets and consolidated statements of cash flows. Such reclassifications had no impact on net earnings.
New
Accounting Standards
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220) Presentation of Comprehensive Income. This update requires an entity to present the total of comprehensive income, the components
of net income, and the components of other comprehensive income in either a single continuous statement or two separate but consecutive statements. This guidance does not change the items that must be reported in other comprehensive income.
Subsequently, in December 2011, the FASB issued ASU 2011-12 which deferred some aspects of the June guidance that relate to the presentation of reclassification adjustments. ASU 2011-05 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2011. The Company adopted this standard effective May 1, 2012. The adoption of this standard did not have a significant impact on the Companys consolidated financial position or results of
operations.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220) Reporting of Amounts Reclassified
Out of Accumulated Other Comprehensive Income. This guidance adds new disclosure requirements for items reclassified out of accumulated other comprehensive income (AOCI), including changes in AOCI balances by component and
significant items reclassified out of AOCI. This guidance does not amend any existing requirements for reporting net income or AOCI in the financial statements. The Company will adopt this standard in fiscal year 2014. The Company does not expect
the adoption of this standard to have a significant impact on the Companys consolidated financial position or results of operations.
In
March 2013, the FASB issued ASU 2013-05 Foreign Currency Matters (Topic 830) Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of
an Investment in a Foreign Entity. This guidance issued amendments to address the accounting for the cumulative translation adjustment when a parent entity sells or transfers either a subsidiary or group of assets within a foreign entity. The
Company will adopt this standard in fiscal year 2015. The Company does not expect the adoption of this standard to have a significant impact on the Companys consolidated financial position or results of operations.
Note 2Inventories
Inventories consisted of the following at April 30:
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2013
|
|
|
2012
|
|
Finished goods
|
|
$
|
4,052
|
|
|
$
|
3,570
|
|
Work-in-process
|
|
|
1,678
|
|
|
|
1,831
|
|
Materials and components
|
|
|
7,473
|
|
|
|
6,359
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
13,203
|
|
|
$
|
11,760
|
|
|
|
|
|
|
|
|
|
|
At April 30, 2013 and 2012, the Companys international subsidiaries inventories were $2,077,000 and
$1,253,000, respectively, measured using the first-in, first-out (FIFO) method. If all of the Companys inventories had been determined using the FIFO method at April 30, 2013 and 2012, reported inventories would have been $1.3
million and $1.6 million greater, respectively. During fiscal year 2013, the LIFO index was less than 100% due to lower prices paid for certain raw materials. This reduction resulted in a liquidation of LIFO inventory quantities carried at higher
costs prevailing in prior years as compared with the cost of purchases in fiscal year 2013, the effect of which decreased the cost of sales by $273,000. During fiscal year 2012, the LIFO index
25
was higher than 100% due to higher prices for certain raw materials. This increase resulted in the addition of LIFO inventory quantities carried at lower costs prevailing in prior years as
compared to the cost of purchases in fiscal year 2012, the effect of which increased the cost of sales by $146,000.
Note 3Long-term Debt and Other Credit Arrangements
At April 30, 2013 the Company had an unsecured revolving credit facility in the amount of $15 million with an expiration date of
July 31, 2014. Monthly interest payments under the facility are payable calculated at the 30-day LIBOR Market Interest Rate plus a variable rate ranging from 1.575% to 2.175%. The borrowing rate at April 30, 2013 was 1.773%, including a
variable rate adjustment of 1.575%. The credit facility includes financial covenants with respect to certain ratios, including (a) debt-to-net worth, (b) fixed charge coverage, and (c) asset coverage. At April 30, 2013 and 2012,
the Company was in compliance with all of the financial covenants.
At April 30, 2013, there were advances of $6.7 million outstanding
under the revolving credit facility. Additionally, at April 30, 2013, the Companys Asia subsidiaries had standby letters of credit and bank guarantees in the aggregate amount of $2.1 million outstanding under the credit facility to
guarantee performance on certain customer projects. All of the letters of credit and bank guarantees outstanding at April 30, 2013 have expiration dates during fiscal year 2014.
On August 2, 2010, the Company entered into a $4 million seven-year term loan secured by the Companys real property and equipment located in Statesville, North Carolina. Amounts outstanding
under the term loan were as follows as of April 30:
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2013
|
|
|
2012
|
|
Term loan payable
|
|
$
|
3,467
|
|
|
$
|
3,667
|
|
Less: current portion
|
|
|
(200)
|
|
|
|
(200)
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
3,267
|
|
|
$
|
3,467
|
|
|
|
|
|
|
|
|
|
|
The term loan requires monthly principal payments of $17,000, plus interest calculated at the 30-day LIBOR Market Index
Rate plus 1.575%, with payment of the outstanding principal balance and any unpaid interest at the term loan maturity date. In June 2010, the Company entered into an interest rate swap agreement with a notional amount that is adjusted to match the
outstanding principal on the related debt. Accordingly, the interest rate payable by the Company on the term loan was effectively converted to a fixed rate of 4.875% beginning August 2, 2010. Scheduled annual principal payments for the term
loan are $200,000 for fiscal years 2014 through 2017 and $2,667,000 for fiscal year 2018.
On May 6, 2013, the Company entered into a new
credit and security agreement that replaced and repaid the above credit facility and term loan. See Note 10 Subsequent Event for additional information.
Note 4Income Taxes
Income tax expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Current tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
941
|
|
|
$
|
247
|
|
|
$
|
300
|
|
State and local
|
|
|
184
|
|
|
|
63
|
|
|
|
124
|
|
Foreign
|
|
|
791
|
|
|
|
838
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax expense
|
|
|
1,916
|
|
|
|
1,148
|
|
|
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(346)
|
|
|
|
(338)
|
|
|
|
170
|
|
State and local
|
|
|
(24)
|
|
|
|
(12)
|
|
|
|
83
|
|
Foreign
|
|
|
(6)
|
|
|
|
(59)
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax expense (benefit)
|
|
|
(376)
|
|
|
|
(409)
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income tax expense
|
|
$
|
1,540
|
|
|
$
|
739
|
|
|
$
|
864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
The reasons for the differences between the above net income tax expense and the amounts computed by
applying the statutory federal income tax rates to earnings before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Income tax expense at statutory rate
|
|
$
|
1,775
|
|
|
$
|
863
|
|
|
$
|
1,007
|
|
State and local taxes, net of federal income tax benefit (expense)
|
|
|
128
|
|
|
|
3
|
|
|
|
96
|
|
Tax credits (state, net of federal benefit)
|
|
|
(118)
|
|
|
|
(76)
|
|
|
|
(122)
|
|
Effects of differing US and foreign tax rates
|
|
|
(106)
|
|
|
|
(61)
|
|
|
|
(155)
|
|
(Decrease) increase in valuation allowance
|
|
|
(14)
|
|
|
|
73
|
|
|
|
|
|
Other items, net
|
|
|
(125)
|
|
|
|
(63)
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income tax expense
|
|
$
|
1,540
|
|
|
$
|
739
|
|
|
$
|
864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant items comprising deferred tax assets and liabilities as of April 30 were as follows:
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2013
|
|
|
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued employee benefit expenses
|
|
$
|
568
|
|
|
$
|
480
|
|
Allowance for doubtful accounts
|
|
|
52
|
|
|
|
95
|
|
Deferred compensation
|
|
|
1,688
|
|
|
|
1,446
|
|
Tax credits
|
|
|
336
|
|
|
|
375
|
|
Unrecognized actuarial loss, defined benefit plans
|
|
|
4,309
|
|
|
|
4,146
|
|
Other
|
|
|
86
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
7,039
|
|
|
|
6,635
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Book basis in excess of tax basis of property, plant and equipment
|
|
|
(1,953)
|
|
|
|
(2,166)
|
|
Prepaid pension
|
|
|
(2,260)
|
|
|
|
(2,180)
|
|
Other
|
|
|
128
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(4,085)
|
|
|
|
(4,193)
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowance
|
|
|
(59)
|
|
|
|
(73)
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
2,895
|
|
|
$
|
2,369
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets classified in the balance sheet:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
654
|
|
|
$
|
713
|
|
Long-term
|
|
|
2,241
|
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
2,895
|
|
|
$
|
2,369
|
|
|
|
|
|
|
|
|
|
|
At April 30, 2013, the Company had federal tax credit carryforwards in the amount of $50,000 expiring beginning in
2020 and state tax credit carryforwards in the amount of $286,000, net of federal benefit, expiring beginning in 2014. After a review of the expiration schedule of the tax credits and future taxable income required to utilize such credits before
their expiration, a valuation allowance of $59,000 and $73,000 was recorded at April 30, 2013 and 2012, respectively.
Note 5Stock Options and Share-Based Compensation
The stockholders approved the 2010 Stock Option Plan for Directors (2010 Plan) in fiscal year 2011 which allows the Company
to grant options on an aggregate of 100,000 shares of the Companys common stock. Under this plan, each eligible director will be granted options to purchase 10,000 shares at the fair market value at the date of grant for a term of five years.
These options will be exercisable in four equal installments, one-fourth becoming exercisable on the next August 1 following the date of grant, and one-fourth becoming exercisable on August 1 of each of the next three years. At
April 30, 2013, there were 45,000 shares available for future grants under the 2010 Plan.
The stockholders approved the 2008 Key
Employee Stock Option Plan (2008 Plan) in fiscal year 2009 which allows the Company to grant options on an aggregate of 300,000 shares of the Companys common stock. This plan replaced the Companys previous stock option plans,
but certain unexercised options previously granted under the old plans remain outstanding. Under both
27
plans, options were granted at not less than the fair market value at the date of grant and options are exercisable in such installments, for such terms (up to 10 years), and at such times, as
the Board of Directors may determine at the time of the grant. At April 30, 2013, there were 80,300 shares available for future grants under the 2008 Plan.
The Company recorded stock-based compensation expense in accordance with ASC 718. In order to determine the fair value of stock options on the date of grant, the Company applied the Black-Scholes option
pricing model. Inherent in the model are assumptions related to expected stock-price volatility, option life, risk-free interest rate, and dividend yield. For stock options granted during the fiscal years 2013, 2012 and 2011, the Company believes
that its historical share option experience does not provide a reasonable basis upon which to estimate expected term. The stock options granted have the plain-vanilla characteristics as defined in SEC Staff Accounting Bulletin
No. 107 (SAB 107). The Company utilized the Safe Harbor option Simplified Method to determine the expected term of these options in accordance with the guidance of SAB 107 for options granted. The Company intends to continue to
utilize the Simplified Method for future grants in accordance with the guidance of SAB 110 until such time that the Company believes that its historical share option experience will provide a reasonable basis to estimate expected term.
The fair value of the options granted as shown below was estimated using the Black-Scholes model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
|
2008 Plan
|
|
2008 Plan
|
|
2010 Plan
|
|
2008 Plan
|
|
2010 Plan
|
Options granted
|
|
40,000
|
|
45,000
|
|
10,000
|
|
56,400
|
|
80,000
|
Weighted average expected stock price volatility
|
|
51.18%
|
|
48.51%
|
|
29.92%
|
|
47.53%
|
|
57.63%
|
Expected option life
|
|
6.25 years
|
|
6.25 years
|
|
2.42 years
|
|
6.25 years
|
|
3.75 years
|
Average risk-free interest rate
|
|
1.35%
|
|
2.74%
|
|
0.90%
|
|
1.80%
|
|
0.95%
|
Average dividend yield
|
|
4.34%
|
|
3.48%
|
|
3.38%
|
|
2.95%
|
|
2.95%
|
Estimated fair value of each option
|
|
$3.86
|
|
$3.06
|
|
$1.53
|
|
$3.79
|
|
$3.83
|
The stock-based compensation expense is recorded over the vesting period (4 years) for the options granted, net of tax.
The Company recorded $239,000, $261,000 and $225,000 of compensation expense and $93,000, $100,000 and $86,000 deferred income tax benefit in fiscal years 2013, 2012 and 2011, respectively. The remaining compensation expense of $373,000 and $145,000
deferred income tax benefit will be recorded over the remaining vesting periods.
The Company utilized treasury stock to satisfy stock options
exercised during fiscal years 2013, 2012 and 2011. Stock option activity and weighted average exercise price is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at beginning of year
|
|
|
298,050
|
|
|
$
|
11.60
|
|
|
|
279,800
|
|
|
$
|
11.94
|
|
|
|
158,925
|
|
|
$
|
12.86
|
|
Granted
|
|
|
40,000
|
|
|
|
11.78
|
|
|
|
55,000
|
|
|
|
8.90
|
|
|
|
136,400
|
|
|
|
10.64
|
|
Canceled
|
|
|
(15,750)
|
|
|
|
10.57
|
|
|
|
(22,250)
|
|
|
|
10.64
|
|
|
|
(1,675)
|
|
|
|
11.83
|
|
Exercised
|
|
|
(26,750)
|
|
|
|
9.86
|
|
|
|
(14,500)
|
|
|
|
9.39
|
|
|
|
(13,850)
|
|
|
|
9.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
295,550
|
|
|
$
|
11.84
|
|
|
|
298,050
|
|
|
$
|
11.60
|
|
|
|
279,800
|
|
|
$
|
11.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
157,250
|
|
|
$
|
12.91
|
|
|
|
126,425
|
|
|
$
|
13.00
|
|
|
|
81,588
|
|
|
$
|
12.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of options outstanding, exercisable, and their weighted average exercise prices were within the following
price ranges at April 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
Exercise Price Range
|
|
|
|
|
$8.59-$12.66
|
|
|
|
$14.69-$14.90
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
|
222,700
|
|
|
|
72,850
|
|
Weighted average exercise price
|
|
|
$10.87
|
|
|
|
$14.79
|
|
Weighted average remaining contractual life
|
|
|
6.58 years
|
|
|
|
4.84 years
|
|
Aggregate intrinsic value
|
|
|
$485,000
|
|
|
|
|
|
|
|
|
Options exercisable
|
|
|
84,400
|
|
|
|
72,850
|
|
Weighted average exercise price
|
|
|
$11.28
|
|
|
|
$14.79
|
|
Aggregate intrinsic value
|
|
|
$150,000
|
|
|
|
|
|
28
Note 6Accumulated Other Comprehensive Income (Loss)
The Companys other comprehensive income (loss) consists of unrealized gains and losses on the translation of the assets,
liabilities, and equity of its foreign subsidiaries, changes in the fair value of its cash flow hedges, and additional minimum pension liability adjustments, net of income taxes. The before tax income (loss), related income tax effect, and
accumulated balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
Cash Flow
Hedge
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Minimum
Pension
Liability
Adjustment
|
|
|
Total
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at April 30, 2010
|
|
|
(31)
|
|
|
|
17
|
|
|
|
(4,884)
|
|
|
|
(4,898)
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
21
|
|
Change in fair value of cash flow hedges
|
|
|
(172)
|
|
|
|
|
|
|
|
|
|
|
|
(172)
|
|
Change in unrecognized actuarial loss on pension obligations
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
88
|
|
Income tax effect
|
|
|
65
|
|
|
|
|
|
|
|
(34)
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2011
|
|
|
(138)
|
|
|
|
38
|
|
|
|
(4,830)
|
|
|
|
(4,930)
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(466)
|
|
|
|
|
|
|
|
(466)
|
|
Change in fair value of cash flow hedges
|
|
|
(157)
|
|
|
|
|
|
|
|
|
|
|
|
(157)
|
|
Change in unrecognized actuarial loss on pension obligations
|
|
|
|
|
|
|
|
|
|
|
(2,753)
|
|
|
|
(2,753)
|
|
Income tax effect
|
|
|
59
|
|
|
|
|
|
|
|
1,071
|
|
|
|
1,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2012
|
|
|
(236)
|
|
|
|
(428)
|
|
|
|
(6,512)
|
|
|
|
(7,176)
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
84
|
|
Change in fair value of cash flow hedges
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Change in unrecognized actuarial loss on pension obligations
|
|
|
|
|
|
|
|
|
|
|
(419)
|
|
|
|
(419)
|
|
Income tax effect
|
|
|
(13)
|
|
|
|
|
|
|
|
163
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2013
|
|
$
|
(215)
|
|
|
$
|
(344)
|
|
|
$
|
(6,768)
|
|
|
$
|
(7,327)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7Commitments and Contingencies
The Company leases both its primary distribution facility and warehouse facility under non-cancelable operating leases. The Company
also leases some of its machinery and equipment under non-cancelable operating leases. Most of these leases provide the Company with renewal and purchase options, and most leases of machinery and equipment have certain early cancellation rights.
Rent expense for these operating leases was $2,288,000, $2,425,000 and $2,323,000 in fiscal years 2013, 2012 and 2011, respectively. Future minimum payments under the above non-cancelable lease arrangements for the years ending April 30 are as
follows:
|
|
|
|
|
$ in thousands
|
|
Operating
|
|
2014
|
|
$
|
1,832
|
|
2015
|
|
|
1,671
|
|
2016
|
|
|
1,298
|
|
2017
|
|
|
1,088
|
|
2018
|
|
|
825
|
|
Thereafter
|
|
|
570
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
7,284
|
|
|
|
|
|
|
The Company is involved in certain claims and legal proceedings in the normal course of business which management
believes will not have a material adverse effect on the Companys consolidated financial condition or results of operations.
29
Note 8Retirement Benefits
Defined Benefit Plans
The Company has non-contributory defined benefit pension plans covering a significant number of salaried and hourly employees. 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. The defined benefit plan for salaried employees provides pension
benefits that are based on each employees years of service and average annual compensation during the last 10 consecutive calendar years of employment as of April 30, 2005. The benefit plan for hourly employees provides benefits at stated
amounts based on years of service as of April 30, 2005. The Company uses an April 30 measurement date for its defined benefit plans. The change in projected benefit obligations and the change in fair value of plan assets for the
non-contributory defined benefit pension plans for each of the years ended April 30 are summarized as follows:
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2013
|
|
|
2012
|
|
Accumulated Benefit Obligation, April 30
|
|
$
|
20,683
|
|
|
$
|
19,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Projected Benefit Obligations
|
|
|
|
|
|
|
|
|
Projected benefit obligations, beginning of year
|
|
$
|
19,061
|
|
|
$
|
17,328
|
|
Interest cost
|
|
|
906
|
|
|
|
942
|
|
Actuarial loss
|
|
|
1,610
|
|
|
|
1,611
|
|
Actual benefits paid
|
|
|
(894)
|
|
|
|
(820)
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations, end of year
|
|
|
20,683
|
|
|
|
19,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
|
14,007
|
|
|
|
14,979
|
|
Actual return (loss) on plan assets
|
|
|
1,302
|
|
|
|
(554)
|
|
Employer contributions
|
|
|
1,000
|
|
|
|
402
|
|
Actual benefits paid
|
|
|
(894)
|
|
|
|
(820)
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
|
15,415
|
|
|
|
14,007
|
|
|
|
|
|
|
|
|
|
|
Funded status under
|
|
$
|
(5,268)
|
|
|
$
|
(5,054)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
|
|
|
$
|
|
|
Noncurrent liabilities
|
|
|
(5,268)
|
|
|
|
(5,054)
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(5,268)
|
|
|
$
|
(5,054)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income (loss) consist of:
|
|
|
|
|
|
|
|
|
Net actual loss
|
|
$
|
11,078
|
|
|
$
|
10,658
|
|
Deferred tax benefit
|
|
|
(4,310)
|
|
|
|
(4,146)
|
|
|
|
|
|
|
|
|
|
|
After-tax actuarial loss
|
|
$
|
6,768
|
|
|
$
|
6,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Assumptions Used to Determine Benefit Obligations at April 30
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.25%
|
|
|
|
4.75%
|
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended April 30
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.75%
|
|
|
|
5.60%
|
|
Expected long-term return on plan assets
|
|
|
8.50%
|
|
|
|
8.75%
|
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
30
The components of the net periodic pension cost for each of the fiscal years ended April 30 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Interest cost
|
|
$
|
906
|
|
|
$
|
942
|
|
|
$
|
959
|
|
Expected return on plan assets
|
|
|
(1,213)
|
|
|
|
(1,306)
|
|
|
|
(1,155)
|
|
Recognition of net loss
|
|
|
1,102
|
|
|
|
717
|
|
|
|
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
795
|
|
|
$
|
353
|
|
|
$
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated net actuarial loss for the defined benefit pension plans that will be amortized from accumulated other
comprehensive income into net periodic benefit cost during the fiscal year 2014 is $1,138,000.
The Companys funding policy is to
contribute to the plans when pension laws and economics either require or encourage funding. Contributions of $1,000,000 and $402,000 were made to the plan in fiscal years 2013 and 2012, respectively. The Company anticipates that contributions in
the amount of $370,000 will be made to the plans in fiscal year 2014.
The following benefit payments are expected to be paid from the benefit
plans in the fiscal years ending April 30:
|
|
|
|
|
$ in thousands
|
|
Amount
|
|
2014
|
|
$
|
1,050
|
|
2015
|
|
|
1,122
|
|
2016
|
|
|
1,199
|
|
2017
|
|
|
1,220
|
|
2018
|
|
|
1,266
|
|
2019-2023
|
|
|
6,684
|
|
The Company employs a building block approach in determining the long-term rate of return for plan assets. Historical
markets are studied and long-term historical relationships between equities and fixed-income securities are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the
long-term. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The expected long-term portfolio return is established via a building block approach with proper
consideration of diversification and rebalancing. Peer data and historical returns are also reviewed to check for reasonableness and appropriateness.
The Company uses a Yield Curve technique methodology to determine its GAAP discount rate. Under this approach, future benefit payment cash flows are projected from the pension plan on a projected benefit
obligation basis. The payment stream is discounted to a present value using an interest rate applicable to the timing of each respective cash flow. The graph of these time-dependent interest rates is known as a yield curve. The interest rates
comprising the Yield Curve are determined through a statistical analysis performed by the IRS and issued each month in the form of a pension discount curve. For this purpose, the universe of possible bonds consists of a set of bonds which are
designated as corporate, have high quality ratings (AAA, AA, or A) from nationally recognized statistical rating organizations, and have at least $250 million in par amount outstanding on at least one day during the reporting period. A 1%
increase/decrease in the discount rate for fiscal years 2013 and 2012 would decrease/increase pension expense by approximately $166,000 and $152,000, respectively.
The Company uses a total return investment approach, whereby a mix of equities and fixed-income investments are used to attempt to maximize the long-term return on plan assets for a prudent level of risk.
Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity
investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, and small and large capitalizations. The target allocations based on the Companys investment policy were 70% in equity securities and 30% in fixed-income
securities at both April 30, 2013 and April 30, 2012. A 1% increase/decrease in the expected return on assets for fiscal years 2013 and 2012 would decrease/increase pension expense by approximately $143,000 and $149,000, respectively.
31
Plan assets by asset categories as of April 30, 2013 and 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2013
|
|
|
2012
|
|
Asset Category
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Equity Securities
|
|
$
|
7,754
|
|
|
|
50
|
|
|
$
|
9,417
|
|
|
|
67
|
|
Fixed Income Securities
|
|
|
4,475
|
|
|
|
29
|
|
|
|
4,547
|
|
|
|
33
|
|
Cash and Cash Equivalents
|
|
|
3,186
|
|
|
|
21
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
15,415
|
|
|
|
100
|
|
|
$
|
14,007
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the fair value of the assets in our defined benefit pension plans at April 30, 2013 and
2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
Asset Category
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Large Cap
|
|
$
|
5,875
|
|
|
$
|
|
|
|
$
|
|
|
Small/Mid Cap
|
|
|
1,535
|
|
|
|
|
|
|
|
|
|
Emerging Markets
|
|
|
216
|
|
|
|
|
|
|
|
|
|
Real Estate/Commodities
|
|
|
128
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
4,475
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
3,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
15,415
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
Asset Category
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Large Cap
|
|
$
|
5,225
|
|
|
$
|
|
|
|
$
|
|
|
Small/Mid Cap
|
|
|
1,329
|
|
|
|
|
|
|
|
|
|
International
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
Emerging Markets
|
|
|
1,134
|
|
|
|
|
|
|
|
|
|
Real Estate/Commodities
|
|
|
527
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
4,547
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
14,007
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 retirement plan assets include United States currency held by a designated trustee and equity funds of common and
preferred securities issued by domestic and foreign corporations. These equity funds are traded actively on exchanges and price quotes for these shares are readily available.
Defined Contribution Plan
The Company has a defined contribution plan covering
substantially all salaried and hourly employees. The plan provides benefits to all employees who have attained age 21, completed three months of service, and who elect to participate. The plan provides that the Company make matching contributions
equal to 100% of the employees qualifying contribution up to 3% of the employees compensation, and make matching contributions equal to 50% of the employees contributions between 3% and 5% of the employees compensation,
resulting in a maximum employer contribution equal to 4% of the employees compensation. Additionally, the plan provides that the Company may elect to make a non-matching contribution for participants employed by the Company on December 31
of each year up to 1% of the participants qualifying compensation for that calendar year. The Companys contributions to the plan in fiscal years 2013, 2012 and 2011 were $659,000, $664,000 and $847,000, respectively.
32
Note 9Segment Information
The Companys operations are classified into two business segments: Domestic Operations and International Operations. The Domestic
Operations segment principally designs, manufactures, and installs scientific and technical furniture, including steel and wood laboratory cabinetry, fume hoods, laminate casework, flexible systems, worksurfaces, workstations, workbenches, and
computer enclosures. The International Operations segment, which consists of four foreign subsidiaries as identified in Note 1, provides both the Companys products and services, including facility design, detailed engineering, construction,
and project management from the planning stage through testing and commissioning of laboratories.
Intersegment transactions are recorded at
normal profit margins. All intercompany balances and transactions have been eliminated. Certain corporate expenses shown below have not been allocated to the business segments.
The following table shows revenues, earnings, and other financial information by business segment for each of the three years ended April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
Domestic
Operations
|
|
|
International
Operations
|
|
|
Corporate
|
|
|
Total
|
|
Fiscal Year 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
93,519
|
|
|
$
|
23,602
|
|
|
$
|
|
|
|
$
|
117,121
|
|
Intersegment revenues
|
|
|
6,722
|
|
|
|
2,443
|
|
|
|
(9,165
|
)
|
|
|
|
|
Depreciation
|
|
|
2,523
|
|
|
|
130
|
|
|
|
|
|
|
|
2,653
|
|
Operating earnings (loss) before income taxes
|
|
|
6,908
|
|
|
|
2,622
|
|
|
|
(4,309
|
)
|
|
|
5,221
|
|
Income tax expense (benefit)
|
|
|
2,025
|
|
|
|
786
|
|
|
|
(1,271
|
)
|
|
|
1,540
|
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
637
|
|
|
|
|
|
|
|
637
|
|
Net earnings (loss) attributable to Kewaunee Scientific Corporation
|
|
|
4,883
|
|
|
|
1,199
|
|
|
|
(3,038
|
)
|
|
|
3,044
|
|
Segment assets
|
|
|
52,252
|
|
|
|
16,490
|
|
|
|
|
|
|
|
68,742
|
|
Expenditures for segment assets
|
|
|
2,314
|
|
|
|
91
|
|
|
|
|
|
|
|
2,405
|
|
Revenues (excluding intersegment) to customers in foreign countries
|
|
|
942
|
|
|
|
23,602
|
|
|
|
|
|
|
|
24,544
|
|
|
|
|
|
|
Fiscal Year 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
83,971
|
|
|
$
|
18,876
|
|
|
$
|
|
|
|
$
|
102,847
|
|
Intersegment revenues
|
|
|
5,290
|
|
|
|
3,051
|
|
|
|
(8,341
|
)
|
|
|
|
|
Depreciation
|
|
|
2,513
|
|
|
|
151
|
|
|
|
|
|
|
|
2,664
|
|
Operating earnings (loss) before income taxes
|
|
|
3,400
|
|
|
|
2,472
|
|
|
|
(3,333
|
)
|
|
|
2,539
|
|
Income tax expense (benefit)
|
|
|
1,349
|
|
|
|
779
|
|
|
|
(1,389
|
)
|
|
|
739
|
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
769
|
|
|
|
|
|
|
|
769
|
|
Net earnings (loss) attributable to Kewaunee Scientific Corporation
|
|
|
2,051
|
|
|
|
924
|
|
|
|
(1,944
|
)
|
|
|
1,031
|
|
Segment assets
|
|
|
49,373
|
|
|
|
13,988
|
|
|
|
|
|
|
|
63,361
|
|
Expenditures for segment assets
|
|
|
1,395
|
|
|
|
40
|
|
|
|
|
|
|
|
1,435
|
|
Revenues (excluding intersegment) to customers in foreign countries
|
|
|
1,717
|
|
|
|
18,876
|
|
|
|
|
|
|
|
20,593
|
|
|
|
|
|
|
Fiscal Year 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
84,121
|
|
|
$
|
15,882
|
|
|
$
|
|
|
|
$
|
100,003
|
|
Intersegment revenues
|
|
|
3,825
|
|
|
|
1,297
|
|
|
|
(5,122
|
)
|
|
|
|
|
Depreciation
|
|
|
2,312
|
|
|
|
175
|
|
|
|
|
|
|
|
2,487
|
|
Operating earnings (loss) before income taxes
|
|
|
5,150
|
|
|
|
1,008
|
|
|
|
(3,196
|
)
|
|
|
2,962
|
|
Income tax expense (benefit)
|
|
|
1,650
|
|
|
|
188
|
|
|
|
(974
|
)
|
|
|
864
|
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
248
|
|
|
|
|
|
|
|
248
|
|
Net earnings (loss) attributable to Kewaunee Scientific Corporation
|
|
|
3,500
|
|
|
|
572
|
|
|
|
(2,222
|
)
|
|
|
1,850
|
|
Segment assets
|
|
|
52,812
|
|
|
|
10,246
|
|
|
|
|
|
|
|
63,058
|
|
Expenditures for segment assets
|
|
|
5,070
|
|
|
|
177
|
|
|
|
|
|
|
|
5,247
|
|
Revenues (excluding intersegment) to customers in foreign countries
|
|
|
2,663
|
|
|
|
15,882
|
|
|
|
|
|
|
|
18,545
|
|
33
Note 10Subsequent Event
On May 6, 2013, the Company entered into a new credit and security agreement (the Loan Agreement) with a new lender
consisting of (1) a $20 million revolving credit facility which matures on May 1, 2016 (Line of Credit), (2) a term loan in the amount of $3,450,000 which matures on May 1, 2020 (Term Loan A) and
(3) a term loan in the amount of $1,550,000 which matures on May 1, 2020 (Term Loan B and together with Term Loan A, the Term Loans). The Line of Credit provided funds to refinance all existing indebtedness to the
Companys current lender and for working capital and other general corporate purposes. In addition, it provides for the issuance of up to $4.7 million of letters of credit for our account. Indebtedness under the Line of Credit bears interest at
a variable rate per annum equal to Daily One Month LIBOR plus 1.5% per annum. Payments are due under Term Loan A in consecutive equal monthly principal payments in the amount of $17,000 until August 1, 2017, and then in consecutive equal
monthly principal payments in the amount of $79,000 each, commencing on September 1, 2017 and continuing on the first business day of each month thereafter until May 1, 2020, and at that time, all principal, accrued unpaid interest and
other charges outstanding under Term Loan A shall be due and payable in full. The interest rate on Term Loan A, after consideration of interest rate swap agreements, is a fixed rate per annum equal to 4.875%, and effective August 1, 2017, such
rate converts to a fixed rate per annum of 4.37%. Payments are due under the Term Loan B in consecutive equal monthly principal payments in the amount of $18,000 until May 1, 2020, and at that time, all principal, accrued unpaid interest and
other charges outstanding under Term Loan B shall be due and payable in full. The interest rate on Term Loan B, after consideration of interest rate swap agreement, is a variable rate per annum equal to One Month LIBOR plus 1.575% per annum,
and effective November 3, 2014, such rate converts to a fixed rate per annum of 3.07%.
On June 24, 2013, the Company entered into
an Agreement (the Agreement) through one of its subsidiaries, to purchase the 49% minority ownership of its subsidiary, Kewaunee Labway Asia Pte. Ltd. (the Subsidiary) for a total purchase price of $3,550,000. The purchase
price includes $1,800,000 representing the minority ownership share of the accumulated undistributed earnings of the Subsidiary reported as noncontrolling interest in the Companys total equity shown in the Companys consolidated balance
sheet at April 30, 2013. The terms under the Agreement include payments of $1,775,000 at the date of the agreement, $887,500 on June 24, 2014 and $887,500 on June 24, 2015. The Subsidiary and its subsidiary in India, Kewanee
Labway India Pvt. Ltd., serve as the Companys principal sales and distribution organization for sales to international customers.
Note 11Consolidated Quarterly Data (
Unaudited
)
Selected quarterly financial data for fiscal years 2013 and 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands, except per share amounts
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Fiscal Year 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
26,683
|
|
|
$
|
31,185
|
|
|
$
|
27,450
|
|
|
$
|
31,803
|
|
Gross profit
|
|
|
5,243
|
|
|
|
5,227
|
|
|
|
5,009
|
|
|
|
6,779
|
|
Net earnings
|
|
|
688
|
|
|
|
807
|
|
|
|
782
|
|
|
|
1,404
|
|
Less: net earnings attributable to the noncontrolling interest
|
|
|
54
|
|
|
|
158
|
|
|
|
238
|
|
|
|
187
|
|
Net earnings attributable to Kewaunee Scientific Corporation
|
|
|
634
|
|
|
|
649
|
|
|
|
544
|
|
|
|
1,217
|
|
|
|
|
|
|
Net earnings per share attributable to Kewaunee Scientific Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.25
|
|
|
|
0.25
|
|
|
|
0.21
|
|
|
|
0.47
|
|
Diluted
|
|
|
0.25
|
|
|
|
0.25
|
|
|
|
0.21
|
|
|
|
0.46
|
|
|
|
|
|
|
Cash dividends per share
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
|
|
|
Fiscal Year 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
26,321
|
|
|
$
|
25,962
|
|
|
$
|
21,574
|
|
|
$
|
28,990
|
|
Gross profit
|
|
|
4,188
|
|
|
|
3,845
|
|
|
|
3,771
|
|
|
|
7,352
|
|
Net earnings (loss)
|
|
|
108
|
|
|
|
(156
|
)
|
|
|
34
|
|
|
|
1,814
|
|
Less: net earnings (loss) attributable to the noncontrolling interest
|
|
|
86
|
|
|
|
(31
|
)
|
|
|
156
|
|
|
|
558
|
|
Net earnings (loss) attributable to Kewaunee Scientific Corporation
|
|
|
22
|
|
|
|
(125
|
)
|
|
|
(122
|
)
|
|
|
1,256
|
|
|
|
|
|
|
Net earnings (loss) per share attributable to Kewaunee Scientific Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.01
|
|
|
|
(0.05
|
)
|
|
|
(0.05
|
)
|
|
|
0.49
|
|
Diluted
|
|
|
0.01
|
|
|
|
(0.05
|
)
|
|
|
(0.05
|
)
|
|
|
0.49
|
|
|
|
|
|
|
Cash dividends per share
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.10
|
|
|
|
0.10
|
|
34