Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 523K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 20K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 20K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 18K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 18K
11: R1 Cover Page HTML 71K
12: R2 Condensed Consolidated Statements of Operations HTML 103K
(Unaudited)
13: R3 Condensed Consolidated Statements of Comprehensive HTML 51K
Earnings (Loss) (Unaudited)
14: R4 Condensed Consolidated Statement of Stockholders' HTML 48K
Equity (Unaudited)
15: R5 Condensed Consolidated Balance Sheets (Unaudited) HTML 152K
16: R6 Condensed Consolidated Balance Sheets (Unaudited) HTML 33K
(Parenthetical)
17: R7 Condensed Consolidated Statements of Cash Flows HTML 85K
(Unaudited)
18: R8 Financial Information HTML 23K
19: R9 Cash, Cash Equivalents and Restricted Cash HTML 28K
20: R10 Revenue Recognition HTML 42K
21: R11 Inventories HTML 27K
22: R12 Fair Value of Financial Instruments HTML 52K
23: R13 Long-term Debt and Other Credit Arrangements HTML 26K
24: R14 Sale-Leaseback Financing Transaction HTML 32K
25: R15 Leases HTML 50K
26: R16 Earnings Per Share HTML 27K
27: R17 Stock Options and Stock-based Compensation HTML 22K
28: R18 Income Taxes HTML 24K
29: R19 Defined Benefit Pension Plans HTML 32K
30: R20 Segment Information HTML 42K
31: R21 New Accounting Standards HTML 31K
32: R22 New Accounting Standards (Policies) HTML 21K
33: R23 Cash, Cash Equivalents and Restricted Cash HTML 26K
(Tables)
34: R24 Revenue Recognition (Tables) HTML 36K
35: R25 Inventories (Tables) HTML 27K
36: R26 Fair Value of Financial Instruments (Tables) HTML 51K
37: R27 Sale-Leaseback Financing Transaction (Tables) HTML 27K
38: R28 Leases (Tables) HTML 47K
39: R29 Earnings Per Share (Tables) HTML 26K
40: R30 Defined Benefit Pension Plans (Tables) HTML 28K
41: R31 Segment Information (Tables) HTML 38K
42: R32 Cash, Cash Equivalents and Restricted Cash HTML 28K
(Details)
43: R33 Revenue Recognition - Summary of Net Sales HTML 37K
Transferred to Customers at a Point in Time and
Over Time (Detail)
44: R34 Revenue Recognition - Additional Information HTML 30K
(Detail)
45: R35 Inventories - Summary of Inventories (Detail) HTML 28K
46: R36 Inventories - Additional Information (Detail) HTML 23K
47: R37 Fair Value of Financial Instruments - Summary of HTML 45K
Fair Value Hierarchy for Financial Assets and
Liabilities Measured Recurring Basis (Detail)
48: R38 Long-term Debt and Other Credit Arrangements HTML 35K
(Details)
49: R39 Sale-Leaseback Financing Transaction - Narrative HTML 52K
(Details)
50: R40 Sale-Leaseback Financing Transaction - Remaining HTML 34K
Future Cash Payments (Details)
51: R41 Leases - Additional Information (Details) HTML 42K
52: R42 Leases - Schedule of Operating and Finance Lease HTML 57K
Maturity (Details)
53: R43 Earnings Per Share - Additional Information HTML 21K
(Detail)
54: R44 Earnings Per Share Schedule of Earnings Per Common HTML 26K
Share (Details)
55: R45 Stock Options and Stock-Based Compensation - HTML 36K
Additional Information (Detail)
56: R46 Income Taxes (Details) HTML 27K
57: R47 Defined Benefit Pension Plans - Additional HTML 25K
Information (Detail)
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(Detail)
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(Exact
name of registrant as specified in its charter)
_________________________
iDelaware
i38-0715562
(State
or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
i2700 West Front Street
iStatesville,iNorth Carolina
i28677-2927
(Address of principal executive offices)
(Zip Code)
Registrant's
telephone number, including area code: (i704) i873-7202
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Exchange on which registered
iCommon
Stock, $2.50 par valueiKEQUiNASDAQ Global Market
_________________________
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. iYes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging
growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
iNon-accelerated
filer
☒
Smaller reporting company
i☒
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Adjustments
to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation
i718
i725
Bad
debt provision
i125
i23
Stock-based compensation expense
i183
i172
Deferred
income taxes
i46
i23
Change in assets and liabilities:
Receivables
i3,496
i516
Inventories
(i237)
(i1,304)
Accounts
payable and other accrued expenses
(i226)
(i2,117)
Deferred
revenue
i2,970
i10,587
Other,
net
(i1,418)
(i4,221)
Net
cash provided by operating activities
i8,172
i3,685
Cash
flows from investing activities:
Capital expenditures
(i1,654)
(i390)
Net
cash used in investing activities
(i1,654)
(i390)
Cash
flows from financing activities:
Proceeds from short-term borrowings
i40,597
i4,431
Repayments
on short-term borrowings
(i39,130)
(i6,019)
Proceeds
from sale-leaseback financing transaction
i—
i13,456
Payments
on sale-leaseback financing transaction
(i157)
(i140)
Payments on long-term lease obligations
(i4)
(i58)
Net
cash provided by financing activities
i1,306
i11,670
Effect
of exchange rate changes on cash, cash equivalents and restricted cash
(i71)
(i325)
Increase
in cash, cash equivalents and restricted cash
i7,753
i14,640
Cash,
cash equivalents and restricted cash, beginning of period
i13,815
i6,894
Cash,
cash equivalents and restricted cash, end of period
$
i21,568
$
i21,534
See
accompanying notes to Condensed Consolidated Financial Statements.
5
Kewaunee Scientific Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
A. iFinancial
Information
The unaudited interim Condensed Consolidated Financial Statements of Kewaunee Scientific Corporation (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange 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 ("GAAP") have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These interim Condensed 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 Company's 2023 Annual Report on Form 10-K. 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 Condensed Consolidated Balance Sheet as of April 30, 2023 included in this interim period filing has been derived from the audited consolidated financial statements at that date, but does not include all of the information and related notes required by GAAP for complete financial statements.
The preparation
of the interim Condensed 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. iCash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less.
During the three months ended July 31, 2023 and twelve months ended April 30, 2023, the Company had cash deposits in excess of FDIC insured limits. The Company has not experienced any losses from such deposits. Restricted cash includes bank deposits of subsidiaries used for performance guarantees against customer orders and domestic bank deposits used as collateral for an outstanding letter of credit.
The Company includes restricted cash along with the cash balance for presentation in the Condensed
Consolidated Statements of Cash Flows. iThe reconciliation between the Condensed Consolidated Balance Sheet and the Condensed Consolidated Statement of Cash Flows is as follows:
The Company recognizes revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The majority of the
Company's revenues are recognized over time as the customer receives control as the Company performs work under a contract. However, a portion of the Company's revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract.
6
Disaggregated Revenue
i
A
summary of net sales transferred to customers over time and at a point in time for the periods ended July 31, 2023 and July 31, 2022 is as follows (in thousands):
The closing balances of contract assets included $i13,621,000 in accounts receivable and $i928,000 in other
assets at July 31, 2023. The opening balance of contract assets arising from contracts with customers included $i13,459,000 in accounts receivable and $i1,191,000
in other assets at April 30, 2023. The closing and opening balances of contract liabilities included in deferred revenue arising from contracts with customers were $i7,067,000 at July 31, 2023 and $i4,097,000
at April 30, 2023. The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, and deferred revenue which are disclosed in the Condensed Consolidated Balance Sheets and in the Notes to the Condensed Consolidated Financial Statements. In general, the Company receives payments from customers based on a billing schedule established in its contracts. Unbilled receivables represent amounts earned which have not yet been billed in accordance with contractually stated billing terms and are included in receivables on the Condensed Consolidated Balance Sheets. Receivables are recorded when the right to consideration becomes unconditional and the
Company has a right to invoice the customer. Deferred revenue relates to payments received in advance of performance under the contract. Deferred revenue is recognized as revenue as (or when) the Company performs under the contract. Approximately ii100/%
of the contract liability balances at April 30, 2023 and July 31, 2023 are expected to be recognized as revenue during the respective succeeding 12 months.
D. iInventories
The
Company measures inventory using the first-in, first-out method at the lower of cost or net realizable value. iInventories consisted of the following (in thousands):
The Company's financial instruments consist primarily of cash and equivalents, mutual funds, short-term borrowings, and the cash surrender
value of life insurance policies. The carrying value of these assets and liabilities approximates their fair value. iThe following tables summarize the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of July 31, 2023 and April 30, 2023 (in thousands):
Trading securities held in non-qualified compensation plans (1)
$
i1,105
$
i—
$
i1,105
Cash
surrender value of life insurance policies(1)
i—
i1,358
i1,358
Total
$
i1,105
$
i1,358
$
i2,463
Financial
Liabilities
Non-qualified compensation plans (2)
$
i—
$
i2,910
$
i2,910
Total
$
i—
$
i2,910
$
i2,910
(1)The
Company maintains iitwo/ 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.
F. iLong-term Debt and Other Credit Arrangements
At
April 30, 2023, advances of $i3.5 million were outstanding under the Company's Revolving Credit Facility. Amounts available under the Revolving Credit Facility were $i10.3 million at April 30,
2023. The borrowing rate under the Revolving Credit Facility was i9.02% as of April 30, 2023. The Company's International subsidiaries had a balance outstanding of $i39,000
in short-term borrowings related to overdraft protection and short-term loan arrangements. At April 30, 2023, the Company was in compliance with all of the financial covenants under its Revolving Credit Facility.
At July 31, 2023, there were $i5.0 million outstanding under the Revolving Credit Facility, with remaining borrowing capacity under the Revolving Credit Facility of $i8.3
million. The borrowing rate under the Revolving Credit Facility was i9.33% as of July 31, 2023. In addition, the Company's International subsidiaries have a balance outstanding of $i54,000
in short-term borrowings related to overdraft protection and short-term loan arrangements. As of July 31, 2023, the Company was in compliance with all of the financial covenants under its Revolving Credit Facility.
G. iSale-Leaseback Financing Transaction
On
December 22, 2021, the Company entered into an Agreement for Purchase and Sale of Real Property with CAI Investments Sub-Series 100 LLC, a Nevada limited liability company (the "Buyer"), for the Company’s headquarters and manufacturing facilities located at 2700 West Front Street in Statesville, North Carolina (the "Sale Agreement").
The Sale Agreement was finalized on March 24, 2022 and coincided with the Company and CAI Investments Medical Products I Master Lessee LLC ("Lessor") entering into a lease agreement. The lease arrangement is for a i20-year
term, with ifour renewal options of ifive years each. Under the terms of the lease agreement, the Company’s initial basic rent is approximately $i158,000
per month, with annual increases of approximately i2% each year of the initial term.
The Company accounted for the Sale-Leaseback Arrangement as a financing transaction as the lease agreement was determined to be a finance lease due to the significance of the present value of the lease payments, using a discount rate of i4.75%
to reflect
8
the Company’s incremental borrowing rate, compared to the fair value of the leased property as of the lease commencement date. In measuring the lease payments for the present value analysis, the Company elected the practical expedient to combine the lease component (the leased facilities) with the non-lease component (property management provided by the Buyer/Lessor) into a single lease component.
The presence of a finance lease indicates that control of the property has not transferred to the Buyer/Lessor and, as such, the transaction was deemed a
failed sale-leaseback and accounted for as a financing arrangement. As a result of this determination, the Company is viewed as having received the sale proceeds from the Buyer/Lessor in the form of a hypothetical loan collateralized by its leased facilities. The hypothetical loan is payable as principal and interest in the form of “lease payments” to the Buyer/Lessor. As such, the Company will not derecognize the property from its books for accounting purposes until the lease ends. iNo
gain or loss was recognized under GAAP related to the Sale-Leaseback Arrangement.
As of July 31, 2023, the carrying value of the financing liability was $i28,617,000, net of $i692,000 in debt issuance
costs, of which $i659,000 was classified as current on the Consolidated Balance Sheet with $i27,958,000 classified as long-term. As of April 30, 2023, the carrying value of the financing liability was $i28,774,000,
net of $i708,000 in debt issuance costs, of which $i642,000 was classified as current on the Consolidated Balance Sheet with $i28,132,000
classified as long-term. The monthly lease payments are split between a reduction of principal and interest expense using the effective interest rate method. Interest expense associated with the financing arrangement was $i325,000 and $i332,000
for the three months ended July 31, 2023 and July 31, 2022, respectively.
The Company will depreciate the building down to zero over the i20-year assumed economic life of the Property so that at the end of the lease term, the remaining carrying amount of the financing liability will equal the carrying amount of the land of $i41,000.
iRemaining
future cash payments related to the financing liability as of July 31, 2023 are as follows:
($ in thousands)
Remainder of 2024
$
i1,449
2025
i1,970
2026
i2,009
2027
i2,050
2028
i2,090
Thereafter
i33,867
Total
Minimum Liability Payments
i43,435
Imputed Interest
(i14,818)
Total
$
i28,617
H. iiLeases/
The
Company recognizes lease assets and lease liabilities reflecting the rights and obligations created by operating type leases for real estate and equipment in both the U.S. and internationally and financing leases for a truck and IT equipment in the U.S. At July 31, 2023 and April 30, 2023, right-of-use assets totaled $i8,612,000 and $i9,170,000,
respectively. Operating cash paid to settle lease liabilities was $i639,000 and $i524,000 for the three months ended July 31, 2023 and July 31, 2022, respectively. The
Company's leases have remaining lease terms of up to i9 years. In addition, some of the leases may include options to extend the leases for up to i5 years or options to terminate the leases within i1
year. Operating lease expenses were $i867,000 for the three months ended July 31, 2023, inclusive of period cost for short-term leases, not included in lease liabilities, of $i228,000. Operating lease expenses were $i835,000
for the three months ended July 31, 2022, inclusive of period cost for short-term leases, not included in lease liabilities, of $i311,000.
At July 31, 2023, the weighted average remaining lease term for the capitalized operating leases was i4.9
years and the weighted average discount rate was i5.0%. For the financing leases, the weighted average remaining lease term was i2.9 years and the weighted average discount rate was i6.7%.
As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of those lease payments. The Company uses the implicit rate when readily determinable.
9
ii
Future
minimum lease payments under non-cancelable leases as of July 31, 2023 were as follows:
Operating
Financing
Remainder of fiscal 2024
$
i1,730
$
i83
2025
i2,172
i91
2026
i1,917
i71
2027
i1,654
i—
2028
i1,127
i—
Thereafter
i1,377
i—
Total
Minimum Lease Payments
i9,977
i245
Imputed
Interest
(i1,421)
(i16)
Total
$
i8,556
$
i229
//
I.
iEarnings 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 of outstanding options and the conversion of restricted stock units ("RSUs") under the Company's various stock compensation plans, except when RSUs and options have an antidilutive effect. There were i33,700
and i104,141 antidilutive RSUs and options outstanding at July 31, 2023 and July 31, 2022, respectively. iThe
following is a reconciliation of basic to diluted weighted average common shares outstanding (in thousands):
Weighted
average common shares outstanding - diluted
i2,885
i2,807
J.
iStock Options and Stock-based Compensation
The Company recognizes compensation costs related to stock options and other stock awards granted by the Company as operating expenses over their vesting period.
In June 2023, the Company granted i87,220
RSUs under the 2017 Omnibus Incentive Plan ("2017 Plan"). These RSUs include both a service and a performance component, vesting over a ithree-year period. The recognized expense is based upon the vesting period for service criteria and estimated attainment of the performance criteria at the end of the ithree-year
period, based on the ratio of cumulative days of service to total days over the ithree-year period. The Company recorded stock-based compensation expense during the three months ended July 31, 2023 of $i173,000 with
the remaining estimated stock-based compensation expense of $i2,032,000 to be recorded over the remaining vesting periods. The Company recorded stock-based compensation expense during the three months ended July 31, 2022 of $i131,000.
Directors' fees paid with shares of common stock in lieu of cash in accordance with Director compensation guidelines were $i10,000 and $i41,000
for the three month periods ended July 31, 2023 and July 31, 2022, respectively, and were also included in the stock-based compensation on the Condensed Consolidated Statements of Cash Flows.
Ki. Income Taxes
Income tax expense of $i897,000
and $i379,000 was recorded for the three months ended July 31, 2023 and July 31, 2022, respectively. The effective tax rate was i26.3% and (i111.5)%
for the three months ended July 31, 2023 and July 31, 2022, respectively. The effective tax rate for the three months ended July 31, 2023 reflects the impact of foreign operations which are taxed at different rates than the U.S. tax rate of 21%, combined with expected current year tax expense for the Company's domestic operations in excess of the change in domestic valuation allowance required for the fiscal year. The effective tax rate for the three months ended July 31, 2022 reflected the impact of foreign operations and the recording of a valuation allowance against the deferred tax asset which resulted in the elimination of any U.S. income tax benefit for pretax losses incurred during
the period.
In August 2019, the Company revoked its indefinite reinvestment of foreign unremitted earnings position in compliance with ASC 740 "Income Taxes" and terminated its indefinite reinvestment of unremitted earnings assertion for the Singapore and
10
Kewaunee Labway India Pvt. Ltd. international subsidiaries. The Company has a deferred tax liability of $i1,363,000
and $i1,318,000 for the withholding tax related to Kewaunee Labway India Pvt. Ltd. as of July 31, 2023 and April 30, 2023, respectively.
L. iDefined
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. There were iino/
Company contributions paid to the plans for the three months ended July 31, 2023 and July 31, 2022. The Company assumed an expected long-term rate of return of ii7.75/%
for the periods ended July 31, 2023 and July 31, 2022.
i
Pension expense consisted of the following (in thousands):
The Company's operations are classified into itwo 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, flexible systems, worksurfaces, workstations, workbenches, and computer enclosures. The International business segment, which consists of the Company's foreign subsidiaries, provides 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.
iThe
following tables provide financial information by business segment and unallocated corporate expenses for the periods ended July 31, 2023 and 2022 (in thousands):
iIn
June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which replaces the current incurred loss method used for determining credit losses on financial assets, including trade receivables, with an expected credit loss method. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company adopted this standard in fiscal year 2024. The adoption of this standard did not have a significant impact on the Company's consolidated financial position or results of operations.
11
Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
The Company's 2023 Annual Report to Stockholders on Form 10-K contains management's discussion and analysis of the Company's financial condition and results of operations as of and for the fiscal year ended April 30, 2023. The following discussion and analysis describes material changes in the Company's financial condition since April 30,
2023. The analysis of results of operations compares the three months ended July 31, 2023 with the comparable periods of the prior year.
Results of Operations
Sales for the quarter were $49,839,000, an decrease from sales of $50,123,000 in the comparable period of the prior year. Domestic sales for the quarter were $35,420,000, down 5.5% from sales of $37,468,000 in the comparable period of the prior year. The decrease in Domestic sales was predominantly related to the reduction of installation revenue related to the Company's decision to no longer sell directly to end users, which typically included installation services. International
sales for the quarter were $14,419,000, up 13.9% from sales of $12,655,000 in the comparable period of the prior year. International sales increased when compared to the prior year period due to the delivery of several large projects that were booked in the prior fiscal year.
The gross profit margin for the three months ended July 31, 2023 was 23.9% of sales, as compared to 12.4% of sales in the comparable quarter of the prior year. The increase in gross
profit margin percentage for the three months ended July 31, 2023 is primarily being generated from Domestic operations. The increase is driven by the pricing of new orders in response to higher raw material input costs when compared to the prior year period, during which 25% of Domestic revenue related to direct orders that, in aggregate, were delivered at a loss for the Company.
Operating expenses for the three months ended July 31, 2023 were $8,106,000, or 16.3% of sales, as compared to $6,592,000, or 13.2% of sales, in the comparable period of the prior year. The increase in operating expenses for the three months ended July 31, 2023 was primarily due to increases in SG&A wages, benefits,
incentive and stock-based compensation of $823,000, bad debt expense primarily related to a single job dispute of $102,000, travel and entertainment expenses of $102,000, and increases in international operating expenses of $170,000.
Interest expense, net was $430,000 for the three months ended July 31, 2023, as compared to $384,000 for the comparable period of the prior year. The changes in interest expense were due to changes in the levels of bank borrowings and interest rates.
The effective income tax rate for the three months ended July 31, 2023 was 26.3%, as compared to (111.5)% for the three months ended July 31, 2022. Income tax expense of $897,000 and $379,000 was recorded for the three months ended July 31,
2023 and 2022, respectively. The effective tax rate for the three months ended July 31, 2023 reflects the impact of foreign operations which are taxed at different rates than the U.S. tax rate of 21%, combined with expected current year tax expense for the Company's domestic operations in excess of the change in domestic valuation allowance required for the fiscal year. The effective rate for the three months ended July 31, 2022 reflected the impact of the domestic valuation allowance against the deferred tax asset, which resulted in the elimination of any U.S. income tax benefit for the losses incurred during the period. See Note
K, Income Taxes, of the Notes to Condensed Consolidated Financial Statements for additional information.
Non-controlling interests related to the Company's subsidiaries not 100% owned by the Company decreased net earnings by $41,000 for the three months ended July 31, 2023, compared to $28,000, for the comparable period of the prior year. The change in the net earnings attributable to the non-controlling interest in the current period was due to changes in earnings of the subsidiaries
in the related period.
Net earnings was $2,474,000, or $0.86 per diluted share, for the three months ended July 31, 2023, compared to a net loss of $747,000, or $(0.27) per diluted share, in the prior year period.
Liquidity and Capital Resources
Our principal sources of liquidity have historically been funds generated from operating activities, supplemented as needed by borrowings under our Revolving Credit Facility. Additionally, certain machinery and equipment are financed by non-cancellable operating and financing 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 provided cash of $8,172,000 during
the three months ended July 31, 2023, primarily from operations and decreases in accounts receivable of $3.5 million and increases in deferred revenue of $3.0 million, partially offset by increases in other current assets of $999,000 and accrued employee compensation and amounts withheld of $315,000. During the three months ended July 31, 2023, the Company used net cash of $1,654,000 in investing activities, all of which was used for capital expenditures. The Company's financing activities provided cash of $1,306,000 during the three months ended July 31, 2023, primarily from a net increase in borrowings under the Revolving Credit Facility.
Outlook
The
Company's 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 Company's products is also dependent upon the number of laboratory construction projects planned and/or current progress in projects already under construction. The Company's earnings are also impacted by fluctuations in prevailing pricing for projects in the laboratory construction marketplace and costs of raw materials, including steel, wood, and epoxy resin.
The Company is operating more efficiently than in the past due to its ability to focus solely on supporting its dealers and distribution channel
partners domestically while continuing to provide turnkey solutions in the international markets it serves. The improved focus of the organization, combined with a strong global management team, a healthy backlog, improved manufacturing capabilities, and end-use markets that continue to prioritize investment in projects that require the products Kewaunee designs and manufactures positions the Company well.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements in this document constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). All statements
other than statements of historical fact included in this Annual Report, including statements regarding the Company's 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. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions, and other important factors that could significantly impact results or achievements expressed or implied by such forward-looking statements. Such factors, risks, uncertainties and assumptions include, but are not limited to: competitive and general economic conditions,
including disruptions from government mandates, both domestically and internationally, as well as supplier constraints and other supply disruptions; changes in customer demands; technological changes in our operations or in our industry; dependence on customers’ required delivery schedules; risks related to fluctuations in the Company’s 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; acts of terrorism, war, governmental action, natural disasters and other Force Majeure events. The cautionary statements made pursuant to the Reform Act herein and elsewhere by us should not be construed as exhaustive. We cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking
statements. Over time, our actual results, performance, or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and harmful to our stockholders' interest. Many important factors that could cause such differences are described under the caption "Risk Factors" in Item 1A in the Company's 2023 Annual Report on Form 10-K, which you should review carefully. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There are no material changes to the disclosures made on this matter in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2023.
Item 4.Controls
and Procedures
(a) Evaluation of disclosure controls and procedures
An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of July 31, 2023. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that, as of
July 31, 2023, the Company's disclosure controls and procedures were adequate and effective and
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designed to ensure that all material information required to be filed in this quarterly report is made known to them by others within the Company and its subsidiaries.
(b) Changes in internal controls
There was no significant change in the
Company's internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1A. Risk Factors
The business, financial condition and operating results of the
Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the Company's 2023 Annual Report on Form 10-K under the heading "Risk Factors," any one or more of which could, directly or indirectly, cause the Company's actual financial condition and operating results to vary materially from its past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the
Company's business, financial condition, operating results and stock price. There have been no material changes to the Company's risk factors from those set forth in the Company's Annual Report on Form 10-K for the year ended April 30, 2023 as filed with the SEC on June 30, 2023.
Item 5. Other Information
On
August 31, 2023, the Board of Directors of Kewaunee Scientific Corporation (the "Company") adopted a new share repurchase program to take effect starting September 1, 2023. The Board of Directors authorized the repurchase of up to 100,000 shares of the Company's common stock under the new program, which does not have a specified expiration date.
The timing and amount of any repurchases under this program will be determined by the Company's management at its discretion based upon its ongoing assessments of the capital needs of the business, the market price of the Company's
common stock and general market conditions. Share repurchases under this program may be made through a variety of methods including open-market purchases, block trades, exchange transactions or any combination thereof. The program does not obligate the Company to acquire any particular amount of its common stock, and the share repurchase program may be suspended or discontinued at any time at the Company's discretion.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1) Filed as an exhibit to the Kewaunee Scientific Corporation Current Report on Form 8-K (Commission File No. 0-5286) filed with the Securities and Exchange Commission on August 25, 2023, and incorporated herein by reference.
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
