Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 695K
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 102K
(Unaudited)
13: R3 Condensed Consolidated Statements of Comprehensive HTML 51K
Loss (Unaudited)
14: R4 Condensed Consolidated Statement of Stockholders' HTML 48K
Equity (Unaudited)
15: R5 Condensed Consolidated Balance Sheets (Unaudited) HTML 159K
16: R6 Condensed Consolidated Balance Sheets (Unaudited) HTML 34K
(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 27K
20: R10 Revenue Recognition HTML 41K
21: R11 Inventories HTML 27K
22: R12 Fair Value of Financial Instruments HTML 52K
23: R13 Long-term Debt and Other Credit Arrangements HTML 25K
24: R14 Sale-Leaseback Financing Transaction HTML 33K
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 41K
31: R21 New Accounting Standards HTML 30K
32: R22 New Accounting Standards Significant Accounting HTML 21K
Policies (Policies)
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 37K
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 32K
(Details)
49: R39 Sale-Leaseback Financing Transaction - Narrative HTML 51K
(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)
59: R49 Segment Information - Additional Information HTML 21K
(Detail)
60: R50 Segment Information (Details) HTML 40K
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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 loss to net cash provided by (used in) operating activities:
Depreciation
i725
i693
Bad
debt provision
i23
i3
Stock-based
compensation expense
i172
i216
Deferred
income taxes
i23
i37
Change
in assets and liabilities:
Receivables
i516
(i839)
Inventories
(i1,304)
(i1,335)
Accounts
payable and other accrued expenses
(i2,117)
i1,048
Deferred
revenue
i10,587
(i568)
Other,
net
(i4,221)
i276
Net
cash provided by (used in) operating activities
i3,685
(i1,776)
Cash
flows from investing activities:
Capital expenditures
(i390)
(i484)
Net
cash used in investing activities
(i390)
(i484)
Cash
flows from financing activities:
Proceeds from short-term borrowings
i4,431
i12,303
Repayments
on short-term borrowings
(i6,019)
(i10,277)
Proceeds
from sale-leaseback financing transaction
i13,456
i—
Payments
on sale-leaseback financing transaction
(i140)
i—
Payments
on long-term lease obligations
(i58)
(i5)
Net
cash provided by financing activities
i11,670
i2,021
Effect
of exchange rate changes on cash, cash equivalents and restricted cash
(i325)
(i25)
Increase
(decrease) in cash, cash equivalents and restricted cash
i14,640
(i264)
Cash,
cash equivalents and restricted cash, beginning of period
i6,894
i5,731
Cash,
cash equivalents and restricted cash, end of period
$
i21,534
$
i5,467
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 (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 ("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 2022 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, 2022 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 periods ended July 31, 2022 and April 30, 2022, 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.
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, 2022 and July 31, 2021 is as follows (in thousands):
The closing balances of contract assets included $i9,705,000 in accounts receivable and $i1,672,000
in other assets at July 31, 2022. The opening balance of contract assets arising from contracts with customers included $i9,287,000 in accounts receivable and $i1,293,000
in other assets at April 30, 2022. The closing and opening balances of contract liabilities included in deferred revenue arising from contracts with customers were $i14,116,000 at July 31, 2022 and $i3,529,000
at April 30, 2022. 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, 2022 and July 31, 2022 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 ("FIFO") 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, cash surrender value of life insurance policies, and short-term borrowings. 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, 2022
and April 30, 2022 (in thousands):
Trading securities held in non-qualified compensation plans (1)
$
i1,219
$
i—
$
i1,219
Cash
surrender value of life insurance policies(1)
i—
i1,371
i1,371
Total
$
i1,219
$
i1,371
$
i2,590
Financial
Liabilities
Non-qualified compensation plans (2)
$
i—
$
i3,003
$
i3,003
Total
$
i—
$
i3,003
$
i3,003
(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, 2022, advances of $i1.6 million were outstanding under the Company's revolving credit facility. The Company had standby letters of credit outstanding of $i716,000
at April 30, 2022. Amounts available under the revolving credit facility were $i2.4 million at April 30, 2022. At April 30, 2022, the Company was in compliance with all the financial covenants under its revolving credit facility.
On June 27, 2022,
the Company terminated the Credit Agreement with Wells Fargo, National Bank. At the time of termination, there were ino borrowings under the Credit Agreement, and the Company did not incur any material termination penalties as a result of the termination.
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 (the "Property") 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 the Buyer entering into a i20-year lease, effective on such date between the Company and CAI Investments Medical Products I Master Lessee LLC ("Lessor"),
an affiliate of Buyer (the "Lease Agreement"). At the same time, the Buyer and its affiliates formed a new, debt-financed affiliate CAI Investments Medical Products I, DST ("Trust") and contributed the Property to the Trust. According to the terms of the contemporaneous lease, the Trust leased the Property to its affiliated Lessor, which in turn sub-leased the Property to the Company (together with the Sale Agreement, the "Sale-Leaseback Arrangement").
The Sale-Leaseback Arrangement is repayable over 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.
8
The
Company accounted for the Sale-Leaseback Arrangement as a financing transaction with the Buyer in accordance with ASC 842, "Leases," as the Lease Agreement was determined to be a finance lease. The Company concluded the Lease Agreement met the qualifications to be classified as a finance lease due to the significance of the present value of the lease payments, using a discount rate of i4.75% to reflect 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 must be 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, 2022, the
carrying value of the financing liability was $i29,209,000, net of $i753,000 in debt issuance costs, of which $i591,000
was classified as current on the Consolidated Balance Sheet with $i28,618,000 classified as long-term. As of April 30, 2022, the carrying value of the financing liability was $i29,350,000,
net of $i768,000 in debt issuance costs, of which $i575,000 was classified as current on the Consolidated Balance Sheet with $i28,775,000
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 $i332,000 for the quarter ended July 31, 2022.
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 $i41,000.
iRemaining
future cash payments related to the financing liability as of July 31, 2022 are as follows:
($ in thousands)
Remainder of 2023
$
i1,421
2024
i1,931
2025
i1,970
2026
i2,009
2027
i2,050
Thereafter
i35,958
Total
Minimum Liability Payments
i45,339
Imputed Interest
(i16,130)
Total
$
i29,209
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, 2022 and April 30, 2022, right-of-use assets totaled $i8,955,000 and $i7,573,000,
respectively. Operating cash paid to settle lease liabilities was $i524,000 and $i500,000 for the three months ended July 31, 2022 and
July 31, 2021, 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 $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. Operating lease expenses were $i847,000 for the three months ended July 31, 2021, inclusive of period cost
for short-term leases, not included in lease liabilities, of $i347,000.
At July 31, 2022, the weighted average remaining lease term for the capitalized operating leases was i5.9
years and the weighted average discount rate was i4.8%. For the financing leases, the weighted average remaining lease term was i3.9 years and the weighted average discount rate was i6.8%.
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, 2022 were as follows:
Operating
Financing
Remainder of fiscal 2023
$
i1,545
$
i82
2024
i1,824
i90
2025
i1,770
i90
2026
i1,575
i71
2027
i1,366
i—
Thereafter
i2,539
i—
Total
Minimum Lease Payments
i10,619
i333
Imputed
Interest
(i1,791)
(i37)
Total
$
i8,828
$
i296
//
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 i104,141
and i128,701 antidilutive RSUs and options outstanding at July 31, 2022 and July 31, 2021, respectively. iThe
following is a reconciliation of basic to diluted weighted average common shares outstanding (in thousands):
Weighted
average common shares outstanding - diluted
i2,807
i2,777
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 2022, the
Company granted i54,279 RSUs under the 2017 Omnibus Incentive Plan ("2017 Plan"). These RSUs include a service component that vests over a ithree-year
period. The recognized expense is based upon the vesting period for service criteria. The Company recorded stock-based compensation expense during the three months ended July 31, 2022 of $i131,000, with the remaining estimated stock-based compensation expense of $i1,424,000
to be recorded over the remaining vesting periods. The Company recorded stock-based compensation expense during the three months ended July 31, 2021 of $i194,000. Directors' fees paid with shares of common stock in lieu of cash in accordance with Director compensation guidelines were $ii41,000/
for each of the three month periods ended July 31, 2022 and July 31, 2021 and were also included in the stock-based compensation on the Condensed Consolidated Statements of Cash Flows.
Ki. Income Taxes
Income tax expense of $i379,000
was recorded for the three months ended July 31, 2022. Income tax expense of $i251,000 was recorded for the three months ended July 31, 2021. The effective tax rate was (i111.5)%
for the three months ended July 31, 2022. The effective tax rate was (i23.8)% for the three months ended July 31, 2021. The change in the effective tax rate for the period is primarily due to the impact of foreign operations which are taxed at different rates than the U.S. tax rate of 21% and the recording of a valuation allowance against the deferred tax asset which resulted in the elimination of any U.S. income tax benefit.
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, China, and Kewaunee Labway India Pvt. Ltd. international subsidiaries. The Company has a deferred tax liability of $i1,042,000
and $i976,000 for the withholding tax related to Kewaunee Labway India Pvt. Ltd. as of July 31, 2022 and April 30, 2022, respectively. The Company recorded all deferred tax assets and liabilities related to its outside basis differences in its foreign subsidiaries
consistent with ASC 740.
10
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, 2022 and July 31, 2021. The Company assumed an expected long-term rate of return of ii7.75/%
for the periods ended July 31, 2022 and July 31, 2021.
i
Pension expense / (income) 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, laminate casework, 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 segments for the periods ended July 31, 2022 and 2021 (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 will adopt this standard in fiscal year 2024. The Company does not expect the adoption of this standard to 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 2022 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 year ended April 30, 2022. The following discussion and analysis describes material changes in the Company's financial condition since April 30,
2022. The analysis of results of operations compares the three months ended July 31, 2022 with the comparable period of the prior year.
Results of Operations
Sales for the quarter were $50,123,000, an increase from sales of $39,493,000 in the comparable period of the prior year. Domestic sales for the quarter were $37,468,000, up 26.3% from sales of $29,663,000 in the comparable period of the prior year. The increase in Domestic sales was predominantly from higher input costs being rolled into product pricing. International sales for the quarter were $12,655,000, up 28.7% from sales of $9,830,000 in the comparable period of the prior year. International sales increased when compared to the prior year period due
to the commencement of delivery of large projects booked in the prior fiscal year.
The gross profit margin for the three months ended July 31, 2022 was 12.4% of sales, as compared to 14.4% of sales in the comparable quarter of the prior year. The decrease in gross profit margin percentage for the three months ended July 31, 2022 is primarily due to nearly 25% of the current period's domestic segment revenue
being attributable to direct orders that, in aggregate, were delivered at a loss for the Company. Most of these projects were tied to contracts that were executed prior to the broad-based inflation experienced over the last fiscal year.
Operating expenses for the three months ended July 31, 2022 were $6,592,000, or 13.2% of sales, as compared to $6,765,000, or 17.1% of sales, in the comparable period of the prior year. The decrease in operating expenses for the three months ended July 31, 2022 was primarily due to reductions in administrative wages, benefits, incentive and stock-based compensation of $630,000, and marketing expense of $128,000, partially
offset by increases in consulting and professional fees of $198,000, corporate governance expenses of $25,000, and increases in international operating expenses of $368,000.
Interest expense, net was $384,000 for the three months ended July 31, 2022, as compared to $106,000 for the comparable period of the prior year. The changes in interest expense were primarily due to changes in the levels of bank borrowings and the Sale-Leaseback financing transaction.
The effective income tax rate for the three months ended July 31, 2022 was (111.5)% as compared to (23.8)% for the three months ended July 31, 2021. Income tax expense of $379,000 and $251,000 was recorded for the three months ended July 31,
2022 and 2021, respectively. The change in the effective tax rate for the three months ended July 31, 2022 reflects the impact of international operations which are taxed at different rates, combined with no U.S. tax benefit being recorded for the most recent quarter due to the Company's full valuation allowance position. 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 increased net loss by $28,000 for the three months ended July 31, 2022, compared to $38,000 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 loss was $747,000, or $(0.27) per diluted share, for the three months ended July 31, 2022, compared to $1,345,000, or $(0.48) 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. In addition, on March 24, 2022, we executed a Sale-Leaseback financing transaction with respect to our manufacturing and corporate facilities in Statesville, North Carolina to provide additional liquidity. See Note G, Sale-Leaseback Financing Transaction for more information. Additionally, certain machinery and equipment are financed by non-cancellable operating leases. The Company believes
that these sources will be sufficient to support ongoing business requirements in the current fiscal year, including capital expenditures.
As previously reported in the
Company's 2022 Annual Report on Form 10-K, the Company was compliant at April 30, 2022 with all of the financial covenants under the revolving credit facility. On June 27, 2022, the Company terminated the Credit Agreement with Wells Fargo, National Bank. At the time of termination, there were no borrowings under the Credit Agreement, and the Company did not incur any material termination penalties as a result
of the termination. For additional information concerning our credit facility, see Note F, Long-Term Debt and Other Credit Arrangements.
The Company provided cash of $3,685,000 during the three months ended July 31, 2022, primarily from an increase in deferred revenue of $10.6 million partially offset by increases in inventory of $1.3 million, accounts payable and other accrued expenses of $2.1 million and other, net of $4.2 million. The increase in deferred revenue is primarily related to advance payments received for a large international order. During the three months ended July
31, 2022, the Company used net cash of $390,000 in investing activities, all of which was used for capital expenditures. The Company's financing activities provided cash of $11,670,000 during the three months ended July 31, 2022, primarily from proceeds of the sale-leaseback financing transaction that was previously recorded as a note receivable at April 30, 2022.
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 increased costs of raw materials, including steel, wood, and epoxy resin, and whether the Company can 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.
In the last quarter, the Company improved the quality of the order backlog by delivering a portion of the lower margin direct sales orders and replacing those orders in the backlog with higher margin product orders. This was accomplished while simultaneously recording a record high order backlog for the fourth time in the past five quarters. It is the Company's expectation that this dynamic will lead to margin expansion as it moves through the fiscal year.
Although
factors such as broad-based inflation, concern about a possible recession, and an ongoing labor shortage continue to create economic uncertainty, the Company remains optimistic about the future based on the strength of the order backlog and the high level of activity in the marketplace.
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 Quarterly 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 and the ongoing impact of the COVID-19 pandemic, 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; and the ultimate impact on the Company of the cyber attack suffered on November 5, 2021. 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 differences 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 2022 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.
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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, 2022.
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, 2022. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that, as of July 31, 2022, the Company's disclosure controls and procedures were adequate and effective and 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 2022 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, 2022 as filed with the SEC on July
1, 2022.
Cover Page Interactive Data File (formatted as Inline XBRL and contained
in Exhibit 101)
(1) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0-5286) for the fiscal year ended April 30, 2022, 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.
