NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1Summary of Significant Accounting Policies
Kewaunee Scientific Corporation and subsidiaries (collectively the Company) design, manufacture, and install laboratory, healthcare, and technical furniture products. The Companys
products include steel, wood, and laminate furniture, fume hoods, biological safety cabinets, laminare flow and ductless fume hoods, adaptable modular and column systems, movable workstations and carts, epoxy resin worksurfaces, sinks and
accessories and related design services. The Companys sales are made through purchase orders and contracts submitted by customers, dealers and agents, a national stocking distributor, and competitive bids submitted by the Company and its
subsidiaries located in Singapore, India, and China. 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 five 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 100% owned by the Company;
(2) Kewaunee Labway India Pvt. Ltd., a dealer for the Companys products in Bangalore, India, is 90% owned by the Company; (3) Kewaunee Scientific Corporation India Pvt. Ltd. in Bangalore, India, a manufacturing and assembly
operation, is 100% owned by the Company; (4) Kewaunee Scientific Corporation Singapore Pte. Ltd., a holding company in Singapore, is 100% owned by the Company; and (5) Kewaunee Scientific (Suzhou) Co., Ltd., a dealer and assembly operation
for the Companys products in China, 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 $12,298,000 and $9,494,000 at
April 30, 2016 and 2015, respectively, of the Companys subsidiaries. Net sales by the Companys subsidiaries in the amount of $25,579,000, $25,730,000 and $19,416,000 were included in the consolidated statements of operations for
fiscal years 2016, 2015 and 2014, respectively.
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, 2016 and 2015, 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 subsidiaries 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 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
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at beginning of year
|
|
$
|
171
|
|
|
$
|
229
|
|
|
$
|
194
|
|
Bad debt provision
|
|
|
74
|
|
|
|
55
|
|
|
|
116
|
|
Doubtful accounts written off (net)
|
|
|
(43
|
)
|
|
|
(113
|
)
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
202
|
|
|
$
|
171
|
|
|
$
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled Receivables
Unbilled receivables represent amounts earned which have not yet been billed in accordance
with contractually stated billing terms. The amount of unbilled receivables at April 30, 2016 and 2015 was $323,000 and $545,000, respectively.
22
Inventories
The majority of inventories are valued at the lower of cost or market under the last-in,
first-out (LIFO) double extension 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.
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
|
|
2016
|
|
|
2015
|
|
|
Useful Life
|
|
Land
|
|
$
|
41
|
|
|
$
|
41
|
|
|
|
N/A
|
|
Building and improvements
|
|
|
15,638
|
|
|
|
15,369
|
|
|
|
10-40 years
|
|
Machinery and equipment
|
|
|
34,249
|
|
|
|
32,757
|
|
|
|
5-10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
49,928
|
|
|
|
48,167
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(35,810
|
)
|
|
|
(33,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
14,118
|
|
|
$
|
14,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2016, 2015 or 2014.
Other Assets
Other assets at April 30, 2016 and 2015 included $3,867,000
and $3,683,000, respectively, of assets held in a trust account for non-qualified benefit plans and $62,000 and $47,000, 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, self-insurance reserves, 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. Expanded disclosures about instruments measured at fair value require the Company to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy is 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.
|
23
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, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Financial Assets
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Trading securities held in non-qualified compensation plans (1)
|
|
|
|
$
|
3,867
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,867
|
|
Cash surrender value of life insurance policies (1)
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
3,867
|
|
|
$
|
62
|
|
|
$
|
|
|
|
$
|
3,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified compensation plans (2)
|
|
|
|
$
|
|
|
|
$
|
4,215
|
|
|
$
|
|
|
|
$
|
4,215
|
|
Interest rate swap derivatives
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
$
|
4,381
|
|
|
$
|
|
|
|
$
|
4,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Financial Assets
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Trading securities held in non-qualified compensation plans (1)
|
|
|
|
$
|
3,683
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,683
|
|
Cash surrender value of life insurance policies (1)
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
3,683
|
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
3,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified compensation plans (2)
|
|
|
|
$
|
|
|
|
$
|
4,119
|
|
|
$
|
|
|
|
$
|
4,119
|
|
Interest rate swap derivatives
|
|
|
|
|
|
|
|
|
203
|
|
|
|
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
$
|
4,322
|
|
|
$
|
|
|
|
$
|
4,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company maintains two non-qualified compensation plans which include 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 life insurance policies, which are valued at their cash surrender value.
|
|
(2)
|
Plan liabilities are equal to the individual participants account balances and other earned retirement benefits.
|
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 $1,562,000 and $2,231,000 at April 30, 2016 and 2015, 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
24
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 three of the Companys domestic dealers represented in the aggregate approximately 40%, 36% and 33% of the Companys sales in fiscal years 2016, 2015, and 2014,
respectively. Accounts receivable for two domestic customers represented approximately 24% of the Companys total accounts receivable as of April 30, 2016.
Insurance
Effective January 1, 2016, the Company moved from a fully-insured health care program to a self-insured program. The Company accrues estimated losses for incurred but not reported
(IBNR) claims using actuarial models and assumptions based on historical loss experience. The Company has also purchased specific stop-loss insurance to limit claims above a certain amount. The Company adjusts insurance reserves, as
needed, in the event that future loss experience differs from historical loss patterns.
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. Provision has not been made for income taxes on unremitted earnings
of foreign subsidiaries as these earnings are deemed to be permanently reinvested. 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 did not have any significant uncertain tax positions at April 30, 2016 and 2015. The Company early adopted ASU 2015-17, Balance Sheet Classification of Deferred Taxes in fiscal year 2016 and applied
prospective treatment of the standard. Prior periods were not retrospectively adjusted.
Research and Development Costs
Research and
development costs are charged to expense in the periods incurred. Expenditures for research and development costs were $1,167,000, $936,000 and $842,000 for the fiscal years ended April 30, 2016, 2015 and 2014, 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, 2016, 2015 and 2014 were $311,000, $404,000 and $377,000, 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 May 2013, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on $3,450,000 of outstanding long-term debt was effectively converted to a fixed
interest rate of 4.875% for the period beginning May 1, 2013 and ending August 1, 2017. In May 2013, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on $2,600,000 of outstanding
long-term debt was effectively converted to a fixed interest rate of 4.37% for the period beginning August 1, 2017 and ending May 1, 2020. In May 2013, the Company entered into an interest rate swap agreement whereby the interest rate
payable by the Company on $1,218,000 of outstanding long-term debt was effectively converted to a fixed interest rate of 3.07% for the period beginning November 3, 2014 and ending May 1, 2020. The Company entered into these interest rate
swap arrangements to mitigate future interest rate risk associated with its long-term debt and has designated these as cash flow hedges. (See Note 3)
25
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. Options to purchase 110,100 shares at April 30, 2016 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. Options to purchase
80,800 shares at April 30, 2015 were not included in the computation of diluted earnings per share, as such options would have an antidilutive effect. There were no antidilutive options outstanding at April 30, 2014.
The following is a reconciliation of basic to diluted weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares in thousands
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,667
|
|
|
|
2,626
|
|
|
|
2,608
|
|
Dilutive effect of stock options
|
|
|
20
|
|
|
|
32
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstandingdiluted
|
|
|
2,687
|
|
|
|
2,658
|
|
|
|
2,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting for Stock Options
Compensation costs related to stock options granted by the Company are charged
against income during their vesting period, under ASC 718, Compensation Stock Compensation. The Company granted stock options for 40,200, 45,800 and 46,600 shares during fiscal years 2016, 2015 and 2014, respectively. (See
Note 5)
New Accounting Standards
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 adopted this standard effective May 1, 2014.
The adoption of this standard did not 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 adopted this standard effective May 1, 2014. The adoption of this standard did not have a significant impact on the Companys
consolidated financial position or results of operations.
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740)
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This guidance requires that companies net their unrecognized tax benefits against all
same-jurisdiction net operating losses or tax credit carryforwards that would be used to settle the position with a tax authority. The Company adopted this standard effective May 1, 2014. The adoption of this standard did not have a significant
impact on the Companys consolidated financial position or results of operations.
In May 2014, the FASB issued ASU 2014-9, Revenue
from Contracts with Customers (Topic 606). This guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. In August 2015, this guidance was amended deferring the effective date to annual reporting periods beginning after December 15, 2017. The Company will adopt this standard in fiscal year 2019.
The Company has not yet determined the effect, if any, that the adoption of this standard will have on the Companys financial position or results of operations.
In April 2015, the FASB issued ASU 2015-03, Interest (Topic 835) Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. This guidance requires that debt issuance
costs related to a recognized liability be presented in the balance sheet
26
as a direct deduction from the carrying amount of that debt liability. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015.
The Company will adopt this standard in fiscal year 2017. 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 July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) Simplifying the Measurement of Inventory. This guidance changes the
measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company will adopt this standard in fiscal year 2018. The Company has not yet
determined the effect, if any, that the adoption of this standard will have on the Companys financial position or results of operations.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes. This guidance
eliminates the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. Instead, the update requires that deferred tax liabilities and assets be
classified as noncurrent in a classified statement of financial position. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted prospectively or
retrospectively. The Company early adopted this guidance prospectively beginning with the Consolidated Balance Sheet at April 30, 2016. Prior periods were not retrospectively adjusted.
In February 2016, the FASB issued ASU 2016-2, Leases (Topic 842). This guidance establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the
balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective
transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company will adopt this standard in fiscal year 2020. The Company has not yet determined the effect, if any, that the
adoption of this standard will have on the Companys financial position or results of operations.
In March 2016, the FASB issued ASU
2016-9, Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. This guidance simplifies various aspects related to how share-based payments are accounted for and presented in the financial
statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company will adopt this standard in fiscal year 2018. The Company has not yet determined the effect, if any,
that the adoption of this standard will have on the Companys financial position or results of operations.
Note 2Inventories
Inventories consisted of the following at April 30:
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2016
|
|
|
2015
|
|
Finished goods
|
|
$
|
3,707
|
|
|
$
|
2,936
|
|
Work-in-process
|
|
|
1,889
|
|
|
|
1,422
|
|
Materials and components
|
|
|
10,030
|
|
|
|
8,387
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
15,626
|
|
|
$
|
12,745
|
|
|
|
|
|
|
|
|
|
|
At April 30, 2016 and 2015, the Companys international subsidiaries inventories were $2,253,000 and
$1,906,000, 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, 2016 and 2015, reported inventories would have been
$714,000 and $1.0 million greater, respectively. During fiscal years 2016 and 2015, the LIFO index was lower than 100% due to lower prices for certain raw materials. This decrease resulted in the liquidation of LIFO inventory quantities carried at
higher costs prevailing in prior years as compared to the cost of purchases in the current fiscal year, the effect of which decreased the cost of sales by $336,000 and $158,000, respectively.
27
Note 3Long-term Debt and Other Credit Arrangements
On May 6, 2013, the Company entered into a credit and security agreement (the Loan Agreement) with a new lender consisting of (1) a
$20 million revolving credit facility (Line of Credit) which originally matured on May 1, 2016 and was extended to May 1, 2018 on June 3, 2015, (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, the credit facility provided a sub-line for the issuance of up to $6.5 million of letters of credit at
April 30, 2016 and April 30, 2015.
At April 30, 2016, there were advances of $3.6 million and $4.2 million in letters of
credit outstanding, leaving $12.2 million available under the Line of Credit. The borrowing rate under the Line of Credit at that date was 2.0%. Monthly interest payments under the Line of Credit were payable at the Daily One Month LIBOR
interest rate 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 related 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 the related interest rate swap agreement, effective November 3, 2014, converted to a fixed rate per annum of 3.07%. Scheduled annual principal
payments for the term loans are $421,000 for fiscal year 2017; and $915,000, $1,164,000, and $1,270,000 for fiscal years 2018, 2019 and 2020, respectively.
At April 30, 2016, there were bank guarantees issued by foreign banks outstanding to customers in the amount of $3,686,000 and $478,000 with expiration dates in fiscal years 2017 and 2018,
respectively, collateralized by a $4.0 million letter of credit under the Line of Credit and certain assets of the Companys subsidiaries in India. The Loan Agreement 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, 2016, the Company was in compliance with all of the financial covenants.
At April 30, 2015, there were advances of $4.6 million and $4.2 million in letters of credit outstanding under the Line of Credit. The borrowing rate at that date was 1.75%. At April 30, 2015,
there were foreign bank guarantees outstanding to customers in the amount of $5,884,000 and $41,000 with expiration dates in fiscal years 2016 and 2017, respectively. At April 30, 2015, the Company was in compliance with all of the financial
covenants.
Amounts outstanding under the term loans were as follows as of April 30:
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2016
|
|
|
2015
|
|
Term Loan A payable
|
|
$
|
2,866
|
|
|
$
|
3,066
|
|
Term Loan B payable
|
|
|
904
|
|
|
|
1,126
|
|
Less: current portion
|
|
|
(421)
|
|
|
|
(421)
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
3,349
|
|
|
$
|
3,771
|
|
|
|
|
|
|
|
|
|
|
28
Note 4Income Taxes
Income tax expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
974
|
|
|
$
|
759
|
|
|
$
|
907
|
|
State and local
|
|
|
117
|
|
|
|
151
|
|
|
|
168
|
|
Foreign
|
|
|
1,122
|
|
|
|
1,348
|
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax expense
|
|
|
2,213
|
|
|
|
2,258
|
|
|
|
1,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(431)
|
|
|
|
(187)
|
|
|
|
27
|
|
State and local
|
|
|
98
|
|
|
|
(70)
|
|
|
|
26
|
|
Foreign
|
|
|
(18)
|
|
|
|
(256)
|
|
|
|
(62)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax benefit
|
|
|
(351)
|
|
|
|
(513)
|
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income tax expense
|
|
$
|
1,862
|
|
|
$
|
1,745
|
|
|
$
|
1,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income tax expense at statutory rate
|
|
$
|
1,952
|
|
|
$
|
1,831
|
|
|
$
|
2,035
|
|
State and local taxes, net of federal income tax benefit (expense)
|
|
|
102
|
|
|
|
97
|
|
|
|
165
|
|
Tax credits (state, net of federal benefit)
|
|
|
(407)
|
|
|
|
(157)
|
|
|
|
(134)
|
|
Effects of differing US and foreign tax rates
|
|
|
173
|
|
|
|
47
|
|
|
|
(30)
|
|
Decrease in valuation allowance
|
|
|
(10)
|
|
|
|
(40)
|
|
|
|
(9)
|
|
Other items, net
|
|
|
52
|
|
|
|
(33)
|
|
|
|
(44)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income tax expense
|
|
$
|
1,862
|
|
|
$
|
1,745
|
|
|
$
|
1,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company early adopted ASU 2015-17, Balance Sheet Classification of Deferred Taxes in fiscal year 2016 and
applied prospective treatment of the standard. Prior periods were not retrospectively adjusted. Significant items comprising deferred tax assets and liabilities as of April 30 were as follows:
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued employee benefit expenses
|
|
$
|
529
|
|
|
$
|
535
|
|
Allowance for doubtful accounts
|
|
|
74
|
|
|
|
53
|
|
Deferred compensation
|
|
|
1,753
|
|
|
|
1,573
|
|
Tax credits
|
|
|
224
|
|
|
|
237
|
|
Unrecognized actuarial loss, defined benefit plans
|
|
|
3,850
|
|
|
|
4,206
|
|
Inventory Reserves
|
|
|
118
|
|
|
|
|
|
Other
|
|
|
353
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
6,901
|
|
|
|
6,958
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Book basis in excess of tax basis of property, plant and equipment
|
|
|
(1,655)
|
|
|
|
(1,594)
|
|
Prepaid pension
|
|
|
(1,854)
|
|
|
|
(2,164)
|
|
Other
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(3,509)
|
|
|
|
(3,624)
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowance
|
|
|
|
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
3,392
|
|
|
$
|
3,324
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets classified in the balance sheet:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
|
|
|
$
|
856
|
|
Non-current
|
|
|
3,392
|
|
|
|
2,468
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
3,392
|
|
|
$
|
3,324
|
|
|
|
|
|
|
|
|
|
|
29
Unremitted earnings of subsidiaries outside the United States are considered to be reinvested indefinitely
at April 30, 2016. It is not practicable to determine the deferred tax liability for temporary differences related to those unremitted earnings. At April 30, 2016, the Company had state tax credit carryforwards in the amount of $224,000,
net of federal benefit, expiring beginning in 2017. 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 $10,000 was recorded at
April 30, 2015.
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, 2016, there were 25,000 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 allowed the Company to grant options on an aggregate of 300,000 shares of the Companys common stock. On August 26, 2015, the stockholders approved an amendment to this plan to increase the number of shares available under the
2008 Plan by 300,000. The 2008 Plan replaced the Companys previous stock option plan, but certain unexercised options previously granted under the old plan remain outstanding. Under the plans, options are 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, 2016, there were 300,150
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 2016, 2015 and 2014, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
2008 Plan
|
|
2008 Plan
|
|
2010 Plan
|
|
2008 Plan
|
|
2010 Plan
|
Options granted
|
|
40,200
|
|
35,800
|
|
10,000
|
|
36,600
|
|
10,000
|
Weighted average expected stock price volatility
|
|
30.45%
|
|
46.67%
|
|
30.37%
|
|
50.58%
|
|
36.98%
|
Expected option life
|
|
6.25 years
|
|
6.25 years
|
|
3.38 years
|
|
6.25 years
|
|
3.33 years
|
Average risk-free interest rate
|
|
1.97%
|
|
1.91%
|
|
1.28%
|
|
1.80%
|
|
0.62%
|
Average dividend yield
|
|
2.78%
|
|
2.61%
|
|
2.69%
|
|
3.21%
|
|
3.33%
|
Estimated fair value of each option
|
|
$3.97
|
|
$6.60
|
|
$3.04
|
|
$5.84
|
|
$2.73
|
The stock-based compensation expense is recorded over the vesting period (4 years) for the options granted, net of tax.
The Company recorded $192,000, $196,000 and $238,000 of compensation expense and $72,000, $75,000 and $93,000 deferred income tax benefit in fiscal years 2016, 2015 and 2014, respectively. The remaining compensation expense of $349,000 and deferred
income tax benefit of $131,000 will be recorded over the remaining vesting periods.
30
The Company issued new shares of common stock and treasury stock to satisfy options exercised during fiscal
years 2016, 2015 and 2014. Stock option activity and weighted average exercise price is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
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
|
|
|
239,575
|
|
|
$
|
13.24
|
|
|
|
228,250
|
|
|
$
|
12.17
|
|
|
|
295,550
|
|
|
$
|
11.84
|
|
Granted
|
|
|
40,200
|
|
|
|
16.92
|
|
|
|
45,800
|
|
|
|
17.78
|
|
|
|
46,600
|
|
|
|
15.26
|
|
Canceled
|
|
|
(10,400)
|
|
|
|
16.37
|
|
|
|
(5,400)
|
|
|
|
11.74
|
|
|
|
(16,650)
|
|
|
|
10.10
|
|
Exercised
|
|
|
(84,000)
|
|
|
|
11.44
|
|
|
|
(29,075)
|
|
|
|
12.28
|
|
|
|
(97,250)
|
|
|
|
13.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
185,375
|
|
|
$
|
14.68
|
|
|
|
239,575
|
|
|
$
|
13.24
|
|
|
|
228,250
|
|
|
$
|
12.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
92,075
|
|
|
$
|
12.83
|
|
|
|
136,700
|
|
|
$
|
11.66
|
|
|
|
113,175
|
|
|
$
|
11.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of options outstanding, exercisable, and their weighted average exercise prices were within the following
price ranges at April 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
Exercise Price Range
|
|
|
|
|
$8.59-$12.66
|
|
|
|
$13.12-$18.14
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
|
64,275
|
|
|
|
121,100
|
|
Weighted average exercise price
|
|
$
|
10.87
|
|
|
$
|
16.70
|
|
Weighted average remaining contractual life
|
|
|
4.54 years
|
|
|
|
7.43 years
|
|
Aggregate intrinsic value
|
|
$
|
376,000
|
|
|
$
|
55,000
|
|
|
|
|
Options exercisable
|
|
|
56,925
|
|
|
|
35,150
|
|
Weighted average exercise price
|
|
$
|
10.75
|
|
|
$
|
16.20
|
|
Aggregate intrinsic value
|
|
$
|
340,000
|
|
|
$
|
31,000
|
|
31
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, 2013
|
|
$
|
(215)
|
|
|
$
|
(344)
|
|
|
$
|
(6,768)
|
|
|
$
|
(7,327)
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(321)
|
|
|
|
|
|
|
|
(321)
|
|
Change in fair value of cash flow hedges
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
133
|
|
Change in unrecognized actuarial loss on pension obligations
|
|
|
|
|
|
|
|
|
|
|
2,116
|
|
|
|
2,116
|
|
Income tax effect
|
|
|
(50)
|
|
|
|
|
|
|
|
(824)
|
|
|
|
(874)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2014
|
|
|
(132)
|
|
|
|
(665)
|
|
|
|
(5,476)
|
|
|
|
(6,273)
|
|
Effect of changes in tax rates
|
|
|
(2)
|
|
|
|
|
|
|
|
63
|
|
|
|
61
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(346)
|
|
|
|
|
|
|
|
(346)
|
|
Change in fair value of cash flow hedges
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Change in unrecognized actuarial loss on pension obligations
|
|
|
|
|
|
|
|
|
|
|
(2,049)
|
|
|
|
(2,049)
|
|
Income tax effect
|
|
|
(1)
|
|
|
|
|
|
|
|
720
|
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2015
|
|
|
(127)
|
|
|
|
(1,011)
|
|
|
|
(6,742)
|
|
|
|
(7,880)
|
|
Effect of changes in tax rates
|
|
|
1
|
|
|
|
|
|
|
|
88
|
|
|
|
89
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(217)
|
|
|
|
|
|
|
|
(217)
|
|
Change in fair value of cash flow hedges
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Change in unrecognized actuarial loss on pension obligations
|
|
|
|
|
|
|
|
|
|
|
716
|
|
|
|
716
|
|
Income tax effect
|
|
|
(15)
|
|
|
|
|
|
|
|
(356)
|
|
|
|
(371)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2016
|
|
$
|
(104)
|
|
|
$
|
(1,228)
|
|
|
$
|
(6,294)
|
|
|
$
|
(7,626)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $2,283,000, $2,269,000, and
$2,680,000 in fiscal years 2016, 2015 and 2014, respectively. Future minimum payments under the above non-cancelable lease arrangements for the years ending April 30 are as follows:
|
|
|
|
|
$ in thousands
|
|
Operating
|
|
2017
|
|
$
|
1,394
|
|
2018
|
|
|
1,058
|
|
2019
|
|
|
632
|
|
2020
|
|
|
303
|
|
2021
|
|
|
64
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
3,451
|
|
|
|
|
|
|
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.
32
Note 8Retirement Benefits
Defined Benefit Plans
The Company has non-contributory defined benefit pension plans.
These plans were amended as of April 30, 2005, no further benefits have been, or will be, earned under the plans, subsequent to the amendment date, and no additional participants will be added to the plans. 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
|
|
2016
|
|
|
2015
|
|
Accumulated Benefit Obligation, April 30
|
|
$
|
21,156
|
|
|
$
|
22,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Projected Benefit Obligations
|
|
|
|
|
|
|
|
|
Projected benefit obligations, beginning of year
|
|
$
|
22,441
|
|
|
$
|
19,857
|
|
Interest cost
|
|
|
912
|
|
|
|
893
|
|
Actuarial (gain) loss
|
|
|
(1,155)
|
|
|
|
2,688
|
|
Actual benefits paid
|
|
|
(1,042)
|
|
|
|
(997)
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations, end of year
|
|
|
21,156
|
|
|
|
22,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
|
17,094
|
|
|
|
16,288
|
|
Actual (loss) return on plan assets
|
|
|
(299)
|
|
|
|
1,028
|
|
Employer contributions
|
|
|
64
|
|
|
|
775
|
|
Actual benefits paid
|
|
|
(1,042)
|
|
|
|
(997)
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of year
|
|
|
15,817
|
|
|
|
17,094
|
|
|
|
|
|
|
|
|
|
|
Funded status under
|
|
$
|
(5,339)
|
|
|
$
|
(5,347)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Consolidated Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
|
|
|
$
|
|
|
Noncurrent liabilities
|
|
|
(5,339)
|
|
|
|
(5,347)
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(5,339)
|
|
|
$
|
(5,347)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income (loss) consist of:
|
|
|
|
|
|
|
|
|
Net actual loss
|
|
$
|
10,295
|
|
|
$
|
11,011
|
|
Deferred tax benefit
|
|
|
(3,850)
|
|
|
|
(4,206)
|
|
|
|
|
|
|
|
|
|
|
After-tax actuarial loss
|
|
$
|
6,445
|
|
|
$
|
6,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Assumptions Used to Determine Benefit Obligations at April 30
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.50%
|
|
|
|
4.20%
|
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
Mortality table
|
|
|
RP-2014
|
|
|
|
RP-2014
|
|
Projection scale
|
|
|
MP-2015
|
|
|
|
MP-2014
|
|
|
|
|
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended April 30
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.20%
|
|
|
|
4.60%
|
|
Expected long-term return on plan assets
|
|
|
8.25%
|
|
|
|
8.25%
|
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
33
The components of the net periodic pension cost for each of the fiscal years ended April 30 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest cost
|
|
$
|
912
|
|
|
$
|
893
|
|
|
$
|
857
|
|
Expected return on plan assets
|
|
|
(1,363)
|
|
|
|
(1,324)
|
|
|
|
(1,282)
|
|
Recognition of net loss
|
|
|
1,223
|
|
|
|
934
|
|
|
|
1,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
772
|
|
|
$
|
503
|
|
|
$
|
717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2017 is $1,230,000.
The Companys funding policy is to
contribute to the plans when pension laws and economics either require or encourage funding. Contributions are anticipated for fiscal year 2017 to be $555,000. Contributions of $64,000 and $775,000 were made to the plan in fiscal years 2016 and
2015, respectively.
The following benefit payments are expected to be paid from the benefit plans in the fiscal years ending April 30:
|
|
|
|
|
$ in thousands
|
|
Amount
|
|
2017
|
|
$
|
1,200
|
|
2018
|
|
|
1,260
|
|
2019
|
|
|
1,280
|
|
2020
|
|
|
1,310
|
|
2021
|
|
|
1,360
|
|
2022-2026
|
|
|
7,050
|
|
The expected long-term portfolio return is established via a building block approach with proper consideration of
diversification and rebalancing. 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. Peer data and historical returns are also reviewed to
check for reasonableness and appropriateness.
The Company uses a Yield Curve 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 2016 and 2015 would decrease/increase pension expense by approximately $248,000 and $176,000,
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 75% and 70% in equity securities and 25% and 30% in fixed-income securities at April 30, 2016 and April 30, 2015, respectively. A 1% increase/decrease in the expected return on assets for fiscal years
2016 and 2015 would decrease/increase pension expense by approximately $165,000 and $160,000, respectively.
34
Plan assets by asset categories as of April 30 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
2016
|
|
|
2015
|
|
Asset Category
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Equity Securities
|
|
$
|
11,851
|
|
|
|
75
|
|
|
$
|
12,725
|
|
|
|
74
|
|
Fixed Income Securities
|
|
|
3,917
|
|
|
|
25
|
|
|
|
4,273
|
|
|
|
25
|
|
Cash and Cash Equivalents
|
|
|
49
|
|
|
|
|
|
|
|
96
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
15,817
|
|
|
|
100
|
|
|
$
|
17,094
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the fair value of the assets in our defined benefit pension plans at April 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
Asset Category
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Large Cap
|
|
$
|
7,946
|
|
|
$
|
|
|
|
$
|
|
|
Small/Mid Cap
|
|
|
2,586
|
|
|
|
|
|
|
|
|
|
International
|
|
|
1,319
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
3,917
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
15,817
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
Asset Category
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Large Cap
|
|
$
|
9,036
|
|
|
$
|
|
|
|
$
|
|
|
Small/Mid Cap
|
|
|
2,732
|
|
|
|
|
|
|
|
|
|
International
|
|
|
957
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
4,273
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
17,094
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2016, 2015 and 2014 were $1,057,000, $834,000, and $674,000, respectively.
35
Note 9Segment Information
The Companys operations are classified into two business segments: Domestic and International. The Domestic business 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 business segment, which consists of five foreign
subsidiaries as identified in Note 1, provides 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
|
|
|
International
|
|
|
Corporate
|
|
|
Total
|
|
Fiscal Year 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
103,047
|
|
|
$
|
25,579
|
|
|
$
|
|
|
|
$
|
128,626
|
|
Intersegment revenues
|
|
|
3,612
|
|
|
|
3,309
|
|
|
|
(6,921
|
)
|
|
|
|
|
Depreciation
|
|
|
2,375
|
|
|
|
217
|
|
|
|
|
|
|
|
2,592
|
|
Earnings (loss) before income taxes
|
|
|
7,471
|
|
|
|
2,738
|
|
|
|
(4,470
|
)
|
|
|
5,739
|
|
Income tax expense (benefit)
|
|
|
1,834
|
|
|
|
1,104
|
|
|
|
(1,076
|
)
|
|
|
1,862
|
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
75
|
|
Net earnings (loss) attributable to Kewaunee Scientific Corporation
|
|
|
5,637
|
|
|
|
1,559
|
|
|
|
(3,394
|
)
|
|
|
3,802
|
|
Segment assets
|
|
|
54,030
|
|
|
|
18,375
|
|
|
|
|
|
|
|
72,405
|
|
Expenditures for segment assets
|
|
|
1,995
|
|
|
|
192
|
|
|
|
|
|
|
|
2,187
|
|
Revenues (excluding intersegment) from customers in foreign countries
|
|
|
1,794
|
|
|
|
25,579
|
|
|
|
|
|
|
|
27,373
|
|
|
|
|
|
|
Fiscal Year 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
93,098
|
|
|
$
|
25,730
|
|
|
$
|
|
|
|
$
|
118,828
|
|
Intersegment revenues
|
|
|
1,433
|
|
|
|
2,419
|
|
|
|
(3,852
|
)
|
|
|
|
|
Depreciation
|
|
|
2,399
|
|
|
|
216
|
|
|
|
|
|
|
|
2,615
|
|
Earnings (loss) before income taxes
|
|
|
5,810
|
|
|
|
3,073
|
|
|
|
(3,498
|
)
|
|
|
5,385
|
|
Income tax expense (benefit)
|
|
|
1,794
|
|
|
|
1,092
|
|
|
|
(1,141
|
)
|
|
|
1,745
|
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
111
|
|
Net earnings (loss) attributable to Kewaunee Scientific Corporation
|
|
|
4,016
|
|
|
|
1,870
|
|
|
|
(2,357
|
)
|
|
|
3,529
|
|
Segment assets
|
|
|
52,723
|
|
|
|
16,767
|
|
|
|
|
|
|
|
69,490
|
|
Expenditures for segment assets
|
|
|
2,259
|
|
|
|
309
|
|
|
|
|
|
|
|
2,568
|
|
Revenues (excluding intersegment) from customers in foreign countries
|
|
|
1,169
|
|
|
|
25,730
|
|
|
|
|
|
|
|
26,899
|
|
|
|
|
|
|
Fiscal Year 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
91,750
|
|
|
$
|
19,416
|
|
|
$
|
|
|
|
$
|
111,166
|
|
Intersegment revenues
|
|
|
3,378
|
|
|
|
2,455
|
|
|
|
(5,833
|
)
|
|
|
|
|
Depreciation
|
|
|
2,432
|
|
|
|
117
|
|
|
|
|
|
|
|
2,549
|
|
Earnings (loss) before income taxes
|
|
|
7,386
|
|
|
|
2,603
|
|
|
|
(4,003
|
)
|
|
|
5,986
|
|
Income tax expense (benefit)
|
|
|
2,482
|
|
|
|
855
|
|
|
|
(1,354
|
)
|
|
|
1,983
|
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
108
|
|
Net earnings (loss) attributable to Kewaunee Scientific Corporation
|
|
|
4,904
|
|
|
|
1,640
|
|
|
|
(2,649
|
)
|
|
|
3,895
|
|
Segment assets
|
|
|
47,890
|
|
|
|
14,827
|
|
|
|
|
|
|
|
62,717
|
|
Expenditures for segment assets
|
|
|
1,822
|
|
|
|
199
|
|
|
|
|
|
|
|
2,021
|
|
Revenues (excluding intersegment) from customers in foreign countries
|
|
|
1,113
|
|
|
|
19,416
|
|
|
|
|
|
|
|
20,529
|
|
36
Note 10Purchase of Noncontrolling Interest
On June 24, 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 consolidated balance sheet as a $1,874,000 reduction in retained earnings, a $1,681,000 reduction in
noncontrolling interest, an increase of other current accrued expenses of $887,500, and an increase of other non-current liabilities of $887,500. On the date of the Agreement, the Company paid cash of $1,780,000 to the minority stockholder. In June
2014, the Company paid the second installment of $887,500. The final installment of $887,500 was paid in June 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 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands, except per share amounts
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Fiscal Year 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
31,089
|
|
|
$
|
31,037
|
|
|
$
|
32,410
|
|
|
$
|
34,090
|
|
Gross profit
|
|
|
5,843
|
|
|
|
5,532
|
|
|
|
5,488
|
|
|
|
6,845
|
|
Net earnings
|
|
|
963
|
|
|
|
707
|
|
|
|
848
|
|
|
|
1,359
|
|
Less: net earnings attributable to the noncontrolling interest
|
|
|
23
|
|
|
|
12
|
|
|
|
18
|
|
|
|
22
|
|
Net earnings attributable to Kewaunee Scientific Corporation
|
|
|
940
|
|
|
|
695
|
|
|
|
830
|
|
|
|
1,337
|
|
|
|
|
|
|
Net earnings per share attributable to Kewaunee Scientific Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.36
|
|
|
|
0.26
|
|
|
|
0.31
|
|
|
|
0.50
|
|
Diluted
|
|
|
0.35
|
|
|
|
0.26
|
|
|
|
0.31
|
|
|
|
0.50
|
|
|
|
|
|
|
Cash dividends paid per share
|
|
|
0.12
|
|
|
|
0.13
|
|
|
|
0.13
|
|
|
|
0.13
|
|
|
|
|
|
|
Fiscal Year 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
30,534
|
|
|
$
|
30,258
|
|
|
$
|
27,754
|
|
|
$
|
30,282
|
|
Gross profit
|
|
|
6,148
|
|
|
|
5,822
|
|
|
|
4,456
|
|
|
|
5,340
|
|
Net earnings
|
|
|
1,260
|
|
|
|
1,228
|
|
|
|
518
|
|
|
|
634
|
|
Less: net earnings attributable to the noncontrolling interest
|
|
|
26
|
|
|
|
26
|
|
|
|
34
|
|
|
|
25
|
|
Net earnings attributable to Kewaunee Scientific Corporation
|
|
|
1,234
|
|
|
|
1,202
|
|
|
|
484
|
|
|
|
609
|
|
|
|
|
|
|
Net earnings per share attributable to Kewaunee Scientific Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.47
|
|
|
|
0.46
|
|
|
|
0.18
|
|
|
|
0.23
|
|
Diluted
|
|
|
0.47
|
|
|
|
0.45
|
|
|
|
0.18
|
|
|
|
0.23
|
|
|
|
|
|
|
Cash dividends paid per share
|
|
|
0.11
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
0.12
|
|
37