<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 31, 1996
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number 0-5286
KEWAUNEE SCIENTIFIC CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-0715562
- ---------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 West Front Street
Statesville, North Carolina 28677
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(704) 873-7202
----------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of November 30, 1996, the Registrant had outstanding 2,365,796 shares of
Common Stock.
Pages: This report, including exhibits, contains 15 pages numbered sequentially
from this cover page.
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KEWAUNEE SCIENTIFIC CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED October 31, 1996
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Condensed Statements of Income -
Three and six months ended October 31, 1996 and 1995 3
Condensed Balance Sheets - October 31, 1996
and April 30, 1996 4
Condensed Statements of Cash Flows -
Six months ended October 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Review by Independent Accountants 12
Independent Accountants' Review Report 13
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
- ---------
</TABLE>
2
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
Kewaunee Scientific Corporation
Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31 October 31
------------------ -------------------
1996 1995 1996 1995
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
($ in thousands, except per share data)
Net sales $15,928 $15,385 $32,208 $30,933
Cost of products sold 12,190 12,389 25,179 25,264
------- ------- ------- -------
Gross profit 3,738 2,996 7,029 5,669
Operating expenses 3,090 2,680 5,838 5,095
------- ------- ------- -------
Operating profit 648 316 1,191 574
Interest expense (108) (191) (243) (395)
Other income, net 14 23 19 39
------- ------- ------- -------
Income before income taxes 554 148 967 218
Income tax benefit (205) - (330) -
------- ------- ------- -------
Net income $759 $148 $1,297 $218
======= ======= ======= =======
Per share data:
Net income per common share $0.32 $0.06 $0.55 $0.09
Average number of common shares
outstanding (in thousands) 2,366 2,367 2,366 2,367
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
Kewaunee Scientific Corporation
Condensed Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
October 31 April 30
1996 1996
---------- --------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash $32 $16
Receivables 13,898 13,212
Inventories 2,649 1,213
Prepaid expenses and
other current assets 1,433 1,205
---------- --------
Total current assets 18,012 15,646
---------- --------
Property, plant and equipment, at cost 26,619 25,840
Accumulated depreciation (16,388) (15,532)
---------- --------
Net property, plant and equipment 10,231 10,308
---------- --------
Other assets 536 550
---------- --------
$28,779 $26,504
========== ========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $2,246 $2,320
Current portion of long-term debt 180 180
Accounts payable 5,118 4,505
Other current liabilities 4,399 3,594
---------- --------
Total current liabilities 11,943 10,599
---------- --------
Long-term debt 241 328
---------- --------
Deferred income taxes and other
non-current liabilities 787 1,062
---------- --------
Stockholders' equity:
Common stock 6,550 6,550
Additional paid-in-capital 116 116
Retained earnings 10,658 9,361
Common stock in treasury, at cost (1,516) (1,512)
---------- --------
Total stockholders' equity 15,808 14,515
---------- --------
$28,779 $26,504
========== ========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
Kewaunee Scientific Corporation
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
October 31,
----------------
1996 1995
------- -------
($ in thousands)
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,297 $ 218
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 941 808
Provision for bad debts 145 18
(Increase) decrease in receivables (831) 1,191
Increase in inventories (1,436) (365)
Increase (decrease) in accounts payable
and other current liabilities 1,418 (946)
Other, net (493) 147
------- -------
Net cash provided by operating activities 1,041 1,071
------- -------
Cash flows from investing activities
Capital expenditures (864) (439)
Decrease in short-term investments -- 350
------- -------
Net cash used in investing activities (864) (89)
------- -------
Cash flows from financing activities
Net decrease in short-term borrowings (74) (971)
Repayment of long-term debt (87) (64)
------- -------
Net cash used in financing activities (161) (1,035)
------- -------
Increase (decrease) in cash and cash equivalents 16 (53)
Cash and cash equivalents, beginning of period 16 58
------- -------
Cash and cash equivalents, end of period $ 32 $ 5
======= =======
Supplemental disclosure of cash flow information
Interest paid $ 214 $ 326
Income taxes paid (refunded), net $ 33 $ (36)
Supplemental disclosure of non-cash financing
activities
Equipment acquired under financing arrangements -- $338
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
Kewaunee Scientific Corporation
Notes to Condensed Financial Statements
(unaudited)
A. Financial Information
- -------------------------
The unaudited interim condensed financial statements of Kewaunee Scientific
Corporation (the "Company" or "Kewaunee") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (the
"Commission"). Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These interim
condensed financial statements should be read in conjunction with the financial
statements and notes included in the Company's 1996 Annual Report to
Stockholders.
In the opinion of management, the interim condensed financial statements reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the interim periods. The results of operations for the
interim periods are not necessarily indicative of the results of operations to
be expected for the full year.
B. Inventories
- ---------------
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
October 31, 1996 April 30, 1996
---------------- --------------
<S> <C> <C>
Finished products $ 737 $ 253
Work-in-process 566 280
Raw materials 1,346 680
------ ------
$2,649 $1,213
====== ======
</TABLE>
C. Balance Sheet
- -----------------
The Company's April 30, 1996 condensed balance sheet as presented herein is
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
6
<PAGE>
D. Financing Arrangements
- --------------------------
During the current quarter, the Company amended and renewed its revolving credit
facility. The facility allows the Company to borrow the lesser of $8.5 million,
or that available under certain eligibility formulas using qualifying
receivables and inventories, as defined under the credit arrangement. Under the
facility, as amended, the Company makes monthly interest payments at a rate of
the greater of 6% or the lender's prime rate (8.25% at October 31, 1996),
calculated on the average loan balance outstanding during each month. The
Company's receivables and inventories continue to be pledged to the lender as
collateral securing borrowings under the facility, but other collateral has been
released. The facility extends through January 1999.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company's 1996 Annual Report to Stockholders contains management's
discussion and analysis of financial condition and results of operations at and
for the year ended April 30, 1996. The following discussion and analysis
describes material changes in the Company's financial condition since April 30,
1996. The analysis of results of operations compares the three months and six
months ended October 31, 1996 with the comparable periods of the prior fiscal
year.
Results of Operations
- ---------------------
The Company recorded sales of $15.9 million for the three months ended October
31, 1996, up 3.5% from sales of $15.4 million for the comparable period of the
prior year. Sales for the six months ended October 31, 1996 were $32.2 million,
up 4.1% from sales of $30.9 million in the comparable period of the prior year.
The sales increases for the three months and six months ended October 31, 1996
were attributable to increased sales of end-user products, partially offset by
decreased sales of contract-bid laboratory furniture.
The Company's gross profit margins for the three months and six months ended
October 31, 1996 were 23.5 percent and 21.8 percent, respectively, compared with
19.5 percent and 18.3 percent for the comparable periods of the prior fiscal
year. Current year gross profit margins were favorably affected by an improved
product sales mix and higher selling prices for contract-bid laboratory
furniture.
Operating expenses for the three months and six months ended October 31, 1996
were $3.1 million and $5.8 million, respectively, compared to $2.7 million and
$5.1 million for the comparable periods of the prior fiscal year. As a percent
of sales, operating expenses for the three months and six months ended October
31, 1996 were 19.4 percent and 18.1 percent of sales, respectively, compared to
17.4 percent and 16.5 percent of sales for the comparable periods of the prior
fiscal year. The increases in operating expenses for the three months and six
months ended October 31, 1996 were primarily attributable to increased sales and
marketing expenses, mainly sales commissions associated with the improved
product sales mix.
8
<PAGE>
Operating profits of $648,000 and $1.2 million were recorded for the three
months and six months ended October 31, 1996, respectively. This compares to
operating profits of $316,000 and $574,000 for the comparable periods of the
prior fiscal year. Interest expense was $108,000 and $243,000 for the three
months and six months ended October 31, 1996, respectively, compared to $191,000
and $395,000 for the comparable periods of the prior fiscal year. The decreases
in interest expense for the current year resulted from lower levels of average
debt, assisted by lower interest rates during the second quarter under the new
terms of the revolving credit facility.
Other income was $14,000 and $19,000 for the three months and six months ended
October 31, 1996, respectively, compared to $23,000 and $39,000 for the
comparable periods of the prior fiscal year. Income tax benefits of $205,000 and
$330,000, respectively, resulting from adjustments to the Company's valuation
allowance on deferred tax assets were recorded for the three months and six
months ended October 31, 1996. No income tax expense or benefit was recorded for
the three and six months ended October 31, 1995. The effective tax rate for each
of these periods differs from the related statutory rates due to adjustments to
the deferred tax valuation allowance.
Net income of $759,000 and $1.3 million or 32 cents per share and 55 cents per
share, were recorded for the three months and six months ended October 31, 1996,
respectively. This compares to net income of $148,000 and $218,000, or 6 cents
per share and 9 cents per share, respectively, for the comparable periods of the
prior fiscal year.
Lower sales and income are anticipated for the quarter ending January 31, 1997,
as compared to the first two quarters, as construction activity typically slows
during the winter months. See section titled Safe Harbor Statement under the
Private Securities Litigation Reform Act of 1995.
Liquidity and Capital Resources
- -------------------------------
Historically, the Company's principal sources of liquidity have been funds
generated from operations, supplemented as needed by short-term borrowings. The
Company believes that these sources will be sufficient to support ongoing
business levels, including capital expenditures and debt service requirements.
9
<PAGE>
The Company had working capital of $6.1 million at October 31, 1996, as compared
to $5.0 million at April 30, 1996. The ratio of current assets to current
liabilities was 1.5-to-1 at October 31, 1996, unchanged from April 30, 1996.
The debt-to-equity ratio was .17-to-1 at October 31, 1996, as compared to
.19-to-1 at April 30, 1996. The Company had unused credit available under a
revolving credit facility of $5.8 million at October 31, 1996, as compared to
unused credit available under this facility of $4.0 million at April 30, 1996.
The Company's operations provided cash of $1.0 million during the six months
ended October 31, 1996, primarily from operating income and an increase in
accounts payable, partially offset by an increase in customer receivables and
inventory. The Company's operations provided cash of $1.1 million during the
six months ended October 31, 1995 primarily from a decrease in customer
receivables.
As discussed in Note D to the condensed financial statements, in September 1996,
the Company amended and renewed its revolving credit facility. The facility
allows the Company to borrow the lesser of $8.5 million, or that available under
certain eligibility formulas using qualifying receivables and inventories, as
defined under the credit arrangement. Under the facility, as amended, the
Company makes monthly interest payments at a rate of the greater of 6% or the
lender's prime rate, calculated on the average loan balance outstanding during
each month. The Company's receivables and inventories continue to be pledged to
the lender as collateral securing borrowings under the facility, but other
collateral has been released.
The Company used cash of $864,000 for capital expenditures during the six months
ended October 31, 1996 and used cash of $439,000 for such expenditures during
the comparable period of the prior fiscal year, in both instances primarily for
the purchase of production machinery. The Company does not anticipate an
abnormal level of capital expenditures for the remainder of the current fiscal
year.
The Company decreased its short-term borrowings during the six months ended
October 31, 1996 by $74,000. The Company used cash of $87,000 for scheduled
principal payments on long-term debt during the six months ended October 31,
1996, as compared to scheduled principal payments of $64,000 during the
comparable period of the prior fiscal year.
10
<PAGE>
No common stock dividends were paid during the six months ended October 31,
1996, or the six months ended October 31, 1995.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
The information included in the Results of Operations section is forward looking
and involves risk and uncertainties that could significantly impact results.
These factors include, but are not limited to, economic, competitive,
governmental, and technological factors affecting the Company's operations,
markets, products, services, and prices.
Recent Accounting Standards
- ---------------------------
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which was effective for the Company beginning May 1, 1996. SFAS
No. 123 requires expanded disclosures of stock-based compensation arrangements
with employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded. Companies
are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share in its year-end financial
statements.
11
<PAGE>
REVIEW BY INDEPENDENT ACCOUNTANTS
A review of the interim financial information included in this Quarterly Report
on Form 10-Q for the three months and six months ended October 31, 1996 has been
performed by Deloitte & Touche LLP, the Company's independent accountants.
Their report on the interim financial information follows. There have been no
adjustments or disclosures proposed by Deloitte & Touche LLP which have not been
reflected in the interim financial information.
12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Kewaunee Scientific Corporation
Statesville, North Carolina
We have reviewed the accompanying condensed balance sheet of Kewaunee Scientific
Corporation as of October 31, 1996, and the related condensed statements of
operations for the three-month and six-month periods ended October 31, 1996 and
1995, and the condensed of cash flows for the six-month period ended October 31,
1996 and 1995. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Kewaunee Scientific Corporation as of April 30,
1996, and the related statements of operations and retained earnings and of cash
flows for the year then ended (not presented herein); and in our report dated
May 31, 1996, we expressed an unqualified opinion on those financial statements.
In our opinion, the information set forth in the accompanying condensed balance
sheet as of April 30, 1996 is fairly stated, in all material respects, in
relation to the balance sheet from which it has been derived.
Deloitte & Touche LLP
December 11, 1996
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on August 28,
1996. The results of this meeting are incorporated by reference from
the Company's Report on Form 10-Q for the three months ended October
31, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Commission during the
three months ended October 31, 1996.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEWAUNEE SCIENTIFIC CORPORATION
-------------------------------
(Registrant)
Date: December 11, 1996 By /s/ D. Michael Parker
--------------------------------
D. Michael Parker
Vice President of Finance
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Condensed Statement of Income for the six months ended October 31, 1996 and
Condensed Balance Sheet as of October 31, 1996 of Kewaunee Scientific
Corporation and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 32
<SECURITIES> 0
<RECEIVABLES> 13,898
<ALLOWANCES> 0
<INVENTORY> 2,649
<CURRENT-ASSETS> 18,012
<PP&E> 26,619
<DEPRECIATION> 16,388
<TOTAL-ASSETS> 28,779
<CURRENT-LIABILITIES> 11,943
<BONDS> 241
<COMMON> 6,550
0
0
<OTHER-SE> 9,258
<TOTAL-LIABILITY-AND-EQUITY> 15,808
<SALES> 32,208
<TOTAL-REVENUES> 32,208
<CGS> 25,179
<TOTAL-COSTS> 31,017
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> 967
<INCOME-TAX> (330)
<INCOME-CONTINUING> 1,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,297
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
