Kewaunee Scientific (KEQU) - 2021 Q4 - Annual Report

PART I Business Kewaunee Scientific Corporation designs, manufactures, and installs laboratory, healthcare, and technical furniture products for diverse markets, managing risks from cost increases and customer concentration - The company's principal business is the design, manufacture, and installation of laboratory, healthcare, and technical furniture products, including steel, wood, and laminate furniture, fume hoods, and biological safety cabinets[10] - Sales to two domestic dealers and a national distributor accounted for approximately 40% of total sales in fiscal year 2021, indicating significant customer concentration[15] Order Backlog Comparison | Date | Order Backlog (in millions) | | :--- | :--- | | April 30, 2021 | $114.5 | | April 30, 2020 | $100.9 | Research and Development Expenses | Fiscal Year | R&D Expense (in thousands) | | :--- | :--- | | 2021 | $1,406 | | 2020 | $1,816 | Risk Factors The company faces significant risks including financial market disruptions, intense competition, customer concentration, volatile raw material costs, international expansion challenges, cybersecurity threats, and ongoing impacts from the COVID-19 pandemic - The company faces significant risk from customer concentration, as combined sales to two dealers and a national stocking distributor accounted for approximately 40% of sales in fiscal year 2021[30] - Profitability is at risk from increases in raw material (steel, wood, epoxy resin) and energy costs, as prices are normally quoted on a firm basis for future delivery, placing the burden of cost increases on the company[31] - The COVID-19 pandemic poses a continuing risk, potentially causing declines in business activity, supply chain disruptions, and negative impacts on the health of personnel, which could adversely affect business operations and financial results[45][48] - Cybersecurity incidents are a significant risk, as a breach could compromise sensitive data, damage the company's reputation, and lead to operational interruptions, litigation, or potential liability[38][39] - International operations, which accounted for 26% of revenues in fiscal year 2021, expose the company to risks such as political instability, currency fluctuations, and changes in trade regulations[51] Properties The company operates through owned manufacturing facilities and corporate offices in Statesville, North Carolina, totaling 413,000 square feet, and leased distribution, manufacturing, and sales offices globally - The company owns and operates three adjacent manufacturing facilities in Statesville, North Carolina, comprising 413,000 square feet, which also house its corporate offices[52] - Key leased properties include 365,000 square feet of distribution and warehouse space in Statesville, NC, and an 83,000 square foot manufacturing facility in Bangalore, India[52] Legal Proceedings The company is involved in ordinary course legal disputes, which management believes will not materially adversely affect its financial condition or operations - The company believes that any currently pending legal proceedings, which arise in the ordinary course of business, will not have a material adverse effect on its financial results or condition[53] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[54] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NASDAQ Global Market under the symbol KEQU, with no dividends paid in fiscal year 2021 following a suspension in December 2019 - The company's common stock is traded on the NASDAQ Global Market under the symbol KEQU[57] Quarterly Stock Price (KEQU) | Fiscal Year | Quarter | High | Low | | :--- | :--- | :--- | :--- | | 2021 | Q1 | $11.10 | $8.50 | | | Q2 | $11.35 | $8.20 | | | Q3 | $13.45 | $8.08 | | | Q4 | $13.43 | $11.99 | | 2020 | Q1 | $23.00 | $16.18 | | | Q2 | $18.20 | $15.06 | | | Q3 | $19.57 | $12.30 | | | Q4 | $12.80 | $6.96 | - On December 16, 2019, the Board of Directors suspended the company's dividend. No cash dividends were paid in fiscal year 2021, whereas $0.38 per share was paid in fiscal year 2020[58] Selected Financial Data This section summarizes key historical consolidated financial data, showing $147.5 million in net sales for fiscal year 2021, a net loss of $3.7 million, and total assets increasing to $89.4 million Selected Operating Statement Data (in thousands, except per share amounts) | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net sales | $147,469 | $147,540 | | Gross profit | $23,993 | $23,427 | | Operating loss | $(1,316) | $(2,345) | | Net loss attributable to Kewaunee | $(3,672) | $(4,687) | | Basic Net loss per share | $(1.33) | $(1.70) | | Diluted Net loss per share | $(1.33) | $(1.70) | | Cash dividends per share | $— | $0.38 | Selected Balance Sheet Data (as of April 30, in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total assets | $89,384 | $83,929 | | Total borrowings/long-term debt | $16,148 | $13,913 | | Kewaunee Stockholders' equity | $41,241 | $38,415 | Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales remained flat at $147.5 million in fiscal year 2021, with domestic sales decreasing and international sales growing, leading to a narrowed net loss of $3.7 million despite higher raw material costs, while liquidity is expected to be sufficient Fiscal Year Sales Performance (in millions) | Segment | FY 2021 | FY 2020 | Change | | :--- | :--- | :--- | :--- | | Domestic Sales | $111.0 | $115.1 | -3.5% | | International Sales | $36.4 | $32.4 | +12.3% | | Total Sales | $147.5 | $147.5 | ~0% | - Gross profit margin increased to 16.3% in FY2021 from 15.9% in FY2020, driven by improved domestic operating performance and a favorable product mix, which offset higher raw material costs[78] - Operating expenses decreased to $25.3 million in FY2021 from $25.8 million in FY2020, primarily due to reductions in salaries, bad debt expense, and travel, partially offset by increased incentive compensation[79] - Net loss for FY2021 was $3.7 million ($1.33 per diluted share), an improvement from a net loss of $4.7 million ($1.70 per diluted share) in FY2020[84] - Operating activities provided $0.9 million in cash in FY2021, a decrease from $4.2 million in FY2020. The company's working capital decreased to $26.3 million from $27.2 million year-over-year[87][92] - The company anticipates that project awards and construction pace will accelerate as the economy re-opens, but escalating raw material pricing will unfavorably impact near-term earnings on fixed-price contracts[98] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks primarily from interest rates on its floating-rate debt and foreign currency exchange rates due to international operations, with 25% of fiscal year 2021 net sales in non-U.S. dollar currencies - The company has exposure to interest rate risk on its floating-rate bank line of credit, which had $6.8 million in advances outstanding at April 30, 2021[99] - Foreign currency exchange rate risk is present as 25% of net sales in fiscal year 2021 were derived in currencies other than the U.S. dollar[100] - Cash balances held by foreign subsidiaries and denominated in foreign currencies totaled $5.4 million at April 30, 2021[102] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2021 and 2020, including statements of operations, comprehensive income, stockholders' equity, balance sheets, and cash flows, along with detailed notes on accounting policies and financial details Consolidated Statement of Operations Highlights (in thousands) | Line Item | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net sales | $147,469 | $147,540 | | Gross profit | $23,993 | $23,427 | | Operating loss | $(1,316) | $(2,345) | | Net loss attributable to Kewaunee | $(3,672) | $(4,687) | Consolidated Balance Sheet Highlights (in thousands) | Line Item | April 30, 2021 | April 30, 2020 | | :--- | :--- | :--- | | Total Current Assets | $60,457 | $54,231 | | Total Assets | $89,384 | $83,929 | | Total Current Liabilities | $34,181 | $27,060 | | Total Stockholders' Equity | $41,487 | $38,703 | Consolidated Cash Flow Highlights (in thousands) | Line Item | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $912 | $4,161 | | Net cash used in investing activities | $(2,397) | $(2,465) | | Net cash provided by (used in) financing activities | $1,982 | $(7,458) | Disaggregated Revenue (in thousands) | Revenue Recognition | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Over Time | $144,009 | $142,419 | | Point in Time | $3,460 | $5,121 | | Total Revenue | $147,469 | $147,540 | Segment Revenues from External Customers (in thousands) | Segment | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Domestic | $111,035 | $115,103 | | International | $36,434 | $32,437 | | Total | $147,469 | $147,540 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants regarding accounting and financial disclosure - None reported[220] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of April 30, 2021 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of April 30, 2021[221] - Management concluded that the company maintained effective internal control over financial reporting as of April 30, 2021, based on the COSO framework[222] Other Information No other information was reported - None[227] PART III Directors, Executive Officers and Corporate Governance This section details the company's executive officers as of June 30, 2021, with additional information on directors and corporate governance incorporated by reference from the Proxy Statement Executive Officers (as of June 30, 2021) | Name | Age | Position | | :--- | :--- | :--- | | Thomas D. Hull III | 45 | President and Chief Executive Officer | | Donald T. Gardner III | 42 | Vice President, Finance, Chief Financial Officer, Treasurer and Secretary | | Ryan S. Noble | 43 | Vice President, Sales and Marketing—Americas | | Elizabeth D. Phillips | 44 | Vice President, Human Resources | | Kurt P. Rindoks | 63 | Vice President, Global Product Development and Strategic Alliances | | Lisa L. Ryan | 43 | Vice President of Construction Operations | | Mandar Ranade | 47 | Vice President of Information Technology and Engineering | | Douglas J. Batdorff | 48 | Vice President of Manufacturing Operations | | Boopathy Sathyamurthy | 52 | Vice President, Kewaunee Scientific Corporation Singapore Pte. Ltd., Managing Director, International Operations | Executive Compensation Information concerning executive compensation, including compensation tables and agreements, is incorporated by reference from the company's Proxy Statement - All information related to executive compensation is incorporated by reference from the company's Proxy Statement[242] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details equity compensation plans as of April 30, 2021, showing 209,517 securities to be issued upon exercise and 167,136 available for future issuance, with other ownership information incorporated by reference Equity Compensation Plan Information (as of April 30, 2021) | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity Compensation Plans approved by Security Holders | 209,517 | - | 167,136 | | Equity Compensation Plans not approved by Security Holders | — | — | — | | Total | 209,517 | - | 167,136 | Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the company's Proxy Statement - All information related to this item is incorporated by reference from the company's Proxy Statement[244] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement - All information related to principal accountant fees and services is incorporated by reference from the company's Proxy Statement[245] PART IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements and various exhibits filed as part of the Annual Report, with financial statement schedules omitted due to information being disclosed elsewhere - This section lists the consolidated financial statements and exhibits filed with the Form 10-K[247]