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| KEQU > SEC Filings for KEQU > Form 10-Q on 11-Mar-2009 | All Recent SEC Filings |
11-Mar-2009
Quarterly Report
The Company's 2008 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, 2008. The following discussion and analysis describes material changes in the Company's financial condition since April 30, 2008. The analysis of results of operations compares the three and nine months ended January 31, 2009 with the comparable periods of the prior fiscal year.
Results of Operations
Sales for the three months ended January 31, 2009 were $26,023,000, an increase of 19% from sales of $21,883,000 in the same period last year. Sales from Domestic Operations were $22,498,000, an increase of 27% from the prior year period. Sales from Domestic Operations benefited from continuing higher levels of new orders and the strong order backlog. Sales from International Operations were $3,525,000, a decrease of 17% from the prior year period. The decline in International Operations sales resulted primarily from a softer Singapore laboratory furniture market.
Sales for the nine months ended January 31, 2009 were $79,150,000, an increase of 17% from sales of $67,394,000 in the same period last year. Sales from Domestic Operations were $67,296,000, an increase of 21% from the prior year period. Sales from International Operations were $11,854,000, an increase of 2% from the prior year period. The order backlog at January 31, 2009 was $60.7 million, as compared to a backlog of $61.6 million at October 31, 2008 and $58.8 million at January 31, 2008.
The gross profit margin for the three months ended January 31, 2009 was 19.0% of sales, as compared to 22.0% of sales in the comparable quarter of the prior year. The profit margin decrease as compared to the prior year period was primarily due to higher costs for raw materials and energy and differences in the product sales mix, as the current year period included a higher ratio of sales of non-manufactured products and installation services, which typically have lower profit margins than the Company's manufactured products. The gross profit margin for the nine months ended January 31, 2009 was 20.6% of sales, as compared to 21.7% of sales in the comparable quarter of the prior year. The decrease in the gross profit margin for the nine months of the current year was primarily due to higher costs for raw materials and energy and a higher ratio of sales of non-manufactured products and services.
Operating expenses for the three months ended January 31, 2009 were $3,440,000, or 13.2% of sales, as compared to $3,293,000, or 15.0% of sales, in the comparable period of the prior year. Operating expenses for the nine months ended January 31, 2009 were $10,884,000, or 13.8% of sales, as compared to $9,811,000, or 14.6% of sales, in the comparable period of the prior year. The increase in operating expense dollars for the current quarter was primarily due to an increase of $155,000 in administrative salaries, an increase of $75,000 for costs associated with benefit plans, and an increase of $49,000 in depreciation expense. Operating expenses in the current quarter were favorably impacted by a $95,000 reduction in expenses associated with incentive compensation plans and a $125,000 reduction in professional and consulting expenses. The increase in operating expense dollars for the nine months of the current year was primarily due to an increase of $370,000 in administrative salaries, an increase of $213,000 for costs associated with benefit plans, an increase of $178,000 in sales and marketing expenses, and an increase of $130,000 in depreciation expense. Operating expenses for the nine months of the current year were favorably impacted by a $133,000 reduction in professional and consulting expenses as compared to the same period of the prior year.
Operating earnings were $1,494,000 and $5,420,000 for the three and nine months ended January 31, 2009. This compares to operating earnings of $1,526,000 and $4,824,000 for the comparable periods of the prior year.
Interest expense was $49,000 and $231,000 for the three and nine months ended January 31, 2009, respectively, as compared to $86,000 and $302,000 for the comparable periods of the prior year. The decrease in interest expense for the current year periods resulted primarily from lower interest rates paid on advances under our bank credit facility.
The net of other income and other expense was income of $3,000 and expense of $36,000 for the three and nine months ended January 31, 2009, respectively, as compared to expense of $6,000 and $2,000 for the comparable periods of the prior year.
Income tax expense of $488,000 and $1,595,000 was recorded for the three and nine months ended January 31, 2009, respectively, as compared to income tax expense of $421,000 and $1,391,000 recorded for the comparable periods of the prior year. The effective tax rates were 33.7% and 31.0% for the three and nine months ended January 31, 2009, respectively, and were 29.4% and 30.8% for the three and nine months ended January 31, 2008. The effective tax rates for each of the current year and prior year periods were below the statutory tax rates due to the combination of lower income tax rates in the geographic locations of the Company's subsidiaries and the impact of state and federal income tax credits on domestic operations income. The higher effective tax rates for each of the current year periods as compared to the prior year periods were due to a higher portion of taxable earnings in the prior year periods from the Company's subsidiaries located in geographic locations with lower income tax rates.
Minority interests relate to minority shareholders' interest in the Company's two subsidiaries that are not 100% owned by the Company. Minority interests reduced net earnings by $78,000 and $231,000 for the three and nine months ended January 31, 2009, as compared to a reduction of $211,000 and $441,000 for the comparable periods of the prior year. The decrease in minority interests in the current year periods was directly related to lower earnings of the Company's two subsidiaries in the current year.
Net earnings were $882,000, or $0.35 per diluted share, and $3,327,000, or $1.30 per diluted share, for the three and nine months ended January 31, 2009. The compares to net earnings of $802,000, or $0.31 per diluted share, and $2,688,000, or $1.05 per diluted share, for the comparable periods of the prior year.
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 under the Company's revolving credit facility. Additionally, certain machinery and equipment are financed by non-cancellable operating leases or capital leases. The Company believes that these sources will be sufficient to support ongoing business requirements, including capital expenditures through the current fiscal year.
The Company had working capital of $17.7 million at January 31, 2009, compared to $15.9 million at April 30, 2008. The ratio of current assets to current liabilities was 1.9-to-1 at January 31, 2009, unchanged from April 30, 2008. At January 31, 2009, advances of $5,815,000 were outstanding under the Company's bank revolving credit facility, as compared to advances of $4,551,000 outstanding as of April 30, 2008. In October 2008, the Company increased the revolving credit facility from $12 million to $14 million under the same terms and conditions as the $12 million arrangement.
The Company's operations provided cash of $340,000 during the nine months ended January 31, 2009. Cash was provided primarily from operating earnings, which was substantially offset by cash used to fund an increase of $4,800,000 in accounts receivable related to the higher sales volumes. The Company's operations provided cash of $1,992,000 during the nine months ended January 31, 2008. Cash was provided primarily from operating earnings, which was partially offset by an increase in accounts receivable of $914,000 and a decrease in deferred revenue of $962,000.
During the nine months ended January 31, 2009, net cash of $1,074,000 was used in investing activities, primarily for capital expenditures. This compares to the use of $1,825,000 for investing activities in the comparable period of the prior year, primarily for capital expenditures.
The Company's financing activities used cash of $27,000 during the nine months ended January 31, 2009. Cash used included cash dividends of $498,000 paid to minority interest holders of the Company's subsidiaries, cash dividends of $613,000 paid to stockholders, payments on obligations of capital leases of $280,000, and purchases of treasury stock of $198,000. Cash was provided during this period by an increase of $1,264,000 in short-term borrowings and $298,000 in proceeds received from the exercise of stock options. Financing activities used cash of $64,000 in the same period for the prior year, including $530,000 for cash dividends paid to stockholders, and $266,000 for payments on obligations under capital leases. Cash was provided during this period by proceeds of $548,000 from the exercise of stock options and an increase of $184,000 in short-term borrowings.
Outlook for Fourth Quarter of Fiscal Year 2009
While the Company's ability to predict future demand for its products continues to be limited given, among other general economic factors affecting the Company and its markets, the Company's role as subcontractor or supplier to dealers for subcontractors, the Company expects the fourth quarter of fiscal year 2009 to be profitable. In addition to general economic factors affecting the Company and its markets, demand for its products is also dependent upon the number of laboratory construction projects planned and/or current progress in projects already under construction.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements in this report constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could significantly impact results or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, economic, competitive, governmental, and technological factors affecting the Company's operations, markets, products, services, and prices, as well as prices for certain raw materials and energy. The cautionary statements made pursuant to the Reform Act herein and elsewhere by the Company should not be construed as exhaustive. The Company cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. In addition, readers are urged to consider statements that include the terms "believes", "belief", "expects", "plans", "objectives", "anticipates", "intends" or the like to be uncertain and forward-looking. Over time, the Company's actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by the Company's forward-looking statements, and such difference might be significant and harmful to stockholders' interests. Many important factors that could cause such a difference are described under the caption "Risk Factors," in Item 1A of the Company's 2008 Annual Report on Form 10-K.
REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
A review of the interim consolidated financial information included in this Quarterly Report on Form 10-Q for each of the three and nine month periods ended January 31, 2009 and January 31, 2008 has been performed by Cherry, Bekaert & Holland, L.L.P., the Company's registered public accounting firm. Their report on the interim consolidated financial information follows.
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