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