Item 1. Financial Statements
Kewaunee Scientific Corporation
Consolidated Statements of Operations
(Unaudited)
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
January 31
|
|
|
Nine months ended
January 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net sales
|
|
$
|
30,371
|
|
|
$
|
32,410
|
|
|
$
|
103,979
|
|
|
$
|
94,536
|
|
Costs of products sold
|
|
|
25,339
|
|
|
|
26,922
|
|
|
|
84,704
|
|
|
|
77,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,032
|
|
|
|
5,488
|
|
|
|
19,275
|
|
|
|
16,863
|
|
Operating expenses
|
|
|
4,590
|
|
|
|
4,441
|
|
|
|
14,484
|
|
|
|
13,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
|
|
442
|
|
|
|
1,047
|
|
|
|
4,791
|
|
|
|
3,700
|
|
Other income
|
|
|
120
|
|
|
|
109
|
|
|
|
358
|
|
|
|
296
|
|
Interest expense
|
|
|
(71
|
)
|
|
|
(83
|
)
|
|
|
(229
|
)
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
491
|
|
|
|
1,073
|
|
|
|
4,920
|
|
|
|
3,760
|
|
Income tax expense
|
|
|
133
|
|
|
|
225
|
|
|
|
1,695
|
|
|
|
1,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
358
|
|
|
|
848
|
|
|
|
3,225
|
|
|
|
2,518
|
|
Less: net earnings attributable to the noncontrolling interest
|
|
|
17
|
|
|
|
18
|
|
|
|
98
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Kewaunee Scientific Corporation
|
|
$
|
341
|
|
|
$
|
830
|
|
|
$
|
3,127
|
|
|
$
|
2,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share attributable to Kewaunee Scientific Corporation stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.13
|
|
|
$
|
0.31
|
|
|
$
|
1.16
|
|
|
$
|
0.93
|
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
0.31
|
|
|
$
|
1.15
|
|
|
$
|
0.92
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2,711
|
|
|
|
2,682
|
|
|
|
2,703
|
|
|
|
2,661
|
|
Diluted
|
|
|
2,734
|
|
|
|
2,699
|
|
|
|
2,724
|
|
|
|
2,683
|
|
See accompanying notes to consolidated financial statements.
1
Kewaunee Scientific Corporation
Consolidated Statements of Comprehensive Income
(Unaudited)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
January 31
|
|
|
Nine months ended
January 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net earnings
|
|
$
|
358
|
|
|
$
|
848
|
|
|
$
|
3,225
|
|
|
$
|
2,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(63
|
)
|
|
|
(221
|
)
|
|
|
(232
|
)
|
|
|
(435
|
)
|
Change in fair value of cash flow hedge
|
|
|
35
|
|
|
|
|
|
|
|
53
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(28
|
)
|
|
|
(221
|
)
|
|
|
(179
|
)
|
|
|
(424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax
|
|
|
330
|
|
|
|
627
|
|
|
|
3,046
|
|
|
|
2,094
|
|
Less: comprehensive income attributable to the noncontrolling interest
|
|
|
17
|
|
|
|
18
|
|
|
|
98
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Kewaunee Scientific Corporation
|
|
$
|
313
|
|
|
$
|
609
|
|
|
$
|
2,948
|
|
|
$
|
2,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
2
Kewaunee Scientific Corporation
Consolidated Statement of Stockholders Equity
(Unaudited)
(in
thousands, except shares and 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, 2016
|
|
$
|
6,720
|
|
|
$
|
2,375
|
|
|
$
|
(53
|
)
|
|
$
|
36,826
|
|
|
$
|
(7,626
|
)
|
|
$
|
38,242
|
|
Net earnings attributable to Kewaunee Scientific Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,127
|
|
|
|
|
|
|
|
3,127
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(179
|
)
|
|
|
(179
|
)
|
Cash dividends paid, $0.43 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,163
|
)
|
|
|
|
|
|
|
(1,163
|
)
|
Stock options exercised, 48,650 shares
|
|
|
67
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
Stock based compensation
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2017
|
|
$
|
6,787
|
|
|
$
|
2,599
|
|
|
$
|
(53
|
)
|
|
$
|
38,790
|
|
|
$
|
(7,805
|
)
|
|
$
|
40,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
3
Kewaunee Scientific Corporation
Consolidated Balance Sheets
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
January 31,
2017
|
|
|
April 30,
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,254
|
|
|
$
|
5,222
|
|
Restricted cash
|
|
|
1,438
|
|
|
|
1,567
|
|
Receivables, less allowance; $143; $202, on each respective date
|
|
|
25,787
|
|
|
|
27,835
|
|
Inventories
|
|
|
15,731
|
|
|
|
15,626
|
|
Prepaid expenses and other current assets
|
|
|
1,004
|
|
|
|
707
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
52,214
|
|
|
|
50,957
|
|
Property, plant and equipment, at cost
|
|
|
51,797
|
|
|
|
49,928
|
|
Accumulated depreciation
|
|
|
(37,449
|
)
|
|
|
(35,810
|
)
|
|
|
|
|
|
|
|
|
|
Net Property, Plant and Equipment
|
|
|
14,348
|
|
|
|
14,118
|
|
Deferred income taxes
|
|
|
3,404
|
|
|
|
3,392
|
|
Other
|
|
|
3,679
|
|
|
|
3,938
|
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
7,083
|
|
|
|
7,330
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
73,645
|
|
|
$
|
72,405
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Short-term borrowings and interest rate swaps
|
|
$
|
4,679
|
|
|
$
|
3,818
|
|
Current portion of long-term debt
|
|
|
421
|
|
|
|
421
|
|
Accounts payable
|
|
|
10,105
|
|
|
|
11,722
|
|
Employee compensation and amounts withheld
|
|
|
2,041
|
|
|
|
2,333
|
|
Deferred revenue
|
|
|
548
|
|
|
|
785
|
|
Other accrued expenses
|
|
|
2,591
|
|
|
|
1,871
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
20,385
|
|
|
|
20,950
|
|
Long-term debt
|
|
|
3,033
|
|
|
|
3,349
|
|
Accrued pension and deferred compensation costs
|
|
|
9,510
|
|
|
|
9,554
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
32,928
|
|
|
|
33,853
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common Stock, $2.50 par value, Authorized 5,000 shares; Issued 2,715; 2,688 shares;
Outstanding 2,712 shares; 2,685 shares, on each respective date
|
|
|
6,787
|
|
|
|
6,720
|
|
Additional paid-in-capital
|
|
|
2,599
|
|
|
|
2,375
|
|
Retained earnings
|
|
|
38,790
|
|
|
|
36,826
|
|
Accumulated other comprehensive loss
|
|
|
(7,805
|
)
|
|
|
(7,626
|
)
|
Common stock in treasury, at cost, 3 shares, on each date
|
|
|
(53
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
Total Kewaunee Scientific Corporation Stockholders Equity
|
|
|
40,318
|
|
|
|
38,242
|
|
Noncontrolling interest
|
|
|
399
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
40,717
|
|
|
|
38,552
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
73,645
|
|
|
$
|
72,405
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
Kewaunee Scientific Corporation
Consolidated Statements of Cash Flows
(Unaudited)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
January 31
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
3,225
|
|
|
$
|
2,518
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,960
|
|
|
|
1,850
|
|
Bad debt provision
|
|
|
(42
|
)
|
|
|
7
|
|
Stock based compensation expense
|
|
|
150
|
|
|
|
146
|
|
(Expense) benefit for deferred income tax expense
|
|
|
(12
|
)
|
|
|
40
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in receivables
|
|
|
2,090
|
|
|
|
(310
|
)
|
(Increase) in inventories
|
|
|
(105
|
)
|
|
|
(3,409
|
)
|
(Decrease) increase in accounts payable and other accrued expenses
|
|
|
(1,189
|
)
|
|
|
1,663
|
|
(Decrease) increase in deferred revenue
|
|
|
(237
|
)
|
|
|
467
|
|
Other, net
|
|
|
11
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,851
|
|
|
|
3,136
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,190
|
)
|
|
|
(1,708
|
)
|
Decrease in restricted cash
|
|
|
129
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,061
|
)
|
|
|
(876
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(1,163
|
)
|
|
|
(1,012
|
)
|
Dividends paid to noncontrolling interest in subsidiaries
|
|
|
|
|
|
|
(75
|
)
|
Increase in short-term borrowings and interest rate swaps
|
|
|
861
|
|
|
|
583
|
|
Payments on long-term debt
|
|
|
(316
|
)
|
|
|
(316
|
)
|
Payment toward purchase of noncontrolling interest in subsidiary
|
|
|
|
|
|
|
(888
|
)
|
Net proceeds from exercise of stock options (including tax benefit)
|
|
|
141
|
|
|
|
459
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(477
|
)
|
|
|
(1,249
|
)
|
Effect of exchange rate changes on cash
|
|
|
(281
|
)
|
|
|
(346
|
)
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
3,032
|
|
|
|
665
|
|
Cash and cash equivalents, beginning of period
|
|
|
5,222
|
|
|
|
3,044
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
8,254
|
|
|
$
|
3,709
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
Kewaunee Scientific Corporation
Notes to Consolidated Financial Statements
(unaudited)
A.
Financial Information
The unaudited interim consolidated financial statements of Kewaunee Scientific Corporation (the Company) have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (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 2016 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, 2016 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.
Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during the three and nine month periods. Diluted earnings per
share reflects the assumed exercise and conversion of outstanding options under the Companys stock option plans, except when options have an anti-dilutive effect. Options to purchase 39,200 shares were not included in the computation of
diluted earnings per share for the three and nine month periods ended January 31, 2017, 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 111,400 shares were not included in the computation of diluted earnings per share for the three and nine month periods ended January 31, 2016, because the effect would be anti-dilutive.
C.
Inventories
Inventories consisted of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
|
|
April 30, 2016
|
|
Finished products
|
|
$
|
3,568
|
|
|
$
|
3,707
|
|
Work in process
|
|
|
2,101
|
|
|
|
1,889
|
|
Raw materials
|
|
|
10,062
|
|
|
|
10,030
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,731
|
|
|
$
|
15,626
|
|
|
|
|
|
|
|
|
|
|
The Company uses the last-in, first-out (LIFO) method of valuing inventory for its domestic operations, which represents
$14,272,000 of inventory at January 31, 2017 and $13,373,000 at April 30, 2016. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Interim
LIFO calculations are based on managements estimates of expected year-end inventory levels and costs, and are subject to the final year-end LIFO inventory valuation.
6
D.
Segment Information
The following table provides financial information by business segments for the three and nine months ended January 31, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
Operations
|
|
|
International
Operations
|
|
|
Corporate
|
|
|
Total
|
|
Three months ended January 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
25,313
|
|
|
$
|
5,058
|
|
|
$
|
|
|
|
$
|
30,371
|
|
Intersegment revenues
|
|
|
344
|
|
|
|
538
|
|
|
|
(882
|
)
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
563
|
|
|
|
943
|
|
|
|
(1,015
|
)
|
|
|
491
|
|
Three months ended January 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
25,423
|
|
|
$
|
6,987
|
|
|
$
|
|
|
|
$
|
32,410
|
|
Intersegment revenues
|
|
|
1,196
|
|
|
|
421
|
|
|
|
(1,617
|
)
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
1,586
|
|
|
|
702
|
|
|
|
(1,215
|
)
|
|
|
1,073
|
|
|
|
|
|
|
|
|
Domestic
Operations
|
|
|
International
Operations
|
|
|
Corporate
|
|
|
Total
|
|
Nine months ended January 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
83,161
|
|
|
$
|
20,818
|
|
|
$
|
|
|
|
$
|
103,979
|
|
Intersegment revenues
|
|
|
3,781
|
|
|
|
2,936
|
|
|
|
(6,717
|
)
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
5,580
|
|
|
|
3,010
|
|
|
|
(3,670
|
)
|
|
|
4,920
|
|
Nine months ended January 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
76,017
|
|
|
$
|
18,519
|
|
|
$
|
|
|
|
$
|
94,536
|
|
Intersegment revenues
|
|
|
1,642
|
|
|
|
1,694
|
|
|
|
(3,336
|
)
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
5,346
|
|
|
|
2,002
|
|
|
|
(3,588
|
)
|
|
|
3,760
|
|
E.
Defined Benefit Pension Plans
The Company has non-contributory defined benefit pension plans covering substantially all domestic 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. Contributions of $555,000 were paid to the plans during the nine
months ended January 31, 2017 and the Company does not expect any contributions to be paid to the plans during the remainder of the fiscal year. Contributions of $64,000 were paid to the plans during the nine months ended January 31, 2016.
Pension expense consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended
January 31, 2017
|
|
|
Three months ended
January 31, 2016
|
|
Service cost
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
Interest cost
|
|
|
232
|
|
|
|
224
|
|
Expected return on plan assets
|
|
|
(311
|
)
|
|
|
(334
|
)
|
Recognition of net loss
|
|
|
314
|
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense
|
|
$
|
235
|
|
|
$
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
January 31, 2017
|
|
|
Nine months ended
January 31, 2016
|
|
Service cost
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
Interest cost
|
|
|
695
|
|
|
|
684
|
|
Expected return on plan assets
|
|
|
(932
|
)
|
|
|
(1,022
|
)
|
Recognition of net loss
|
|
|
942
|
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense
|
|
$
|
705
|
|
|
$
|
579
|
|
|
|
|
|
|
|
|
|
|
7
F.
Fair Value of Financial Instruments
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 values of these assets and liabilities approximate their fair value. 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 January 31, 2017 and April 30, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
|
Financial Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
Trading securities held in non-qualified compensation plans (1)
|
|
$
|
3,608
|
|
|
$
|
|
|
|
$
|
3,608
|
|
Cash surrender value of life insurance policies (1)
|
|
|
|
|
|
|
62
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,608
|
|
|
$
|
62
|
|
|
$
|
3,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified compensation plans (2)
|
|
$
|
|
|
|
$
|
4,021
|
|
|
$
|
4,021
|
|
Interest rate swap derivatives
|
|
|
|
|
|
|
80
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
4,101
|
|
|
$
|
4,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2016
|
|
Financial Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
G.
New Accounting Standards
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 November 2015, the Financial Accounting Standards Board (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 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 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 adopted this standard effective May 1, 2016. The adoption of this standard did not have a significant impact on the Companys consolidated financial
position or results of operations.
8
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
The Companys 2016 Annual Report to Stockholders contains managements discussion and analysis of financial condition
and results of operations as of and for the year ended April 30, 2016. The following discussion and analysis describes material changes in the Companys financial condition since April 30, 2016. The analysis of results of operations
compares the three and nine months ended January 31, 2017 with the comparable periods of the prior year.
Results of Operations
Sales for the three months ended January 31, 2017 were $30,371,000, a decrease of 6.3% from sales of $32,410,000 in the comparable period of the prior
year. Sales from Domestic Operations were $25,313,000, relatively unchanged from $25,423,000 in the comparable period of the prior year. Sales from International Operations were $5,058,000, down 27.6% from $6,987,000 in the comparable period of the
prior year. The decrease in international sales was due to a large order shipped in the prior year period that did not repeat.
Sales for the nine months
ended January 31, 2017 were $103,979,000, up 10.0% from sales of $94,536,000 in the same period last year. Domestic Operations sales for the nine-month period were $83,161,000, up 9.4% from sales of $76,017,000 in the same period last year.
International Operations sales were $20,818,000, up 12.4% from sales of $18,519,000 in the same period last year.
The order backlog was $106.9 million at
January 31, 2017, as compared to $101.1 million at October 31, 2016 and $95.2 million at January 31, 2016.
The gross profit margin for the
three months ended January 31, 2017 was 16.6% of sales, as compared to 16.9% of sales in the comparable quarter of the prior year. The gross profit margin for the nine months ended January 31, 2017 was 18.5% of sales, as compared to 17.8%
in the same period last year. The decrease in the gross profit margin percentage for the three month period ending January 31, 2017 was due to lower sales volume and unfavorable overhead absorption. The increase in the gross profit margin
percentage for the current nine month period was primarily due to favorable operating leverage from higher volumes being produced during the first half of the year.
Operating expenses for the three months ended January 31, 2017 were $4,590,000, or 15.1% of sales, as compared to $4,441,000, or 13.7% of sales, in the
comparable period of the prior year. The increase in operating expenses for the three months ended January 31, 2017 is related primarily to increases in wages and benefits of $195,000, pension expense of $16,000, professional services of
$63,000, sales and marketing of $59,000 and an increase of $163,000 in operating expenses for the Companys International operations, partially offset by decreases of bad debt expenses of $48,000, incentive compensation of $148,000 and $154,000
of non-recurring expenses incurred in the comparable period of the prior year.
Operating expenses for the nine months ended January 31, 2017 were
$14,484,000, or 13.9% of sales, as compared to $13,163,000, or 13.9% of sales in the comparable period of the prior year. The increase in operating expenses for the nine months ended January 31, 2017 is related primarily to increases in wages
and benefits of $514,000, incentive compensation of $210,000, pension expense of $126,000, professional services of $380,000, sales and marketing of $216,000 and an increase of $395,000 in operating expenses for the Companys International
operations, partially offset by decreases of bad debt expenses of $49,000 and $678,000 of non-recurring expenses incurred in the comparable period of the prior year.
Interest expense was $71,000 and $229,000 for the three and nine months ended January 31, 2017, respectively, as compared to $83,000 and $236,000 for the
comparable periods of the prior year. The decreases for the current year periods resulted primarily from lower borrowing levels.
Income tax expense of
$133,000 was recorded for the three months ended January 31, 2017, as compared to income tax expense of $225,000 recorded for the comparable period of the prior year. Income tax expense of $1,695,000 was recorded for the nine months ended
January 31, 2017, as compared to income tax expense of $1,242,000 recorded for the comparable period of the prior year. The effective tax rate was 27.1% and 21.0% for the three-month periods ended January 31, 2017 and 2016, respectively.
The effective tax rates were 34.5% and 33.0% for the nine months ended January 31, 2017 and 2016, respectively. The lower effective tax rates for the prior three and nine month periods was due to the favorable impact of the reinstatement of the
federal research and development tax credits.
Noncontrolling interests related to the Companys subsidiary that is not 100% owned by the Company
reduced net earnings by $17,000 for the three months ended January 31, 2017, as compared to $18,000 for the comparable period of the prior year. Net earnings were reduced by $98,000 and $53,000 for the nine months ended January 31, 2017
and 2016, respectively. The changes in the amounts between each of these periods were directly attributable to changes in the amounts of net income reported for the Companys one subsidiary that is not 100% owned by the Company.
Net earnings of $341,000, or $0.13 per diluted share, were reported for the three months ended January 31, 2017, compared to net earnings of $830,000, or
$0.31 per diluted share, in the prior year period. Net earnings of $3,127,000, or $1.15 per diluted share, were reported for the nine months ended January 31, 2017, compared to net earnings of $2,465,000, or $0.92 per diluted share, for the
same period last year.
9
Liquidity and Capital Resources
Historically, the Companys principal sources of liquidity have been funds generated from operations, supplemented as needed by short-term borrowings
under the Companys revolving credit facility. Additionally, certain machinery and equipment are financed by non-cancellable operating leases or capital leases. The Company believes that these sources will be sufficient to support ongoing
business requirements in the current fiscal year, including capital expenditures.
The Company had working capital of $31,829,000 at January 31,
2017, compared to $30,007,000 at April 30, 2016. The ratio of current assets to current liabilities was 2.6-to-1.0 at January 31, 2017, compared to 2.4-to-1.0 at April 30, 2016. At January 31, 2017, advances of $4,540,000 were
outstanding under the Companys bank revolving credit facility, compared to advances of $3,600,000 outstanding as of April 30, 2016. The Company had standby letters of credit outstanding of $4,210,000 at January 31, 2017 and
April 30, 2016. Amounts available under the $20 million revolving credit facility were $11.3 million and $12.2 million at January 31, 2017 and April 30, 2016, respectively. Total bank borrowings were $8,133,000 at January 31,
2017, compared to $7,588,000 at April 30, 2016.
The Companys operations provided cash of $5,851,000 during the nine months ended
January 31, 2017. Cash was primarily provided from earnings, and a decrease in receivables of $2,090,000, partially offset by an increase in accounts payable and other accrued expenses of $1,189,000. The Companys operations provided cash
of $3,136,000 during the nine months ended January 31, 2016. Cash was primarily provided from earnings and an increase in accounts payable and other accrued expenses of $1,663,000, and deferred revenue of $467,000, which was partially offset by
an increase in accounts receivable of $310,000, and an increase in inventories of $3,409,000.
During the nine months ended January 31, 2017, the
Company used cash of $2,190,000 in investing activities for capital expenditures, partially offset by a decrease in restricted cash of $129,000. This compares to the net use of cash of $876,000 for investing activities in the comparable period of
the prior year for capital expenditures of $1,708,000, partially offset by a decrease of $832,000 in restricted cash.
The Companys financing
activities used cash of $477,000 during the nine months ended January 31, 2017, primarily for cash dividends of $1,163,000 and payment on long-term debt of $316,000, partially offset by an increase in short-term borrowings of $861,000. The
Companys financing activities used cash of $1,249,000 during the nine months ended January 31, 2016 for the final payment of $888,000 toward the purchase of the noncontrolling interest in a foreign subsidiary, cash dividends of $1,012,000
paid to stockholders, cash dividend of $75,000 paid to minority interest holders, and payments of $316,000 on long-term debt, partially offset by an increase in short-term borrowings of $583,000 and net proceeds of $459,000 from the exercise of
stock options.
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 fluctuations in prevailing pricing for projects in the laboratory construction marketplace and increased costs of raw materials,
including stainless steel, wood, and epoxy resin, and whether the Company is able to increase product prices to customers in amounts that correspond to such increases without materially and adversely affecting sales. Additionally, since prices are
normally quoted on a firm basis in the industry, the Company bears the burden of possible increases in labor and material costs between the quotation of an order and delivery of a product. Looking forward the Company is optimistic that the sales and
earnings improvement will be sustained during the balance of fiscal year 2017 as our order backlog and opportunities in the marketplace remain strong.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This report contains statements that the Company believes to be forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements other than statements of historical fact included in this report, including statements regarding the Companys future financial condition, results of operations, business operations and business prospects, are
forward-looking statements. Words such as anticipate, estimate, expect, project, intend, plan, predict, believe and similar words, expressions and
variations of these words and expressions are intended to identify forward-looking statements. All forward-looking statements are subject to important factors, risks, uncertainties and assumptions, including industry and economic conditions, that
could cause actual results to differ materially from those described in the forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to, competitive and general economic conditions, both
domestically and internationally; changes in customer demands; dependence on customers required delivery schedules; risks related to fluctuations in the Companys operating results from quarter to quarter; risks related to international
operations, including foreign currency fluctuations; changes in the legal and regulatory environment; changes in raw materials and commodity costs; and acts of terrorism, war, governmental action, natural disasters and other Force Majeure events.
Many important factors that could cause such a difference are described under the caption Risk Factors in Item 1A in the Companys 2016 Annual Report on Form 10-K. These forward-looking statements speak only as of the date of
this document. The Company assumes no obligation, and expressly disclaims any obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise.
10