<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, 1997
_____
|_____| 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, 1997, the Registrant had outstanding 2,394,546 shares of
Common Stock.
Pages: This report, including exhibits, contains 14 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, 1997
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
Condensed Statements of Operations -
Three and six months ended October 31, 1997 and 1996 3
Condensed Balance Sheets - October 31, 1997
and April 30, 1997 4
Condensed Statements of Cash Flows -
Six months ended October 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Review by Independent Accountants 11
Independent Accountants' Report 12
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
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</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
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
($ in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $18,442 $15,928 $36,104 $32,208
Cost of products sold 14,489 12,190 28,013 25,179
------- ------- ------- -------
Gross profit 3,953 3,738 8,091 7,029
Operating expenses 3,014 3,090 6,180 5,838
------- ------- ------- -------
Operating earnings 939 648 1,911 1,191
Interest expense (47) (108) (99) (243)
Other income, net 11 14 22 19
------- ------- ------- -------
Earnings before income taxes 903 554 1,834 967
Income tax expense (benefit) 362 (205) 734 (330)
------- ------- ------- -------
Net earnings $541 $759 $1,100 $1,297
======= ======= ======= =======
Per share data:
Earnings per common share $0.23 $0.32 $0.46 $0.55
Average number of common shares
outstanding 2,376 2,366 2,371 2,366
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
Kewaunee Scientific Corporation
Condensed Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
October 31 April 30
1997 1997
---------- --------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash $8 $6
Receivables 16,710 12,864
Inventories 3,300 1,946
Prepaid expenses and
other current assets 1,584 1,649
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Total current assets 21,602 16,465
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Property, plant and equipment, at cost 26,755 26,431
Accumulated depreciation (17,279) (16,605)
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Net property, plant and equipment 9,476 9,826
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Other assets 689 700
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$31,767 $26,991
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $1,663 -
Accounts payable 6,777 5,136
Other current liabilities 4,840 4,324
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Total current liabilities 13,280 9,460
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Deferred income taxes and other
non-current liabilities 936 945
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Stockholders' equity:
Common stock 6,550 6,550
Additional paid-in-capital 99 116
Retained earnings 12,345 11,435
Common stock in treasury, at cost (1,443) (1,515)
------- -------
Total stockholders' equity 17,551 16,586
------- -------
$31,767 $26,991
======= =======
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
Kewaunee Scientific Corporation
Condensed Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Six months ended
October 31
----------------
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $1,100 $1,297
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 779 941
Provision for bad debts 41 145
Increase in receivables (3,887) (831)
Increase in inventories (1,354) (1,436)
Increase in accounts payable and
other current liabilities 2,157 1,418
Other, net 67 (493)
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Net cash provided by (used in) operating activities (1,097) 1,041
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Cash flows from investing activities:
Capital expenditures (429) (864)
------- --------
Net cash used in investing activities (429) (864)
------- --------
Cash flows from financing activities:
Net increase in short-term borrowings 1,663 (74)
Dividends paid (190) -
Proceeds from exercised stock options 55 -
Repayment of long-term debt - (87)
------- --------
Net cash provided by financing activities 1,528 (161)
------- --------
Increase (decrease) in cash 2 16
Cash, beginning of period 6 16
------- --------
Cash, end of period $8 $32
======= ========
Supplemental disclosure:
Interest paid $88 $214
Income taxes paid $833 $33
See accompanying notes to condensed financial statements.
</TABLE>
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 1997 Annual Report to
Stockholders.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect reported amounts and disclosures. Actual results could
differ from those estimates.
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, 1997 April 30, 1997
---------------- --------------
<S> <C> <C>
Finished products $ 604 $ 366
Work-in-process 797 638
Raw materials 1,899 942
------ ------
$3,300 $1,946
====== ======
</TABLE>
C. Balance Sheet
- -----------------
The Company's April 30, 1997 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>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company's 1997 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, 1997. The following discussion and analysis
describes material changes in the Company's financial condition since April 30,
1997. The analysis of results of operations compares the three months and six
months ended October 31, 1997 with the comparable periods of the prior fiscal
year.
Results of Operations
- ---------------------
The Company recorded sales of $18.4 million for the three months ended October
31, 1997, up 15.8% from sales of $15.9 million for the comparable period of the
prior year. Sales of laboratory furniture in The Research Collection recently
introduced by the Company contributed significantly to the sales increase for
the quarter. Increased sales of epoxy resin worksurfaces, and to a lesser
extent, selling price increases, also contributed to the sales improvement.
Sales for the six months ended October 31, 1997 were $36.1 million, up 12.1%
from sales of $32.2 million in the comparable period of the prior year. Sales
of laboratory furniture in The Research Collection, together with increased
sales of technical products and epoxy resin worksurfaces, and to a lesser
extent, selling price increases, were the primary contributors to this sales
improvement.
The gross profit margin for the quarter ended October 31, 1997 was 21.4 percent
of sales, as compared to 23.5 percent of sales in the comparable quarter of the
prior year. The gross profit margin in the current quarter was adversely
affected by increased labor costs, including overtime costs, associated with
expanding production capacity in the quarter. Also, outside purchases of
certain component parts normally manufactured by the Company resulted in
increased costs. These purchases were necessary due to the significant increase
in sales in the current quarter. The gross profit margin for the six months
ended October 31, 1997 was 22.4 percent, up from 21.8 percent in the comparable
period of the prior year. The increase in the profit margin for the six-month
period of the current year was primarily attributable to a more favorable
product sales mix and improved operating efficiencies in the first quarter of
the current year, partially offset by the increased costs discussed above.
7
<PAGE>
Operating expenses for the quarter ended October 31, 1997 were $3.0 million, or
16.3 percent of sales, as compared to $3.1 million, or 19.4% of sales, in the
comparable quarter of the prior year. Operating expenses for the six months
ended October 31, 1997 were $6.2 million, or 17.1 percent of sales, as compared
to $5.8 million, or 18.1 percent of sales, in the comparable period of the prior
year. Operating expenses for the quarter and the six-month period of the
current year were favorably impacted by lower depreciation expense in each
period of the current year and lower bad debt expense in the current quarter.
When compared as a percent of sales, these expenses also benefited from the
significant sales growth in the current year, particularly in the current
quarter.
Operating profits of $939,000 and $1.9 million were recorded for the three
months and six months ended October 31, 1997, respectively. This compares to
operating profits of $648,000 and $1.2 million for the comparable periods of the
prior year.
Interest expense was $47,000 and $99,000 for the three months and six months
ended October 31, 1997, respectively, compared to $108,000 and $243,000 for the
comparable periods of the prior year. The decreases in interest expense for the
current quarter and year resulted from lower levels of borrowings under the
Company's revolving credit facility.
Other income, consisting principally of royalty income, was $11,000 and $22,000
for the three months and six months ended October 31, 1997, respectively,
compared to $14,000 and $19,000 for the comparable periods of the prior year.
Income tax expense of $362,000 and $734,000 was recorded for the three months
and six months ended October 31, 1997, respectively, as contrasted with income
tax benefits of $205,000 and $330,000 recorded for the comparable periods of the
prior year. The income tax benefits reported for the comparable periods of the
prior year resulted from the reductions in the Company's valuation allowance on
deferred tax assets. These reductions occurred as continued profitability and
an improved earnings outlook for the Company provided further positive evidence
to support a reduction in the valuation allowance.
Net earnings of $541,000 and $1.1 million, or 23 cents per share and 46 cents
per share, were recorded for the three months and six months ended October 31,
1997, respectively. This compares to net earnings of $759,000 and $1.3 million,
or 32 cents per share and 55 cents per share, respectively, for the comparable
periods of the prior year.
8
<PAGE>
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.
The Company had working capital of $8.3 million at October 31, 1997, as compared
to $7.0 million at April 30, 1997. The ratio of current assets to current
liabilities was 1.6-to-1 at October 31, 1997, as compared to 1.7-to-1 at April
30, 1997. The debt-to-equity ratio was .09-to-1 at October 31, 1997; the
Company had no debt at April 30, 1997. The Company had unused credit available
under its revolving credit facility of $6.6 million at October 31, 1997, as
compared to unused credit available under this facility of $8.0 million at April
30, 1997.
The Company's operations used cash of $1.1 million during the six months ended
October 31, 1997, primarily to support increases in customer receivables and
inventory, partially offset by cash provided by operating earnings and a net
increase in accounts payable and other current liabilities. The Company's
operations provided cash of $1.0 million during the six months ended October 31,
1996 primarily from operating earnings and an increase in accounts payable,
partially offset by an increase in customer receivables and inventory.
An increase in short-term borrowings during the six months ended October 31,
1997 provided cash of $1.7 million, while a reduction in these borrowings in the
comparable period of the prior year used cash of $74,000. Cash dividends in the
amount of $190,000 were paid during the six months ended October 31, 1997. No
cash dividends were paid in the comparable period of the prior year.
The Company used cash of $429,000 for capital expenditures during the six months
ended October 31, 1997 and used cash of $864,000 for such expenditures during
the comparable period of the prior year, in both instances primarily for the
purchase of production machinery. In addition, the Company entered into
operating lease arrangements for production equipment with an aggregate original
asset cost of $549,000 and $80,000 during the six months ended October 31, 1997
and 1996, respectively. These leases provide the Company with certain early
cancellation rights, as well as renewal, and purchase options. The Company does
not anticipate an abnormal level of cash requirements resulting from capital
expenditures for the remainder of the current year.
9
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
Certain statements included in this report are forward looking and involve 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
- ---------------------------
The Financial Accounting Standards Board has issued Statement No. 128, "Earnings
Per Share." SFAS No. 128 will change the method for calculating earnings per
share. Had the Company applied SFAS No. 128 for the three months and six months
ended October 31, 1997 and the 1997 year, the effect on reported earnings per
share would not be significant. The Company will be required to adopt SFAS 128
beginning in the quarter ending January 31, 1998.
10
<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, 1997 has been
performed by Price Waterhouse LLP, the Company's independent accountants. Their
report on the interim financial information follows. There have been no
adjustments or disclosures proposed by Price Waterhouse LLP which have not been
reflected in the interim financial information.
11
<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, 1997, and the related condensed statements of
operations for the three-month and six-month periods ended October 31, 1997, and
the condensed statement of cash flows for the six-month period ended October 31,
1997. 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 the accompanying condensed financial information for it to be in
conformity with generally accepted accounting principles.
The accompanying condensed statements of operations and cash flows for the
three-month and six-month periods ended October 31, 1996 were reviewed by other
independent accountants whose report dated December 11, 1996 stated that, based
upon their review, they were not aware of any material modifications that should
be made to the financial statements for them to be in conformity with generally
accepted accounting principles. The financial statements for the year ended
April 30, 1997 were audited by the same independent accountants whose report
dated June 4, 1997 expressed an unqualified opinion on those statements.
Price Waterhouse LLP
November 13, 1997
12
<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 27,
1997. Information regarding the results of this meeting are
incorporated by reference from the Company's Report on Form 10-Q for the
three months ended July 31, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K pursuant to Item 4
thereof dated August 27, 1997 to reflect (i) the dismissal of Deloitte &
Touche LLP as the Company's independent accountants and (ii) the
engagement of Price Waterhouse LLP to serve as the Company's independent
accountants.
13
<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, 1997 By /s/ D. Michael Parker
--------------------------------
D. Michael Parker
Vice President of Finance
Chief Financial Officer
14
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<PAGE>
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<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
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<RECEIVABLES> 16,710
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<INVENTORY> 3,300
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