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| KEQU > SEC Filings for KEQU > Form 10-Q on 14-Sep-2012 | All Recent SEC Filings |
14-Sep-2012
Quarterly Report
The Company's 2012 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, 2012. The following discussion and analysis describes material changes in the Company's financial condition since April 30, 2012. The analysis of results of operations compares the three months ended July 31, 2012 with the comparable period of the prior year.
Results of Operations
Sales for the three months ended July 31, 2012 were $26,683,000, an increase from sales of $26,321,000 in the comparable period of the prior year. Sales from Domestic Operations were $22,629,000, down from sales of $23,396,000 in the comparable period of the prior year. The lower domestic sales dollars were expected as part of a strategy underway by the Company to sell more laboratory projects through its strengthened and expanded dealer network. This resulted in increased sales of manufactured products, but lower overall sales, as the dealers provided the related project management, installation, and other service activities, which are typically less profitable for the Company. Sales from International Operations were $4,054,000, up from sales of $2,925,000 in the comparable period of the prior year. The increase was primarily due to the Company's strengthened and expanded international dealer network.
The order backlog was $86.7 million at July 31, 2012, as compared to $86.2 million at April 30, 2012 and $69.7 million at July 31, 2011.
The gross profit margin for the three months ended July 31, 2012 was 19.6% of sales, as compared to 15.9% of sales in the comparable period of the prior year. The increase in the gross profit margin percentages was primarily due to a favorable product mix in the current year period resulting from increased sales of manufactured products and decreased sales of less profitable project management, installation, and other service activities.
Operating expenses for the three months ended July 31, 2012 were $4,138,000, or 15.5% of sales, as compared to $3,955,000, or 15.0% of sales, in the comparable period of the prior year. The increase in expenses in the current year period was primarily due to an increase in expense of $112,000 related to the Company's frozen pension plans.
Interest expense was $114,000 for the three months ended July 31, 2012, as compared to $95,000 for the comparable period of the prior year. The increase for the current year period resulted from slightly higher borrowing interest rates in the current year period.
Income tax expense of $371,000 was recorded for the three months ended July 31, 2012, as compared to income tax expense of $29,000 recorded for the comparable period of the prior year. The effective tax rate was 35.0% for the three months ended July 31, 2012, and was 21.2% for the comparable period of the prior year. The higher effective tax rate for the current year period resulted primarily from a much lower ratio of pretax earnings in the current period attributable to subsidiaries located in geographic locations with lower income tax rates.
Noncontrolling interests related to the Company's two subsidiaries that are not 100% owned by the Company reduced net earnings by $54,000 for the three months ended July 31, 2012, as compared to a reduction of $86,000 for the comparable period of the prior year. The decrease in the current year period was directly related to lower earnings of the Company's two subsidiaries in the current year.
Net earnings were $634,000, or $0.25 per diluted share, for the three months ended July 31, 2012. This compares to net earnings of $22,000, or $0.01 per diluted share, for the comparable period 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 from time to time 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 $24,037,000 at July 31, 2012 compared to $23,358,000 at April 30, 2012. The ratio of current assets to current liabilities was 2.2-to-1.0 at July 31, 2012 and April 30, 2012. At July 31, 2012, advances of $6,501,000 were outstanding under the Company's $15,000,000 bank revolving credit facility, as compared to advances of $6,816,000 outstanding as of April 30, 2012.
The Company's operations provided cash of $2,730,000 during the three months ended July 31, 2012. Cash was primarily provided from earnings, a decrease in accounts receivable of $677,000 and an increase in accounts payable and other accrued expenses of $768,000. The Company's operations used cash of $887,000 during the three months ended July 31, 2011, as cash provided from earnings was offset by a decrease of $1,315,000 in accounts payable and other accrued expenses.
During the three months ended July 31, 2012, net cash of $383,000 was used in investing activities, primarily for capital expenditures. This compares to $659,000 used for investing activities during the three months ended July 31, 2011.
The Company's financing activities used cash of $612,000 during the three months ended July 31, 2012, primarily for repayment of short-term borrowings of $315,000 and cash dividends of $258,000 paid to stockholders. Financing activities provided cash of $1,756,000 during the three months ended July 31, 2011, primarily from an increase in short-term borrowings of $2,084,000, partially offset by cash dividends of $258,000 paid to stockholders.
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 increased costs of raw materials, including stainless steel, wood, and epoxy resin, and whether the Company is able to 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. The Company is also unable to predict the timing and strength of the global economic recovery and its short-term and long-term impact on its operations and the markets in which it competes.
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, customer changes to product designs, customer changes to delivery dates, 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 2012 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 month periods ended July 31, 2012 and July 31, 2011 has been performed by Cherry, Bekaert & Holland, L.L.P., the Company's independent registered public accounting firm. Their report on the interim consolidated financial information follows.
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