Item 1.
|
Financial Statements
|
Kewaunee Scientific Corporation
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
July 31
|
|
|
|
2013
|
|
|
2012
|
|
Net Sales
|
|
$
|
32,003
|
|
|
$
|
26,683
|
|
Costs of products sold
|
|
|
25,427
|
|
|
|
21,440
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,576
|
|
|
|
5,243
|
|
Operating expenses
|
|
|
4,144
|
|
|
|
4,138
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
2,432
|
|
|
|
1,105
|
|
Other income
|
|
|
80
|
|
|
|
68
|
|
Interest expense
|
|
|
(88
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
2,424
|
|
|
|
1,059
|
|
Income tax expense
|
|
|
807
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
1,617
|
|
|
|
688
|
|
Less: net earnings attributable to the noncontrolling interest
|
|
|
30
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Kewaunee Scientific Corporation
|
|
$
|
1,587
|
|
|
$
|
634
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share attributable to Kewaunee Scientific Corporation stockholders
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.61
|
|
|
$
|
0.25
|
|
Diluted
|
|
$
|
0.61
|
|
|
$
|
0.25
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,596
|
|
|
|
2,581
|
|
Diluted
|
|
|
2,618
|
|
|
|
2,584
|
|
See accompanying notes to consolidated financial statements.
1
Kewaunee Scientific Corporation
Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
July 31
|
|
|
|
2013
|
|
|
2012
|
|
Net earnings
|
|
$
|
1,617
|
|
|
$
|
688
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(524
|
)
|
|
|
(136
|
)
|
Change in fair value of cash flow hedge
|
|
|
65
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(459
|
)
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax
|
|
|
1,158
|
|
|
|
540
|
|
|
|
|
Less: comprehensive income attributable to the noncontrolling interest
|
|
|
30
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Kewaunee Scientific Corporation
|
|
$
|
1,128
|
|
|
$
|
486
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
2
Kewaunee Scientific Corporation
Consolidated Statement of Stockholders Equity
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 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, 2013
|
|
$
|
6,550
|
|
|
$
|
1,567
|
|
|
$
|
(305
|
)
|
|
$
|
31,191
|
|
|
$
|
(7,327
|
)
|
|
$
|
31,676
|
|
|
|
|
|
|
|
|
Purchase of noncontrolling interest (Note B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,874
|
)
|
|
|
|
|
|
|
(1,874
|
)
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,587
|
|
|
|
|
|
|
|
1,587
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(459
|
)
|
|
|
(459
|
)
|
Cash dividends declared, $0.10 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(260
|
)
|
|
|
|
|
|
|
(260
|
)
|
Stock options exercised, 13,500 shares
|
|
|
|
|
|
|
(7
|
)
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
Stock options granted, 10,000 shares
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
Purchase of treasury stock, 6,598 shares
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2013
|
|
$
|
6,550
|
|
|
$
|
1,619
|
|
|
$
|
(241
|
)
|
|
$
|
30,644
|
|
|
$
|
(7,786
|
)
|
|
$
|
30,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
Kewaunee Scientific Corporation
Consolidated Balance Sheets
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
July 31,
2013
|
|
|
April 30,
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,408
|
|
|
$
|
5,811
|
|
Restricted cash
|
|
|
619
|
|
|
|
691
|
|
Receivables, less allowance
|
|
|
24,752
|
|
|
|
25,884
|
|
Inventories
|
|
|
12,334
|
|
|
|
13,203
|
|
Deferred income taxes
|
|
|
607
|
|
|
|
654
|
|
Prepaid expenses and other current assets
|
|
|
1,469
|
|
|
|
987
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
44,189
|
|
|
|
47,230
|
|
|
|
|
Property, plant and equipment, at cost
|
|
|
45,627
|
|
|
|
45,109
|
|
Accumulated depreciation
|
|
|
(30,632
|
)
|
|
|
(30,011
|
)
|
|
|
|
|
|
|
|
|
|
Net Property, Plant and Equipment
|
|
|
14,995
|
|
|
|
15,098
|
|
|
|
|
Deferred income taxes
|
|
|
2,323
|
|
|
|
2,241
|
|
Other
|
|
|
4,352
|
|
|
|
4,173
|
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
6,675
|
|
|
|
6,414
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
65,859
|
|
|
$
|
68,742
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and interest rate swap
|
|
$
|
5,101
|
|
|
$
|
6,997
|
|
Current portion of long-term debt
|
|
|
455
|
|
|
|
200
|
|
Accounts payable
|
|
|
8,234
|
|
|
|
10,406
|
|
Employee compensation and amounts withheld
|
|
|
1,861
|
|
|
|
2,076
|
|
Deferred revenue
|
|
|
648
|
|
|
|
488
|
|
Other accrued expenses
|
|
|
3,117
|
|
|
|
1,948
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
19,416
|
|
|
|
22,115
|
|
|
|
|
Long-term debt
|
|
|
4,508
|
|
|
|
3,267
|
|
Accrued pension and deferred compensation costs
|
|
|
10,037
|
|
|
|
9,667
|
|
Other non-current liabilities
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
34,849
|
|
|
|
35,049
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
6,550
|
|
|
|
6,550
|
|
Additional paid-in-capital
|
|
|
1,619
|
|
|
|
1,567
|
|
Retained earnings
|
|
|
30,644
|
|
|
|
31,191
|
|
Accumulated other comprehensive loss
|
|
|
(7,786
|
)
|
|
|
(7,327
|
)
|
Common stock in treasury, at cost
|
|
|
(241
|
)
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
Total Kewaunee Scientific Corporation Stockholders Equity
|
|
|
30,786
|
|
|
|
31,676
|
|
Noncontrolling interest
|
|
|
224
|
|
|
|
2,017
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
31,010
|
|
|
|
33,693
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
65,859
|
|
|
$
|
68,742
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
Kewaunee Scientific Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
July 31
|
|
|
|
2013
|
|
|
2012
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1,617
|
|
|
$
|
688
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
631
|
|
|
|
658
|
|
Bad debt provision
|
|
|
29
|
|
|
|
25
|
|
Non-cash stock option expense
|
|
|
59
|
|
|
|
64
|
|
Provision for deferred income tax expense
|
|
|
(35
|
)
|
|
|
(37
|
)
|
Decrease in receivables
|
|
|
1,103
|
|
|
|
1,273
|
|
Decrease in inventories
|
|
|
869
|
|
|
|
43
|
|
(Decrease) increase in accounts payable and other accrued expenses
|
|
|
(2,105
|
)
|
|
|
768
|
|
Increase (decrease) in deferred revenue
|
|
|
160
|
|
|
|
(456
|
)
|
Other, net
|
|
|
(523
|
)
|
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,805
|
|
|
|
2,730
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(528
|
)
|
|
|
(434
|
)
|
Decrease in restricted cash
|
|
|
72
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(456
|
)
|
|
|
(383
|
)
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(260
|
)
|
|
|
(258
|
)
|
Decrease in short-term borrowings and interest rate swap
|
|
|
(1,896
|
)
|
|
|
(315
|
)
|
Proceeds from long-term debt
|
|
|
5,000
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(3,504
|
)
|
|
|
(50
|
)
|
Payments on capital leases
|
|
|
|
|
|
|
(21
|
)
|
Payment toward purchase of noncontrolling interest in subsidiary
|
|
|
(1,780
|
)
|
|
|
|
|
Net proceeds from exercise of stock options (including tax benefit)
|
|
|
57
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(2,383
|
)
|
|
|
(612
|
)
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(369
|
)
|
|
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(1,403
|
)
|
|
|
1,532
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
5,811
|
|
|
|
6,188
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
4,408
|
|
|
$
|
7,720
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Purchase of noncontrolling interest in subsidiary other accrued expenses and other non-current liabilities
|
|
$
|
1,775
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
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 or Kewaunee)
have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, 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 Companys 2013 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, 2013 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.
Purchase of Noncontrolling Interest
During the three-month period ended July 31, 2013, the Company entered into an Agreement (the Agreement) whereby it
purchased the 49% minority ownership of its subsidiary, Kewaunee Labway Asia Pte. Ltd. (the Subsidiary) for a total purchase price of $3,555,000. The purchase was recorded in the equity section of the consolidated balance sheet as a
$1,874,000 reduction in retained earnings and a $1,681,000 reduction in noncontrolling interest. Pursuant to the terms of the Agreement, the Company paid cash of $1,780,000 to the minority stockholder and recorded other current liabilities of
$887,500 and other noncurrent liabilities of $887,500. 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.
C.
Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during the three month period. Diluted
earnings per share reflects the assumed exercise and conversion of outstanding options under the Companys stock option plans, except when options have an anti-dilutive effect. Options to purchase 72,850 and 237,675 shares were not included in
the computation of diluted earnings per share for the three month periods ended July 31, 2013 and 2012, respectively, 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.
D.
Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31, 2013
|
|
|
April 30, 2013
|
|
Finished products
|
|
$
|
3,208
|
|
|
$
|
4,052
|
|
Work in process
|
|
|
1,719
|
|
|
|
1,678
|
|
Raw materials
|
|
|
7,407
|
|
|
|
7,473
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,334
|
|
|
$
|
13,203
|
|
|
|
|
|
|
|
|
|
|
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.
E.
Long-Term Debt and Other Credit Arrangements
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 Loan Agreement provided funds to refinance all existing indebtedness to the
Companys previous lender and for working capital and other general corporate purposes. In addition,
6
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 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 Daily 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%.
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 July 31, 2013, the Company was in compliance with all of the financial covenants. At July 31, 2013, there were advances of $4,862,000 outstanding
under the revolving credit line.
F.
Segment Information
The following table provides financial information by business segments for the three months ended July 31, 2013 and 2012 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
Operations
|
|
|
International
Operations
|
|
|
Corporate
|
|
|
Total
|
|
Three months ended July 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
27,073
|
|
|
$
|
4,930
|
|
|
$
|
|
|
|
$
|
32,003
|
|
Intersegment revenues
|
|
|
1,404
|
|
|
|
486
|
|
|
|
(1,890
|
)
|
|
|
|
|
Operating earnings (loss) before income taxes
|
|
|
3,182
|
|
|
|
557
|
|
|
|
(1,315
|
)
|
|
|
2,424
|
|
Three months ended July 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
22,629
|
|
|
$
|
4,054
|
|
|
$
|
|
|
|
$
|
26,683
|
|
Intersegment revenues
|
|
|
730
|
|
|
|
504
|
|
|
|
(1,234
|
)
|
|
|
|
|
Operating earnings (loss) before income taxes
|
|
|
1,884
|
|
|
|
246
|
|
|
|
(1,071
|
)
|
|
|
1,059
|
|
G.
Defined Benefit Pension Plans
The Company has non-contributory defined benefit pension plans covering substantially all 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 Company did not make any contributions to the
plans during the three months ended July 31, 2013 and July 31, 2012. The Company expects to make contributions in the amount of $300,000 to the plans in fiscal year 2014.
Pension expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended
July 31, 2013
|
|
|
Three months ended
July 31, 2012
|
|
Service cost
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
Interest cost
|
|
|
212
|
|
|
|
227
|
|
Expected return on plan assets
|
|
|
(317
|
)
|
|
|
(302
|
)
|
Recognition of net loss
|
|
|
283
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense
|
|
$
|
178
|
|
|
$
|
200
|
|
|
|
|
|
|
|
|
|
|
H.
Reclassifications
Certain 2012 amounts have been reclassified to conform with the 2013 presentation in the consolidated statements of cash flows. Such
reclassifications had no impact on net earnings.
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
The
Companys 2013 Annual Report to Stockholders contains managements discussion and analysis of financial condition and results of operations at and for the year ended April 30, 2013. The following discussion and analysis describes
material changes in the Companys financial condition since April 30, 2013. The analysis of results of operations compares the three months ended July 31, 2013 with the comparable period of the prior year.
7
Results of Operations
Sales for the three months ended July 31, 2013 were $32,003,000, an increase from sales of $26,683,000 in the comparable period of the prior year. Sales
from Domestic Operations were $27,073,000, up from sales of $22,629,000 in the comparable period of the prior year. Domestic sales benefited from strong order activity from the Companys dealer network and a strong backlog with customer ship
dates during the quarter. Sales from International Operations were $4,930,000, up from sales of $4,054,000 in the comparable period of the prior year. International operations sales benefited from increased opportunities in the international markets
and the favorable timing of several projects.
The order backlog was $71.1 million at July 31, 2013, as compared to $80.2 million at April 30,
2013 and $86.7 million at July 31, 2012. The lower order backlog reflects several factors, including the composition of the Domestic backlog, which continues to transition to a higher percentage of orders received through the Companys
dealer organization. These orders typically remain in the backlog for a shorter duration. The backlog also reflects the manufacturing and shipment of a large International project during the quarter that had been in the backlog for an extended
period due to construction project delays.
The gross profit margin for the three months ended July 31, 2013 was 20.5% of sales, as compared to 19.6%
of sales in the comparable period of the prior year. The increase in the gross profit margin was primarily due to lower operating costs and increased efficiencies associated with the higher manufacturing volumes.
Operating expenses for the three months ended July 31, 2013 were $4,144,000, or 12.9% of sales, as compared to $4,138,000, or 15.5% of sales, in the
comparable period of the prior year. Expenses in the current year period were favorably impacted by cost savings initiatives, which substantially offset an increase of $199,000 in performance incentive programs expense and variable expenses
associated with the increase in sales.
Interest expense was $88,000 for the three months ended July 31, 2013, as compared to $114,000 for the
comparable period of the prior year. The decrease for the current year period resulted from lower borrowing levels.
Income tax expense of $807,000 was
recorded for the three months ended July 31, 2013, as compared to income tax expense of $371,000 recorded for the comparable period of the prior year. The effective tax rate was 33.3% for the three months ended July 31, 2013, and was 35.0%
for the comparable period of the prior year. The lower effective tax rate for the current year period resulted primarily from a higher ratio of pretax earnings in the current period attributable to subsidiaries located in geographic locations with
lower income tax rates.
Noncontrolling interests related to the Companys two subsidiaries that were not 100% owned by the Company reduced net
earnings by $30,000 for the three months ended July 31, 2013, as compared to a reduction of $54,000 for the comparable period of the prior year. As discussed in Note B, during the quarter ended July 31, 2013, the Company purchased the 49%
minority ownership of one of its subsidiaries. The purchase of the minority ownership and reduction of the noncontrolling interest had a favorable impact on net earnings of $140,000 for the three months ended July 31, 2013.
Net earnings were $1,587,000, or $0.61 per diluted share, for the three months ended July 31, 2013. This compares to net earnings of $634,000, or $0.25
per diluted share, for the comparable period of the prior year.
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 from time to time by non-cancellable operating leases or capital leases. The Company believes that these sources will be sufficient to
support ongoing business requirements, including capital expenditures through the current fiscal year.
The Company had working capital of $24,773,000 at
July 31, 2013 compared to $25,115,000 at April 30, 2013. The ratio of current assets to current liabilities was 2.3-to-1.0 at July 31, 2013 and 2.1-to-1.0 at April 30, 2013. At July 31, 2013, advances of $4,862,000 were
outstanding under the Companys $20 million bank revolving credit facility, as compared to advances of $6,653,000 outstanding as of April 30, 2013.
The Companys operations provided cash of $1,805,000 during the three months ended July 31, 2013. Cash was primarily provided from earnings, a
decrease in accounts receivable of $1,103,000, and a decrease in inventory of $869,000, partially offset by a decrease in accounts payable and other accrued expenses of $2,105,000. The Companys operations provided cash of $2,730,000 during the
three months ended July 31, 2012. Cash was primarily provided from earnings, a decrease in accounts receivable of $1,273,000, and an increase in accounts payable and other accrued expenses of $768,000.
During the three months ended July 31, 2013, net cash of $456,000 was used in investing activities, primarily for capital expenditures. This compares to
$383,000 used for investing activities during the three months ended July 31, 2012.
The Companys financing activities used cash of $2,383,000
during the three months ended July 31, 2013, primarily for payment of $1,780,000 toward the purchase of the noncontrolling interest in a subsidiary, for repayment of short-term borrowings of $1,896,000,
8
and cash dividends of $260,000 paid to stockholders. This was partially offset by a net increase in long-term debt of $1,496,000 in conjunction with the replacement of the Companys
long-term loans with a new lender as discussed in Note E. The Companys financing activities used cash of $612,000 during the three months ended July 31, 2012, primarily for repayment of short-term borrowings of $315,000 and cash dividends
of $258,000 paid to stockholders.
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 2013 Annual Report on Form 10-K.
9
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 month periods ended
July 31, 2013 and July 31, 2012 has been performed by Cherry Bekaert LLP, the Companys independent registered public accounting firm. Their report on the interim consolidated financial information follows.
10