<PAGE>
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, 1997 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 (Zip Code)
offices)
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 1,816,718 shares of voting stock held by non-
affiliates of the Registrant was approximately $13,398,295 based on the last
reported sale price of the Registrant's Common Stock on July 11, 1997. (Only
shares beneficially owned by directors of the Registrant were excluded as shares
held by affiliates. By including or excluding shares owned by anyone,
Registrant does not admit for any other purpose that any person is or is not an
affiliate of the Registrant.)
As of July 11, 1997, the Registrant had outstanding 2,365,921 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,
1997, and of the proxy statement for use in connection with Kewaunee Scientific
Corporation's annual meeting of stockholders to be held on August 27, 1997,
described in the cross-reference sheet appearing on pages 2 and 3 of this
report, are incorporated by reference into Parts I, II and III hereof.
<PAGE>
Table of Contents and Cross-Reference Sheet
-------------------------------------------
<TABLE>
<CAPTION>
Page or Reference
-----------------
<S> <C>
PART I....................................... 4
Item 1. Business....................... 4
Item 2. Properties..................... 6
Item 3. Legal Proceedings.............. 6
Item 4. Submission of Matters to a
Vote of Security Holders....... 6
PART II...................................... 7
Item 5. Market for Registrant's
Common Equity and Related
Stockholder Matters............ Annual Report, p. 19,*
"Range of Market Prices,"
and "Quarterly Financial Data"
Item 6. Selected Financial Data........ Annual Report, pp. 18,*
"Summary of Selected Financial
Data"
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... Annual Report, pp. 6-7,*
"Management's Discussion and
Analysis"
Item 8. Financial Statements and
Supplementary Data............. Annual Report, pp. 8-20,*
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure....... 7
</TABLE>
- -------------------
* Matters incorporated by reference from Kewaunee Scientific Corporation's
annual report to stockholders for the fiscal year ended April 30, 1997
("Annual Report").
2
<PAGE>
<TABLE>
<CAPTION>
Page or Reference
-----------------
<S> <C>
PART III..................................... 8
Item 10. Directors and Executive
Officers of the Registrant..... 8 and Proxy Statement, pp. 1-4,*
"Election of Directors"
Item 11. Executive Compensation......... Proxy Statement, p. 5,*
"Executive Compensation," p. 6,*
"Option Grants in Last Fiscal
Year," p. 6,* "Aggregate Option
Exercises in Last Fiscal Year
and Option Values at Fiscal Year-
End," pp. 8-9,* "Compensation
Committee Report on Executive
Compensation," and p. 11,*
"Agreements with Certain
Executives"
Item 12. Security Ownership of
Certain Beneficial Owners
and Management................. Proxy Statement, pp. 12-13,*
"Security Ownership of Directors
and Executive Officers" and
"Security Ownership of Certain
Beneficial Owners"
Item 13. Certain Relationships and
Related Transactions........... Proxy Statement, pp. 1-4,*
"Election of Directors," and p.
11, * "Agreements with Certain
Executives"
PART IV...................................... 10
Item 14. Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K....................... 10
SIGNATURES................................... S-1
</TABLE>
- --------------------
* Matters incorporated by reference from the proxy statement of Kewaunee
Scientific Corporation for use in connection with its annual meeting of
stockholders to be held on August 27, 1997 ("Proxy Statement").
3
<PAGE>
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.
These products and equipment and related installation accounted for 100 percent
of the Registrant's sales in each of the fiscal years ended April 30, 1997,
1996, and 1995.
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 end-users of computer and LAN
furniture. These products are primarily sold through purchase orders and
contracts submitted by customers, through the Registrant's dealers and
commissioned agents, through 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
delayed delivery dates. 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 most 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.
4
<PAGE>
The Registrant's scientific laboratory and technical workstation and
equipment business is not cyclical; although sales and income are generally
lower during the Registrant's third quarter as construction activity slows
during the winter months. The Registrant's business is not dependent on any one
or a few customers; however, sales to VWR Corporation ("VWR Scientific")
represented 14 percent of the Registrant's total sales in fiscal years 1997 and
1996 and 17 percent in fiscal year 1995. VWR Scientific is a distributor of the
Registrant's products. In the event that VWR Scientific were not a sales
channel, the Registrant would distribute these products through its other sales
agents, dealers, and direct sales force or through another outside distributor
or distributors.
The Registrant's sales backlog as of April 30, 1997 was $24.2 million
compared to $23.2 million and $24.1 million as of April 30, 1996 and 1995,
respectively. It is expected that the amount of the backlog as of the beginning
of the fiscal year, together with orders received for current delivery, will be
sufficient to permit the Registrant to operate at satisfactory levels during the
current year. All but $1.4 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 scientific laboratory and technical workstation and equipment
industry is highly competitive. The Registrant believes that the principal
competitive factors in the scientific laboratory and technical workstation and
equipment industry 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, 1997 on
company-sponsored research and development activities related to new products or
services or improvement of existing products or services was $663,996. The
amounts spent for similar purposes in the fiscal years ended April 30, 1996 and
1995 were $591,472 and $527,647, respectively. Seven professional employees
were engaged in such research at April 30, 1997.
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.
5
<PAGE>
Employees
The number of persons employed by the Registrant at April 30, 1997 was
560.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements included in this report are forward looking and
involve risk and uncertainties that could significantly impact results. These
factors include, but are not limited to, economic, competitive, governmental,
and technological factors affecting the Company's operations, markets, products,
services, and prices.
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 scientific laboratory and technical workstations and equipment.
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
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.
6
<PAGE>
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, 1997, page 19, sections
entitled "Range of Market Prices" and "Quarterly Financial Data". As of July
11, 1997, the Registrant estimates there were approximately 1,400 stockholders
of Kewaunee common shares, of which 392 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, 1997, 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, 1997, 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, 1997, pages 8-20.
Item 9. Changes in and Disagreements with Accountants on
- ----------------------------------------------------------
Accounting and Financial Disclosure
-----------------------------------
Not Applicable.
7
<PAGE>
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 27, 1997, 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
------------------------------------
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Eli Manchester, Jr. 66 President and Chief Executive Officer
William A. Shumaker 48 Vice President and General Manager-Laboratory
Products Group
T. Ronald Gewin 54 Vice President-Operations Technical Products
Group
D. Michael Parker 45 Vice President-Finance, Chief Financial
Officer, Treasurer and Secretary
James J. Rossi 55 Vice President-Human Resources
Ronald D. Popiel 55 Vice President-Manufacturing (Laboratory
Products Group)
Kurt P. Rindoks 39 Vice President-Engineering and New Product
Development (Laboratory Products Group)
</TABLE>
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 1997. 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.
8
<PAGE>
T. Ronald Gewin joined the Registrant in December 1992 as Vice
President of Manufacturing and has served as Vice President of Operations for
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.
Ronald D. Popiel joined the Registrant in June 1993 as a plant manager
and was promoted to Director of Manufacturing in August 1995. Mr. Popiel has
served as Vice President of Manufacturing since January 1996. Prior to joining
the Registrant, Mr. Popiel was with Arvin Industries where he served as Vice
President of Manufacturing from 1977 to 1993.
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 has served as Vice President of Engineering and New
Product Development since September 1996.
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
27, 1997, page 5, section entitled "Executive Compensation," page 6, section
entitled "Option Grants in Last Fiscal Year," page 6, section entitled
"Aggregate Option Exercises in Last Fiscal Year and Option Values at Fiscal
Year-End," 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
27, 1997, 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
27, 1997, pages 1-4, section entitled "Election of Directors" and page 11,
section entitled "Agreements with Certain Executives."
9
<PAGE>
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, 1997, 1996, and 1995 8*
Statements of Retained Earnings
Years ended April 30, 1997, 1996, and 1995 8*
Balance Sheets - April 30, 1997 and 1996 9*
Statements of Cash Flows - Years ended
April 30, 1997, 1996 and 1995 10*
Notes to Financial Statements 11-16*
Report of Independent Auditors 17*
(a)(2) Financial Statement Schedule
----------------------------
Independent Auditors' Report -
Deloitte & Touche LLP 11
Schedule II - Valuation and Qualifying Accounts 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-6 and which is
incorporated herein by reference.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fourth quarter of the
Registrant's fiscal year ended April 30, 1997.
- --------------------
* Matters incorporated by reference from the Registrant's annual
report to stockholders for the year ended April 30, 1997.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Kewaunee Scientific Corporation
Statesville, North Carolina
We have audited the balance sheets of Kewaunee Scientific Corporation as of
April 30, 1997 and 1996, and the related statements of operations, retained
earnings, and of cash flows for each of the three years in the period ended
April 30, 1997; such financial statements are included in your 1997 Annual
Report to Stockholders. Our audits also included the financial statement
schedule listed in the Index at Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Kewaunee Scientific Corporation as of April
30, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended April 30, 1997 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Charlotte, North Carolina
June 4, 1997
11
<PAGE>
Schedule II
Kewaunee Scientific Corporation
Valuation and Qualifying Accounts
($ in thousands)
<TABLE>
Charged
Balance (Credited)
at to Costs Balance
Beginning and at End
Description of Period Expenses Deductions* of Period
- ----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C>
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
==== ==== ====== ====
Year ended April 30, 1995
Allowance for doubtful accounts $628 $125 $(129) $624
==== ==== ====== ====
</TABLE>
* Uncollectible accounts written off, net of recoveries.
12
<PAGE>
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 18, 1997
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 18, 1997
)
)
/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
<PAGE>
KEWAUNEE SCIENTIFIC CORPORATION
Exhibit Index
-------------
<TABLE>
<CAPTION>
Page Number
Number Description of Exhibit (or Reference)
- ------ ---------------------- --------------
<S> <C> <C>
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) (9)
10 Material Contracts
10.9 Kewaunee Scientific Corporation
Supplemental Retirement Plan (4)
10.12 Employee Stock Ownership Plan of 1985
for Salaried Employees and Hourly
Employees of Kewaunee Scientific
Corporation (2)
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 (1)
10.13B Second Amendment dated November 19, 1996 to the
Kewaunee Scientific Corporation 1985
Re-Established Retirement Plan for
Salaried Employees (1)
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 (1)
10.14B Second Amendment dated November 19, 1996 to the
Kewaunee Scientific Corporation 1985
Re-Established Retirement Plan for
Hourly Employees (1)
</TABLE>
S-2
<PAGE>
<TABLE>
<S> <C> <C>
10.19 Kewaunee Scientific Corporation 1991
Key Employee Stock Option Plan (8)
10.19A Amendment dated August 28, 1996 to the
Key Employee Stock Option Plan (15)
10.21 Kewaunee Scientific Corporation
Executive Deferred Compensation Plan (9)
10.23 Employment Agreement dated as of December 8, 1992
between T. Ronald Gewin and the Registrant (10)
10.25 Employment Agreement dated as of December 7, 1993
between William A. Shumaker and the Registrant (12)
10.26 Kewaunee Scientific Corporation Stock Option (11)
Plan for Directors
10.27 Agreement dated as of December 14, 1994
between T. Ronald Gewin and the Registrant (13)
10.28 Accounts Receivable Financing Agreement dated
as of January 6, 1995 between the CIT Group/
Business Credit, Inc. and the Registrant (13)
10.29 Accounts Receivable Financing Agreement
Supplement Inventory dated as of
January 6, 1995 between The CIT Group/
Business Credit, Inc. and the Registrant (13)
10.30 Security Agreement (Equipment & Machinery)
dated as of January 6, 1995 between The
CIT Group/Business Credit, Inc. and the
Registrant (13)
10.31 Employment Agreement dated April 22, 1996
between Ronald D. Popiel and the Registrant (14)
10.32 Fiscal Year 1997 Incentive Bonus Plan (14)
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C> <C>
10.34 401(K) Incentive Savings Plan
for Salaried and Hourly Employees of
Kewaunee Scientific Corporation (14)
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 (16)
10.36 Employment Agreement dated September 17, 1996
between D. Michael Parker and the Registrant (1)
10.37 Fiscal Year 1998 Incentive Bonus Plan (1)
13 Annual Report to Stockholders for the fiscal year
ended April 30, 1997 (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)
</TABLE>
(All other exhibits are either inapplicable or not required.)
S-4
<PAGE>
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 30, 1982, 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, 1989, 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, 1991, and incorporated herein by
reference.
(8) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement
dated July 26, 1991, 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, 1992, 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, 1993, and incorporated herein by
reference.
(11) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement
dated July 23, 1993, and incorporated herein by reference.
(12) 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.
(13) 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.
S-5
<PAGE>
(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, 1996, and incorporated herein by
reference.
(15) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement
dated July 31, 1996, and incorporated herein by reference.
(16) 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.
S-6
<PAGE>
Exhibit 10.13A
FIRST AMENDMENT TO THE
REESTABLISHED RETIREMENT PLAN FOR SALARIED EMPLOYEES OF
KEWAUNEE SCIENTIFIC CORPORATION
WHEREAS, Kewaunee Scientific Corporation (the "Company") maintains the
Reestablished Retirement Plan for Salaried Employees of Kewaunee Scientific
Corporation (the "Plan");
WHEREAS, the Plan was amended and restated in its entirety effective May 1,
1989; and
WHEREAS, the Company now wishes to amend the Plan;
NOW THEREFORE, pursuant to the authority reserved to the Company under
Section 12.2, the Plan be and hereby is amended, effective May 1, 1989, in the
following particulars:
1. Section 6.2(a) is amended by adding the following as new paragraphs at
the end:
"Participants on April 30, 1985 will receive the larger of the benefit
described above or one percent of Final Average Compensation times Years of
Credited Service.
Notwithstanding the foregoing, a participant's or prior plan participant's
benefit amount as determined above shall be offset by the value of the benefit
distributed to or on behalf of the participant from the prior plan, if any."
2. The first paragraph of Section 6.2(b) is amended to read as follows:
"The Accrued Benefit of a Participant who either was a Participant and had
an Accrued Benefit on the Effective Date, or whose Final Average Compensation
includes years prior to May 1, 1994 in which his compensation exceeded $200,000
(as adjusted) for plan years prior to January 1, 1994 or $150,000 for plan years
beginning on or after January 1, 1994, or both, shall be determined as follows:"
<PAGE>
Exhibit 10.13B
SECOND AMENDMENT TO THE
RE-ESTABLISHED RETIREMENT PLAN FOR SALARIED EMPLOYEES OF
KEWAUNEE SCIENTIFIC CORPORATION
WHEREAS, Kewaunee Scientific Corporation (the "Company") maintains the Re-
Established Retirement Plan for Salaried Employees of Kewaunee Scientific
Corporation (the "Plan");
WHEREAS, the Plan was amended and restated in its entirety, effective May
1, 1989, and subsequently amended effective May 1, 1989; and
WHEREAS, the Company now wishes to amend the Plan;
NOW THEREFORE, pursuant to the authority reserved to the Company under
Section 12.2, the Plan be and hereby is amended, effective January 1, 1997, in
the following particulars:
1. Section 7.5 is amended by adding the following as a new subsection
7.5(b) and redesignating the remaining subsections as required:
"(b) If the present value of a Pension payable under the Plan, as
determined under paragraph (a), is more than Three Thousand Five Hundred Dollars
($3,500) but not more than Six Thousand Dollars ($6,000), the Participant or
Beneficiary may elect to receive payment of such Pension in a lump sum. In the
case of a Pension payable to a Participant, such election shall be considered a
selection of an optional form of benefit, and the notice, election and spousal
consent provisions of Section 7.4 shall apply."
2. The lump sum equivalency factors of Appendix A are replaced with the
following:
"For single (lump sum) distributions paid on or after January 1, 1997,
the present value of a Pension shall be determined using the 1983 Group Annuity
Mortality Table (Unisex) or such other mortality table as may be specified under
Section 417(e)(3)(A) of the Code and an interest rate equal to the annual
interest rate on 30-year Treasury securities as announced by the Board of
Governors of the Federal Reserve System for the second month prior to the first
day of the Plan Year in which the distribution occurs."
<PAGE>
Exhibit 10.14A
FIRST AMENDMENT TO THE
REESTABLISHED RETIREMENT PLAN FOR HOURLY EMPLOYEES OF
KEWAUNEE SCIENTIFIC CORPORATION
WHEREAS, Kewaunee Scientific Corporation (the "Company") maintains the
Reestablished Retirement Plan for Hourly Employees of Kewaunee Scientific
Corporation (the "Plan");
WHEREAS, the Plan was amended and restated in its entirety effective May 1,
1989; and
WHEREAS, the Company now wishes to amend the Plan;
NOW THEREFORE, pursuant to the authority reserved to the Company under
Section 12.2, the Plan be and hereby is amended, effective May 1, 1989, in the
following particulars:
1. Section 6.2(a) is amended by adding the following as new paragraphs at
the end:
"Notwithstanding the foregoing, a participant's or prior plan participant's
benefit amount as determined above shall be offset by the value of the benefit
distributed to or on behalf of the participant from the prior plan, if any."
<PAGE>
Exhibit 10.14B
SECOND AMENDMENT TO THE
RE-ESTABLISHED RETIREMENT PLAN FOR HOURLY EMPLOYEES OF
KEWAUNEE SCIENTIFIC CORPORATION
WHEREAS, Kewaunee Scientific Corporation (the "Company") maintains the Re-
Established Retirement Plan for Hourly Employees of Kewaunee Scientific
Corporation (the "Plan");
WHEREAS, the Plan was amended and restated in its entirety, effective May
1, 1989, and subsequently amended effective May 1, 1989; and
WHEREAS, the Company now wishes to amend the Plan;
NOW THEREFORE, pursuant to the authority reserved to the Company under
Section 12.2, the Plan be and hereby is amended, effective January 1, 1997, in
the following particulars:
1. Section 7.5 is amended by adding the following as a new subsection
7.5(b) and redesignating the remaining subsections as required:
"(b) If the present value of a Pension payable under the Plan, as
determined under paragraph (a), is more than Three Thousand Five Hundred Dollars
($3,500) but not more than Six Thousand Dollars ($6,000), the Participant or
Beneficiary may elect to receive payment of such Pension in a lump sum. In the
case of a Pension payable to a Participant, such election shall be considered a
selection of an optional form of benefit, and the notice, election and spousal
consent provisions of Section 7.4 shall apply."
2. The lump sum equivalency factors of Appendix A are replaced with the
following:
"For single (lump sum) distributions paid on or after January 1, 1997,
the present value of a Pension shall be determined using the 1983 Group Annuity
Mortality Table (Unisex) or such other mortality table as may be specified under
Section 417(e)(3)(A) of the Code and an interest rate equal to the annual
interest rate on 30-year Treasury securities as announced by the Board of
Governors of the Federal Reserve System for the second month prior to the first
day of the Plan Year in which the distribution occurs."
<PAGE>
Exhibit 10.36
[Kewaunee Scientific Letterhead]
September 17, 1996
Mr. D. Michael Parker
140 Colony Drive
Mooresville, NC 28115
Re: Employment Security Agreement
Dear Mike:
Recently, you had expressed concern about your job security, in the event of
Kewaunee being acquired by another company. You have asked for special
consideration because when companies are acquired, the acquired company
frequently does not need "duplicate" positions such as yours.
Further, we recognize that Kewaunee's continued success depends, to a
significant degree, on the skill and competence of key managers such as
yourself.
Therefore, in consideration of your request for job security and your continued
employment, the Board of Directors has approved this employment agreement as
follows:
If the Company is acquired, and you are terminated without cause within two
years after the acquisition, the Company will pay you separation pay equal to
your then current base salary, for six months. If you should obtain income from
another employer while receiving separation payments, any such payments from
Kewaunee will be reduced in like amount.
After any termination of employment, the separation payments will not continue
the employment relationship. However, as long as you are receiving separation
payments, your health care coverage will continue per the plan document.
If you agree with the above employment security agreement, please sign below.
Sincerely,
/s/ Eli Manchester, Jr.
Eli Manchester, Jr.
President, Chief Executive Officer
Accepted: /s/ D. Michael Parker
---------------------
D. Michael Parker
Date: 9-17-96
---------------
<PAGE>
Exhibit 10.37
KEWAUNEE SCIENTIFIC CORPORATION
FISCAL YEAR 1998
INCENTIVE BONUS PLAN
The Fiscal Year 1998 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 1998.
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, 1997 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 is a
manager recommended by the President.
d. Participants in the Plan and their applicable bonus potential amounts
are shown on Exhibits III, IV, and V to the Company's F.Y. 1998 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 III
<PAGE>
and IV, and maximum incentive bonus payouts will be accrued and
available for payout based upon the guidelines shown on those
exhibits.
b. Non-divisional Corporate Pool
-----------------------------
. A pool will start accumulating once pre-tax earnings reach the
amounts shown on Exhibit V, 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 V, 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 III or IV, no awards will be paid to
its employees except in the discretion of the Board of Directors,
upon recommendation by the Compensation Committee.
. If a division achieves pre-tax earnings equal to or greater than
Goal 1 for that division, but the Company does not achieve the
amount shown as F.Y. 1998 Planned Consolidated Pre-tax Earnings on
Exhibit I, awards, both fixed and discretionary, earned on a
divisional level will be paid to all eligible divisional employees
at 75% of their bonus otherwise earned.
. 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
<PAGE>
. 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, early in F.Y. 1998 and approved by
the President. The degree of achievement of these goals will be
recommended by each participant's manager prior to April 30, 1998
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.
5. The Plan may be amended at any time by the Board of Directors.
3
<PAGE>
Exhibit 13
1997 Annual Report
KEWAUNEE Scientific Corporation
[Logo]
LABORATORY FURNITURE
FUME HOODS
. . . encouraging new discovery
[Picture of a display of Laboratory Furniture]
<PAGE>
About the Cover
Kewaunee Scientific Corporation exhibits annually at The Pittsburgh Conference,
the largest event of its kind for the promotion of scientific advancements. Our
1997 exhibit set the stage for the Company's introduction of several new
products from the Laboratory and Technical Products Groups.
The cover photograph shows the front of our display, which was designed to
attract immediate interest. Revolving cylinders highlighted a miniature wood and
steel cabinet incorporating the new styles. Once inside the booth, visitors had
an opportunity to preview full assemblies of the design options available to
personalize their working environments. The photographs below depict two of five
new styles displayed at the Conference. Both employ a Kewaunee exclusive -- the
rounded shape of horizontal edges on doors and drawers.
The 1997 exhibit generated the highest level of interest in years. We are
confident these new product offerings provide an excellent opportunity to
maintain and grow the Company's market share with our existing customer bases,
as well as create an avenue to reach new customers.
[Picture of a display of the Company's Discovery Product line]
[Picture of a display of the Company's Explorer Product line]
Corporate Profile
Kewaunee Scientific Corporation provides innovative products of high quality to
the laboratory furniture marketplace. The Company's corporate headquarters are
located in Statesville, North Carolina. Manufacturing facilities for steel and
wood casework, fume hoods and worksurfaces are also based in Statesville.
Operations in Lockhart, Texas produce technical workstations, workbenches, and
related accessories for computers and light electronic assembly, testing and
storage.
For 91 years, the Company has been a recognized leader in the design,
manufacture, and installation of laboratory furniture. Kewaunee products are
utilized in laboratories worldwide, ...encouraging new discovery.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Kewaunee Scientific Corporation
Percent
$ in thousands, except per share data 1997 1996 Change
- --------------------------------------------------------------------------------
Operating Data:
<S> <C> <C> <C>
Net sales $61,961 $57,559 +7.6
- --------------------------------------------------------------------------------
Gross profit 13,965 10,724 +30.2
Percent of sales 22.5% 18.6%
- --------------------------------------------------------------------------------
Operating earnings 2,469 897 +175.3
Percent of sales 4.0% 1.6%
- --------------------------------------------------------------------------------
Interest expense 344 694 -50.4
Earnings before income taxes 2,166 361 +500.0
Income tax benefit (97) -
Net earnings 2,263 361 +526.9
Net earnings per share $ 0.96 $ 0.15 +540.0
Return on average equity 14.6% 2.5%
Cash dividends per share $ 0.08 -
- --------------------------------------------------------------------------------
Year-end Data:
Working capital $ 7,005 $ 5,047 +38.8
Total borrowings/long-term debt - 2,828
Stockholders' equity 16,586 14,515 +14.3
Book value per share $ 7.01 $ 6.13 +14.3
- --------------------------------------------------------------------------------
</TABLE>
Table of Contents
2 Letter to our Stockholders
4 New Product Introductions
6 Management's Discussion and Analysis
8 Financial Statements and Notes
17 Reports of Independent Auditors and Management
18 Summary of Selected Financial Data
19 Quarterly Financial Data
20 Corporate Information
Page 1
<PAGE>
Letter to our Stockholders
The past year was a transition year in the development of a revitalized
Kewaunee, as we began to see the benefits of the many programs and strategies
put in place over the past several years. I am pleased to report that these
factors, combined with an improved marketplace for laboratory furniture during
the year, enabled us to increase sales for the year to $61,961,000, up 7.6%
from the prior year, and increase net earnings for the year to $2,263,000, or
$.96 per share, up from net earnings of $361,000, or $.15 per share, for the
prior year.
Over the past several years, we have made continuing efforts to strengthen our
network of sales agencies and representatives. We realized the benefits of
these efforts in fiscal year 1997, as increased market penetration and
representation allowed us to increase sales overall modestly, but more
importantly, increase sales of our higher-margin products.
Our strategy to improve profit margins on the low-margin contract-bid portion of
our business produced significantly improved profit margins during the year, as
shipments of these orders were increasingly reflective of the Company's current
pricing strategy for this business. We also continued our investment in and
increased use of computerized machinery, which allowed us to improve
manufacturing efficiencies and reduce costs. The combination of these and other
improvements increased the gross profit margin for the year to 22.5%, up
substantially from 18.6% in the prior year.
We continue our emphasis on the development of new products. Our Laboratory
Products Group in Statesville, North Carolina, introduced several new product
lines in March 1997. The new Research Collection includes five distinctive
styles of steel casework, giving customers choices of new and modern
appearances. The Research Collection represents the most significant industry
design change to steel laboratory furniture in many years. The innovative,
flexible Alpha System 2000 is a new, user-friendly system of movable furniture
that is designed to serve the evolving needs of today's laboratories.
During the year, we continued to make design and manufacturing refinements to
our wood laboratory furniture to make these products more attractive and
competitive in the marketplace. We also began an aggressive strategy to upgrade
and expand our manufacturing capabilities for epoxy resin worksurfaces.
Our Technical Products Group in Lockhart, Texas, which serves the fast-growing
electronics and computer industries, had an outstanding year. Sales of our
technical products increased 31% over the prior year. Leading the way in this
sales growth was our new Evolution for LANs product designed to support computer
equipment in local area network environments. The sales outlook for these
products appears excellent.
We made significant progress in strengthening the Company's balance sheet.
Operating activities generated cash of over $4 million during the year, allowing
us to repay debt and reduce interest expense by $350,000 from the prior year.
Stockholders' equity increased during the year to $16,586,000, or $7.01 per
share. In November 1996, your Board of Directors reinstated a quarterly payment
of cash dividends, reflecting their confidence in the long-term success of the
Company.
Several organizational changes were made during the year to strengthen our
operations and better serve the needs of our customers. William A. Shumaker was
named Vice President and General Manager of the Laboratory Products Group. Mr.
Shumaker has served as Vice President of Sales and Marketing since joining the
Company in December 1993. Kurt P. Rindoks was named Vice President of
Engineering and New Product Development. Mr. Rindoks joined the Company in 1985
and most recently served as Director of Engineering and New Product Development.
Looking forward, we are continuing strategies that contributed to our progress
in 1997, and we anticipate fiscal year 1998 will bring additional opportunities
for growth and improved operations. We are particularly excited about the
outlook for our new product lines introduced during the past year, as we think
these new products will enhance our competitive position in the marketplace.
Page 2
<PAGE>
Our progress in fiscal year 1997 was the result of the combined efforts of many.
We thank all of our employees and our network of agencies and representatives
for their hard work, dedication and enthusiasm over the past year. We also
express our sincere appreciation to our Board of Directors, our customers and
our suppliers, all of whom contributed significantly to our progress. Finally,
we thank you, our stockholders, for your continued support.
Sincerely,
/s/ Eli Manchester, Jr.
President
Chief Executive Officer
July 1997
[Photograph of Executive Officers]
Corporate Executive Officers:
(seated left to right) Kurt P. Rindoks; Eli Manchester, Jr.; Ronald D. Popiel
(standing left to right): James J. Rossi; William A. Shumaker; D. Michael
Parker; T. Ronald Gewin
Page 3
<PAGE>
New Product Introductions
Kewaunee Scientific Corporation's theme, ...encouraging new discovery,
recognizes the importance of products and services of superior quality. One of
our primary goals is to enhance the ability of our customers to achieve their
objectives. When designing for the working environment of tomorrow, product
development must be cognizant of multiple customer requirements, including
safety, aesthetics, integration of computer systems and adaptable
configurations.
During 1997, we successfully engineered and introduced several new product lines
to supplement our core product offering. The five new steel styles of The
Research Collection and the innovative, flexible Alpha System 2000 were
developed through the Laboratory Products Group in Statesville, North Carolina.
Through further research, the Technical Products Group in Lockhart, Texas has
enhanced and expanded their Evolution furniture line for storing local area
network components.
The Research Collection
[Picture of Company Product] [Picture of Company Product] [Picture of Company
Product]
Discovery Explorer Advantage
[Picture of Company Product] [Picture of Company Product]
Trademark Contour
The Research Collection of steel laboratory furniture styles presents an
opportunity for our customers to give their own unique identity to the
laboratory. Five different design options are available utilizing one standard
case construction. Discovery employs rounded horizontal edges on the doors and
drawers, plus full recessed pulls. Explorer utilizes the same rounded edge
design, complemented by a contrasting wire pull. Advantage and Trademark feature
a flush surface and are available in both smooth and textured steel. Contour
offers full-width, integral door and drawer pulls, along with rounded horizontal
edges. Discovery, Explorer and Contour are Kewaunee design exclusives.
Page 4
<PAGE>
ALPHA SYSTEM 2000
[Picture of a display of Company's Alpha System 2000 laboratory system]
ALPHA SYSTEM 2000 is an all new adaptable and convertible laboratory furniture
system.The modules easily assemble in straight wall, peninsula or island
arrangements, and are readily reconfigurable for changing space or task
requirements. This system utilizes steel or wood furniture components in
designer styles and finishes. The base unit suspension system, a Kewaunee
innovation, allows a continuous run of cabinets uninterrupted by brackets or
legs. The result is a user-friendly system of movable furniture that will
continue to serve the evolving applications of the laboratory.
EVOLUTION
<TABLE>
<CAPTION>
<S> <C> <C>
[Picture of a display of [Picture of a display of [Picture of a display of
Company's Evolution Product line] Company's Evolution Product line] Company's Evolution Product line]
</TABLE>
EVOLUTION FOR LANS, based on the successful Evolution product line, is designed
to support computer equipment in the local area network environment. Each
modular workstation can accommodate monitors, CPUs, back-up storage devices,
modems, printers, file servers, keyboards and accessories. The Evolution
"enclosure" provides an air-cooled, contamination-free, secure housing for
confidential files. The Evolution E/2/ height-adjustable, ergonomically-approved
workstation can be changed to any height from 30" to 42" using a very quiet
electric motor. The E/2/ is a very effective option for ADA requirements.
Page 5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS. Sales for the year ended April 30, 1997 were $62.0
million, up 7.6% from fiscal year 1996 sales of $57.6 million. The increase in
sales for the year resulted from higher selling prices and increased market
penetration provided by the Company's strengthened network of agencies and
representatives. Fiscal year 1996 sales decreased 7.9% from fiscal year 1995
sales of $62.5 million. The 1996 sales decrease was primarily attributable to
lower sales of contract-bid laboratory furniture resulting from a change in the
Company's bidding strategy to increase the profitability of this business.
The Company's unfilled sales order backlog was $24.2 million at April 30, 1997,
as compared to $23.2 million at April 30, 1996 and $24.1 million at April 30,
1995.
Gross profit represented 22.5% of sales in fiscal year 1997, 18.6% of sales in
fiscal year 1996, and 16.2% of sales in fiscal year 1995. The increases in gross
profit margins in fiscal year 1997 and fiscal year 1996 resulted primarily from
significantly improved profit margins on sales of contract-bid laboratory
furniture, as shipments of these orders became increasingly reflective of the
change in the Company's bidding strategy to improve the profitability of this
business. Reduced manufacturing costs during these years also contributed to the
improved profit margins.
Operating expenses were $11.5 million in fiscal year 1997, $9.8 million in
fiscal year 1996, and $10.9 million in 1995. As a percent of sales, these
expenses were 18.6%, 17.1%, and 17.4% in fiscal years 1997, 1996, and 1995,
respectively. 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 $41,000, $158,000, and $230,000 in fiscal years 1997, 1996, and
1995, respectively. Other income in fiscal year 1996 primarily relates to life
insurance proceeds associated with one of the Company's employee benefit plans,
and other income in fiscal year 1995 primarily relates to a cash settlement
received from an investment.
Interest expense was $344,000, $694,000, and $554,000 in fiscal years 1997,
1996, and 1995, respectively. The decrease in interest expense for fiscal year
1997 resulted from lower levels of borrowings during the year under the
Company's revolving credit facility, coupled with lower interest rates paid
under more favorable borrowing terms negotiated during the year. The increase in
interest expense in fiscal year 1996 resulted from higher levels of borrowings
during the first half of the year.
The Company recorded a net income tax benefit of $97,000 in fiscal year 1997, as
the favorable impact of adjustments eliminating the Company's valuation
allowance on deferred tax assets exceeded income tax expense associated with the
current year's earnings. No income tax expense or benefit was recorded in fiscal
years 1996 or 1995. The effective tax rate for fiscal years 1996 and 1995
differs from the related statutory rates due to adjustments to the deferred tax
valuation allowance.
The Company had net earnings of $2.3 million, or 96 cents per share, and
$361,000, or 15 cents per share, for fiscal years 1997 and 1996, respectively.
This compares to a net loss of $1.1 million, or 46 cents per share, for fiscal
year 1995.
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 $4.2 million in fiscal year 1997,
primarily from earnings and an increase in accounts payable and accrued
expenses. Operating activities provided cash of $3.1 million in fiscal year
1996, primarily from earnings and a decrease in accounts receivable, and used
cash of $329,000 in fiscal year 1995.
Working capital increased to $7.0 million at April 30, 1997, from $5.0 million
at April 30, 1996, and the ratio of current assets to current liabilities
increased to 1.7-to-1 from 1.5-to-1 during this period. These improvements
Page 6
<PAGE>
resulted as cash provided by operating activities was used to repay borrowings.
At April 30, 1997, the Company had no outstanding borrowings and had credit of
$8.0 million available under a revolving credit facility.
Capital expenditures of $1.2 million in fiscal year 1997 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 $840,000 in fiscal year 1995
were funded primarily by short-term borrowings. Capital expenditures of
approximately $2.0 million are planned for fiscal year 1998, primarily for the
purchase of production machinery. Fiscal year 1998 expenditures are expected to
be funded primarily by cash provided by operating activities during the year.
The Company resumed the quarterly payment of cash dividends in fiscal year 1997.
Dividends in the amount of four cents per share were declared and paid in both
the third and fourth quarters of the year. The Company plans to pay future
dividends in line with the Company's actual and anticipated future operating
results. The Company did not pay any dividends during fiscal years 1996 and
1995.
RECENT ACCOUNTING STANDARDS. The Financial Accounting Standards Board has issued
Statement No. 128, "Earnings Per Share," which will be effective during the
Company's 1998 fiscal year. SFAS No. 128 will change the method for calculating
earnings per share. Had the Company applied SFAS No. 128 for the 1997 fiscal
year, the effect on reported earnings per share would not be significant.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. Certain statements included in this report are forward looking and involve
risk and uncertainties that could significantly impact results. These factors
include, but are not limited to, economic, competitive, governmental, and
technological factors affecting the Company's operations, markets, products,
services, and prices.
Page 7
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30
$ and shares in thousands, except per share data 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (Note 1) $61,961 $57,559 $ 62,475
Costs of products sold (Note 2) 47,996 46,835 52,347
- -----------------------------------------------------------------------------------
Gross profit 13,965 10,724 10,128
Operating expenses 11,496 9,827 10,901
- -----------------------------------------------------------------------------------
Operating earnings (loss) 2,469 897 (773)
Other income, net 41 158 230
Interest expense (344) (694) (554)
- -----------------------------------------------------------------------------------
Earnings (loss) before income taxes 2,166 361 (1,097)
Income tax benefit (Note 4) (97) - -
- -----------------------------------------------------------------------------------
Net earnings (loss) $ 2,263 $ 361 $ (1,097)
===================================================================================
Net earnings (loss) per share $0.96 $0.15 $ (0.46)
===================================================================================
Weighted average number of
common shares outstanding 2,366 2,367 2,367
===================================================================================
</TABLE>
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30
$ in thousands, except per share data 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 9,361 $9,000 $10,097
Net earnings (loss) 2,263 361 (1,097)
Cash dividends declared - $.08 per share (189) - -
- ---------------------------------------------------------------------------------
Balance at end of year $11,435 $9,361 $ 9,000
=================================================================================
See accompanying notes to financial statements.
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
KEWAUNEE SCIENTIFIC CORPORATION APRIL 30
ASSETS $ and shares in thousands 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 6 $ 16
Receivables, less allowance - $770 (1997);
$561 (1996) (Note 3) 12,864 13,212
Inventories (Notes 2 and 3) 1,946 1,213
Prepaid expenses and other current assets (Note 4) 1,649 1,205
-------- --------
Total current assets 16,465 15,646
- ---------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Land 109 109
Buildings and improvements 13,386 13,383
Machinery and equipment 12,936 12,348
- ---------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost 26,431 25,840
Accumulated depreciation (16,605) (15,532)
Net property, plant and equipment 9,826 10,308
Other Assets 700 550
- ---------------------------------------------------------------------------------------------------------------
Total Assets $ 26,991 $ 26,504
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------
Current Liabilities
Short-term borrowings (Note 3) $ - $ 2,320
Current portion of long-term debt - 180
Accounts payable 5,136 4,505
Employee compensation and amounts withheld 1,727 1,182
Accrued insurance costs 439 605
Other accrued expenses 2,158 1,807
Total current liabilities 9,460 10,599
Long-Term Debt (Note 3) - 328
- ---------------------------------------------------------------------------------------------------------------
Deferred Income Taxes and Non-Current
Liabilities (Notes 4 and 6) 945 1,062
- ---------------------------------------------------------------------------------------------------------------
Commitments (Note 7)
Stockholders' Equity (Note 5)
Common stock, $2.50 par value
Authorized- 5,000 shares; Issued- 2,620 shares 6,550 6,550
Additional paid-in-capital 116 116
Retained earnings 11,435 9,361
Common stock in treasury, at cost
254 shares (1997); 253 shares (1996) (1,515) (1,512)
-------- --------
Total Stockholders' Equity 16,586 14,515
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 26,991 $ 26,504
===============================================================================================================
</TABLE>
See accompanying notes to financial statements.
Page 9
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30
$ in thousands 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings (loss) $ 2,263 $ 361 $(1,097)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,515 1,624 1,793
Bad debt provision 298 39 125
Deferred income tax benefit ( 617) ( 71) ( 2)
Decrease (increase) in receivables 50 2,320 ( 569)
Decrease (increase) in inventories ( 733) 123 210
(Decrease) increase in accounts
payable and accrued expenses 1,978 (1,253) ( 727)
Other, net ( 584) 5 ( 62)
- ---------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 4,170 3,148 ( 329)
- ---------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures (1,163) ( 474) ( 840)
Net decrease in short-term investments - 350 455
Net cash used in investing activities (1,163) ( 124) ( 385)
- ---------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Dividends paid ( 189) - -
Net (decrease) increase in short-term borrowings (2,320) 81 1,039
Proceeds from revolving credit facility
classified as long-term - - 3,000
Repayment of long-term debt
(including current maturities) ( 508) (3,147) (3,429)
- ---------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (3,017) (3,066) 610
- ---------------------------------------------------------------------------------------
Decrease in Cash ( 10) ( 42) ( 104)
Cash at Beginning of Year 16 58 162
- ---------------------------------------------------------------------------------------
Cash at End of Year $ 6 $ 16 $ 58
=======================================================================================
Supplemental Disclosure of
Cash Flow Information
Interest paid $ 311 $ 760 $ 575
Income taxes paid (refunded), net 58 ( 4) ( 94)
=======================================================================================
Supplemental Disclosure of Noncash
Investing and Financing Activities
Assets acquired under equipment financing $ - $ 338 $ -
=======================================================================================
See accompanying notes to financial statements.
</TABLE>
Page 10
<PAGE>
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 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,
competitive bids submitted by the Company, and a national distributor. 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
health-care markets.
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.
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.
Fair Value of Financial Instruments. The Company's financial instruments include
cash, long-term debt, accounts receivable, and accounts payable. The carrying
value of the long-term debt at April 30, 1996 approximates its estimated fair
value based upon quoted market prices. The carrying value of accounts receivable
and accounts payable approximates fair value due to the short-term nature of
these items.
Sales Recognition and Installation Services. Sales are generally recognized at
the date of shipment and, at that time, provision is made for the cost to
complete installations of products sold.
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
14 percent of the Company's sales in fiscal years 1997 and 1996 and 17 percent
of sales in fiscal year 1995.
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, 1997, 1996, and 1995
were $720,000, $587,000, and $340,000, respectively.
Long-Lived Assets. Effective May 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." Adoption of SFAS No.
121 was not material to the Company.
Recent Accounting Standards. The Financial Accounting Standards Board has issued
Statement No. 128, "Earnings Per Share," which will be effective during the
Company's 1998 fiscal year. SFAS No. 128 will change the method for calculating
earnings per share. Had the Company applied SFAS No. 128 for the 1997 fiscal
year, the effect on reported earnings per share would not be significant.
Page 11
<PAGE>
NOTE 2 -- INVENTORIES. The Company's inventories at April 30 consisted of:
<TABLE>
<CAPTION>
$ in thousands 1997 1996
------------------------------------------
<S> <C> <C>
Finished goods $ 366 $ 253
Work-in-process 638 280
Materials and components 942 680
------------------------------------------
Total inventories $1,946 $1,213
==========================================
</TABLE>
If inventories had been determined using the first-in, first-out (FIFO) method
at April 30, 1997 and 1996, reported inventories would have been $2.2 million
greater in each of these years.
NOTE 3 -- LONG-TERM DEBT AND OTHER CREDIT ARRANGEMENTS. Long-term debt at April
30, 1996 consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
$ in thousands Amount
----------------------------------------------
<S> <C>
Equipment financing $ 302
Capital lease obligations 206
---------------------------------------------
Total long-term debt 508
Less: current portion (180)
---------------------------------------------
Long-term portion $ 328
=============================================
</TABLE>
During fiscal year 1997, the Company satisfied all equipment financing and
capital lease obligations.
The Company has a revolving credit facility which 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. As of April
30, 1997, there were letters of credit in the amount of $500,000 issued and
outstanding under the facility, leaving $8.0 million of unused credit available.
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, 1997. The
Company's receivables and inventories are pledged to the lender as collateral
securing borrowings under the facility. The facility extends through January
1999.
Page 12
<PAGE>
NOTE 4 -- INCOME TAXES. The income tax benefit consisted of the following:
<TABLE>
<CAPTION>
$ in thousands 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current tax expense $ 520 $ 71 $ 2
Deferred tax expense (benefit) 397 140 ( 412)
Increase (decrease) in valuation allowance
on deferred tax assets (1,014) (211) 410
----------------------------------------------------------------------
Net income tax benefit $( 97) $ - $ -
======================================================================
</TABLE>
The reasons for the differences between the above net income tax benefit and the
amounts computed by applying the statutory federal income tax rates to earnings
(loss) before income taxes are as follows:
<TABLE>
<CAPTION>
$ in thousands 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory
rate $ 736 $ 123 $( 373)
State and local taxes, net of federal
income tax expense (benefit) 78 24 ( 43)
Increase (decrease) in valuation allowance
on deferred tax assets (1,014) ( 211) 410
Other 103 64 6
----------------------------------------------------------------------
Net income tax benefit $( 97) $ - $ -
======================================================================
</TABLE>
=============================================================================
As of April 30, 1997, the Company had general tax credit carryforwards of
$142,000 and alternative minimum tax credit carryforwards of $338,000 available
to offset future taxes payable. The general tax credit carryforwards expire in
2002.
Significant items comprising the Company's deferred tax assets and liabilities
as of April 30 were as follows:
<TABLE>
<CAPTION>
$ in thousands 1997 1996
----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $ 480 $ 786
Accrued retirement plans expense 352 434
Accrued insurance plans expense 190 280
Allowance for doubtful accounts 315 233
Inventory reserves and capitalized costs 190 181
Net operating loss carryforwards 10 67
Other 127 147
----------------------------------------------------------------------
1,664 2,128
Valuation allowance - (1,014)
Total deferred tax assets 1,664 1,114
----------------------------------------------------------------------
Deferred tax liabilities:
Book basis in excess of tax basis
of property, plant and equipment ( 910) ( 916)
Other ( 5) ( 78)
Total deferred tax liabilities ( 915) ( 994)
----------------------------------------------------------------------
Net deferred tax assets $ 749 $ 120
======================================================================
</TABLE>
At April 30, 1997, deferred tax assets of $1,047,000 were classified in the
balance sheet as prepaid expenses and other current assets, and deferred tax
liabilities of $298,000 were classified as deferred income taxes and non-current
liabilities.
Page 13
<PAGE>
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, 1997, there
were 108,500 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, 1997, there were
10,000 shares available for future grants under the plan.
Stock option activity and weighted average exercise price is summarized as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 176,500 $3.49 130,000 $4.80 162,500 $4.90
Granted 26,000 3.88 63,000 2.84 2,000 3.25
Canceled (51,000) 5.22 (16,500) 4.75 (34,500) 5.18
Exercised ( 125) 2.31 - - - -
---------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 151,375 $3.69 176,500 $3.49 130,000 $4.80
Exercisable at end of year 66,750 $4.06 41,625 $4.74 30,500 $4.83
===========================================================================================================================
</TABLE>
The options outstanding and weighted average exercise price within the following
price ranges at April 30, 1997 are as follows:
<TABLE>
<CAPTION>
Exercise price range $2.31 - $3.25 $3.87 - $4.62 $6.25
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding 56,875 90,500 4,000
Weighted average exercise price $2.74 $4.18 $6.25
Weighted average remaining contractual life (years) 7.2 6.0 0.3
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 14
<PAGE>
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 1997 and 1996 would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings (in thousands)
As reported $2,263 $ 361
Pro forma 2,239 349
================================================================================================
Net earnings per share
As reported $ 0.96 $0.15
Pro forma 0.94 0.15
================================================================================================
</TABLE>
The fair value of options granted under the Company's stock option plans during
fiscal year 1997 was estimated at $1.54 per share on the date of grant. The
options were valued using the Black-Scholes option-pricing model assuming 4%
dividend yield, expected volatility of 48%, risk free interest of 6.63% 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. The quarterly contributions
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:
<TABLE>
<CAPTION>
$ in thousands 1997 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for the benefits earned
during the year $ 259 $ 266 $ 298
Interest cost on projected benefit obligations 412 384 356
Investment return on plan assets (437) (308) (178)
Net amortization and deferral 24 (57) (137)
------------------------------------------------------------------------------------------------
Net pension expense $ 258 $ 285 $ 339
================================================================================================
</TABLE>
Page 15
<PAGE>
Accumulated plan benefits, projected benefit obligations, plan net assets, and
funded status as of April 30 were as follows:
<TABLE>
<CAPTION>
$ in thousands 1997 1996 1995
-----------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of
accumulated benefit obligations
(assumes no future salary increases):
Vested $ 4,286 $ 3,962 $ 3,453
Non-vested 202 186 279
-----------------------------------------------------------------------
Accumulated plan benefits $ 4,488 $ 4,148 $ 3,732
=======================================================================
Actuarial present value of projected
benefit obligations for service
provided to date (assumes future
salary increases): $ 5,744 $ 5,378 $ 5,045
Transition gain 96 128 160
Unrecognized net loss ( 347) ( 523) ( 902)
Plan net assets at fair value (5,178) (4,416) (3,751)
-----------------------------------------------------------------------
Accrued pension cost $ 315 $ 567 $ 552
=======================================================================
</TABLE>
The weighted average discount rate and the rate of increase in future
compensation utilized in determining the actuarial present value of the
projected benefit obligations are 8 percent and 5 percent, respectively. The
assumed rate of return on plan assets is 9 percent.
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 1997, 1996, and 1995
were $184,818, $150,572, and $151,173, respectively.
NOTE 7 -- COMMITMENTS. 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:
<TABLE>
<CAPTION>
$ in thousands Amount
--------------------------------------
<S> <C>
1998 $ 511
1999 503
2000 487
2001 251
2002 95
Thereafter 149
--------------------------------------
Total minimum lease payments $1,996
======================================
</TABLE>
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 $421,000, $314,000, and $207,000 in fiscal years
1997, 1996, and 1995, respectively.
Page 16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Kewaunee Scientific Corporation
We have audited the accompanying balance sheets of Kewaunee Scientific
Corporation as of April 30, 1997 and 1996, and the related statements of
operations, retained earnings, and cash flows for each of the three years in the
period ended April 30, 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Kewaunee Scientific Corporation as of April
30, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended April 30, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
June 4, 1997
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS 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 auditors 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
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA
KEWAUNEE SCIENTIFIC CORPORATION
<TABLE>
<CAPTION>
$ and shares in thousands,
except per share data 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Statement Data:
Net sales $61,961 $57,559 $62,475 $66,068 $66,984 $74,944
Costs of products sold 47,996 46,835 52,347 53,325 56,364 59,538
- ------------------------------------------------------------------------------------------------------
Gross profit 13,965 10,724 10,128 12,743 10,620 15,406
Operating expenses 11,496 9,827 10,901 12,787 13,647 14,396
- ------------------------------------------------------------------------------------------------------
Operating earnings (loss) 2,469 897 (773) (44) (3,027) 1,010
Other income, net 41 158 230 88 166 475
Interest expense (344) (694) (554) (291) (300) (330)
- ------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 2,166 361 (1,097) (247) (3,161) 1,155
Income tax expense (benefit) (97) - - (44) (693) 354
- ------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 2,263 $ 361 $(1,097) $ (203) $(2,468) $ 801
Average shares outstanding 2,366 2,367 2,367 2,368 2,368 2,412
======================================================================================================
Per Share Data:
Net earnings (loss) $ 0.96 $ 0.15 $ (0.46) $ (0.09) $ (1.04) $ 0.33
Cash dividends 0.08 - - - 0.08 0.16
Year-end book value 7.01 6.13 5.98 6.43 6.49 7.44
======================================================================================================
Balance Sheet Data:
Current assets $16,465 $15,646 $18,430 $19,009 $18,334 $22,344
Current liabilities 9,460 10,599 11,702 11,914 11,777 11,943
Net working capital 7,005 5,047 6,728 7,095 6,557 10,401
Net property, plant and equipment 9,826 10,308 11,120 12,073 12,900 13,214
Total assets 26,991 26,504 30,074 31,566 31,776 36,066
Long-term debt - 328 3,206 3,111 3,607 4,657
Stockholders' equity 16,586 14,515 14,154 15,237 15,372 17,955
======================================================================================================
Other Data:
Capital expenditures $ 1,163 $ 812 $ 840 $ 933 $ 1,316 $ 2,189
Year-end stockholders of record 392 409 439 458 480 492
Year-end employees 560 499 575 595 636 747
======================================================================================================
</TABLE>
Page 18
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
$ in thousands, First Second Third Fourth
except per share data Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
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 0.23 0.32 0.23 0.18
- ---------------------------------------------------------------
1996
Net sales $15,548 $15,385 $12,719 $13,907
Gross profit 2,673 2,996 2,428 2,627
Net earnings 70 148 87 56
Net earnings per share 0.03 0.06 0.04 0.02
- ---------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
1996 High 3 1/8 3 1/2 3 5/8 4 1/4
Low 2 1/8 2 1/4 2 5/8 3 5/8
Close 2 1/16 3 3 5/8 3 5/8
- ---------------------------------------------------------------
</TABLE>
Page 19
<PAGE>
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.
Skokie, 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, Operations
Technical Products Group
D. Michael Parker
Vice President, Finance,
Chief Financial Officer,
Treasurer, Secretary
James J. Rossi
Vice President, Human Resources
Ronald D. Popiel
Vice President, Manufacturing
(Laboratory Products Group)
Kurt P. Rindoks
Vice President, Engineering and
New Product Development
(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
<PAGE>
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 Auditors
Deloitte & Touche 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 27, 1997 at 10:00 a.m. Central Daylight Time.
Transfer Agent and Registrar
All shareholder inquiries, including transfer-related matters, should be
directed to:
ChaseMellon Shareholder Services, LLC
85 Challenger Road
Ridgefield, NJ 07660
800-288-9541
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: [email protected].
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: [email protected].
TRADEMARKS
BasikBench, Evolution, Kemresin, Kemrock, Kemshield, Signature, Silhouette,
Sturdilite, TechStat, and Visionaire are registered trademarks of Kewaunee
Scientific Corporation. Alpha, Supreme Air, The Research Collection, Trademark,
Advantage, Explorer, and Discovery are pending trademarks of Kewaunee Scientific
Corporation.
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[Logo]
KEWAUNEE
Scientific
Corporation
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