-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NeBRoYG6J25OMfveCogILsQiMn005zx3e/BvbTyUZyAN6dpw7OkgzjEm7PELcyp6 GaC8xui+bEz+h20nDSsBBA== 0000950131-98-004518.txt : 19980803 0000950131-98-004518.hdr.sgml : 19980803 ACCESSION NUMBER: 0000950131-98-004518 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980731 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEWAUNEE SCIENTIFIC CORP /DE/ CENTRAL INDEX KEY: 0000055529 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 380715562 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-05286 FILM NUMBER: 98675558 BUSINESS ADDRESS: STREET 1: 2700 W FRONT ST CITY: STATESVILLE STATE: NC ZIP: 28677 BUSINESS PHONE: 7048737202 MAIL ADDRESS: STREET 1: P O BOX 1842 STREET 2: P O BOX 1842 CITY: STATESVILLE STATE: NC ZIP: 28687-1842 FORMER COMPANY: FORMER CONFORMED NAME: KEWAUNEE SCIENTIFIC EQUIPMENT CORP /DE/ DATE OF NAME CHANGE: 19861216 FORMER COMPANY: FORMER CONFORMED NAME: KEWAUNEE MANUFACTURING CO DATE OF NAME CHANGE: 19680108 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 1998 or -------------- [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission file number 0-5286 ------ KEWAUNEE SCIENTIFIC CORPORATION ------------------------------- (Exact name of registrant as specified in its charter) Delaware 38-0715562 - ------------------------------- --------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2700 West Front Street Statesville, North Carolina 28677-2927 - --------------------------- --------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (704) 873-7202 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock $2.50 par value ---------------------------- (Title of Class) 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. Yes X No ___ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of 1,813,609 shares of voting stock held by non- affiliates of the Registrant was approximately $23,576,917 based on the last reported sale price of the Registrant's Common Stock on July 10, 1998. (Only shares beneficially owned by directors of the Registrant (excluding shares subject to options) were excluded as shares held by affiliates. By including or excluding shares owned by anyone, the Registrant does not admit for any other purpose that any person is or is not an affiliate of the Registrant.) As of July 10, 1998, the Registrant had outstanding 2,428,671 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE: Those portions of Kewaunee Scientific Corporation's annual report to stockholders for the fiscal year ended April 30, 1998, and of the proxy statement for use in connection with Kewaunee Scientific Corporation's annual meeting of stockholders to be held on August 26, 1998, indicated in this report are incorporated by reference into Parts I, II and III hereof. 1
Table of Contents Page or Reference ----------------- ----------------- PART I Item 1. Business 3 Item 2. Properties 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 6 Item 6. Selected Financial Data 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 8. Financial Statements and Supplementary Data 6 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 6 PART III Item 10. Directors and Executive Officers of the Registrant 7 Item 11. Executive Compensation 8 Item 12. Security Ownership of Certain Beneficial Owners and Management 8 Item 13. Certain Relationships and Related Transactions 8 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 9 SIGNATURES S-1
2 PART I ITEM 1. BUSINESS - ------------------ GENERAL The principal business of the Registrant is the manufacture and sale of scientific laboratory products, including wood and steel furniture, fumehoods, worksurfaces, sinks and other related accessories for use in chemistry, physics, biology and other general science laboratories. The Registrant also manufactures and sells technical products, including workstations, workbenches, steel cabinetry, worksurfaces and related accessories for computers and light electronic assembly, testing and storage. Sales from these products and revenues from related installation services accounted for 100 percent of the Registrant's sales in each of the fiscal years ended April 30, 1998, 1997 and 1996. The Registrant's laboratory products are sold principally to industrial and commercial research laboratories, educational institutions, health-care institutions and governmental entities. Technical products are sold principally to manufacturing facilities and users of computer and networking furniture. These products are primarily sold through purchase orders and contracts submitted by customers, through the Registrant's dealers and commissioned agents, a national distributor and through competitive bids submitted by the Registrant. It is common in the scientific laboratory furniture industry for customer orders to require delivery at extended future dates, because the products are frequently to be installed in buildings yet to be constructed. Changes or delays in building construction may cause further delays in delivery of the orders. Since prices are normally quoted on a firm basis in the industry, the Registrant bears the burden of possible increases in labor and material costs between receipt of an order and delivery of the product. The need for working capital and the credit practices of the Registrant are comparable to those of other companies selling similar products in similar markets. Payments for products which the Registrant manufactures and installs are received over longer periods of time and require greater working capital than for manufacturers of many products. In addition, payment terms of some building projects allow for a percentage retention amount which extends the collection period of accounts receivable, thus requiring more working capital. The principal raw materials and products manufactured by others used by the Registrant in its products are cold-rolled carbon and stainless steel, hardwood lumber and plywood, paint, chemicals, resins, hardware, plumbing and electrical fittings. Such materials and products are purchased from multiple suppliers and are readily available. The Registrant holds various patents and patent rights but does not consider that its success or growth is dependent upon its patents or patent rights. The Registrant's business is not dependent upon licenses, franchises or concessions. The Registrant's business is not cyclical, although sales are generally lower during the Registrant's third quarter, as construction activity historically slows during the winter months. The Registrant's business is not dependent on any one or a few customers; however, sales to VWR Scientific Products represented 13 percent of the Registrant's total sales in fiscal years 1998 and 14 percent in fiscal years 1997 and 1996. 3 The Registrant's sales backlog as of April 30, 1998 was $24.9 million compared to $24.2 million and $23.2 million as of April 30, 1997 and 1996, respectively. All but $1.8 million of the backlog as of the beginning of the current fiscal year is scheduled for shipment during the year; however, it may reasonably be expected that delays in shipments will occur because of customer rescheduling or delay in completion of buildings in which the Registrant's products are to be installed. Based on past experience, the Registrant expects that more than 90 percent of its backlog scheduled for shipment in the current fiscal year will be shipped in the current fiscal year. COMPETITION The Registrant considers the industries in which it competes to be highly competitive and believes that the principal competitive factors are price, product performance, and customer service. A significant portion of the business of the Registrant is based upon competitive public bidding. RESEARCH AND DEVELOPMENT The amount spent during the fiscal year ended April 30, 1998 on company-sponsored research and development activities related to new products or services or improvement of existing products or services was $822,132. The amounts spent for similar purposes in the fiscal years ended April 30, 1997 and 1996 were $663,996 and $591,472, respectively. Seven professional employees were engaged in such research at April 30, 1998. ENVIRONMENTAL COMPLIANCE In the last three fiscal years, compliance with federal, state or local provisions enacted or adopted regulating the discharge of materials into the environment has had no material effect on the Registrant. There are no material capital expenditures anticipated for such purposes, and no material effect therefrom is anticipated on the earnings or competitive position of the Registrant. EMPLOYEES The number of persons employed by the Registrant at April 30, 1998 was 619. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements included and referenced in this report, including the Letter to Stockholders, narrative text, captions and Management's Discussion and Analysis of Financial Condition and Results of Operations, 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. The cautionary statements made pursuant to the Reform Act herein and elsewhere by the Company should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Reform Act. 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. 4 ITEM 2. PROPERTIES - -------------------- The Registrant owns and operates three plants in Statesville, North Carolina and one in Lockhart, Texas. The plants are involved in the production of the Registrant's products. The plants in Statesville, North Carolina are located in three separate adjacent buildings which contain manufacturing facilities. Sales and marketing, administration, engineering and drafting personnel and facilities are also located in two of the three buildings. The Registrant's corporate offices are located in the largest building. The plant buildings together comprise approximately 382,000 square feet and are located on approximately 20 acres of land. In addition, the Registrant leases a warehouse of 22,000 square feet in Statesville, North Carolina. The plant in Lockhart, Texas is housed in a building of approximately 129,000 square feet located on approximately 30 acres. In addition, a separate 10,000 square foot office building on this site houses certain administrative personnel. All of the facilities which the Registrant owns are held free and clear of any encumbrances. The Registrant believes its facilities are suitable for their respective uses and are adequate for its current needs. ITEM 3. LEGAL PROCEEDINGS - --------------------------- Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------- Not Applicable. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED - ----------------------------------------------------------- STOCKHOLDER MATTERS ------------------- Incorporated by reference from the Registrant's annual report to stockholders for the fiscal year ended April 30, 1998, page 19, sections entitled "Range of Market Prices" and "Quarterly Financial Data". As of July 10, 1998, the Registrant estimates there were approximately 1,500 stockholders of Kewaunee common shares, of which 364 were stockholders of record. ITEM 6. SELECTED FINANCIAL DATA - --------------------------------- Incorporated by reference from the Registrant's annual report to stockholders for the fiscal year ended April 30, 1998, page 18, section entitled "Summary of Selected Financial Data". ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ----------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- Incorporated by reference from the Registrant's annual report to stockholders for the fiscal year ended April 30, 1998, pages 6-7, section entitled "Management's Discussion and Analysis". ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------- Incorporated by reference from the Registrant's annual report to stockholders for the fiscal year ended April 30, 1998, pages 8-17. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON - ---------------------------------------------------------- ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------- On August 27, 1997, the Company's Board of Directors, at the recommendation of the Audit Committee of the Board of Directors, engaged the firm of Price Waterhouse LLP as its new independent accountants. Previously, Deloitte & Touche LLP served as the independent accountants for the Company. In connection with the audits of the two fiscal years ended April 30, 1996 and 1997 and the subsequent interim period, there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or audit scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement. In accordance with Item 304(a)(1)(v) of Regulation S-K, during the two most recent fiscal years and the subsequent interim period, the Company has not been advised by Deloitte & Touche LLP of any of the reportable events listed in Item 304(a)(1)(v)(A) through (D) and during such period the Company has not consulted with Price Waterhouse LLP regarding any matter referenced under Item 304(a)(2) of Regulation S-K. The audit reports of Deloitte & Touche LLP on the consolidated financial statements of the Company of and for the fiscal years ended April 30, 1996 and 1997 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. Deloitte & Touche LLP has furnished the Company with a letter, addressed to the Securities and Exchange Commission (the "Commission"), stating it agrees with the statements made by the Company in the Company's Current Report on Form 8-K dated August 27, 1997. 6 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ (a) Incorporated by reference from the Registrant's proxy statement for use in connection with its annual meeting of stockholders to be held on August 26, 1998, pages 1-4, section entitled "Election of Directors". (b) The names and ages of the Registrant's executive officers and their business experience during the past five years are set forth below: Executive Officers of the Registrant ------------------------------------
Name Age Position - ---- --- -------- Eli Manchester, Jr. 67 President and Chief Executive Officer William A. Shumaker 50 Vice President and General Manager-Laboratory Products Group T. Ronald Gewin 55 Vice President and General Manager Technical Products Group D. Michael Parker 46 Vice President-Finance, Chief Financial Officer, Treasurer and Secretary James J. Rossi 56 Vice President-Human Resources Kurt P. Rindoks 40 Vice President of Engineering and General Manager of the Resin Materials Division - Laboratory Products Group
Eli Manchester, Jr. was elected a director of the Registrant in November 1990. He was elected President and Chief Executive Officer of the Registrant on July 11, 1990. William A. Shumaker joined the Registrant in December 1993 as Vice President of Sales and Marketing. Mr. Shumaker has served as Vice President and General Manager of the Laboratory Products Group since February 1998. Prior to joining the Registrant, Mr. Shumaker was with the St. Charles Companies of St. Charles, Illinois, where he served as Vice President of Sales and Marketing with their Institutional Division from 1989 to 1993 and held various other sales and customer service positions from 1969 through 1989. T. Ronald Gewin joined the Registrant in December 1992 as Vice President of Manufacturing and has served as Vice President and General Manager of the Technical Products Group since January 1996. Prior to joining the Registrant, Mr. Gewin was General Manager of a Division of the Grinnell Corporation from 1990 to 1992. D. Michael Parker joined the Registrant in November 1990 as Director of Financial Reporting and Accounting and was promoted to Corporate Controller in November 1991. Mr. Parker has served as Vice President of Finance, Chief Financial Officer, Treasurer and Secretary since August 1995. James J. Rossi joined the Registrant in March 1984 as Corporate Director of Human Resources and has served as Vice President of Human Resources since January 1996. 7 Kurt P. Rindoks joined the Registrant in July 1985 as an engineer and was promoted to Director of Engineering in July 1989 and to Director of Product Development in May 1992. He served as Vice President of Engineering and New Product Development for the Laboratory Products Group from September 1996 through April 1998 and has served as Vice President of Engineering and General Manager of the Resin Materials Division for the Laboratory Products Group since May 1998. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- Incorporated by reference from the Registrant's proxy statement for use in connection with its annual meeting of stockholders to be held on August 26, 1998, pages 5-7, section entitled "Executive Compensation," pages 8-9, section entitled "Compensation Committee Report on Executive Compensation," and page 11, section entitled "Agreements with Certain Executives". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS - --------------------------------------------------------- AND MANAGEMENT -------------- Incorporated by reference from the Registrant's proxy statement for use in connection with its annual meeting of stockholders to be held on August 26, 1998, pages 12-13, sections entitled "Security Ownership of Directors and Executive Officers" and "Security Ownership of Certain Beneficial Owners". ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- Incorporated by reference from the Registrant's proxy statement for use in connection with its annual meeting of stockholders to be held on August 26, 1998, pages 1-4, section entitled "Election of Directors" and page 11, section entitled "Agreements with Certain Executives." 8 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS - ------------------------------------------------------------- ON FORM 8-K ----------- The following documents are filed or incorporated by reference as part of this report:
Page or (a)(1) Financial Statements Reference -------------------- --------- Statements of Operations Years ended April 30, 1998, 1997 and 1996 8* Statements of Retained Earnings Years ended April 30, 1998, 1997 and 1996 8* Balance Sheets - April 30, 1998 and 1997 9* Statements of Cash Flows - Years ended April 30, 1998, 1997 and 1996 10* Notes to Financial Statements 11-16* Report of Independent Accountants 17* (a)(2) Financial Statement Schedule ---------------------------- Report of Independent Accountants on Financial Statement Schedules 10 Schedule II - Valuation and Qualifying Accounts 11-12
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (a)(3) Exhibits -------- Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index which is attached hereto at pages S-2 through S-5 and which is incorporated herein by reference. (b) Reports on Form 8-K ------------------- The Company filed a Current Report on Form 8-K dated August 27, 1997 to reflect (i) the dismissal of Deloitte & Touche LLP as the Company's independent accountants and (ii) the engagement of Price Waterhouse LLP to serve as the Company's independent accountants, all pursuant to Item 4 of Form 8-K. ____________________ * Matters incorporated by reference from the Registrant's annual report to stockholders for the year ended April 30, 1998. 9 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To The Board of Directors of Kewaunee Scientific Corporation Our audit of the financial statements referred to in our report dated June 1, 1998 appearing in the 1998 Annual Report to Shareholders of Kewaunee Scientific Corporation (which report and financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of Page 1 of the Financial Statement Schedule listed in item 14(a)(2) and appearing in this Form 10-K. In our opinion, Page 1 of this Financial Statement Schedule related to fiscal year ended April 30, 1998 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. The information on Page 2 of the Financial Statement Schedule, related to fiscal years ended April 30, 1997 and 1996, appearing in this Form 10-K was audited by other independent accountants whose report dated June 4, 1997 expressed an unqualified opinion thereon. PRICE WATERHOUSE LLP Charlotte, North Carolina June 1, 1998 10 Schedule II, Page 1 Kewaunee Scientific Corporation Valuation and Qualifying Accounts ($ in thousands)
Charged Balance (Credited) at to Costs Balance Beginning and at End Description of Period Expenses Deductions* of Period - ----------- --------- ---------- ------------ --------- Year ended April 30, 1998 Allowance for doubtful accounts $770 $301 $(415) $656 ========= ========= =========== =========
* Uncollectible accounts written off, net of recoveries. 11 Schedule II, Page 2 Kewaunee Scientific Corporation Valuation and Qualifying Accounts ($ in thousands)
Charged Balance (Credited) at to Costs Balance Beginning and at End Description of Period Expenses Deductions* of Period - ----------- --------- ---------- ------------ --------- Year ended April 30, 1997 Allowance for doubtful accounts $561 $298 $( 89) $770 ========= ========= =========== ========= Year ended April 30, 1996 Allowance for doubtful accounts $624 $186 $(249) $561 ========= ========= =========== =========
* Uncollectible accounts written off, net of recoveries. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. KEWAUNEE SCIENTIFIC CORPORATION By: /s/ Eli Manchester, Jr. ------------------------ Eli Manchester, Jr. President and Chief Executive Officer Date: July 24, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. (i) Principal Executive Officer ) ) /s/ Eli Manchester, Jr. ) ------------------------------------- ) Eli Manchester, Jr. ) President and Chief Executive Officer ) ) (ii) Principal Financial and Accounting Officer ) ) /s/ D. Michael Parker ) ------------------------------------- ) D. Michael Parker ) Vice President-Finance, Chief Financial Officer ) Treasurer and Secretary ) ) (iii) A majority of the Board of Directors: ) July 24, 1998 ) ) /s/ Margaret Barr Bruemmer /s/ Eli Manchester, Jr. ) - ---------------------------- ------------------------- ) Margaret Barr Bruemmer Eli Manchester, Jr. ) ) ) /s/ Wiley N. Caldwell /s/ James T. Rhind ) - ------------------------- ------------------- ) Wiley N. Caldwell James T. Rhind ) ) ) /s/ John C. Campbell, Jr. /s/ Thomas F. Pyle ) - ---------------------------- ------------------- ) John C. Campbell, Jr. Thomas F. Pyle ) ) ) /s/ Kingman Douglass ) - --------------------- ) Kingman Douglass ) S-1 KEWAUNEE SCIENTIFIC CORPORATION Exhibit Index -------------
Page Number (or Reference) -------------- 3 Articles of incorporation and by-laws 3.1 Restated Certificate of incorporation (as amended) (3) 3.2 By-Laws (as amended as of August 28, 1991) (6) 10 Material Contracts 10.9 Kewaunee Scientific Corporation Supplemental Retirement Plan (4) 10.13 Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Salaried Employees (2) 10.13A First Amendment dated June 4, 1996 to the Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Salaried Employees (14) 10.13B Second Amendment dated November 19, 1996 to the Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Salaried Employees (14) 10.14 Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Hourly Employees (2) 10.14A First Amendment dated August 27, 1996 to the Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Hourly Employees (14) 10.14B Second Amendment dated November 19, 1996 to the Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Hourly Employees (14) 10.19 Kewaunee Scientific Corporation 1991 Key Employee Stock Option Plan (5)
___________________ All footnotes located on page S-5 S-2
Page Number (or Reference) -------------- 10.19A Amendment dated August 28, 1996 to the Key Employee Stock Option Plan (12) 10.21 Kewaunee Scientific Corporation Executive Deferred Compensation Plan (6) 10.21A Second Amendment dated June 17, 1997 to the Kewaunee Scientific Corporation Executive Deferred Compensation Plan (1) 10.21B Third Amendment dated June 17, 1997 to the Kewaunee Scientific Corporation Executive Deferred Compensation Plan (1) 10.23 Employment Agreement dated as of December 8, 1992 between T. Ronald Gewin and the Registrant (7) 10.25 Employment Agreement dated as of December 7, 1993 between William A. Shumaker and the Registrant (9) 10.26 Kewaunee Scientific Corporation Stock Option (8) Plan for Directors 10.27 Agreement dated as of December 14, 1994 between T. Ronald Gewin and the Registrant (10) 10.28 Accounts Receivable Financing Agreement dated as of January 6, 1995 between the CIT Group/ Business Credit, Inc. and the Registrant (10) 10.29 Accounts Receivable Financing Agreement Supplement Inventory dated as of January 6, 1995 between The CIT Group/ Business Credit, Inc. and the Registrant (10) 10.34 401(K) Incentive Savings Plan for Salaried and Hourly Employees of Kewaunee Scientific Corporation (11) 10.34A Amendments (2) dated June 17, 1997 to the 401(k) Incentive Savings plan for Salaried and Hourly Employees of Kewaunee Scientific Corporation (1) 10.35 Amendment dated September 26, 1996 to the Financing and Security Agreements dated January 6, 1995 between the CIT Group/ Business Credit, Inc. and the Registrant (13)
___________________ All footnotes located on page S-5 S-3
Page Number (or Reference) -------------- 10.36 Agreement dated September 17, 1996 between D. Michael Parker and the Registrant (14) 10.37 Fiscal Year 1999 Incentive Bonus Plan (1) 13 Annual Report to Stockholders for the fiscal year ended April 30, 1998 (Such Report, except to the extent incorporated herein by reference, is being furnished for the information of the Securities and Exchange Commission only and is not deemed filed as a part of this annual report on Form 10-K) (1) 27 Financial Data Schedule (1)
(All other exhibits are either inapplicable or not required.) ________________ All footnotes located on page S-5 S-4 Footnotes --------- (1) Appearing only in the manually signed, original Form 10-K filed with the Securities and Exchange Commission. (2) 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, 1987, and incorporated herein by reference. (3) 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, 1985, and incorporated herein by reference. (4) 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, 1985, and incorporated herein by reference. (5) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement dated July 26, 1991, and incorporated herein by reference. (6) 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, 1992, and incorporated herein by reference. (7) 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, 1993, and incorporated herein by reference. (8) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement dated July 23, 1993, and incorporated herein by reference. (9) 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, 1994, and incorporated herein by reference. (10) 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, 1995, and incorporated herein by reference. (11) 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, 1996, and incorporated herein by reference. (12) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement dated July 31, 1996, and incorporated herein by reference. (13) Filed as an exhibit to the Kewaunee Scientific Corporation Form 10-Q for the quarterly period ended January 31, 1997, and incorporated herein by reference. (14) 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, 1997, and incorporated herein by reference. ___________________ All footnotes located on page S-5 S-5 EX-10.21A 2 2ND AMENDMENT DEFERRED COMPENSATION PLAN EXHIBIT 10.21A KEWAUNEE SCIENTIFIC CORPORATION COMPENSATION COMMITTEE MEETING JUNE 17, 1997 401+ PLAN RESOLUTION RESOLVED, that the Kewaunee Scientific Corporation Executive Deferred Compensation Plan be amended by the adoption of an amendment in the form attached hereto as Exhibit 7. FURTHER RESOLVED, that the officers of the Corporation are authorized to take such action as they may determine to be necessary or appropriate to implement the foregoing resolutions. EXHIBIT 7 SECOND AMENDMENT TO THE KEWAUNEE SCIENTIFIC CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN THE Kewaunee Scientific Corporation Executive Deferred Compensation Plan (the "Plan"), as adopted effective January 1, 1992, is hereby amended as follows, pursuant to the authority retained by the Company pursuant to Article VII thereof: 1. The third sentence of Section 2.2 of the Plan is amended by striking out the phrase "the Company's Incentive Savings Plan" and by substituting the phrase "the 401K Incentive Savings Plan for Salaried and Hourly Employees of Kewaunee Scientific Corporation, as amended from time to time (the 'Incentive Savings Plan')." 2. The second sentence of Section 3.1 is amended to read as follows: "Such amount or rate of compensation deferred shall not exceed the excess of (i) ten percent of the Participant's compensation over (ii) the maximum amount of Deferral Contributions that the Participant is authorized to elect for the Plan Year under the Incentive Savings Plan." 3. The amendments made herein shall take effect on a date determined by the Committee, not later than January 1, 1998. 4. In all other respects, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed this ___ day of June, 1997. KEWAUNEE SCIENTIFIC CORPORATION By: ___________________________ Its: __________________________ EX-10.21B 3 3RD AMENDMENT DEFERRED COMPENSATION PLAN EXHIBIT 10.21B KEWAUNEE SCIENTIFIC CORPORATION COMPENSATION COMMITTEE MEETING JUNE 17, 1997 401+ PLAN RESOLUTION RESOLVED, that the Kewaunee Scientific Corporation Executive Deferred Compensation Plan be amended by the adoption of an amendment in the form attached hereto as Exhibit 8. FURTHER RESOLVED, that the officers of the Corporation are authorized to take such action as they may determine to be necessary or appropriate to implement the foregoing resolutions. EXHIBIT 8 THIRD AMENDMENT TO THE KEWAUNEE SCIENTIFIC CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN THE Kewaunee Scientific Corporation Executive Deferred Compensation Plan (the "Plan"), as adopted effective January 1, 1992, is hereby amended as follows, pursuant to the authority retained by the Company pursuant to Article VII thereof: 1. The third sentence of Section 2.2 of the Plan is amended by striking out the phrase "the Company's Incentive Savings Plan" and by substituting the phrase "the 401K Incentive Savings Plan for Salaried and Hourly Employees of Kewaunee Scientific Corporation, as amended from time to time (the 'Incentive Savings Plan')." 2. The first sentence of Section 4.1 is amended to read as follows: "Each Plan Year the Company shall make supplemental matching contributions on behalf of each Participant in an amount equal to 50 percent of the Participant's pay deferral contributions under Section 3.1 for such Plan Year but not to exceed (i) four percent of the Participant's compensation for the Plan Year (determined without regard to any limit on the total amount of compensation that may be considered under the Company's Incentive Savings Plan) reduced by (ii) the amount of Matching Contributions made on behalf of the Participant under the Company's Incentive Savings Plan for the Plan Year." 3. The amendments made herein shall take effect on a date determined by the Committee, not later than January 1, 1998. If the amendment takes effect prior to January 1, 1998, the Committee may allow all Participants a one-time election to increase the amount of their pay deferrals on a prospective basis under Section 3.1 in order to take advantage of such amendments, which election may provide for a deferral at a rate for a portion of the Plan Year that exceeds the maximum rate permitted by Section 3.1, provided that the Participant's deferral for the entire Plan Year does not exceed the limits of Section 3.1, as amended. 4. In all other respects, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed this ___ day of June, 1997. KEWAUNEE SCIENTIFIC CORPORATION By: __________________________________ Its: _________________________________ EX-10.34A 4 AMENDMENT TO 401 INCENTIVE SAVINGS EXHIBIT 10.34A KEWAUNEE SCIENTIFIC CORPORATION COMPENSATION COMMITTEE MEETING JUNE 17, 1997 401(K) PLAN RESOLUTION RESOLVED, that the Corporation's 401K Incentive Savings Plan for Salaried and Hourly Employees of Kewaunee Scientific Corporation be amended by executing an amended Adoption Agreement for the "Corporate Plan for Retirement" prototype plan sponsored by Fidelity Management and Research Company, in which "10%" shall be substituted for "8%" as the maximum permitted Deferral Contributions in Item 1.05(b). FURTHER RESOLVED, that said amendment shall be implemented as soon as administratively feasible after the adoption of the foregoing resolution. FURTHER RESOLVED, that the officers of the Corporation are authorized to take such action as they may determine to be necessary or appropriate to implement the foregoing resolutions, including the execution of an amended adoption agreement specified by Fidelity which may be different in form than the adoption agreement described above. KEWAUNEE SCIENTIFIC CORPORATION COMPENSATION COMMITTEE MEETING JUNE 17, 1997 401(K) PLAN RESOLUTION RESOLVED, that the Corporation's 401K Incentive Savings Plan for Salaried and Hourly Employees of Kewaunee Scientific Corporation be amended by executing an amended Adoption Agreement for the "Corporate Plan for Retirement" prototype plan sponsored by Fidelity Management and Research Company, in which The Founders Balanced Fund, the Fidelity Low-Priced Stock Fund, and the Janus World Wide Fund shall be added as additional permitted investment options under Section 1.14(b). FURTHER RESOLVED, that said amendment shall be implemented as soon as administratively feasible after the adoption of the foregoing resolution. FURTHER RESOLVED, that the officers of the Corporation are authorized to take such action as they may determine to be necessary or appropriate to implement the foregoing resolutions, including the execution of an amended adoption agreement specified by Fidelity which may be different in form than the adoption agreement described above, with the requirement that a significant education program is in place to introduce the new funds to participants. EX-10.37 5 FISCAL YEAR 1999 INCENTIVE PLAN EXHIBIT 10.37 KEWAUNEE SCIENTIFIC CORPORATION FISCAL YEAR 1999 INCENTIVE BONUS PLAN The Fiscal Year 1999 Incentive Bonus Plan (the Plan) will provide for a bonus pool and bonus payouts based upon achievement of various levels of pre-tax earnings (after bonus accruals) for the year and other conditions described herein, as approved by the Company's Board of Directors. The Plan is proposed as a one-year plan for Fiscal Year 1999. The provisions of the Plan are: 1. ELIGIBILITY OF PARTICIPANTS TO SHARE IN THE BONUS POOL ------------------------------------------------------ a. Eligible participants of the Plan will be nominated by the President and approved by the Board of Directors, upon recommendation by the Compensation Committee. The bonus potential percentages for each participant in the Plan will also be approved by the Board of Directors, upon recommendation by the Compensation Committee. b. Each participant will be eligible to share in the pool up to the specified percentage of his or her May 1, 1998 base salary. c. In addition to individuals reporting directly to the President, managers fulfilling the following criteria are eligible to participate in the Plan: 1. Salary Grade 14 or above; 2. Seniority of one year or more; 3. Is not currently in another incentive plan (e.g., sales plan); 4. Is a direct report to a direct report to the President; or 5. Is a manager recommended by the President. d. Participants in the Plan and their applicable bonus potential amounts are shown on Exhibits II, III, and IV to the Company's FY 1999 Bonus Schedules (all Exhibits referred to in this Plan are exhibits to such Schedules). 2. BUILDING OF A BONUS POOL ------------------------ a. Division Pools -------------- The divisions (the Laboratory Products Group and the Technical Products Group) will start to accrue pools for potential bonus payouts once pre-tax operating earnings of each division reach the amounts shown as Goal 1 on Exhibits II and III, and maximum incentive bonus payouts will be accrued and available for payout based upon the guidelines shown on those exhibits. 1 b. Non-divisional Corporate Pool ----------------------------- A pool will start accumulating once pre-tax earnings reach the amounts shown on Exhibit IV, and maximum bonus payouts will be accrued and available for payout based upon the guidelines shown on that exhibit. 3. BONUS PAYOUT CONDITIONS ----------------------- If the Company achieves pre-tax earnings less than the amount shown as Goal 1 on Exhibit IV, no awards will be paid to any non-divisional corporate employee, except in the discretion of the Board of Directors, upon recommendation by the Compensation Committee. If a division achieves pre-tax earnings less than the amounts shown for it as Goal 1 on Exhibits II or III, no awards will be paid to its employees except in the discretion of the Board of Directors, upon recommendation by the Compensation Committee. All division participants who are not members of the Company's Policy Committee will earn their awards dependent on their division's performance and their individual MBO performance. If the Company achieves pre-tax earnings less than the amount shown as Goal 3 on Exhibit IV, division participants who are members of the Policy Committee will receive only 75% of what they otherwise might have received, except at the discretion of the Board of Directors, upon recommendation by the Compensation Committee. Beginning with the achievement of Goal 1, the bonus potential percentage for each participant is linear with the increase in pre-tax earnings, up to the individual's maximum bonus potential percentage. Positive or negative financial adjustments outside the control of management (such as, but not limited to, proceeds from insurance claims, gains or losses from the sale of capital assets, adoption of new generally accepted accounting pronouncements, etc.) will be assessed by the Board of Directors and the pre-tax earnings under the Plan may be adjusted for these items. Any portion of the bonus pool not awarded to participants will be retained by the Company. If a participant transfers between performance entities during the year, his or her incentive compensation will be based on the performance of the respective entities on a pro rata basis from his or her transfer date as determined by the President. 2 A participant must be an employee of the Company on the day of the bonus payout to be eligible to receive a bonus. In unusual circumstances, however, the Board of Directors, upon recommendation by the Compensation Committee, may grant a discretionary bonus. The Board of Directors, upon recommendation by the Compensation Committee, may approve the pro rata participation of a participant who joins the Company or who is appointed to a key position within the Company after the outset of the Plan year, with a pro rata increase in the bonus pool. 4. PARTICIPANT'S BONUS POTENTIAL ----------------------------- Each participant's bonus potential will be comprised of the following: A Fixed Bonus equal to 75% of each participant's bonus potential will be based on achievement of corporate or divisional pre-tax earnings goals, as set forth in the Plan, and A Discretionary Bonus up to the remaining 25% of each participant's bonus potential will be calculated taking into account the participant's MBO achievements and other relevant factors during the year. The discretionary portion of each participant's bonus will take into account the participant's achievement of management goals established, and weighted, in July 1998, and approved by the President. The degree of achievement of these goals will be recommended by each participant's manager immediately subsequent to April 30, 1999, and the discretionary bonus, if any, will then be determined and awarded at the discretion of the Board of Directors, upon recommendation by the President and the Compensation Committee. . Special situation: Because of key planned improvements in the Statesville Metal Plant, the fixed and discretionary bonus potential weightings for the Director of Manufacturing will be 50-50, rather than 75% and 25%. 5. The Plan may be amended at any time by the Board of Directors. 3 EX-13 6 ANNUAL REPORT TO STOCKHOLDERS EXHIBIT 13 [COMPANY LOGO APPEARS HERE] [PICTURE OF LAB EQUIPMENT APPEARS HERE] [GRAPH OF EARNINGS BEFORE INCOME TAXES APPEARS HERE] [GRAPH OF CLOSING STOCK PRICE APPEARS HERE] CORPORATE PROFILE ================================================================================ Kewaunee Scientific Corporation, a recognized leader in the design, manufacture, and installation of scientific furniture, has provided innovative products of high quality utilized in laboratories and computer facilities worldwide for 92 years. The Company's corporate headquarters are located in Statesville, North Carolina. The Laboratory Products Group manufacturing facilities, also located in Statesville, North Carolina, produce steel and wood laboratory furniture, fume hoods, flexible systems, and worksurfaces. The Technical Products Group manufacturing facility located in Lockhart, Texas produces technical workstations, workbenches, computer enclosures, and related accessories for the assembly, testing, and storage of local area networks and light electronics. Financial Highlights =============================================================================== Kewaunee Scientific Corporation
Percent $ in thousands, except per share data 1998 1997 Change - ------------------------------------------------------------------------------------------------------------- Operating Data: Net sales $73,037 $61,961 +17.9 - ------------------------------------------------------------------------------------------------------------- Gross profit 17,437 13,965 +24.9 Operating earnings 4,341 2,469 +75.8 Percent of sales 5.9% 4.0% - ------------------------------------------------------------------------------------------------------------- Interest expense 149 344 -56.7 Earnings before income taxes 4,237 2,166 +95.6 - ------------------------------------------------------------------------------------------------------------- Income tax expense (benefit) 1,674 (97) - ------------------------------------------------------------------------------------------------------------- Net earnings 2,563 2,263 +13.3 - ------------------------------------------------------------------------------------------------------------- Net earnings per share Basic $ 1.07 $ .96 +11.5 Diluted $ 1.06 $ .95 +11.6 - ------------------------------------------------------------------------------------------------------------- Return on average equity 14.4% 14.6% - ------------------------------------------------------------------------------------------------------------- Cash dividends per share $ 0.18 0.08 +125.0 - ------------------------------------------------------------------------------------------------------------- Year-end Data: Net working capital $ 9,566 $ 7,005 +36.6 - ------------------------------------------------------------------------------------------------------------- Total borrowings/long-term debt - - - ------------------------------------------------------------------------------------------------------------- Stockholders' equity $19,039 $16,586 +14.8 - ------------------------------------------------------------------------------------------------------------- Book value per share $ 7.89 $ 7.01 +12.6 - ------------------------------------------------------------------------------------------------------------- Closing market price per share $12.625 $ 5.125 +146.3 - -------------------------------------------------------------------------------------------------------------
Table of Contents =============================================================================== 2 Letter to our Stockholders 4 Product Profiles 6 Forward Looking Statement Disclosure 6 Management's Discussion and Analysis 8 Financial Statements and Notes 17 Reports of Independent Accountants and Management 18 Summary of Selected Financial Data 19 Quarterly Financial Data 20 Corporate Information Page 1 LETTER TO OUR STOCKHOLDERS ================================================================================ I am pleased to report to you on our progress during fiscal year 1998. The past year marked Kewaunee's ninety-second year in providing innovative products of high quality to the laboratory furniture marketplace and, more recently, computer facilities. Pretax earnings for the year climbed to $4,237,000, up 96% from pretax earnings of $2,166,000 last year. Earnings after taxes for the year were $2,563,000, or $1.06 per diluted share. Earnings after taxes for fiscal year 1997, which were increased by a tax benefit, were $2,263,000 or $.95 per diluted share. Sales for the year increased to $73,037,000, up 18% from $61,961,000 last year. Assisted by a vibrant U.S. economy, the marketplace for our products remained strong during the year. Our strengthened sales network, combined with the excellent acceptance of our new products, allowed us to take advantage of this improved marketplace. Particularly pleasing in the year's results was our strong performance in the fourth quarter, allowing us to enter fiscal year 1999 with excellent momentum. Pretax earnings for the quarter of $1,432,000 and sales of $19,600,000 were up 108% and 31%, respectively, over the comparable quarter last year. The fourth quarter represented our eighth consecutive quarter of improved pretax earnings and sales over the comparable quarter of the previous year. Our balance sheet continued its improvement during the year, and we ended the year with stockholders' equity of $19.0 million, no debt, and $1.8 million in cash. Our improved financial condition provides us with increased flexibility to fund future growth and capital improvements, without compromising financial performance. The current year's progress was not the result of any one factor or strategy, but the continuation of several strategies previously put in place. We now are seeing the benefits of our increased emphasis on the development of new products. Sales under our new Research Collection(R) line of steel furniture, our new Alpha(R) System 2000 with modular components, and our Evolution(R) for LANs furniture that supports computer equipment, all met our sales expectations for the year. We expect sales of these products to become increasingly more valuable to us. Our product development efforts also have led to the recent introduction of Kemresin(R) Lite, a premium laboratory countertop. We think this can be one of the most promising new products to become available to the laboratory furniture marketplace in recent years. In the past, the focal point of the laboratory countertop was its chemical resistance. Kemresin Lite, however, is unique in that it provides the customer not only outstanding chemical resistance, but has a renewable surface, comes in a variety of colors, and is lighter in weight. The surface can be restored using conventional cleaning methods and is joined together with nearly invisible seams. We are able to offer this product to our customers at a price substantially below our traditional epoxy resin countertops. Although we do not anticipate this product will have a significant impact on our fiscal year 1999 results, we feel that it has the potential to set a new standard for countertops in the laboratory market, thus benefiting us in future years. We continued to reduce manufacturing costs and improve productivity during the year through the increased usage of computerized manufacturing machinery, design and manufacturing refinements to our products, as well as improved manufacturing processes and systems. We spent $1.5 million for capital improvements during the year, primarily for production equipment. We expect to accelerate our spending in fiscal year 1999, as we continue to purchase modern manufacturing equipment to provide us the ability to efficiently handle the expected increased demand for our products, particularly our steel products and Kemresin Lite. Improvements in our business systems are also planned for the year, including the design and implementation of a system to allow us to do business electronically with our customers. We also made significant investments in people during the year, as we added or upgraded staff in the manufacturing, product design, project management, and sales areas of the Company. Our dealer network was expanded during the year, as we added international representation in Singapore, Mexico, Ireland, Costa Rica, and Israel. Page 2 Our improved performance did not go unnoticed. The Company's stock price climbed 146%, closing the fiscal year at $12.625 per share, up from $5.125 per share at the end of last year. Also, the Board of Directors at its November 1997 meeting increased the quarterly dividend by 25%, to five cents per share from four cents per share. Kewaunee is a much stronger and better company than it was just a few years ago, and I am optimistic about Kewaunee's future. We are confident that the items I have discussed, combined with a continuing good U.S. economy, position the Company for increased sales and profitability in fiscal year 1999 and the years beyond. All of our progress, however, would not have been possible without the excellent efforts and commitment of all of our associates, sales representatives, independent dealers, and our national distributor VWR Scientific Products, all of whom have our deepest appreciation. I also thank you, our stockholders, for your continued confidence and support. Sincerely, /s/ ELI MANCHESTER, JR. Eli Manchester, Jr. President Chief Executive Officer July 1998 [PICTURE OF EXECUTIVE OFFICERS APPEARS HERE] Corporate Executive Officers (standing left to right): James J. Rossi; William A. Shumaker; Eli Manchester, Jr.; D. Michael Parker; Kurt P. Rindoks; T. Ronald Gewin Page 3 LABORATORY PRODUCTS GROUP ================================================================================ Kewaunee's Laboratory Products Group continues a tradition of excellence in the manufacture of quality laboratory furnishings for industrial, government, educational and healthcare customers. Our extensive product lines include steel and wood laboratory furniture, worksurfaces, flexible systems, and a fume hood offering unparalleled in the marketplace. We work with our customers from the beginning, when ideas and plans are just taking shape, to make certain everything we do together is of utmost benefit to the owners. Our business philosophy is to provide maximum flexibility for increased workspace productivity. A team approach is utilized to provide innovative products and excellent service to ensure customer satisfaction from the start of a project through completion. KEMRESIN LITE [PICTURE OF KEMRESIN LIFE LAB SURFACE APPEARS HERE] Kemresin Lite, the result of our advanced material technology and innovative engineering, was introduced at the 1998 Pittsburgh Conference exhibition. Outstanding chemical resistance is inherent in the formula, along with a surface that is easily renewable using conventional cleaning methods. Integral sinks, another exciting feature, are designed with rounded bowls and available in several sizes. Nearly invisible seams and five neutral color options to complement current interior design trends add to the merits of Kemresin Lite for the laboratory environment. GALLERY OF STYLES [PICTURE OF LAB STATIONS APPEARS HERE] Kewaunee offers a wide array of styles for both steel and wood laboratory furniture. Five Research Collection styles of steel cabinetry feature our standard case design, with choice of straight or radiused door and drawer edges, as well as several pull selections. Four Signature Series wood styles allow the customer to select traditional or contemporary designs, with doors and drawers from conventional radiused edges to square-edged full overlay construction. Both steel and wood cabinets are available with a full-width integral pull--a Kewaunee exclusive. Page 4 ALPHA SYSTEM 2000 CARTS [PICTURE OF LAB CART AND CHAIR APPEARS HERE] [PICTURE OF LAB CART APPEARS HERE] The convenience of mobility is now available in our Alpha System 2000 line of flexible laboratory furniture. The versatile Alpha cart is designed for use in laboratory, manufacturing, horticulture, and computer science environments. The carts are offered in widths from two to six feet and accept standard worksurface frames and an optional overhead carrier. Both lower and upper modules accommodate cabinetry or shelving that are adjustable in one-inch increments. TECHNICAL PRODUCTS GROUP ================================================================================ Kewaunee's Technical Products Group is a market leader in providing intelligent furniture solutions for the technical environments of domestic and international customers. The continued growth of this division is attributable to an organization focused on customer satisfaction. This customer-centered strategy is supported by a highly flexible manufacturing and engineering operation which offers a wide array of standard and special products desired by our customers that meet and exceed very competitive delivery requirements. Our proven brands, Sturdilite, Evolution, BasikBench and Evolution for LANs provide flexible, modular and durable solutions for high tech production, technical labs, test and measurement labs, and local area network computing centers. EVOLUTION FOR LANS [PICTURE OF LAB WORKSTAION APPEARS HERE] [PICTURE OF LAB WORKSTATION APPEARS HERE] The intelligent design of Evolution for LANs has been embraced by customers seeking to support their local area network environments. Addressing rapid change in computing work spaces, highly flexible and modular workstation components can be configured to accommodate monitors, CPU's, back-up storage devices, modems, printers, file servers, keyboards, accessories, and an extensive amount of wiring and cabling. At left: Evolution for LANs offers significant flexibility to provide a wide range of solutions for computer environments. At right: Evolution for LANs enclosures provide an air-cooled, contamination-free, secure housing for computer equipment. Page 5 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ================================================================================ Certain statements in this annual report, including the Letter to Stockholders, narrative text, captions and Management's Discussion and Analysis of Financial Condition and Results of Operations, 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. The cautionary statements made pursuant to the Reform Act herein and elsewhere by the Company should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Reform Act. 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. MANAGEMENT'S DISCUSSION AND ANALYSIS ================================================================================ RESULTS OF OPERATIONS. Sales for the year ended April 30, 1998 were $73.0 million, up 17.9% from fiscal year 1997 sales of $62.0 million. The sales increase for the year resulted primarily from increased unit sales of laboratory furniture in the Company's new Research Collection line of steel furniture, Evolution for LANs workstations, and epoxy resin worksurfaces. Sales for the current year were also favorably impacted by moderate price increases on the Company's other products. Fiscal year 1997 sales increased 7.6% from fiscal year 1996 sales of $57.6 million. The fiscal year 1997 sales increase resulted primarily from higher selling prices, and to a lesser extent, from higher unit sales. The Company's unfilled sales order backlog was $24.9 million at April 30, 1998, as compared to $24.2 million at April 30, 1997, and $23.2 million at April 30, 1996. Gross profit represented 23.9% of sales in fiscal year 1998; 22.5% of sales in fiscal year 1997; and 18.6% of sales in fiscal year 1996. The increases in the gross profit margins for fiscal years 1998 and 1997 resulted primarily from significantly higher profit margins achieved on sales of contract-bid laboratory furniture and, to a lesser extent, on an improved product sales mix. The improvement in contract-bid furniture margins resulted from a combination of higher prices and the mix of projects. Operating expenses were $13.1 million in fiscal year 1998; $11.5 million in fiscal year 1997; and $9.8 million in fiscal year 1996. As a percent of sales, these expenses were 17.9%, 18.6%, and 17.1% in fiscal years 1998, 1997, and 1996, respectively. The increases in operating expenses in fiscal year 1998 were primarily attributable to increased sales and marketing costs, including sales commissions associated with the increases in sales. The increase in operating expenses in fiscal year 1997 was primarily attributable to increased sales and marketing expenses and expenses associated with incentive compensation programs. Other income was $45,000, $41,000, and $158,000 in fiscal years 1998, 1997, and 1996, respectively. Other income in fiscal year 1996 primarily related to life insurance proceeds associated with one of the Company's employee benefit plans. Interest expense was $149,000, $344,000, and $694,000 in fiscal years 1998, 1997, and 1996, respectively. The decrease in interest expense for fiscal years 1998 and 1997 resulted primarily from lower levels of borrowings during the year under the Company's revolving credit facility and, to a lesser extent, lower interest rates paid. The Company recorded an income tax expense of $1,674,000, or 39.5% of pretax earnings, in fiscal year 1998. The Company recorded a net income tax benefit of $97,000 in fiscal year 1997, as the favorable impact of adjustments eliminating the valuation allowance on deferred tax assets exceeded income tax expense associated with that year's earnings. No income tax expense or benefit was recorded in fiscal year 1996 due to adjustments to the valuation allowance on deferred tax assets. Page 6 Net earnings increased to $2.6 million, or $1.06 per diluted share, in fiscal year 1998, from $2.3 million, or $.95 per diluted share, in fiscal year 1997. Net earnings were $361,000, or $.15 per diluted share, in fiscal year 1996. Liquidity and Capital Resources. Historically, the Company's principal sources of liquidity have been funds generated from operating activities, supplemented as needed by short-term borrowings. The Company believes that these sources will be sufficient to support ongoing business levels, including capital expenditures. Operating activities provided cash of $3.4 million and $4.2 million in fiscal years 1998 and 1997, respectively, primarily from earnings in each of these years. Operating activities provided cash of $3.1 million in fiscal year 1996, primarily from a decrease in accounts receivable and from earnings. Working capital increased to $9.6 million at April 30, 1998, from $7.0 million at April 30, 1997, and the ratio of current assets to current liabilities increased to 1.8-to-1 from 1.7-to-1 during the period. The improvement in working capital resulted as cash provided by operating activities during the year exceeded funds used for capital expenditures and cash dividends paid. At April 30, 1998 and April 30, 1997, the Company had no outstanding borrowings under its revolving credit facility. Capital expenditures of $1.5 million and $1.2 million in fiscal years 1998 and 1997, respectively, were funded by cash provided by operating activities. Capital expenditures of $812,000 in fiscal year 1996 were funded by cash provided by operating activities and equipment financing arrangements. Capital expenditures of approximately $3.0 million are planned for fiscal year 1999, primarily for the purchase of production machinery. Fiscal year 1999 expenditures are expected to be funded primarily by cash provided by operating activities during the year. In the third quarter of fiscal year 1998, the Company increased its quarterly cash dividend to five cents per share from four cents per share. Dividends in the amount of four cents per share were declared and paid in both the third and fourth quarters of fiscal year 1997. The Company plans to pay future dividends in line with the Company's actual and anticipated future operating results. The Company did not pay dividends during fiscal year 1996. YEAR 2000. The Company has completed its assessment of exposure to the Year 2000 issue and its ability to address this exposure. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. In the event that the Company's internal systems or one or more significant suppliers or customers fail to achieve Year 2000 compliance, the Company's business and its results of operations could be adversely affected. The Company has determined that its main business applications are Year 2000 compliant and has developed a timeline for ensuring that all other aspects of its business are Year 2000 compliant. The Company has also initiated discussions with its significant suppliers and customers to ensure that they have appropriate plans to address Year 2000 issues that may affect the Company's operations. The Company believes the financial impact of the Year 2000 issue has not been, and is not anticipated to be, significant to the Company's financial position or results of operations. RECENT ACCOUNTING STANDARDS. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Both statements will be adopted as required during the Company's 1999 fiscal year. The Company does not expect the adoption of SFAS No. 130 to have a material effect on the financial statements. SFAS No. 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. The Company has not completed its evaluation of the effects that SFAS No. 131 will have on its financial reporting and disclosures. Page 7 STATEMENTS OF OPERATIONS ==============================================================================
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30 $ and shares in thousands, except per share data 1998 1997 1996 - ----------------------------------------------------------------------------------------------------- Net sales $ 73,037 $ 61,961 $ 57,559 Costs of products sold 55,600 47,996 46,835 - ----------------------------------------------------------------------------------------------------- Gross profit 17,437 13,965 10,724 Operating expenses 13,096 11,496 9,827 - ----------------------------------------------------------------------------------------------------- Operating earnings 4,341 2,469 897 Other income, net 45 41 158 Interest expense ( 149) ( 344) ( 694) - ----------------------------------------------------------------------------------------------------- Earnings before income taxes 4,237 2,166 361 Income tax expense (benefit) 1,674 ( 97) - - ----------------------------------------------------------------------------------------------------- Net earnings $ 2,563 $ 2,263 $ 361 ===================================================================================================== Net earnings per share Basic $ 1.07 $ 0.96 $ 0.15 Diluted $ 1.06 $ 0.95 $ 0.15 ===================================================================================================== Weighted average number of common shares outstanding Basic 2,386 2,366 2,367 Diluted 2,423 2,391 2,372 =====================================================================================================
STATEMENTS OF RETAINED EARNINGS ==============================================================================
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30 $ in thousands, except per share data 1998 1997 1996 - ----------------------------------------------------------------------------------------------------- Balance at beginning of year $ 11,435 $ 9,361 $ 9,000 Net earnings 2,563 2,263 361 Cash dividends declared $.18 (1998); $.08 (1997); per share ( 430) ( 189) - - ----------------------------------------------------------------------------------------------------- Balance at end of year $ 13,568 $ 11,435 $ 9,361 =====================================================================================================
The accompanying Notes are an integral part of these Financial Statements. Page 8 BALANCE SHEETS ===============================================================================
KEWAUNEE SCIENTIFIC CORPORATION APRIL 30 ASSETS $ and shares in thousands 1998 1997 - ----------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 1,809 $ 6 Receivables, less allowance - $656 (1998); $770 (1997) 13,819 12,864 Inventories 3,710 1,946 Deferred income taxes 1,240 1,047 Prepaid expenses and other current assets 275 602 - ----------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 20,853 16,465 - ----------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land 109 109 Buildings and improvements 13,428 13,386 Machinery and equipment 13,526 12,936 - ----------------------------------------------------------------------------------------- Property, plant and equipment, at cost 27,063 26,431 Accumulated depreciation (17,029) (16,605) - ----------------------------------------------------------------------------------------- Net Property, Plant and Equipment 10,034 9,826 - ----------------------------------------------------------------------------------------- Other Assets 979 700 - ----------------------------------------------------------------------------------------- Total Assets $ 31,866 $ 26,991 ========================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY - ----------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable $ 6,209 $ 5,136 Employee compensation and amounts withheld 2,439 1,727 Other accrued expenses 2,639 2,597 - ----------------------------------------------------------------------------------------- Total Current Liabilities 11,287 9,460 - ----------------------------------------------------------------------------------------- Deferred Income Taxes 809 298 Accrued Employee Benefit Plan Costs 731 647 - ----------------------------------------------------------------------------------------- Total Liabilities 12,827 10,405 - ----------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS' EQUITY Common stock, $2.50 par value Authorized- 5,000 shares; Issued- 2,620 shares 6,550 6,550 Additional paid-in-capital 144 116 Retained earnings 13,568 11,435 Common stock in treasury, at cost 205 shares (1998); 254 shares (1997) ( 1,223) ( 1,515) - ----------------------------------------------------------------------------------------- Total Stockholders' Equity 19,039 16,586 - ----------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 31,866 $ 26,991 =========================================================================================
The accompanying Notes are an integral part of these Financial Statements. Page 9 STATEMENTS OF CASH FLOWS ==============================================================================
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30 $ in thousands 1998 1997 1996 - ------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 2,563 $ 2,263 $ 361 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 1,312 1,515 1,624 Bad debt provision 301 298 39 Deferred income tax expense (benefit) 316 ( 617) ( 71) Decrease (increase) in receivables (1,253) 50 2,320 Decrease (increase) in inventories (1,764) ( 733) 123 (Decrease) increase in accounts payable and accrued expenses 1,115 816 (1,057) Other, net 843 578 (191) - ------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 3,433 4,170 3,148 - ------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (1,520) (1,163) ( 474) Net decrease in short-term investments - - 350 - ------------------------------------------------------------------------------------------------------ Net cash used in investing activities (1,520) (1,163) ( 124) - ------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid ( 430) ( 189) - Net (decrease) increase in short-term borrowings - (2,320) 81 Proceeds from exercise of stock options (including tax benefit) 320 - - Repayment of long-term debt - ( 508) (3,147) - ------------------------------------------------------------------------------------------------------ Net cash used in financing activities ( 110) (3,017) (3,066) - ------------------------------------------------------------------------------------------------------ Increase (Decrease) in Cash and Cash Equivalents 1,803 ( 10) ( 42) Cash and Cash Equivalents at Beginning of Year 6 16 58 - ------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Year $ 1,809 $ 6 $ 16 ====================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 144 $ 311 $ 760 Income taxes paid (refunded), net 1,518 58 ( 4) ====================================================================================================== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Assets acquired under equipment financing $ - $ - $ 338 ======================================================================================================
The accompanying Notes are an integral part of these Financial Statements. Page 10 NOTES TO FINANCIAL STATEMENTS ================================================================================ NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Kewaunee Scientific Corporation (the "Company") is a manufacturer of scientific laboratory and technical workstations, including wood and steel laboratory furniture, fume hoods, worksurfaces, sinks, and other accessories. Sales are made through purchase orders and contracts submitted by customers, the Company's dealers and agents, a national distributor, and competitive bids submitted by the Company. The majority of the Company's products are sold to customers located in North America, primarily within the United States. The majority of the Company's products are used in chemistry, physics, biology, and other general science laboratories in the industrial, commercial, educational, governmental, and healthcare markets. Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. Inventories. Inventories are valued at the lower of cost or market. Cost has been determined using the last-in, first-out (LIFO) method for all inventories. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation is determined for financial reporting purposes, principally on the straight-line method over the estimated useful lives of the individual assets or, for leaseholds, over the terms of the related leases, if shorter. Straight-line and accelerated methods of depreciation have been used for income tax purposes. The lives, by category, generally are as follows: buildings and improvements, 10-40 years; leasehold improvements, 10 years; furniture, fixtures and office equipment, 3-5 years; computer equipment, 3-5 years; factory machinery and vehicles, 5-10 years. Management reviews the carrying value of property, plant and equipment for impairment whenever changes in circumstances or events indicate that such carrying value may not be recoverable. Use of Estimates. The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Significant estimates impacting the accompanying financial statements relate to the allowance for uncollectible accounts receivable, inventory valuation, and pension liabilities. Fair Value of Financial Instruments. The Company's financial instruments include cash and cash equivalents, accounts receivable, cash surrender value of life insurance policies, and accounts payable. Management believes the carrying value of these assets and liabilities approximate fair value. Sales Recognition. Product sales are generally recognized at the date of shipment. Service revenue for installation of product sold is recognized as the work is performed. Accounts receivable includes retainage in the amounts of $2,333,000 and $2,152,000 at April 30, 1998 and April 30, 1997, respectively, on certain sales made under contractual agreements. Warranty costs are expensed as incurred and were immaterial to the Company in fiscal years 1998, 1997, and 1996. Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is provided. Customer Concentration. Sales to the Company's national distributor represented 13% of the Company's sales in fiscal year 1998, and 14% of sales in fiscal years 1997 and 1996. Credit risk with respect to accounts receivable is dispersed due to the nature of the business, the large number of customers, and the diversity of industries serviced. The Company performs credit evaluations of its customers. Page 11 Advertising Costs. The Company expenses advertising costs as incurred, including trade shows, training materials, sales samples, catalogs, and other related expenses. Advertising costs for the years ended April 30, 1998, 1997, and 1996 were $812,000, $720,000, and $587,000, respectively. Stock Options. In fiscal year 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." Pursuant to the new standard, companies are encouraged, but not required, to adopt the fair value method of accounting for stock options. The Company elected to continue measuring compensation cost in accordance with APB Opinion No. 25. Earnings Per Share. In fiscal year 1998, the Company adopted SFAS No. 128, "Earnings 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 and conversion of outstanding options under the Company's stock option plans. Reclassifications. Certain prior year accounts have been reclassified to conform with current year presentation. Recent Accounting Standards. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Both statements will be adopted as required during the Company's 1999 fiscal year. The Company does not expect the adoption of SFAS No. 130 to have a material effect on the financial statements. SFAS No. 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. The Company has not completed its evaluation of the effects that SFAS No. 131 will have on its financial reporting and disclosures. NOTE 2-- INVENTORIES. The Company's inventories at April 30 consisted of:
$ in thousands 1998 1997 ------------------------------------------------------------------------------- Finished goods $ 1,020 $ 366 Work-in-process 1,016 638 Materials and components 1,674 942 ------------------------------------------------------------------------------- Total inventories $ 3,710 $ 1,946 ===============================================================================
If inventories had been determined using the first-in, first-out (FIFO) method at April 30, 1998 and 1997, reported inventories would have been $2.2 million greater in each of these years. NOTE 3 -- CREDIT ARRANGEMENTS. The Company has a revolving credit facility which extends through January 1999 and allows the Company to borrow up to the lesser of $8.5 million, or the amount available under certain eligibility formulas using qualifying receivables and inventories. Under the facility, the Company makes monthly interest payments at a rate of the greater of 6% or the lender's prime rate, calculated on the average loan balance outstanding during each month. The prime rate was 8.5% at April 30, 1998. The Company's receivables and inventories are pledged to the lender as collateral securing borrowings under the facility. As of April 30, 1998, there were no borrowings outstanding under the facility. PAGE 12 NOTE 4 -- INCOME TAXES. The income tax expense (benefit) consisted of the following:
$ in thousands 1998 1997 1996 ----------------------------------------------------------------------------------------- Current tax expense: Federal $ 1,047 $ 421 $ 40 State and local 311 99 31 ----------------------------------------------------------------------------------------- Total current tax expense 1,358 520 71 ----------------------------------------------------------------------------------------- Deferred tax expense 316 397 140 Decrease in valuation allowance on deferred tax assets (1,014) (211) ----------------------------------------------------------------------------------------- Net income tax expense (benefit) $ 1,674 $ ( 97) $ - =========================================================================================
The reasons for the differences between the above net income tax expense (benefit) and the amounts computed by applying the statutory federal income tax rates to earnings before income taxes are as follows:
$ in thousands 1998 1997 1996 -------------------------------------------------------------------------------------------- Income tax expense at statutory rate $ 1,441 $ 736 $ 123 State and local taxes, net of federal income tax expense 198 78 24 Decrease in valuation allowance on deferred tax assets - (1,014) (211) Other 35 103 64 -------------------------------------------------------------------------------------------- Net income tax expense (benefit) $ 1,674 $ ( 97) $ - ============================================================================================
The decrease in the valuation allowance on deferred tax assets occurred as continued profitability and an improved earnings outlook for the Company provided positive evidence to support a reduction in the valuation allowance. Significant items comprising the Company's deferred tax assets and liabilities as of April 30 were as follows:
$ in thousands 1998 1997 --------------------------------------------------------------------------------------- Deferred tax assets: Tax credit carryforwards $ - $ 480 Accrued expenses 681 542 Allowance for doubtful accounts 238 315 Inventory reserves and capitalized costs 243 190 Other 247 137 --------------------------------------------------------------------------------------- Total deferred tax assets 1,409 1,664 --------------------------------------------------------------------------------------- Deferred tax liabilities: Book basis in excess of tax basis of property, plant and equipment ( 978) ( 910) Other - ( 5) --------------------------------------------------------------------------------------- Total deferred tax liabilities ( 978) ( 915) --------------------------------------------------------------------------------------- Net deferred tax assets $ 431 $ 749 =======================================================================================
Page 13 NOTE 5 -- STOCK OPTIONS. During fiscal year 1992, stockholders approved the 1991 Key Employee Stock Option Plan. During fiscal year 1997, stockholders approved an amendment to increase the number of shares available for options under the plan from 130,000 to 230,000. Options are granted at not less than the fair market value at the date of grant. Options are exercisable in such installments, for such terms (up to ten years), and at such times, as the Board of Directors may determine at the time of the grant. At April 30, 1998, there were 100,750 shares available for future grants under the plan. During fiscal year 1994, the stockholders approved the 1993 Stock Option Plan for Directors. This plan allows the Company to grant options on 40,000 shares of the Company's common stock. Each non-employee director of the Company is eligible to receive an option to purchase 5,000 shares of the Company's common stock on the effective date of the plan or on the date of commencement of service as a director. Options are exercisable in four equal, annual installments and expire five years from the date of grant. Options are granted at the fair market value at the date of grant. At April 30, 1998, there were 10,000 shares available for future grants under the plan. The change in additional paid-in-capital and treasury stock during fiscal year 1998 reflects the effect of stock option exercises. The Company utilized treasury stock to satisfy the stock options exercised during fiscal years 1998 and 1997. Stock option activity and weighted average exercise price is summarized as follows:
1998 1997 1996 OPTIONS PRICE Options Price Options Price --------------------------------------------------------------------------------------------------- Outstanding at beginning of year 151,375 $3.69 176,500 $3.49 130,000 $4.80 Granted 24,500 8.13 26,000 3.88 63,000 2.84 Canceled (16,750) 4.50 (51,000) 5.22 (16,500) 4.75 Exercised (48,875) 3.88 ( 125) 2.31 - - --------------------------------------------------------------------------------------------------- Outstanding at end of year 110,250 $4.48 151,375 $3.69 176,500 $3.49 =================================================================================================== Exercisable at end of year 43,625 $3.90 66,750 $4.06 41,625 $4.74 ===================================================================================================
The options outstanding and weighted average exercise price within the following price ranges at April 30, 1998 are as follows: Exercise price range $2.31 - $3.25 $3.87 - $4.62 $ 8.13 ----------------------------------------------------------------------------------------------------- Options outstanding 37,250 50,500 22,500 Weighted average exercise price $ 2.69 $ 4.16 $ 8.13 Weighted average remaining contractual life (years) 6.8 6.3 9.3 -----------------------------------------------------------------------------------------------------
The options exercisable and weighted average exercise price within the following price ranges at April 30, 1998 are as follows: Exercise price range $2.31 - $3.25 $3.87 - $4.62 --------------------------------------------------------------------------------------- Options exercisable 12,625 31,000 Weighted average exercise price $ 2.79 $ 4.35 ---------------------------------------------------------------------------------------
Page 14 Fair Value Disclosures. The Company applies APB Opinion No. 25 and its related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for these plans. Had compensation costs for these plans been determined based on the fair value at the grant dates for awards under the plans consistent with the method of SFAS No. 123, the Company's net earnings and net earnings per share for fiscal years 1998, 1997, and 1996 would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 ------------------------------------------------------------------------------- Net earnings (in thousands) As reported $ 2,563 $ 2,263 $ 361 Pro forma 2,539 2,239 349 =============================================================================== Net earnings per share - Basic As reported $ 1.07 $ 0.96 $ 0.15 Pro forma 1.06 0.95 0.15 =============================================================================== Net earnings per share - Diluted As reported $ 1.06 $ 0.95 $ 0.15 Pro forma 1.05 0.94 0.15 ===============================================================================
The estimated weighted average fair value of options granted under the Company's stock option plans was $3.96 in 1998, $1.54 in 1997, and $1.13 in 1996. The options were valued using the Black-Scholes option-pricing model with the following assumptions used for 1998, 1997, and 1996: dividend yield of 2.0%, 4.0%, and 4.0%; expected volatility of 49%, 48%, and 48%; risk-free interest of 6.27%, 6.63% and 6.50%; and an expected life of 7.25 years. NOTE 6 -- RETIREMENT BENEFITS. The Company has non-contributory defined benefit pension plans covering substantially all salaried and hourly employees. The defined benefit plan for salaried employees provides pension benefits that are based on each employee's years of service and average annual compensation during the last 10 consecutive calendar years of employment. The benefit plan for hourly employees provides benefits at stated amounts based on years of service. The Company's funding policy is to make quarterly contributions to fund the plans during the participant's working lifetime, which have met ERISA's funding requirements. Plan assets consist primarily of common stocks, government securities, and fixed-income funds. The components of net pension expense consisted of the following:
$ in thousands 1998 1997 1996 ------------------------------------------------------------------------------------------ Service cost for the benefits earned during the year $ 254 $ 259 $ 266 Interest cost on projected benefit obligations 451 412 384 Investment return on plan assets (548) (437) (308) Net amortization and deferral 78 24 ( 57) ------------------------------------------------------------------------------------------ Net pension expense $ 235 $ 258 $ 285 ==========================================================================================
Page 15 Accumulated plan benefits, projected benefit obligations, plan net assets, and funded status as of April 30 were as follows:
$ in thousands 1998 1997 1996 -------------------------------------------------------------------------------------- Actuarial present value of accumulated benefit obligations (assumes no future salary increases): Vested $ 5,396 $ 4,286 $ 3,962 Non-vested 253 202 186 -------------------------------------------------------------------------------------- Accumulated plan benefits $ 5,649 $ 4,488 $ 4,148 ====================================================================================== Actuarial present value of projected benefit obligations for service provided to date (assumes future salary increases): $ 6,924 $ 5,744 $ 5,378 Transition gain 64 96 128 Unrecognized net loss ( 241) ( 347) ( 523) Plan net assets at fair value (6,396) (5,178) (4,416) -------------------------------------------------------------------------------------- Accrued pension cost $ 351 $ 315 $ 567 ======================================================================================
The weighted average discount rate of 7.25% for fiscal year 1998, and 8% for fiscal years 1997 and 1996, and a 5% rate of increase in future compensation, were utilized in determining the actuarial present value of the projected benefit obligations. The assumed rate of return on plan assets is 9%. The Company has a defined contribution plan covering substantially all salaried and hourly employees. The plan provides benefits to all employees who have attained age 21, completed one year of service, and who elect to participate. The Company makes matching contributions equal to 50% of the qualifying employee contribution, up to a maximum employer contribution of 2% of the participant's compensation. Contributions by the Company in fiscal years 1998, 1997, and 1996 were $197,250, $184,818, and $150,572, respectively. NOTE 7 -- COMMITMENTS AND CONTINGENCIES. The Company has entered into various operating lease agreements for machinery and equipment. Under the terms of these agreements, future minimum lease payments for the years ended April 30 are as follows:
$ in thousands Amount ---------------------------------------------------- 1999 $ 601 2000 573 2001 346 2002 188 2003 170 Thereafter 189 ---------------------------------------------------- Total minimum lease payments $2,067 ====================================================
Most leases provide the Company with certain early cancellation rights, as well as renewal and purchase options. Rent expense under operating leases for machinery and equipment was $556,000, $421,000, and $314,000 in fiscal years 1998, 1997, and 1996, respectively. The Company is involved in certain claims and legal proceedings in the normal course of business which management believes will not have a material adverse effect on the financial condition or results of operations of the Company. Page 16 REPORT OF INDEPENDENT ACCOUNTANTS ================================================================================ To the Stockholders and Board of Directors or Kewaunee Scientific Corporation In our opinion, the accompanying balance sheet and the related statements of operations, of retained earnings and of cash flows present fairly, in all material respects, the financial position of Kewaunee Scientific Corporation (the "Company") at April 30, 1998 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The financial statements of the Company for the two years ended April 30, 1997 were audited by other independent accountants whose report dated June 4, 1997 expressed an unqualified opinion on those statements. PRICE WATERHOUSE LLP Charlotte, North Carolina June 1, 1998 MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS ================================================================================ To the Stockholders and Board of Directors of Kewaunee Scientific Corporation The financial statements and accompanying notes were prepared by management, which is responsible for their integrity and objectivity. Management believes the financial statements, which include amounts based on judgments and estimates, fairly reflect the Company's financial position and operating results, in accordance with generally accepted accounting principles. All financial information in this annual report is consistent with the financial statements. Management maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are properly recorded and executed in accordance with management's authorization, and that accounting records may be relied upon for the preparation of financial statements and other financial information. The design, monitoring, and revision of internal accounting control systems involve, among other things, management's judgment with respect to the relative cost and expected benefits of specific control measures. The Company's financial statements have been audited by independent accountants who have expressed their opinion with respect to the fairness of those statements. Their audits included consideration of the Company's internal accounting control systems and related policies and procedures. They advise management and the Audit Committee of significant matters resulting from their audits. D. Michael Parker Vice President, Finance Chief Financial Officer Page 17 SUMMARY OF SELECTED FINANCIAL DATA ============================================================================== KEWAUNEE SCIENTIFIC CORPORATION
$ and shares in thousands, except per share data 1998 1997 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- OPERATING STATEMENT DATA: Net sales $73,037 $ 61,961 $ 57,559 $ 62,475 $ 66,068 Costs of products sold 55,600 47,996 46,835 52,347 53,325 - --------------------------------------------------------------------------------------------------------------------------- Gross profit 17,437 13,965 10,724 10,128 12,743 Operating expenses 13,096 11,496 9,827 10,901 12,787 - --------------------------------------------------------------------------------------------------------------------------- Operating earnings (loss) 4,341 2,469 897 ( 773) ( 44) Other income, net 45 41 158 230 88 Interest expense ( 149) ( 344) ( 694) ( 554) ( 291) - --------------------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes 4,237 2,166 361 ( 1,097) ( 247) Income tax expense (benefit) 1,674 ( 97) - - ( 44) - --------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 2,563 $ 2,263 $ 361 $ ( 1,097) $( 203) =========================================================================================================================== Weighted average shares outstanding Basic 2,386 2,366 2,367 2,367 2,368 Diluted 2,423 2,391 2,372 2,367 2,368 =========================================================================================================================== PER SHARE DATA: Net earnings (loss) Basic $ 1.07 $ 0.96 $ 0.15 $ ( 0.46) $( 0.09) Diluted 1.06 0.95 0.15 ( 0.46) ( 0.09) Cash dividends 0.18 0.08 - - - Year-end book value 7.89 7.01 6.13 5.98 6.43 =========================================================================================================================== BALANCE SHEET DATA: Current assets $20,853 $ 16,465 $ 15,646 $18,430 $19,009 Current liabilities 11,287 9,460 10,599 11,702 11,914 Net working capital 9,566 7,005 5,047 6,728 7,095 Net property, plant and equipment 10,034 9,826 10,308 11,120 12,073 Total assets 31,866 26,991 26,504 30,074 31,566 Total borrowings/long-term debt - - 2,648 5,445 4,311 Stockholders' equity 19,039 16,586 14,515 14,154 15,237 =========================================================================================================================== OTHER DATA: Capital expenditures $ 1,520 $ 1,163 $ 812 $ 840 $ 933 Year-end stockholders of record 365 392 409 439 458 Year-end employees 619 560 499 575 595 ===========================================================================================================================
Page 18 QUARTERLY FINANCIAL DATA (UNAUDITED) =============================================================================== Selected quarterly financial data for fiscal years 1998 and 1997 were as follows:
$ in thousands, First Second Third Fourth except per share data Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------ 1998 Net sales $17,662 $18,442 $17,333 $19,600 Gross profit 4,138 3,953 4,343 5,003 Net earnings 559 541 583 880 Net earnings per share Basic 0.24 0.23 0.24 0.37 Diluted 0.23 0.22 0.23 0.36 Cash dividends .04 .04 .05 .05 - ------------------------------------------------------------------------------------------------------------------ 1997 Net sales $16,280 $15,928 $14,837 $14,916 Gross profit 3,291 3,738 3,484 3,452 Net earnings 538 759 545 421 Net earnings per share Basic 0.23 0.32 0.23 0.18 Diluted 0.23 0.32 0.22 0.18 Cash dividends - - 0.04 0.04 - -----------------------------------------------------------------------------------------------------------------
RANGE OF MARKET PRICES =============================================================================== Kewaunee's common stock is traded in the NASDAQ/Over-the-Counter Market, under the symbol KEQU. The following table sets forth the quarterly high and low prices reported on the NASDAQ National Market System.
First Second Third Fourth Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------- 1998 High 7 5/8 13 3/4 13 14 1/4 Low 5 7 1/4 9 9 1/8 Close 7 1/4 12 1/4 10 1/2 12 5/8 - ----------------------------------------------------------------------------------------------------------------- 1997 High 5 1/4 5 5/8 7 1/2 7 3/8 Low 2 7/8 2 7/8 4 7/8 5 1/8 Close 3 5 1/8 6 5/8 5 1/8 - ------------------------------------------------------------------------------------------------------------------
Page 19 CORPORATE INFORMATION =============================================================================== BOARD OF DIRECTORS MARGARET BARR BRUEMMER (1)(2)(3) Attorney Milwaukee, WI WILEY N. CALDWELL (3)(4) Retired President W. W. Grainger, Inc. Kenilworth, IL JOHN C. CAMPBELL, JR. (1)(2) Private Consultant Arlington, TX KINGMAN DOUGLASS (2)(3)(4) Corporate Counselor Summerland, CA ELI MANCHESTER, JR. (1)(3) President/CEO Kewaunee Scientific Corporation Statesville, NC THOMAS F. PYLE (3)(4) Chairman The Pyle Group, LLC Madison, WI JAMES T. RHIND (1)(4) Counsel to Bell, Boyd & Lloyd Attorneys Chicago, IL (1) Executive Committee (2) Audit Committee (3) Financial/Planning Committee (4) Compensation Committee EXECUTIVE OFFICERS ELI MANCHESTER, JR. President and Chief Executive Officer WILLIAM A. SHUMAKER Vice President and General Manager Laboratory Products Group T. RONALD GEWIN Vice President and General Manager Technical Products Group D. MICHAEL PARKER Vice President, Finance, Chief Financial Officer, Treasurer, Secretary JAMES J. ROSSI Vice President, Human Resources KURT P. RINDOKS Vice President, Engineering and General Manager Resin Materials Division Laboratory Products Group CORPORATE OFFICES 2700 West Front Street, Statesville, NC 28677-2927 P.O. Box 1842, Statesville, NC 28687-1842 Telephone: 704-873-7202 EMPLOYMENT OPPORTUNITIES Individuals interested in employment with Kewaunee Scientific Corporation should contact the Vice President of Human Resources, Kewaunee Scientific Corporation, P.O. Box 1842, Statesville, NC 28687-1842. Kewaunee Scientific Corporation is an equal opportunity employer. Page 20 STOCKHOLDER INFORMATION FINANCIAL INFORMATION The Company's Form 10-K financial report, filed annually with the Securities and Exchange Commission, may be obtained by stockholders without charge by writing the Secretary of the Company, Kewaunee Scientific Corporation, P.O. Box 1842, Statesville, NC 28687-1842. Recent financial information is available on the Internet at http://www.kewaunee.com. INDEPENDENT ACCOUNTANTS Price Waterhouse LLP Charlotte, NC NOTICE OF ANNUAL MEETING The Annual Meeting of Stockholders of Kewaunee Scientific Corporation will be held in the 37th floor Annual Meeting Room at Harris Trust & Savings Bank, Chicago, IL on August 26, 1998 at 10:00 a.m. Central Daylight Time. TRANSFER AGENT AND REGISTRAR All stockholder inquiries, including transfer-related matters, should be directed to: ChaseMellon Shareholder Services, LLC Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 800-288-9541 Internet at http://www.chasemellon.com PRODUCT INFORMATION Kewaunee Scientific Corporation products are available through a network of sales representatives and a national stocking distributor. For more information on the Company's laboratory products, contact the Marketing Services Department in Statesville, North Carolina; telephone: 704-873-7202; on the Internet at http://www.kewaunee.com; e-mail: kewaunee@i-america.net. For more information on the Company's technical products, contact the Company's Lockhart, Texas operations; telephone: 512-398-5292; on the Internet at http://www.kewaunee-tpg.com; e-mail: custsvc@kewaunee-tpg.com. TRADEMARKS BasikBench, Evolution, Kemresin, Kemrock, Kemshield, Signature, Silhouette, Sturdilite, Supreme Air, TechStat, and Visionaire are registered trademarks of Kewaunee Scientific Corporation. FlexTech, Alpha, The Research Collection, Trademark, Advantage, Explorer, and Discovery are pending trademarks of Kewaunee Scientific Corporation. [LOGO OF KEWAUNEE SCIENTIFIC CORPORATION APPEARS HERE] EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR APR-30-1998 MAY-01-1997 APR-30-1998 1,809 0 14,475 770 3,710 20,853 27,063 17,029 31,866 11,287 0 0 0 6,550 12,489 31,866 73,037 73,037 55,600 55,600 13,096 0 149 4,237 1,674 2,563 0 0 0 2,563 1.07 1.06
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