UNITED STATES SECURITIES AND

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


FORM 10-K


 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year endedApril 30, 20062007 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 number0-5286

 


KEWAUNEE SCIENTIFIC CORPORATION

(Exact name of registrant as specified in its charter)

 


 

Delaware 38-0715562

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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.  Yes  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of shares of voting stock held by non-affiliates of the registrant was approximately $15,614,843,$13,820,231, based on the last reported sale price of the registrant’s Common Stock on October 31, 2005,2006, the last business day of the registrant’s most recently completed second fiscal quarter. Only shares beneficially owned by directors of the registrant (excluding shares subject to options) and each person owning more than 10% of the outstanding Common Stock of the registrant were excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of July 5, 2006,2007, the registrant had outstanding 2,492,2702,507,770 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE: Those portions of the Company’s proxy statement for use in connection with Kewaunee Scientific Corporation’s annual meeting of stockholders to be held on August 23, 2006,22, 2007, indicated in this report are incorporated by reference into Parts I, II andPart III hereof.

 



Table of Contents

  Table of ContentsPage or Reference

PART I

    

Item 1.

  Business  3

Item 1A.

  Risk Factors  5

Item 1B.

  Unresolved Staff Comments  76

Item 2.

  Properties  7

Item 3.

  Legal Proceedings  7

Item 4.

  Submission of Matters to a Vote of Security Holders  7

PART II

PART II

 

Item 5.

  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  87

Item 6.

  Selected Financial Data  9

Item 7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations  10

Item 7A.

  Quantitative and Qualitative Disclosures About Market Risk  16

Item 8.

  Financial Statements and Supplementary Data  16

Item 9.

  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  3840

Item 9A.

  Controls and Procedures  3840

Item 9B.

  Other Information  3840

PART III

PART III

 

Item 10.

  

Directors and Executive Officers of the Registrant

  3941

Item 11.

  

Executive Compensation

  4042

Item 12.

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  4143

Item 13.

  

Certain Relationships and Related Transactions

  4143

Item 14.

  

Principal Accounting Fees and Services

  4143

PART IV

PART IV

 

Item 15.

  Exhibits, Financial Statement Schedules  4244

SIGNATURES

  4345

EXHIBIT INDEX

  4446

2


PART I

Item 1.Business

Item 1. Business

General

Our principal business is the design, manufacture and installation of laboratory and technical furniture products. Laboratory furniture products include both steel and wood cabinetry, fume hoods, flexible systems, and worksurfaces. Technical furniture products include workstations, workbenches, computer enclosures, and network storage systems.

Our products are sold primarily through purchase orders and contracts submitted by customers through our dealers and commissioned agents and a national distributor, as well as through competitive bids submitted by us and our subsidiaries in India and Singapore. Products are sold principally to pharmaceutical, biotechnology, industrial, chemical and commercial research laboratories, educational institutions, healthcare institutions, governmental entities, manufacturing facilities, and users of networking furniture. We consider the markets in which we compete to be highly competitive, with a significant amount of the business involving competitive public bidding.

It is common in the laboratory furniture industry for customer orders to require delivery at extended future dates, as products are frequently to be installed in buildings yet to be constructed. Changes or delays in building construction may cause delays in delivery of the orders and our recognition of the sale. Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor and material costs between receipt of an order and delivery of the product. The impact of such possible increases is considered when determining the sales price.

Our need for working capital and our credit practices are comparable to those of other companies manufacturing, selling, and installing similar products in similar markets. Since our products are used in building construction products,projects, in many cases payments for our laboratory products are received over longer periods of time than payments for many other types of manufactured products, thus requiring increased working capital. In addition, payment terms associated with certain projects provide for a retention amount until completion of the project, thus also increasing required working capital. On average, payments for our products are received during the quarter following shipment, with the exception of the retention amounts which are collected at the completion of the project.

The principal raw materials and products manufactured by others used by us in our 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 typically readily available.

We hold various patents and patent rights but do not consider that our success or growth is dependent upon our patents or patent rights. Our business is not dependent upon licenses, franchises or concessions.

Our business is not generally cyclical, although sales are sometimes lower during our third quarter because of slower construction activity in certain areas of the country during the winter months. Our business is not dependent on any one or a few customers; however, sales to our national distributor, VWR International, represented 13 percent, 14 percent, 15 percent, and 1115 percent of our total sales in fiscal years 2007, 2006 2005 and 2004,2005, respectively.

Our order backlog at April 30, 20062007 was $36.4$51.1 million, as compared to $36.4 million at April 30, 2006 and $40.6 million at April 30, 2005 and $43.1 million at April 30, 2004.2005. All but $3.3$7.9 million of the backlog at April 30, 20062007 was scheduled for shipment during fiscal year 2007;2008; however, it may reasonably be expected that delays in shipments will

3


occur because of customer rescheduling or delay in completion of projects which involve the installation of our products. Based on scheduled shipment dates and past experience, we expect that more than 9080 percent of our order backlog at April 30, 20062007 will be shipped during fiscal year 2007.2008.

Segment Information

See Note 9 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for information concerning our Domestic and International business segments.

Competition

We consider the industries in which we compete to be highly competitive and believe that the principal competitive factors are price, product performance, and customer service. A significant portion of our business is based upon competitive public bidding.

Research and Development

The amount spent by us during the fiscal year ended April 30, 20062007 on research and development activities related to new or re-designed products was $760,000.$945,000. The amounts spent for similar purposes in the fiscal years ended April 30, 2006 and 2005 were $760,000 and 2004 were $785,000, and $791,000, respectively.

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 us. There are no material capital expenditures anticipated for such purposes, and no material effect therefrom is anticipated on our earnings or competitive position.

Employees

At April 30, 2006,2007, we had 471433 domestic employees and 95121 international employees.

Other Information

Our internetInternet address iswww.kewaunee.com. We make available, free of charge through this web site, our annual report to stockholders. Our Form 10-K and 10-Q financial reports may be obtained by stockholders by writing the Secretary of the Company, Kewaunee Scientific Corporation, P.O. Box 1842, Statesville, NC 28687-1842. The public may also obtain information on our reports, proxy, and information statements at the SEC internetInternet sitewww.sec.gov.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Certain statements included and referenced in this report, including 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 our operations, markets, products, services, and prices, as well as prices for certain raw materials and energy. The cautionary statements made by us pursuant to the Reform Act herein and elsewhere should not be construed as exhaustive. We 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.

Executive Officers of the Registrant

Included herein in Part III, Item 10(b) of this Annual Report on Form 10-K.

4


Item 1A.Risk Factors

Item 1A. Risk Factors

You should carefully consider the following risks before youryou decide to buy shares of our common stock. If any of the following risks actually occurs,occur, our business, results of operations or financial condition would likely suffer. In such case, the trading price of our common stock would decline, and you may lose all or part of the money you paid to buy our stock.

This and other public reports may contain forward-looking statements based on current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those forward-looking statements as resultsa result of many factors, as more fully described below and elsewhere in our public reports. We do not undertake to update publicly any forward-looking statements for any reasons, even if new information becomes available or other events occur in the future.

If we fail to compete effectively, our revenue and profit margins could decline.

We face a variety of competition in all of the markets in which we participate. Competitive pricing, including price competition or the introduction of new products, could have material adverse effects on our revenues and profit margins.

Our ability to compete effectively depends to a significant extent on the specification or approval of our products by architects, engineers, and customers. If a significant segment of those communities were to decide that the design, materials, manufacturing, testing or quality control of our products is inferior to that of any of our competitors, our sales and profits would be materially and adversely affected.

If we lose a large customer, our sales and profits would decline.

We have substantial sales to one large customer. In particular, one customerThat distributor accounted for 14%13% of our net sales in fiscal year 2006.2007. Loss of all or a part of our sales to a large customer would have a material effect on our revenues and profits.

An increase in the price of raw materials could negatively affect our sales and profits.

Our principal raw materials are steel, including stainless steel, wood and epoxy resin. Numerous factors beyond our control, such as general economic conditions, competition, worldwide demand, labor costs, energy costs, and import duties and other trade restrictions, influence prices for our raw materials. In March 2002, for example, the United States imposed tariffs on several types of imported steel, which increased our cost of steel. In addition, consolidation among domestic integrated steel producers, changes in supply and demand in steel markets, the weakening United States dollar and other events have led to increased steel costs. The domestic steel market is heavily influenced by three major United States manufacturers. Worldwide demand for steel is strong. We have not always been able, and in the future we might not be able, to increase our product prices in amounts that correspond to increaseincreases in costs of raw materials, without materially and adversely affecting our sales and profits. We have not attempted to hedge against changes in prices of steel or other raw materials.

Our future growth may depend on our ability to penetrate new international markets.

International laws and regulations, construction customs, standards, techniques and methods differ from those in the United States. Significant challenges of conducting business in foreign countries include, among other factors, local acceptance of our products, political instability, currency controls, changes in import and export regulations, changes in tariff and freight rates, and fluctuations in foreign exchange rates.

5


Events outside our control may affect our operating results.

We have little control over the timing of our customer shipments. Shipments that we anticipate in one quarter may occur in another quarter, affecting both quarters’ results. Weather conditions, such as unseasonably warm, cold or wet weather, can affect and sometimes delay projects. Political and economic events can also affect our revenues. When sales do not meet our expectations, our operating results will be reduced for the relevant quarters.

Our principal markets are in the laboratory building construction industry. This industry is subject to significant volatility due to various factors, none of which is within our control. Declines in construction activity or demand for our products could materially and adversely affect our business and financial condition.

We depend on key management and technical personnel, the loss of whom could harm our business.

We depend on certain key management and technical personnel. The loss of one or more key employees may materially and adversely affect us. Our success also depends on our ability to attract and retain additional highly qualified technical, marketing and management personnel necessary for the maintenance and expansion of our activities. We might not be able to attract or retain such personnel.

Our stock price is likely to be volatile and could drop.

The trading price of our Common Stock could be subject to wide fluctuations in response to quarter to quarter variation in operating results, announcement of technological innovations or new products by us or our competitors, general conditions in the construction and construction materials industries, relatively low trading volume in our Common Stock and other events or factors. In addition, in recent years the stock market has experienced extreme price fluctuations. This volatility has had a substantial effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of those companies. Securities market fluctuations may adversely affect the market price of our Common Stock.

We are subject to a number of significant risks that might cause our actual results to vary materially from our forecasts, targets, or projections, including:

 

Failing to anticipate, appropriately invest in and effectively manage the human, information technology and logistical resources necessary to support the growth of our business, including managing the costs associated with such resources;

 

Failing to generate sufficient future positive operating cash flows and, if necessary, secure adequate external financing to fund our growth; and

 

Interruptions in service by common carriers that ship goods within our distribution channels.

FailureThe implementation of a new information technology system may disrupt our operations.

Our ability to design, manufacture, market and service our products is dependent on information technology systems that encompass all of our internal control overmajor business functions. We are in the process of implementing a comprehensive enterprise resource planning (“ERP”) software system. This new ERP system will cover many areas of our business. System failure or malfunctioning may result in disruption of operations and the inability to process transactions and could adversely affect our financial reporting could harmresults. If we encounter unforeseen delays or difficulties or significant increased costs in implementing our system, our business and financial results.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of the

6


consolidated financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets thatcondition could have a material effect on the consolidated financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud.adversely affected.

Item 1B.Unresolved Staff Comments

Item 1B. Unresolved Staff Comments

None.

Item 2.Properties

Item 2. Properties

We own and operate three adjacent manufacturing facilities in Statesville, North Carolina. These facilities also house our corporate offices, as well as sales and marketing, administration, engineering and drafting personnel. These facilities together comprise approximately 382,000 square feet and are located on approximately 20 acres of land. In addition, at April 30, 2006,2007, we leased our primary distribution facility and other warehouse facilities totaling 164,000160,000 square feet in Statesville, North Carolina. We also lease and operate a manufacturing facility in Bangalore, India totaling approximately 16,000 square feet.

All of the facilities which we own are held free and clear of any encumbrances. We believe our facilities are suitable for their respective uses and are adequate for our current needs.

Item 3.Legal Proceedings

Item 3. Legal Proceedings

From time to time, we are involved in certain disputes and litigation relating to claims arising out of our operations in the ordinary course of business. Further, we periodically are subject to government audits and inspections. We believe that any such matters presently pending will not, individually or in the aggregate, have a material adverse effect on our results of operations or financial condition.

Item 4.Submission of Matters to a Vote of Security Holders

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

7


PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded in the NASDAQ National Market system, under the symbol KEQU. The following table sets forth the quarterly high and low prices reported on the NASDAQ National Market System.

 

  

First

Quarter

  

Second

Quarter

  

Third

Quarter

  

Fourth

Quarter

2007

        

High

  $9.10  $8.57  $11.47  $11.90

Low

  $8.09  $7.38  $7.40  $9.64

Close

  $8.79  $7.44  $9.78  $10.97
  

First

Quarter

  

Second

Quarter

  

Third

Quarter

  

Fourth

Quarter

2006

                

High

  $9.00  $10.18  $10.64  $9.25  $9.00  $10.18  $10.64  $9.25

Low

  $6.68  $8.17  $8.66  $8.69  $6.68  $8.17  $8.66  $8.69

Close

  $8.88  $8.48  $9.20  $8.85  $8.88  $8.48  $9.20  $8.85

2005

        

High

  $11.34  $10.04  $9.50  $9.00

Low

  $9.10  $8.51  $8.27  $7.08

Close

  $9.50  $9.25  $8.67  $7.51

As of June 30, 2006,July 5, 2007, we estimate there were approximately 1,000 stockholders of our common shares, of which 243225 were stockholders of record. We paid cash dividends of $0.28 per share for each of the fiscal years 2007, 2006, and 2005. We currently expect to pay dividends in the future in line with our actual and anticipated future operating results.

Performance Graph

The graph below sets forth a comparison of the Company’s annual stockholder return with the annual stockholder return of (i) the Nasdaq Market Index, and (ii) an index of Nasdaq, non-financial companies with similar market capitalizations to the Company. The graph is based on an investment of $100 on May 1, 2002 (the first trading day of the Company’s fiscal year beginning on that date) in the Company’s common stock, assuming dividend reinvestment. The graph is not an indicator of the future performance of the Company. Thus, it should not be used to predict the future performance of the Company’s stock. The graph and related data were furnished by Hemscott, Inc., Richmond, Virginia.

In addition to the Company, the Similar Market Capitalization Index is comprised of the following companies: Amtech Systems, Inc.; Arotech Corporation; Jaco Electronics, Inc.; Max & Erma’s Restaurants, Inc.; Point.360; Pyramid Breweries Inc.; and Tripos, Inc. Consistent with the prior year, the Company used for an index companies with a market capitalization similar to that of the Company (the “Peer Group”). The Peer Group index was used because there exists no applicable published industry index or line-of-business index, and the Company does not believe it can reasonably identify a peer group of companies in its industry because the Company’s primary competitors are either divisions of larger corporations or are privately owned.

Securities Authorized for Issuance under Equity Compensation Plan

See Item 12 in this Form 10-K for a discussion of securities authorized for issuance under our equity compensation plans.

8


Item 6.Selected Financial Data

Item 6. Selected Financial Data

The following table sets forth our selected consolidated financial information for each of the five years ended April 30, 2007, 2006, 2005, 2004, 2003, and 2002;2003; this information is derived from our audited Consolidated Financial Statements, the most recent three years of which appear elsewhere herein. The data presented below should be read in conjunction with the Consolidated Financial Statements and related Notes thereto and “Item 7—7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein.

 

$ and shares in thousands,

except per share amounts

  Year Ended April 30 
  Year Ended April 30 

$ and shares in thousands,

except per share amounts

2006 2005 2004 2003 2002   2007 2006 2005 2004 2003 
            

Net sales

  $84,071  $73,481  $94,700  $71,163  $84,849   $81,441  $84,071  $73,481  $94,700  $71,163 

Costs of products sold

   71,663   60,997   79,011   58,451   70,143    66,355   71,663   60,997   79,011   58,451 
                                

Gross profit

   12,408   12,484   15,689   12,712   14,706    15,086   12,408   12,484   15,689   12,712 

Other operating income

   884   —     —     —     —      —     884   —     —     —   

Operating expenses

   12,175   12,699   13,491   13,476   11,801    11,728   12,175   12,699   13,491   13,476 
                                

Operating earnings (loss)

   1,117   (215)  2,198   (764)  2,905    3,358   1,117   (215)  2,198   (764)

Other income (expense)

   50   2   319   96   (6)

Other income

   53   50   2   319   96 

Interest expense

   (470)  (310)  (301)  (155)  (144)   (670)  (470)  (310)  (301)  (155)
                                

Earnings (loss) before income taxes

   697   (523)  2,216   (823)  2,755    2,741   697   (523)  2,216   (823)

Income tax expense (benefit)

   288   (488)  621   (549)  793    902   288   (488)  621   (549)
                                

Earnings (loss) before minority interests

   409   (35)  1,595   (274)  1,962    1,839   409   (35)  1,595   (274)

Minority interests in subsidiaries

   (216)  (112)  (133)  (68)  (62)   (299)  (216)  (112)  (133)  (68)
                                

Net earnings (loss)

  $193  $(147) $1,462  $(342) $1,900   $1,540  $193  $(147) $1,462  $(342)
                                

Weighted average shares outstanding:

            

Basic

   2,492   2,491   2,486   2,478   2,468    2,493   2,492   2,491   2,486   2,478 

Diluted

   2,493   2,495   2,497   2,485   2,481    2,495   2,493   2,495   2,497   2,485 

PER SHARE DATA:

            

Net earnings (loss):

            

Basic

  $0.08  $(0.06) $0.59  $(0.14) $0.77   $0.62  $0.08  $(0.06) $0.59  $(0.14)

Diluted

   0.08   (0.06)  0.59   (0.14)  0.77    0.62   0.08   (0.06)  0.59   (0.14)

Cash dividends

   0.28   0.28   0.28   0.28   0.28    0.28   0.28   0.28   0.28   0.28 

Year-end book value

   10.25   10.43   10.77   10.46   10.90    9.64   10.25   10.43   10.77   10.46 
  As of April 30 

$ in thousands

  2006 2005 2004 2003 2002 

BALANCE SHEET DATA:

      

Current assets

  $31,398  $26,780  $31,536  $24,986  $25,426 

Current liabilities

   20,373   16,399   18,919   13,328   10,609 

Net working capital

   11,025   10,381   12,617   11,658   14,817 

Net property, plant and equipment

   11,163   10,730   11,362   11,791   12,811 

Total assets

   50,472   46,212   50,461   43,654   42,190 

Total borrowings/long-term debt

   9,059   5,127   9,045   3,346   2,611 

Stockholders’ equity

   25,546   25,989   26,791   25,938   26,912 

OTHER DATA:

      

Capital expenditures

  $1,886  $976  $1,619  $3,143  $2,065 

Year-end stockholders of records

   243   252   265   273   289 

Year-end employees (domestic)

   471   484   533   543   535 

 

9
   As of April 30

$ in thousands

  2007  2006  2005  2004  2003

BALANCE SHEET DATA:

          

Current assets

  $28,514  $31,398  $26,780  $31,536  $24,986

Current liabilities

   16,183   20,373   16,399   18,919   13,328

Net working capital

   12,331   11,025   10,381   12,617   11,658

Net property, plant and equipment

   11,255   11,163   10,730   11,362   11,791

Total assets

   45,240   50,472   46,212   50,461   43,654

Total borrowings/long-term debt

   4,325   9,059   5,127   9,045   3,346

Stockholders’ equity

   24,048   25,546   25,989   26,791   25,938

OTHER DATA:

          

Capital expenditures

  $1,724  $1,886  $976  $1,619  $3,143

Year-end stockholders of record

   225   243   252   265   273

Year-end employees (domestic)

   433   471   484   533   543


Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this document 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 our operations, markets, products, services, and prices. The cautionary statements made pursuant to the Reform Act herein and elsewhere by us should not be construed as exhaustive. We cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. In addition, readers are urged to consider statements that include the terms “believes,” “belief,” “expects,” “plans,” “objectives,” “anticipates,” “intends,” or the like to be uncertain and forward-looking. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and harmful to our stockholders’ interest. Many important factors that could cause such a difference are described under the caption “Risk Factors,” in Item 1A of this annual report, which you should review carefully.

MANAGEMENTSMANAGEMENT’S DISCUSSION AND ANALYSIS

INTRODUCTION

We are a recognized leader in the design, manufacture, and installation of laboratory and technical furniture products. Laboratory furniture products include both steel and wood cabinetry, fume hoods, flexible systems, and worksurfaces. Technical furniture products include workstations, workbenches, computer enclosures, and network storage systems. Our headquarters and manufacturing facilities are located in Statesville, North Carolina. We also have subsidiaries in Singapore and Bangalore, India that serve the Asian and Middle East markets. Although only approximately 15.1%18.2% of our sales were through our international subsidiaries in fiscal year 2006,2007 these sales are considered an important part of our long-term growth strategy.

Our products are primarily sold through purchase orders and contracts submitted by customers through our dealers and commissioned agents, a national distributor, and through competitive bids submitted by us and our subsidiaries. Products are sold principally to pharmaceutical, biotechnology, industrial, chemical and commercial research laboratories, educational institutions, healthcare institutions, governmental entities, manufacturing facilities, and users of networking furniture. We consider the markets in which we compete to be highly-competitive,highly competitive, with a significant amount of the business involving competitive public bidding.

It is common in the laboratory furniture industry for customer orders to require delivery at extended future dates, as products are frequently to be installed in buildings yet to be constructed. Changes or delays in building construction may cause delays in delivery of the orders and our recognition of the sale. Since prices are normally quoted on a firm basis in the industry, we bear the burden of possible increases in labor and material costs between receipt of an order and delivery of the product. The impact of such possible increases is considered when determining the sales price. The principal raw materials and products manufactured by others used in our products are cold-rolled carbon and stainless steel, hardwood lumbers and plywood, paint, chemicals, resins, hardware, plumbing and electrical fittings. Such materials and products are purchased from multiple suppliers and are typically readily available.

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CRITICAL ACCOUNTING POLICIES

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our financial statements in conformity with generally accepted accounting principles in the United States of America. Actual results could differ significantly from those estimates. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations, and require management’s most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

REVENUE RECOGNITION

A portion of our product sales result from fixed-price construction contracts that involve a signed contract for a fixed price to provide our laboratory furniture and fume hoods for a construction project. We are usually in the role asof a subcontractor, but in some cases may enter into a contract directly with the end-user of the products. Product sales resulting from fixed-price construction contracts are generated from multiple-element arrangements that require separate units of accounting and estimates regarding the fair value of individual elements. Our multiple-element arrangements that qualify as separate units of accounting are: product sales and installation services. Each of these elements represent individual units of accounting as the delivered item has value to a customer on a stand-alone basis, objective and reliable evidence of fair value exists for undelivered items, and arrangements normally do not contain a general right of return relative to the delivered item. We determine fair value based on the price of the deliverable when it is sold separately or based on third-party evidence. In accordance with the guidance in Emerging Issues Task Force (“EITF”) 00-21 “Revenue Arrangements with Multiple Deliverables”,Deliverables,” we use the residual method to allocate the arrangement consideration when the arrangement does not indicate fair value of the product sale. Under the residual method, the amount of consideration allocated to the delivered item equals the total arrangement consideration less the aggregate fair value of the undelivered items. Assuming all other criteria for revenue recognition have been met, we recognize revenue for product sales at the date of shipment. Product sales resulting from purchase orders involve a purchase order received by us from our dealers or our stocking distributor. This category includes product sales for standard products, as well as products which require some customization. These sales are recognized under the terms of the purchase order which generally are freight on board (“FOB”) shipping point and do not include rights of return. Accordingly, sales are recognized at the time of shipment.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Evaluation of the allowance for doubtful accounts involves management judgments and estimates. We evaluate the collectibility of our trade accounts receivable based on a number of factors. In circumstances where management is aware of a customer’s inability to meet its financial obligations to us, or a project dispute makes it unlikely that all of the receivable owed by a customer will be collected, a specific reserve for bad debts is estimated and recorded, to reduce the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, a general reserve for bad debts is estimated and recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding.

INVENTORIES

Inventories are valued at the lower of cost or market. The cost of the majority of inventories is measured on the last in, first out (“LIFO”) method. The LIFO method allocates the most recent costs to cost of products sold, and, therefore, recognizes into operating results fluctuations in raw materials,

11


and other inventoriable costs more quickly than other methods. Other inventories consisted of foreign inventories and are measured at actual cost.

PENSION BENEFITS

We sponsor pension plans covering all employees who meetmet eligibility requirements.requirements as of April 30, 2005. In February 2005, our pension plans were amended as of April 30, 2005. No further benefits have been, or will be, earned under the plans subsequent to the amendment date, and no additional participants have been, or will be, added to the plans. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the pension plans. These factors include assumptions about the discount rate used to calculate and determine benefit obligations and expected return on plan assets within certain guidelines. The actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. These differences may significantly affect the amount of pension income or expense recorded by us in future periods.

RESULTS OF OPERATIONS

Sales for fiscal year 2007 were $81.4 million, a decrease of 3% from fiscal year 2006 sales of $84.1 million. Domestic operations sales for the year were $66.6 million, a decrease of 8% from the prior year. As reflected in the growth of our order backlog, the domestic marketplace for laboratory products continued to be healthy during the year, particularly for larger laboratory products. However, the marketplace for small and mid-sized projects remained subdued and very price competitive. International operations sales for the year were $14.8 million, an increase of 23% over the prior year. International

operations sales for the year benefited from a strengthening of our sales representation in the Asian and Middle East markets and a further expansion of our manufacturing capabilities in India.

Our order backlog was $51.2 million at April 30, 2007, as compared to $36.4 million at April 30, 2006, and $40.6 million at April 30, 2005. The increase in order backlog in fiscal year 2007 was due to the strong volume of incoming orders, both domestic and international, in the second half of the year.

Sales for fiscal year 2006 were $84.1 million, an increase of 14.4%14% from fiscal year 2005 sales of $73.4 million. Domestic demandoperations sales for our products improved during the year. Domestic salesyear were $72.0 million, an increase of 6.2%6% over the prior year. Although demand for products improved, a significant amount of excess manufacturing capacity remained in the marketplace. Domestic selling prices for laboratory products declined during thefiscal year 2006, as manufacturers reacted to the excess manufacturing capacity. Growth accelerated for our Asian subsidiaries duringcapacity in the year, asmarketplace. International operations sales through our international subsidiaries increased 113% to $12.0 million.

Sales for fiscal year 20052006 were $73.4$12.0 million, a decreasean increase of 22% from fiscal year 2004 sales of $94.7 million. Domestic sales were $67.1 million, a decrease of 24% from113% over the prior year, while sales through our international sales decreased 8% to $6.9 million. Sales for fiscal year 2005, both domestic and international, were adversely affected by several factors during the year. Spending for new research projects by pharmaceutical companies was reduced by the uncertainties surrounding the November 2004 presidential election and the potential impact of its outcome on pricing of prescription drugs. The significant increases in the cost of construction materials during fiscal year 2005 reduced the number of laboratory projects generally available in the marketplace, or delayed construction. Spending for laboratory construction for higher education science buildings slowed significantly during fiscal year 2005 due to the combination of significantly higher construction costs and reduced state funds available for these projects. Our order backlog was $36.4 million at April 30, 2006, as compared to $40.6 million at April 30, 2005, and $43.1 million at April 30, 2004.

Gross profit represented 14.8%18.5%, 17.0%14.8%, and 16.6%17.0% of sales in fiscal years 2007, 2006, and 2005, respectively. The increase in the gross profit margin in fiscal year 2007 from fiscal year 2006 was primarily due to improved manufacturing costs, continuing success in identifying new lower cost global supply sources for raw materials and 2004, respectively.components, and other cost improvement activities. The decrease in gross profit margin in fiscal year 2006 from fiscal year 2005 was due to a number of unfavorable factors. These included lower selling prices, increased costs of raw materials, particularly steel and epoxy resin, and increased costs of energy and transportation. We only had limited success in our efforts to pass on these added costs to customers. The unfavorable factors were partially offset by actions taken to reduce factory overhead, manufacturing costs, and material costs.

The increase in gross profit margin in fiscal year 2005 from fiscal year 2004 was due to aggressive activities to reduce overhead and material costs. These improvements more than offset significant increases in raw material prices, particularly steel and epoxy resin, which reduced gross profit for the year by $1.4 million, or 1.9% of sales.

Other operating income of $884,000 in fiscal year 2006 resulted from the sale of our former plant site in Lockhart, Texas.

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Operating expenses were $11.7 million, $12.2 million, $12.7 million, and $13.5$12.7 million in fiscal years 2007, 2006, 2005, and 2004,2005, respectively, and 14.5%14.4%, 17.3%14.5%, and 14.2%17.3% of sales, respectively. The decrease in operating expenses for fiscal year 2007 as compared to fiscal year 2006 was primarily due to a reduction in sales and marketing expenses of $368,000 and a decline of $182,000 in sales commission due to lower sales. The decrease in operating expenses for fiscal year 2006 as compared to fiscal year 2005 was primarily attributable to cost reduction activities during the currentfiscal year 2006, the full benefit of workforce reductions made during the prior year, a decrease in pension expense of $251,000 resulting from the freezing of benefits in our pension plans as of April 30, 2005, and a reduction in bad debt expense of $232,000.

On a dollar basis, operating expenses for fiscal year 2005 as compared to fiscal year 2004 benefited from cost reduction activities, including reduced salaries and benefits of $630,000 resulting from workforce reductions made during the year. Operating expenses in fiscal year 2005 also benefited from a decline in sales commissions of $461,000 as compared to the prior year due to the lower sales volumes. As a percent of sales, operating expenses in fiscal year 2005 increased as compared to fiscal year 2004 as the amount of operating expenses did not decline proportionately with the decline in sales.

Other income was $53,000, $50,000, $2,000, and $319,000$2,000 in fiscal years 2007, 2006, and 2005, and 2004, respectively. Other income for fiscal year 2004 includes $295,000 received during the year from the resolution of a disputed claim for laboratory furniture sold several years earlier.

Interest expense was $670,000, $470,000, $310,000, and $301,000$310,000 in fiscal years 2007, 2006, and 2005, respectively. The increased interest expense in fiscal year 2007 resulted primarily from higher interest rates paid and 2004, respectively.higher levels of bank borrowings and capital leases during the year. The increased interest expense in fiscal year 2006 resulted primarily from higher interest rates paid. The increased interest

Income tax expense of $902,000, or 32.9% of pretax earnings, was recorded in fiscal year 2005 resulted2007. The effective tax rate for fiscal year 2007 differs from higher interestthe statutory rate as it was increased by the impact of differing foreign tax rates paid, partially offsetand was decreased by lower levelsthe impact of borrowings.state and federal tax credits.

Income tax expense of $288,000, or 41.3% of pretax earnings, was recorded in fiscal year 2006. The impact of earned state and federal tax credits in fiscal year 2006 was offset by a valuation allowance established against earned but unused tax credits, since the utilization of these tax credits depends on future taxable income.credits. An income tax benefit of $488,000, or 93.3% of the pretax loss, was recorded in fiscal year 2005. An income tax expense of $621,000, or 28.0% of pretax earnings was recorded in fiscal year 2004. The effective rate for fiscal yearsyear 2005 and 2004 differs from the statutory rate due to the impact of earned state and federal tax credits. The effective rate for fiscal year 2005 was also impacted by the level of the pretax losses.

Minority interest related to our two subsidiaries that are not 100% owned by us were $299,000, $216,000, $112,000, and $133,000,$112,000, for fiscal years 2007, 2006, 2005, and 2004,2005, respectively. The changes in minority interest for each year were due to changes in the net income of the subsidiaries.

Net earnings in fiscal year 2007 were $1,540,000, or $0.62 per diluted share. Net earnings in fiscal year 2006 were $193,000, or $0.08 per diluted share. Net earnings in fiscal year 2006 included a gain of $540,000 resulting from the sale of our former plant site in Lockhart, Texas. A net loss of $147,000, or $0.06 per diluted share, was reported for fiscal year 2005. Net earnings in fiscal year 2004 were $1.5 million, or $0.59 per diluted share. Net earnings in fiscal year 2006 were increased by $540,000, resulting from the sale of our former plant site in Lockhart, Texas.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity have historically been funds generated from operating activities, supplemented as needed by borrowings under our revolving credit facility. Additionally, certain machinery and equipment are financed by non-cancelable operating leases or capital leases. We believe that these sources of funds will be sufficient to support ongoing business requirements, including capital expenditures, through fiscal year 2007.2008.

At April 30, 2006,2007, we had advances of $8.2$3.5 million outstanding under an unsecured $9$12 million revolving credit facility. The credit facility matures in December 2006,2007, and we intend to extend or replace it with a new facility prior to the maturity date.date, although there can be no assurance as to the availability or terms of any such extension or replacement.

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During fiscal year 2003, we entered into a 10-year operating lease for a new distribution center in Statesville, North Carolina. This lease arrangement, as well as most of our leases for machinery and equipment, provides us with renewal and purchase options and certain early cancellation rights.

In fiscal year 2005, we began a project to purchase and install a new enterprise resource planning system (ERP). system. The project is projected to have a total cost of $2.0$3.1 million and is expected to be completed in the third quarter of fiscal year 2007.2008. We have entered into lease arrangements to fund the majority of the expectedexternal costs of the project as costs are incurred. Costs of $300,000, $852,000 and $715,000 for the project were incurred and funded under operating and capital lease arrangements during fiscal years 2007, 2006 and 2005, respectively.

The following table summarizes the obligated cash payments including interest, if applicable, for the above commitments as of April 30, 2006:2007:

PAYMENTS DUE BY PERIOD

($ in thousands)

 

Contractual Obligations

  Total  1 Year  2-3
Years
  4-5
Years
  After 5
years
  Total  1 Year  2-3 Years  4-5 Years  After 5 years

Operating Leases

  $7,183  $1,552  $2,558  $1,858  $1,215  $5,755  $1,441  $2,388  $1,574  $352

Capital Leases

   977   329   581   67   —     989   431   548   10   —  
               

Total Contractual Cash Obligations

  $8,160  $1,881  $3,139  $1,925  $1,215  $6,744  $1,872  $2,936  $1,584  $352
               

We do not have any off balance sheet obligations at April 30, 2006.2007.

Operating activities provided cash of $8.7 million in fiscal year 2007, primarily from operating earnings, a reduction in accounts receivable, and an increase in deferred revenue. Operating activities used cash of $246,000 in fiscal year 2006. Operating activities2006 and provided cash of $3.1 million in fiscal year 2005 and used cash of $943,000 in fiscal year and 2004.2005. The primary uses of cash during fiscal year 2006 were increases in inventory and accounts receivable balances, partially offset by cash provided from operating earnings and an increase in accounts payable. Operations, along with a reduction in accounts receivable, and inventory were the primary sources of cash in fiscal year 2005. The primary use of cash in fiscal year 2004 was to fund the significant increase in receivables, which was partially offset by funds provided from operating earnings and a reduction in inventory. The majority of the April 30, 20062007 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2007,2008, with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner.

We made cash contributions of $2.5 million and $750,000 to our pension plans in fiscal years 2005 and 2004, respectively. As discussed above, no further benefits have been, or will be, earned under theour pension plans after April 30, 2005, and no additional participants have been, or will be, added to the plans. We did not make any contributions to the plans in fiscal yearyears 2007 and 2006, and do not expect to make any contributions to the plans in fiscal year 2007.2008.

Capital expenditures were $1.7 million, $1.9 million, $1.0 million, and $1.6$1.0 million in fiscal years 2007, 2006, and 2005, and 2004, respectively. Capital expenditures in fiscal year 2007 were funded primarily from cash generated by operating activities. Capital expenditures in fiscal year 2006 were funded primarily from cash generated by the sale of our property in Lockhart, Texas. Capital assets related to the ERP system in the amount of $580,000 were funded under capital leases in fiscal year 2006. Capital expenditures in fiscal year 2005 were funded primarily from cash generated by operating activities. Capital assets related to the ERP system in the amountamounts of $300,000, $580,000, and $440,000 were funded under capital leases in fiscal year 2005. Capital expenditures in fiscal year 2004 were funded primarily from borrowings under our credit facility.years 2007, 2006, and 2005, respectively. Fiscal year 20072008 capital expenditures are anticipated to be approximately $1.0 million and are expected to be funded primarily by cash from operating activities.

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Working capital increased to $12.3 million at April 30, 2007, from $11.0 million at April 30, 2006, from $10.4 million at April 30, 2005, and the ratio of current assets to current liabilities decreasedincreased to 1.8-to-1 at April 30, 2007, from 1.5-to-1 at April 30, 2006, from 1.6-to-1 at April 30, 2005.2006. The increase in working capital for fiscal year 20062007 was attributeddue to increases in cash and cash equivalents.

We paid cash dividends of $0.28 per share for each of the fiscal years 2007, 2006, 2005, and 2004.2005. We expect to pay dividends in the future in line with our actual and anticipated future operating results.

RECENT ACCOUNTING STANDARDS

Adoption of SEC Staff Accounting Bulletin (“SAB”) No. 108 In September 2006, the SEC staff released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. Traditionally, there have been two widely-recognized methods of quantifying the effects of financial statement misstatements: the “roll-over” method and the “iron curtain” method. The roll-over method focuses primarily on the impact of a misstatement on the income statement, including the reversing effect of prior year misstatements, but its use can lead to the accumulation of misstatements in the balance sheet. The iron curtain method focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement.

In SAB 108, the SEC staff established an approach that required quantification of financial statement misstatements based on the effect of the misstatements on each of a company’s financial statements and the related financial statement disclosures. This model is commonly referred to as a “dual approach” because it requires quantification of errors under both the iron curtain and the roll-over methods.

SAB 108 permits public companies to initially apply its provisions either by (i) restating prior financial statements as if the “dual approach” had always been used or (ii) recording the cumulative effect of initially applying the “dual approach” as adjustments to the carrying values of assets and liabilities as of May 2005,1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings.

During fiscal years 1998 through 2006 the Company overstated deferred income tax assets by a cumulative total amount of $421,000. Subsequent to the years in which the overstatements occurred, the Company discovered the errors and determined they were not material to the Company’s financial statements for the years in which they occurred. The Company elected to apply SAB 108 to correct the errors using the cumulative effect transition method.

The following table summarizes the effects on the related account balances of applying the guidance in SAB 108 as of May 1, 2006:

      Origination Period of Misstatement

$ in thousands

  Adjustment  Years ended April 30
   at May 1,
2006
  2006  2005  2004 and
Prior

Decrease in deferred income tax assets

  $421  $45  $61  $315

Decrease in net income

   —     45   61   315

Decrease in retained earnings

   421   —     —     —  

New Accounting StandardsIn June 2006, the FASB issued SFASInterpretation No. 154,48, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces APB No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changesfor Uncertainty in Interim Financial Statements”, and established retrospective applicationIncome Taxes” (“FIN 48” or the “Interpretation”) which defines the threshold for recognizing the benefits of a changetax return positions in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application is impracticable. The reporting of a correction of an error by restating previously issuedthe financial statements is also addressed. SFAS No. 154 is effective for fiscal periods beginning after December 15, 2005. Weas “more-likely-than-not” to be sustained by the taxing authority. “Uncertainty in Income Taxes,” as used in the title of the new Interpretation, refers to uncertainty about how some transactions will adopt SFAS No. 154be treated under the tax law. This uncertainty leads to questions about whether tax positions taken or to be taken on tax returns should be reflected in fiscal year 2007 and believe that it will not have a material impact on ourthe financial conditionstatements before they are finally resolved with the taxing authorities. FIN 48 applies to all tax

positions, regardless of their level of uncertainty or resultsthe nature of operations.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock Based Compensation.” SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and requires all companies to estimateposition. However, the fair value of incentive stock options granted and then amortize that estimated fair value to expense over the options vesting period. We currently account for our stock option plans under theInterpretation’s recognition and measurement principlesrequirements are likely to have the most impact on positions for which current or future deductions may be disallowed or reduced in a tax examination. The Interpretation applies to situations where the uncertainty is about the timing of APB Opinion No. 25. No employeethe deduction, the amount of the deduction, or outside director compensation costs related to stock option grants are currently reflected in net income, as all option awards granted under those plans had an exercise price equal to the market value onvalidity of the date of grant. SFAS No. 123(R)deduction. FIN 48 is effective for fiscal years beginning after JuneDecember 15, 2005. We2006, and the Company will adopt SFAS No. 123(R) inthis Interpretation during the first quarter of fiscal year 2007 and believe that it will2008. The Company has not have a material impact on our financial condition or results of operations.

In December 2004,yet determined the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29.” This statement addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on fair value of the assets exchanged. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. We will adopt SFAS No. 153 in fiscal year 2007 and believe that it will not have a material impact on our financial condition or results of operations.

In December 2004, the FASB issued FASB Staff Position (FSP) 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, and FSP 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (the ACT).” These FSPs provides accounting and disclosure guidelines relative to the income tax deductions and repatriation provisions contained in the ACT. These FSPs were effective upon issuance. We have not determined what impact,effect, if any, that the ACT and these FSPs mayadoption of FIN 48 will have on ourits consolidated financial position or results of operations.

In November 2004,September 2006, the FASB issued SFAS No. 151, “Inventory Costs, an Amendment157, “Fair Value Measurement” (“SFAS 157”), which establishes a single authoritative definition of ARB No. 43, Chapter 4.”fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements in both annual and interim reports. SFAS No. 151 seeks157 applies only to clarifyfair-value measurements that are already required or permitted by other accounting standards and is expected to increase the accountingconsistency of those measurements. SFAS 157 is effective for abnormal amounts of idle facility expense, freight, handling costs, and wasted material in the determination of inventory carrying costs. This statement requires such costs to be treated as a current period expense. SFAS No. 151 is effectivefair-value measures already required or permitted by other standards for financial statements issued for fiscal years beginning after JuneNovember 15, 2005. We2007 and will adopt SFAS No. 151be effective for the Company in fiscal year 2007 and believe2009. The Company has not yet determined the effect, if any, that itthe adoption of this standard will not have a material impact on ourits consolidated financial conditionposition or results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”), which requires employers to recognize on their balance sheets the funded status of pension and other postretirement benefit plans. SFAS 158 also requires companies to recognize actuarial gains and losses, prior service cost, and any remaining transition amounts from the initial application of Statements 87 and 106 when recognizing a plan’s funded status, with the offset to accumulated other comprehensive income. The provisions of SFAS 158 are effective for fiscal years ending after December 15, 2006 and the Company has adopted this standard effective April 30, 2007. Adoption of this standard resulted in a $3.4 million decrease in other Non-Current Assets, a $2.1 million decrease in Other Comprehensive Income, a $1.1 million decrease in Deferred Tax Liabilities, and a $129,000 increase in Deferred Tax Assets.

In February 2007, the FASB issued SFAS No. 159, “the Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), which allows measurement of specified financial instruments, warranty and insurance contracts at fair value on a contract by contract basis, with changes in fair value recognized in earnings in each period. SFAS 159 is effective at the beginning of the fiscal year that begins after November 15,

2007, and will be effective for the Company in fiscal year 2009. The Company has not yet determined the effect, if any, that the adoption of this standard will have on its consolidated financial position or results of operations.


SARBANES-OXLEY SECTION 404 REQUIREMENTS

On May 17, 2006, the U.S. Securities and Exchange Commission further extended the compliance dates for non-accelerated filers to include in their annual reports a report by management on our internal control over financial reporting and an accompanying auditor’s report. As such,a result, we must comply with this requirement for our year ending April 30, 2008.

OUTLOOK

OurWhile our ability to predict future demand for our products is verycontinues to be limited given, among other general economic factors affecting the Company and our markets, ourthe Company’s role as subcontractor or supplier to dealers of subcontractors.for subcontractors, we expect fiscal year 2008 to be profitable. In addition to thesegeneral economic factors affecting the Company and our markets, demand for our products is also dependent upon the number of laboratory construction projects planned and/or current progress in projects already under constructionconstruction. Our earnings are also impacted by increased costs of raw materials, including stainless steel, wood, and our successepoxy resin, and whether we are able to increase product prices to customers in the competitive public bidding process for many of our contracts.amounts that correspond to such increases without materially and adversely affecting sales.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk in the area of interest rates. This exposure is associated with amounts outstanding under our bank note, certain lease obligations for production machinery, and advances under our revolving credit loan, all of which are priced on a floating rate basis. The principal balance under the revolving credit loan was $8.2$3.5 million at April 30, 2006.2007. We believe that this exposure to market risk is not material.

Item 8. Financial Statements and Supplementary Data

Consolidated Financial Statements

 

   Page

Consolidated Financial Statements

Management’s Report on Internal Control OverConsolidated Financial ReportingStatements

  17

Report of Independent Registered Public Accounting Firm Cherry,
Bekaert & Holland, L.L.P.

  18

Report of Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP

  19

Consolidated Statements of Operations Years ended April 30, 2007, 2006
2005 and 20042005

  20

Consolidated Statements of Stockholders’ Equity Years ended April 30,
2007, 2006 2005 and 20042005

  21

Consolidated Balance Sheets—Sheets – April 30, 20062007 and 20052006

  22

Consolidated Statements of Cash Flows—Flows Years ended April 30, 2007, 2006
2005 and 20042005

  23

Notes to Consolidated Financial Statements

  24

ConsentConsents of Independent Registered Public Accounting Firms

  3638

Schedule I—I �� Valuation and Qualifying Accounts

  3739

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.

16


MANAGEMENT’S REPORT OFON CONSOLIDATED FINANCIAL STATEMENTS

To the Stockholders and Board of DirectorsTO THE STOCKHOLDERS AND BOARD OF DIRECTORS

of Kewaunee Scientific CorporationOF KEWAUNEE SCIENTIFIC CORPORATION

The consolidated 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 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 costs and expected benefits of specific control measures. The Company’s consolidated 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 over financial reporting and related policies and procedures.procedures as basis for designing appropriate audit procedures, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. They advise management and the Audit Committee of significant matters resulting from their audits.

The Audit Committee of the Board of Directors, which is composed solely of directors who are not officers or employees of the Company, selects the independent accountants for the annual audit of the consolidated financial statements and meets with management and the independent accountants to discuss the scope and findings of audits and financial reportedreporting and internal control matters.

D. Michael Parker

Senior Vice President, Finance

Chief Financial Officer

June 26, 2006

17July 12, 2007


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Stockholders and Board ofTO THE STOCKHOLDERS AND BOARD OF DIRECTORS

Directors of Kewaunee Scientific CorporationOF KEWAUNEE SCIENTIFIC CORPORATION

We have audited the accompanying consolidated balance sheetsheets of Kewaunee Scientific Corporation, and subsidiaries (the Company) as of April 30, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and cash flows for the yearyears then ended. Our auditaudits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and the schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audit.audits.

We conducted our auditaudits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kewaunee Scientific Corporation and its subsidiaries at April 30, 2007 and 2006, and the consolidated results of their operations and their cash flows for the yearyears ended April 30, 2007 and 2006, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in the notes to the consolidated financials statements, the Company: (1) effective April 30, 2007, began to recognize the funded status of its benefit plan in its consolidated balance sheet to conform to Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R), and (2) effective April 30, 2007, the Company adopted the dual method of evaluating errors, as required by Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.”

CHERRY, BEKAERT & HOLLAND, L.L.P.

Charlotte, North Carolina

June 26, 2006

18July 12, 2007


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board ofTO THE STOCKHOLDERS AND BOARD OF DIRECTORS

Directors of Kewaunee Scientific CorporationOF KEWAUNEE SCIENTIFIC CORPORATION

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Kewaunee Scientific Corporation and its subsidiaries at April 30, 2005, and the results of its operations and its cash flows for each of the two years in the periodyear ended April 30, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended April 30, 2005 listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PRICEWATERHOUSECOOPERSPricewaterhouseCoopers LLP

Charlotte, North Carolina

June 15, 2005

19


KEWAUNEE SCIENTIFIC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended April 30

 

$ and shares in thousands, except per share amounts

  2006  2005  2004 

Net sales

  $84,071  $73,481  $94,700 

Costs of products sold

   71,663   60,997   79,011 
             

Gross profit

   12,408   12,484   15,689 

Other operating income

   884   —     —   

Operating expenses

   12,175   12,699   13,491 
             

Operating earnings (loss)

   1,117   (215)  2,198 

Other income

   50   2   319 

Interest expense

   (470)  (310)  (301)
             

Earnings (loss) before income taxes

   697   (523)  2,216 

Income tax (benefit) expense

   288   (488)  621 
             

Earnings (loss) before minority interests

   409   (35)  1,595 

Minority Interests in subsidiaries

   (216)  (112)  (133)
             

Net earnings (loss)

  $193  $(147) $1,462 
             

Net earnings (loss) per share

    

Basic

  $0.08  $(0.06) $0.59 

Diluted

  $0.08  $(0.06) $0.59 

Weighted average number of common shares outstanding

    

Basic

   2,492   2,491   2,486 

Diluted

   2,493   2,495   2,497 

Years Ended April 30

Kewaunee Scientific Corporation

 

$ and shares in thousands, except per share amounts

  2007  2006  2005 

Net sales

  $81,441  $84,071  $73,481 

Costs of products sold

   66,355   71,663   60,997 
             

Gross profit

   15,086   12,408   12,484 

Other operating income

   —     884   —   

Operating expenses

   11,728   12,175   12,699 
             

Operating earnings (loss)

   3,358   1,117   (215)

Other income

   53   50   2 

Interest expense

   (670)  (470)  (310)
             

Earnings (loss) before income taxes

   2,741   697   (523)

Income tax (benefit) expense

   902   288   (488)
             

Earnings (loss) before minority interests

   1,839   409   (35)

Minority Interests in subsidiaries

   (299)  (216)  (112)
             

Net earnings (loss)

  $1,540  $193  $(147)
             

Net earnings (loss) per share

    

Basic

  $0.62  $0.08  $(0.06)

Diluted

  $0.62  $0.08  $(0.06)
             

Weighted average number of

    

Common shares outstanding

    

Basic

   2,493   2,492   2,491 

Diluted

   2,495   2,493   2,495 
             

The accompanying Notes are an integral part of these Consolidated Financial Statements.

20


KEWAUNEE SCIENTIFIC CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Kewaunee Scientific Corporation

 

$ in thousands,

except per share data

  

Common

Stock

  

Additional

Paid-in

Capital

 

Retained

Earnings

 

Accumulated

Other

Comprehensive

Income (Loss)

 

Treasury

Stock

 

Total

Stockholders’

Equity

 

Balance at April 30, 2003

  $6,550  $145  $20,110  $(9) $(858) $25,938 

Net earnings

   —     —     1,462   —     —     1,462 

Cash dividends declared, $.28 per share

   —     —     (696)  —     —     (696)

Stock options exercised, 7,525 shares

   —     (4)  —     —     46   42 

Foreign currency translation adjustments

   —     —     —     27   —     27 

Change in fair value of cash flow hedge, net of tax

   —     —     —     18   —     18 
                   

$ in thousands, except per share amounts

  

Common

Stock

  

Additional

Paid-in

Capital

  

Retained

Earnings

 

Accumulated

Other

Comprehensive

Income (Loss)

 

Treasury

Stock

 

Total

Stockholders’

Equity

 

Balance at April 30, 2004

  $6,550  $141  $20,876  $36  $(812) $26,791   $6,550  $141  $20,876  $36  $(812) $26,791 
                   

Net loss

   —     —     (147)  —     —     (147)   —     —     (147)  —     —     (147)

Cash dividends declared, $.28 per share

   —     —     (698)  —     —     (698)   —     —     (698)  —     —     (698)

Stock options exercised, 3,500 shares

   —     3   —     —     22   25    —     3   —     —     22   25 

Foreign currency translation adjustments

   —     —     —     7   —     7    —     —     —     7   —     7 

Change in fair value of cash flow hedge, net of tax

   —     —     —     11   —     11    —     —     —     11   —     11 
                                      

Balance at April 30, 2005

  $6,550  $144  $20,031  $54  $(790) $25,989    6,550   144   20,031   54   (790)  25,989 
                                      

Net Earnings

   —     —     193   —     —     193 

Net earnings

   —     —     193   —     —     193 

Cash dividends declared, $.28 per share

   —     —     (698)  —     —     (698)   —     —     (698)  —     —     (698)

Stock options exercised, 500 shares

   —     —     —     —     3   3    —     —     —     —     3   3 

Foreign currency translation adjustments

   —     —     —     57   —     57    —     —     —     57   —     57 

Change in fair value of cash Flow hedge, net of tax

   —     —     —     2   —     2 

Change in fair value of cash flow hedge, net of tax

   —     —     —     2   —     2 
                                      

Balance at April 30, 2006

  $6,550  $144  $19,526  $113  $(787) $25,546    6,550   144   19,526   113   (787)  25,546 
                                      

Net earnings

   —     —     1,540   —     —     1,540 

Cash dividends declared, $.28 per share

   —     —     (698)  —     —     (698)

Stock options exercised, 2,500 shares

   —     11   —     —     16   27 

Foreign currency translation adjustments

   —     —     —     166   —     166 

Cumulative effect of adoption of SAB No. 108

       (421)    (421)

Adoption of SFAS No. 158, net of tax

   —     —     —     (2,112)  —     (2,112)
                   

Balance at April 30, 2007

  $6,550  $155  $19,947  $(1,833) $(771) $24,048 
                   

The accompanying Notes are an integral part of these Consolidated Financial Statements.

21


KEWAUNEE SCIENTIFIC CORPORATION

CONSOLIDATED BALANCE SHEETS

April 30

Kewaunee Scientific Corporation

 

$ and shares in thousands, except per share amounts

  2006 2005   2007 2006 

ASSETS

      

Current Assets

      

Cash and cash equivalents

  $929  $225   $2,231  $929 

Restricted cash

   399   379    372   399 

Receivables, less allowance: $450 (2006); $688 (2005)

   23,199   21,683 

Receivables, less allowance: $262 (2007); $450 (2006)

   19,061   23,199 

Inventories

   5,860   3,542    5,869   5,860 

Deferred income taxes

   378   456    297   378 

Prepaid income taxes

   —     94 

Prepaid expenses and other current assets

   633   401    684   633 
              

Total Current Assets

   31,398   26,780    28,514   31,398 
              

Property, Plant and Equipment

   

Land

   41   41 

Buildings and improvements

   9,552   9,665 

Machinery and equipment

   25,828   24,761 
       

Property, plant and equipment

   35,421   34,467 

Accumulated depreciation

   (24,258)  (23,737)
       

Net Property, Plant and Equipment

   11,163   10,730 

Property, Plant and Equipment, Net

   11,255   11,163 
              

Other Assets

      

Prepaid pension cost

   4,898   4,731    1,911   4,898 

Property held for sale

   —     1,450 

Deferred income taxes

   129   —   

Other

   3,013   2,521    3,431   3,013 
              

Total Other Assets

   7,911   8,702    5,471   7,911 
              

Total Assets

  $50,472  $46,212   $45,240  $50,472 
       

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Current Liabilities

      

Short-term borrowings

  $8,216  $3,778   $3,489  $8,216 

Current portion of long-term debt

   —     931 

Current obligations under capital leases

   260   111    360   260 

Accounts payable

   9,074   8,558    8,437   9,074 

Employee compensation and amounts withheld

   1,297   1,113    1,416   1,297 

Deferred revenue

   535   1,261    1,672   535 

Other accrued expenses

   991   647    809   991 
              

Total Current Liabilities

   20,373   16,399    16,183   20,373 
              

Obligations under capital leases

   583   307    476   583 

Deferred income taxes

   247   391    —     247 

Accrued employee benefit plan costs

   2,905   2,524    3,351   2,905 

Other long-term liabilities

   —     2 

Minority interest in subsidiaries

   818   600    1,182   818 
              

Total Liabilities

   24,926   20,223    21,192   24,926 
              

Commitments and Contingencies (Note 7)

      

Stockholders’ Equity

      

Common stock, $2.50 par value, Authorized—5,000 shares;
Issued—2,620 shares; Outstanding—2,492 shares (2006 and 2005)

   6,550   6,550 

Common stock, $2.50 par value, Authorized- 5,000 shares;

   

Issued- 2,620 shares; Outstanding-2,495 shares (2007) 2,492 shares (2006)

   6,550   6,550 

Additional paid-in-capital

   144   144    155   144 

Retained earnings

   19,526   20,031    19,947   19,526 

Accumulated other comprehensive income

   113   54 

Common stock in treasury, at cost: 128 shares (2006 and 2005)

   (787)  (790)

Accumulated other comprehensive income (loss)

   (1,833)  113 

Common stock in treasury, at cost: 125 shares (2007); 128 shares (2006)

   (771)  (787)
              

Total Stockholders’ Equity

   25,546   25,989    24,048   25,546 
              

Total Liabilities and Stockholders’ Equity

  $50,472  $46,212   $45,240  $50,472 
              

The accompanying Notes are an integral part of these Consolidated Financial Statements.

22


KEWAUNEE SCIENTIFIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended April 30

Kewaunee Scientific Corporation

 

$ in thousands

  2006 2005 2004   2007 2006 2005 

Cash Flows from Operating Activities

        

Net earnings (loss)

  $193  $(147) $1,462   $1,540  $193  $(147)

Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:

    

Adjustments to reconcile net earnings (loss) to net cash

    

Provided by (used in) operating activities:

    

Depreciation

   2,027   2,048   2,048    1,952   2,027   2,048 

Bad debt provision

   288   520   454    136   288   520 

Increase in deferred income tax expense

   (66)  (561)  (565)

Provision (benefit) for deferred income tax expense

   541   (66)  (562)

Gain on disposal of property, plant and equipment

   (884)  —     —      —     (884)  —   

Decrease (increase) in prepaid income taxes

   94   71   1,334    —     94   71 

(Increase) decrease in receivables

   (1,804)  2,784   (9,303)

Decrease (increase) in receivables

   4,002   (1,804)  2,784 

(Increase) decrease in inventories

   (2,318)  743   1,673    (9)  (2,318)  743 

(Increase) decrease in prepaid pension cost

   (167)  (1,861)  36 

Increase in prepaid pension cost

   (382)  (167)  (1,861)

(Decrease) increase in accounts payable and other accrued expenses

   3,345   (1,636)  1,114    (700)  3,345   (1,636)

(Decrease) increase in deferred revenue

   (726)  109   296 

Increase (decrease) in deferred revenue

   1,137   (726)  109 

Other, net

   (228)  1,073   508    488   (228)  1,074 
                    

Net cash (used in) provided by operating activities

   (246)  3,143   (943)

Net cash provided by (used in) operating activities

   8,705   (246)  3,143 
                    

Cash Flows from Investing Activities

        

Capital expenditures

   (1,886)  (976)  (1,619)   (1,724)  (1,886)  (976)

Proceeds from sale of property, plant and equipment

   2,500   —     —      —     2,500   —   

Increase in restricted cash

   (20)  (17)  (186)

Increase (decrease) in restricted cash

   27   (20)  (17)
                    

Net cash provided by (used in) investing activities

   594   (993)  (1,805)

Net cash (used in) provided by investing activities

   (1,697)  594   (993)
                    

Cash Flows from Financing Activities

        

(Decrease) increase in bank overdraft

   (2,301)  2,301   (1,836)   —     (2,301)  2,301 

Dividends paid

   (698)  (698)  (696)   (698)  (698)  (698)

Net increase (decrease) in short-term borrowings

   4,438   (3,218)  5,580 

Proceeds from long-term debt

   —     —     1,200 

Net (decrease) increase in short-term borrowings

   (4,727)  4,438   (3,218)

Payments on long-term debt

   (931)  (1,118)  (1,081)   —     (931)  (1,118)

Payments of capital leases

   (155)  (22)  —      (308)  (155)  (22)

Proceeds from exercise of stock options (including tax benefit)

   3   25   42    27   3   25 
                    

Net cash provided by (used in) financing activities

   356   (2,730)  3,209 

Net cash (used in) provided by financing activities

   (5,706)  356   (2,730)
                    

Increase (decrease) in Cash and Cash Equivalents

   704   (580)  461    1,302   704   (580)

Cash and Cash Equivalents at Beginning of Year

   225   805   344    929   225   805 
                    

Cash and Cash Equivalents at End of Year

  $929  $225  $805   $2,231  $929  $225 
                    

Supplemental Disclosure of Cash Flow Information

        

Interest paid

  $388  $314  $289   $678  $388  $314 

Income taxes paid (refunded)

  $(145) $40  $(506)   19   (145)  40 

Purchase of fixed assets under capital leases

  $580  $440   —      300   580   440 
          

The accompanying Notes are an integral part of these Consolidated Financial Statements.

23


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Summary of Significant Accounting Policies

Kewaunee Scientific Corporation (the “Company”) is a manufacturer of laboratory and technical furniture, including steel and wood laboratory cabinetry, fume hoods, flexible systems, worksurfaces, workstations, workbenches, and computer enclosures. The Company’s sales are made through purchase orders and contracts submitted by customers, its dealers and agents, a national stocking distributor, competitive bids submitted by the Company, and its subsidiaries located in Singapore and Bangalore, India. The majority of the Company’s products are sold to customers located in North America, primarily within the United States. The Company’s laboratory products are used in chemistry, physics, biology, and other general science laboratories in the pharmaceutical, biotechnology, industrial, chemical, commercial, educational, government, and health care markets. Technical products are used in manufacturing facilities ofmanufacturing computers and light electronics, and by users of computer and networking furniture.

Principles of Consolidation The Company’s consolidated financial statements include the accounts of Kewaunee Scientific Corporation and its three international subsidiaries. A brief description of each subsidiary, along with the amount of the Company’s controlling financial interests, is as follows: (1) Kewaunee Labway Asia Pte. Ltd., a dealer for the Company’s products in Singapore, is 51% owned by the Company; (2) Kewaunee Labway Scientific India Pvt. Ltd., a dealer for the Company’s products in Bangalore, India, is 95% owned by Kewaunee Labway Asia; and (3) Kewaunee Scientific Corporation India Pvt. Ltd. in Bangalore, India, ana manufacturing and assembly operation, is 100% owned by the Company. All intercompany balances, transactions, and profits have been eliminated. Included in the consolidated balance sheets are net assets of $5,988,000$2,031,000 and $3,220,000$1,203,000 at April 30, 20062007 and 2005,2006, respectively, of the Company’s subsidiaries. Net sales by the Company’s subsidiaries in the amount of $14,856,000, $12,044,000, $5,642,000, and $6,178,000$5,643,000 were included in the consolidated statement of operations.operations for fiscal years 2007, 2006, and 2005, respectively.

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. At April 30, 2005, $2.3 million of outstanding checks in excess of offsetting cash balances were included in accounts payable in the accompanying consolidated balance sheet. During the years ended April 30, 20062007 and 2005,2006, the Company had cash deposits in excess of FDIC insured limits. The Company has not experienced any losses from such deposits.

Restricted Cash Restricted cash includes bank deposits of a subsidiary used for performance guarantees against customer orders.

Allowance for Doubtful AccountsThe Company evaluates the collectibility of its trade accounts receivable based on a number of factors. In circumstances where management is aware of a customer’s inability to meet theirits financial obligations to the Company, or a project dispute makes it unlikely that all of the receivable owed by a customer will be collected, a specific reserve for bad debts is estimated and recorded, to reduce the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, a general reserve for bad debts is estimated and recorded based on the customer’s recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding. Accounts are written off when it is clearly established that the receivable is a bad debt.

InventoriesInventories are valued at the lower of cost or market. The cost of the majority of inventories is measured on the last in, first out (“LIFO”) method. The LIFO method allocates the most recent costs to cost of products sold; and, therefore, recognizes into operating results fluctuations in

24


costs of raw materials and other inventoriable costs more quickly than other methods. Other inventories consisted of foreign inventories and are measured at actual cost.

Property, Plant and EquipmentProperty, plant and equipment are stated at cost less accumulated depreciation. 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. The lives, by category, generally are as follows: buildingsProperty, plant 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. consisted of the following at April 30:

$ in thousands

  2007  2006  Useful Life

Land

  $41  $41  

Building and improvements

   9,932   9,552  10-40 years

Machinery and equipment

   27,123   25,828  5-10 years
          

Total

   37,086   35,421  

Less accumulated depreciation

   (25,841)  (24,258) 
          

Net property, plant & equipment

  $11,255  $11,163  
          

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. If projected undiscounted cash flows are not sufficient to recover the carrying value of the potentially impaired asset the carrying value is reduced to fair value. At April 30, 20062007 and 2005,2006, equipment financed under capital leases with a cost of $1,020,000$1,320,000 and $440,000,$1,020,000, respectively, was included in machinery and equipment.

Other Assets Other assets at April 30, 2007 and 2006 include $3,284,000 and 2005 include $2,856,000, and $2,380,000, respectively, of assets held in a trust account for non-qualified benefit plans and $156,000$147,000 and $141,000,$156,000, respectively, of cash surrender values of life insurance policies.

Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles in the United States of America 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 include the allowance for uncollectible accounts receivable, inventory valuation, and pension liabilities.

Fair Value of Financial Instruments Financial instruments include cash and cash equivalents, mutual funds, cash surrender value of life insurance policies, long-term debt, and short-term borrowings. Management believes the carrying value of these assets and liabilities approximate their fair value.

Sales Recognition Product sales are generally recognized at the date of shipment, or when customers have purchased and accepted title to the goods, but because of construction delays, have requested that the Company temporarily store the finished goods on the customer’s behalf. Deferred revenue consists of customer deposits and advance billings of the Company’s products where sales have not yet been recognized. Service revenue for installation of product sold is recognized as the installation services are performed. Accounts receivable includes retainage in the amounts of $2,604,000$1,689,000 and $2,593,000$2,604,000 at April 30, 20062007 and 2005,2006, respectively. Shipping and handling costs are included in cost of sales. Because of the nature and quality of the Company’s products, any warranty issues are determined in a relatively short period after the sale and are infrequent in nature, and as such, warranty costs are expensed as incurred.

Product sales resulting from fixed-price construction contracts involve a signed contract for a fixed price to provide the Company’s laboratory furniture and fume hoods for a construction project. The Company is usually in the role asof a subcontractor, but in some cases may enter into a contract directly with the end-user of the products. Product sales resulting from fixed-price construction contracts are generated from multiple-element arrangements that require separate units of accounting and estimates regarding the fair value of individual elements. The Company has determined that its multiple-element arrangements that qualify as separate units of accounting are: product sales and installation services. Each of these elements represent individual units of accounting as the delivered item has value to a

25


customer on a stand-alone basis, objective and reliable evidence of fair value exists for undelivered items, and arrangements normally do not contain a general right of return relative to the delivered item. The Company determines fair value based on the price of the deliverable when it is sold separately or based on third-party evidence. In accordance with the guidance in EITF 00-21, the Company uses the residual method to allocate the arrangement consideration when the arrangement does not indicate fair value of the product sale. Under the residual method, the amount of consideration allocated to the delivered item equals the total arrangement consideration less the aggregate fair value of the undelivered items. Assuming all other criteria for revenue recognition have been met, the Company recognizes revenue for product sales at the date of shipment.

Product sales resulting from purchase orders involve a purchase order received by the Company from its dealers or its stocking distributor. This category includes product sales for standard products, as well as products which require some customization. These sales are recognized under the terms of the purchase order which generally are freight on board (“FOB”) shipping point and do not include rights of return. Accordingly, sales are recognized at the time of shipment.

Credit Concentration Credit risk is generally not concentrated with any one customer or industry, although the Company does enter into large contracts with individual customers from time-to-time. The Company performs credit evaluations of its customers. Revenues from the Company’s national stocking distributor, VWR International, represented 14%13%, 15%14%, and 11%15% of the Company’s total sales in fiscal years 2007, 2006, 2005, and 2004,2005, respectively.

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.

Advertising Costs Advertising costs are expensed as incurred, including trade shows, training materials, sales samples, and other related expenses. Advertising costs for the years ended April 30, 2007, 2006, and 2005 were $208,000, $282,000, and 2004 were $282,000, $329,000, and $219,000, respectively.

Property Held for Sale    Property held for sale at April 30, 2005 consisted primarily of land and buildings in Lockhart, Texas. This property was the site of the Company’s Texas operation that was relocated to Statesville, North Carolina in the fourth quarter of fiscal year 2003. On May 13, 2005, the Company completed the sale of these buildings and land to a non-affiliated third party for $2,500,000 in cash. The sale was recorded in the Company’s fiscal year 2006 first quarter ending July 31, 2005 and resulted in a pretax gain of approximately $884,000, which was recorded as other operating income and resulted in an after-tax gain of approximately $540,000.

Derivative Financial Instruments The Company records derivatives on the balance sheet at fair value and establishestablishes criteria for designation and effectiveness of hedging relationships. The nature of the Company’s business activities involves the management of various financial and market risks, including those related to changes in interest rates. The Company doesemploys derivative financial instruments, such as interest rate swap contracts, are employed to mitigate certain of those risks. The Company does not enter into derivative instruments for speculative purposes. There were no derivative financial instruments as of April 30, 2007.

Foreign Currency Translation The financial statements of subsidiaries located outside the United States are measured using the local currency as the functional currency. Balance sheet accountsAssets and liabilities of the Company’s foreign subsidiaries are translated into United States dollars at year-end exchange rates. IncomeSales, expenses, and expense itemscash flows are translated at weighed average exchange rates for each period. Net translation gains or losses are included in other comprehensive income, a separate component of stockholders’ equity. The Company does not provide for U.S. income taxes on foreign currency translation adjustments, since

26


it does not provide for such taxes on undistributed earnings of foreign subsidiaries. Gains and losses from foreign currency transactions of these subsidiaries are included in net earnings.

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, except when options have an antidilutive effect. Options to purchase 151,600 and 160,60027,500 shares of common stock at a price of $12.00 and 151,600 shares at prices of $9.10 to $12.00 were outstanding at April 30, 20062007 and 2005,2006, respectively, but were not included in the computation of diluted EPS because the optionsoption exercise prices were greater than the average market price of the common shares at that date.date, and, accordingly, such options would have an antidilutive effect.

Accounting for Stock Options ThePrior to May 1, 2006, the Company accountsaccounted for stock options granted to employees and directorsits stock-based compensation using the intrinsic value method. Under this method no compensation expense is recorded since the exercise price of the stock options is equal to the market price of the underlying stock on the grant date. The Company did not grant any stock options during fiscal years 2006, 2005, and 2004. The estimated weighted average fair value of options granted under the Company’s stock option plans were valued using the Black-Scholes option-pricing models based upon the input of highly subjective assumptions including the expected stock price volatility. Had compensation expense for the stock options issued been determined consistent with FASB Statement No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS 148, “Accounting for Stock-Based Compensation— Transition and Disclosure,” issued in December 2002, net earnings (loss) and net earnings (loss) per share would have been reduced to the following pro forma amounts:

$ in thousands, except per share amounts

  2006  2005  2004 

Net earnings (loss) as reported

  $193  $(147) $1,462 

Pro forma compensation cost

   —     (23)  (62)
             

Net earnings (loss) pro forma

  $193  $(170) $1,400 
             

Net earnings (loss) per share—Basic

     

As reported

  $0.08  $(0.06) $0.59 

Pro forma

  $0.08  $(0.07) $0.56 

Net earnings (loss) per share—Diluted

     

As reported

  $0.08  $(0.06) $0.59 

Pro forma

  $0.08  $(0.07) $0.56 

Segment Reporting    Financial Accounting Standards BoardPrinciples Bulletin (“FASB”APB”) Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosure About Segments of an Enterprise and Related Information,” establishes standards for the way that public companies report information about products and services, geographic areas, and major customers. The Company has reviewed SFAS No. 131 and determined that it has a single reportable segment.

New Accounting Standards    In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces APB No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and established retrospective application of a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application is impracticable. The reporting of a correction of an error by restating previously issued financial statements is also addressed. SFAS No. 154 is effective for fiscal periods beginning after December 15, 2005. The Company will adopt SFAS No. 154 in fiscal year 2007 and believes that it will not have a material impact on its financial condition or results of operations.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock Based Compensation.” SFAS No. 123(R) supersedes

27


APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and requires all companies to estimate the fair value of incentive stock options granted and then amortize that estimated fair value to expense over the options vesting period.interpretations. The Company currently accountsprovided pro forma disclosure in accordance with SFAS No. 148, “Accounting for stock option plans underStock-Based Compensation-Transition and Disclosure,” as if the recognition and measurement principlesfair-value method of SFAS No. 123, “Accounting for Stock-Based Compensation,” had been applied to stock-based compensation. In accordance with APB Opinion No. 25. No employee or outside director25, no stock-based compensation costs related to stock option grants are currentlycost was reflected in the Company’s prior year net income as all option awardsfor grants of stock options to employees because the Company granted under those plans hadstock options with an exercise price equal to the market value of the stock on the date of grant. Through fiscal year 2003, the Company used stock options as its primary long-term incentive plan for officers. The Company has not granted any stock options since fiscal year 2003.

Had the Company used the fair-value based accounting method for stock compensation expense prescribed by SFAS Nos. 123 and 148 for the fiscal years ended April 30, 2006 and 2005, the Company’s net earnings would have been reduced to the pro forma amounts set forth below:

$ in thousands, except per share amounts

  2006  2005 

Net earnings (loss) as reported

  $193  $(147)

Pro forma compensation cost

   —     (23)
         

Net earnings (loss) pro forma

  $193  $(170)
         

Net earnings (loss) per share – Basic

    

As reported

  $0.08  $(0.06)

Pro forma

   0.08   (0.07)

Net earnings (loss) per share – Diluted

    

As reported

  $0.08  $(0.06)

Pro forma

   0.08   (0.07)

Effective May 1, 2006, the Company adopted the fair-value recognition provisions of SFAS No. 123(R), “Share-Based Payment,” using the modified prospective transition method and, therefore, has not restated results for prior periods. Under this transition method, the Company recorded stock-based compensation expense for the fiscal year ended April 30, 2007 of $1,000 for all stock-based compensation awards granted prior to, but not yet vested as of, April 30, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123.

Adoption of SEC Staff Accounting Bulletin (“SAB”) No. 108 In September 2006, the SEC staff released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. Traditionally, there have been two widely-recognized methods of quantifying the effects of financial statement misstatements: the “roll-over” method and the “iron curtain” method. The roll-over method focuses primarily on the impact of a misstatement on the income statement, including the reversing effect of prior year misstatements, but its use can lead to the accumulation of misstatements in the balance sheet. The iron curtain method focuses primarily on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior year errors on the income statement.

In SAB 108, the SEC staff established an approach that required quantification of financial statement misstatements based on the effect of the misstatements on each of the Company’s financial statements and the related financial statement disclosures. This model is commonly referred to as a “dual approach” because it requires quantification of errors under both the iron curtain and the roll-over methods.

SAB 108 permits public companies to initially apply its provisions either by (i) restating prior financial statements as if the “dual approach” had always been used or (ii) recording the cumulative effect of initially applying the “dual approach” as adjustments to the carrying values of assets and liabilities as of May 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings.

During fiscal years 1998 through 2006 the Company overstated deferred income tax assets by a cumulative total amount of $421,000. Subsequent to the years in which the overstatements occurred, the Company discovered the errors and determined they were not material to the Company’s financial statements for the years in which they occurred. The Company elected to apply SAB 108 to correct the errors using the cumulative effect transition method.

The following table summarizes the effects on the related account balances of applying the guidance in SAB 108 as of May 1, 2006:

      Origination Period of Misstatement

$ in thousands

  Adjustment  Years ended April 30
   at May 1,
2006
  2006  2005  2004 and
Prior

Decrease in deferred income tax assets

  $421  $45  $61  $315

Decrease in net income

   —     45   61   315

Decrease in retained earnings

   421   —     —     —  

New Accounting StandardsIn June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48” or the “Interpretation”) which defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. “Uncertainty in Income Taxes,” as used in the title of the new Interpretation, refers to uncertainty about how some transactions will be treated under the tax law. This uncertainty leads to questions about whether tax positions taken or to be taken on tax returns should be reflected in the financial statements before they are finally resolved with the taxing authorities. FIN 48 applies to all tax positions, regardless of their level of uncertainty or the nature of the position. However, the Interpretation’s recognition and measurement requirements are likely to have the most impact on positions for which current or future deductions may be disallowed or reduced in a tax examination. The Interpretation applies to situations where the uncertainty is about the timing of the deduction, the amount of the deduction, or the validity of the deduction. FIN 48 is effective for fiscal years beginning after JuneDecember 15, 2005. The2006, and the Company will adopt SFAS No. 123(R) inthis Interpretation during the first quarter of fiscal year 2007 and believes2008. The Company has not yet determined the effect, if any, that itthe adoption of FIN 48 will not have a material impact on its consolidated financial conditionposition or results of operations.

In December 2004,September 2006, the FASB issued SFAS No. 153, “Exchanges157, “Fair Value Measurement” (“SFAS 157”), which establishes a single authoritative definition of Nonmonetary Assets, an amendment of APB Opinion No. 29.” This statement addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements in both annual and interim reports. SFAS 157 applies only to fair-value measurements that are already required or permitted by other accounting standards and is expected to increase the consistency of the assets exchanged.those measurements. SFAS No. 153157 is effective for fair-value measures already required or permitted by other standards for financial statements issued for fiscal periodsyears beginning after JuneNovember 15, 2005. The2007 and will be effective for the Company will adopt SFAS No. 153 in fiscal year 2007 and believes that it will not have a material impact on its financial condition or results of operations.

In December 2004, the FASB issued FASB Staff Position (FSP) 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” and FSP 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (the ACT).” These FSPs provide accounting and disclosure guidelines relative to the income tax deductions and repatriation provisions contained in the ACT. These FSPs were effective upon issuance.2009. The Company has not yet determined what impact,the effect, if any, that the ACT and these FSPs mayadoption of this standard will have on its consolidated financial position or results of operations.

In November 2004,September 2006, the FASB issued SFAS No. 151, “Inventory Costs, an Amendment158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”), which requires employers to recognize on their balance sheets the funded status of ARB No. 43, Chapter 4.”pension and other postretirement benefit plans. SFAS No. 151 seeks158 also requires companies to clarifyrecognize actuarial gains and losses, prior service cost, and any remaining transition amounts from the accounting for abnormal amountsinitial application of idle facility expense, freight, handling costs,Statements 87 and wasted material in106 when recognizing a plan’s funded status, with the determinationoffset to accumulated other comprehensive income. The provisions of inventory carrying costs. This statement requires such costs to be treated as a current period expense. SFAS No. 151 is158 are effective for fiscal years beginningending after JuneDecember 15, 2005. The2006 and the Company will adopthas adopted this standard effective April 30, 2007. Adoption of this standard resulted in a $3.4 million decrease in other Non-Current Assets, a $2.1 million decrease in Other Comprehensive Income, a $1.1 million decrease in Deferred Tax Liabilities and a $129,000 increase in Deferred Tax Assets.

In February 2007, the FASB issued SFAS No. 151159, “the Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), which allows measurement of specified financial instruments, warranty and insurance contracts at fair value on a contract by contract basis, with changes in fair value recognized in earnings in each period. SFAS 159 is effective at the beginning of the fiscal year that begins after November 15, 2007, and will be effective for the Company in fiscal year 2007 and believes2009. The Company has not yet determined the effect, if any, that itthe adoption of this standard will not have a material impact on its consolidated financial conditionposition or results of operations.

Note 2—Inventories

Inventories consisted of the following at April 30:

 

$ in thousands

  2006  2005  2007  2006

Finished goods

  $1,653  $1,054  $1,243  $1,653

Work-in-process

   745   929   1,257   745

Materials and components

   3,462   1,559   3,369   3,462
            

Total inventories

  $5,860  $3,542  $5,869  $5,860
            

If inventories had been determined using the first-in, first-out (FIFO) method at April 30, 20062007 and 2005,2006, reported inventories would have been $2.0 million and $2.4 million greater.greater, respectively. During fiscal year 2007, the levels of inventories were reduced and the current year LIFO index was less than 100% due to lower material costs. This reduction resulted in a liquidation of LIFO inventory quantities carried at higher costs prevailing in prior years as compared with the cost of fiscal year 2007 purchases, the effect of which decreased the cost of sales by $413,000. During fiscal year 2006, the current year LIFO index was less than 100% which decreased the cost of sales by $52,000. During fiscal year 2005, inventories were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of fiscal year 2005 purchases, the effect of which decreased cost of sales in fiscal year 2005 by $23,000.

28


Note 3—Long-term Debt and Other Credit Arrangements

In February 2001, the Company borrowed $3.1 million under a bank loan collateralized by certain machinery and equipment, with the loan repayable in 60 equal monthly installments plus interest. In February 2002, and June 2003, it borrowed an additional $250,000 and $1.2 million, respectively, under the loan, and the monthly payments were recalculated to amortize the loan balance over the remaining term of the original loan. At April 30, 2006, the loan had been fully satisfied. At April 30, 2005, the balance of the loan of $931,000 was payable within 12 months, and the net carrying value of collateralized assets under the loan was $2,946,000.

Monthly interest payments under the bank loan were calculated at the lower of (1) the LIBOR Market Index Rate plus 1.75%, or (2) the lender’s Prime Rate minus 0.75%. The borrowing rate was 4.75% at April 30, 2005. The loan included certain financial covenants as to tangible net worth, funds flow coverage, current ratio, and ratio of liabilities to tangible net worth.

The Company entered into an interest rate swap agreement in fiscal year 2002 to mitigate future fluctuations in interest rates. Under the agreement, $1.5 million of the outstanding principal amount of the bank loan effectively converted to a fixed rate of 6.37% on May 1, 2002. The notional amount of this interest rate hedge was reduced in the same proportion as the principal balance of the bank loan over the remaining term of the bank loan. The interest rate swap agreement matured February 28, 2006. The fair value of this cash flow hedge (net of tax) was a loss of $2,000 at April 30, 2005, which is reflected as an adjustment to stockholders’ equity in the consolidated financial statements.

The Company has an unsecured revolving credit facility for borrowings of up to $9$12 million that expires in December 2006.2007. There were advances of $8,216,000$3,489,000 outstanding under this facility as of April 30, 2006.2007. Monthly interest payments are payable under the facility calculated at the lower of (1) the LIBOR Market Index Rate plus 1.75%, or (2) the lender’s Prime Rate minus 1.00%. The borrowing rate was 6.75%7.07% and 4.85%6.75% at April 30, 2007 and 2006, and 2005, respectively. The loan includes a financial covenant with respect to the Company’s tangible net worth. At April 30, 2007 the Company was in compliance with the financial covenant.

In fiscal years 2007, 2006, and 2005, the Company entered into several lease arrangements to fund a new Enterprise Resource Planning (ERP) system that were classified as capital leases for accounting purposes. The lease arrangements were primarily for software costs and have a term of 44 months. Scheduled lease payments, including interest, are $329,000$431,000 for fiscal year 2007.2008.

Note 4—Income Taxes

Income tax expense (benefit) consisted of the following:

 

$ in thousands

  2006  2005  2004 

Current tax expense:

    

Federal

  $219  $(114) $993 

State and local

   (215)  (32)  —   

Foreign

   350   220   160 
             

Total current tax expense

   354   74   1,153 
             

Deferred tax expense (benefit):

    

Foreign

   (18)  (1)  —   

Federal

   (307)  (505)  (142)

State and local

   259   (56)  (390)
             

Total deferred tax expense (benefit)

   (66)  (562)  (532)
             

Net income tax expense (benefit)

  $288  $(488) $621 
             

29


$ in thousands

  2007  2006  2005 

Current tax expense (benefit):

    

Federal

  $(72) $219  $(114)

State and local

   (4)  (215)  (32)

Foreign

   437   350   220 
             

Total current tax expense

   361   354   74 
             

Deferred tax expense (benefit):

    

Foreign

   (5)  (18)  (1)

Federal

   438   (307)  (505)

State and local

   108   259   (56)
             

Total deferred tax expense (benefit)

   541   (66)  (562)
             

Net income tax expense (benefit)

  $902  $288  $(488)
             

The reasons for the differences between the above net income tax expense (benefit) and the amounts computed by applying the statutory federal income tax rates to earnings before income taxes are as follows:

 

$ in thousands

  2006 2005 2004   2007 2006 2005 

Income tax expense (benefit) at statutory rate

  $237  $(215) $708   $834  $237  $(215)

State and local taxes, net of federal income tax benefit (expense)

   (59)  (56)  96    57   (59)  (56)

Tax credits

   (52)  (247)  (139)   (45)  (52)  (247)

Effects of differing US and foreign tax rates

   (26)  48   33    57   (26)  48 

Increase in valuation allowance

   88   —     —      11   88   —   

Other items, net

   100   (18)  (77)   (12)  100   (18)
                    

Net income tax expense (benefit)

  $288  $(488) $621   $902  $288  $(488)
                    

Significant items comprising deferred tax assets and liabilities as of April 30 were as follows:

 

$ in thousands

  2006 2005   2007 2006 

Deferred tax assets:

      

Accrued employee benefit expenses

  $89  $80   $87  $89 

Allowance for doubtful accounts

   168   266    98   168 

Inventory reserves and capitalized costs

   104   90    89   104 

Deferred compensation

   1,084   974    1,250   1,084 

Net operating loss carryforwards

   865   1,257    221   865 

Tax credits

   1,305   1,431    982   1,305 

Prepaid pension (SFAS No. 158 adjustment)

   1,257   —   

Other

   46   44    33   46 
              

Total deferred tax assets

   3,661   4,142    4,017   3,661 
              

Deferred tax liabilities:

      

Book basis in excess of tax basis of property, plant and equipment

   (1,578)  (2,191)   (1,517)  (1,578)

Prepaid pension

   (1,827)  (1,826)   (1,969)  (1,827)

Other

   (37)  (60)   (37)  (37)
              

Total deferred tax liabilities

   (3,442)  (4,077)   (3,523)  (3,442)
              

Less: valuation allowance

   (88)  —      (69)  (88)
              

Net deferred tax assets

  $131  $65   $425  $131 
              

At April 30, 2006,2007, the Company had federal tax loss carryforwards in the amount of $800,000$151,000 expiring beginning in 2025 and state loss carryforwards in the amount of $65,000$70,000 expiring at various times, primarily beginning in 2018. The Company also had tax credit carryforwards in the amount of $357,000$440,000 expiring beginning in 2020 and state tax credit carryforwards in the amount of $948,000$542,000 expiring beginning in 2006.2007. Due to the expiration schedule of the state credits and a review of future taxable income required to utilize such credits before their expiration, a valuation allowance in the amount of $88,000$69,000 was recorded at April 30, 20062007 to reflect the potential expiration of a portion of the credits in future years.

Note 5—Stock Options

During fiscal year 1992, the stockholders approved the 1991 Key Employee Stock Option Plan, and the plan was subsequently amended to increase the number of shares available for options under the plan to 230,000. During fiscal year 2001, the stockholders approved the 2000 Key Employee Stock Option Plan, which allowed the Company to grant options on 100,000 shares of the Company’s

30


common stock. Under both plans, options are granted at not less than the fair market value at the date of grant and options are exercisable in such installments, for such terms (up to 10 years), and at such times, as the Board of Directors may determine at the time of the grant. At April 30, 2006,2007, there were no shares available for future grants under the 1991 plan, and there were 39,35041,100 shares available for future grants under the 2000 plan. No options were granted in fiscal years 2007, 2006, 2005, and 2004.

During fiscal year 1994, the stockholders approved the 1993 Stock Option Plan for Directors, which allowed the grant of options on 40,000 shares of the Company’s common stock. Each non-employee directors received an option to purchase 5,000 shares of the 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 were granted at the fair market value at the date of grant. At April 30, 2006, no shares were available for future grants under the plan.2005.

The Company utilized treasury stock to satisfy stock options exercised during fiscal years 2007, 2006 2005 and 2004.2005. Stock option activity and weighted average exercise price is summarized as follows:

 

  2006  2005  2004  2007  2006  2005
  Options Price  Options Price  Options Price  Options Price  Options Price  Options Price

Outstanding at beginning of year

  177,100  $9.93  191,100  $9.81  213,853  $9.65  159,780  $10.03  177,100  $9.93  191,100  $9.81

Granted

  —     —    —     —    —     —    —     —    —     —    —     —  

Canceled

  (10,000)  9.27  (10,500)  9.80  (15,228)  10.12  (6,750)  9.78  (10,000)  9.27  (10,500)  9.80

Exercised

  (500)  2.75  (3,500)  3.79  (7,525)  4.52  (2,500)  8.13  (500)  2.75  (3,500)  3.79
                  

Outstanding at end of year

  166,600  $9.99  177,100  $9.93  191,100  $9.81  157,350   10.03  166,600   9.99  177,100   9.93
                  

Exercisable at end of year

  159,780  $10.03  152,117  $10.04  134,384  $9.97  157,350   10.03  159,780   10.03  152,117   10.04

The options outstanding and exercisable and the weighted average exercise price within the following price ranges at April 30, 20062007 are as follows:

 

Exercise price range

  $8.125-$9.55  $9.95-$12.00  $8.125-$9.55  $9.95-$12.00

Options outstanding

   75,500   91,100

Options outstanding and exercisable

   71,250   86,100

Weighted average exercise price

  $9.09  $10.74  $9.12  $10.79

Weighted average remaining contractual life (years)

   4.93   3.25   4.04   2.44

Note 6—Accumulated Other Comprehensive Income

The options exercisableCompany’s other comprehensive income (loss) consists of unrealized gains and weighted average exercise price withinlosses on the following price ranges at April 30, 2006translation of the assets, liabilities, and equity of its foreign subsidiaries, unrecognized gains and losses on cash flow hedges (consisting of interest rate swaps), and additional minimum pension liability adjustments, net of income taxes.

The before tax income (loss), related income tax effect, and accumulated balances are as follows:

 

Exercise price range

  $8.125-$9.55  $9.95-$12.00

Options exercisable

   68,680   91,100

Weighted average exercise price

  $9.09  $10.74

$ in thousands

  

Foreign

Currency

Translation

Adjustment

  

Unrecognized

Gains (Losses)

On Cash

Flow Hedge

  

Minimum

Pension

Liability

Adjustment

  

Accumulated

Other

Comprehensive

Income (Loss)

 

Balance at April 30, 2004

  $49  $(13) $—    $36 

Other comprehensive income

   7   11   —     18 

Balance at April 30, 2005

   56   (2)  —     54 

Other comprehensive income

   57   2   —     59 

Balance at April 30, 2006

   113   —     —     113 

Other comprehensive income

   166   —     —     166 

Adoption of SFAS No. 158

   —     —     (3,369)  (3,369)

Income tax effect of SFAS No. 158

   —     —     1,257   1,257 

Balance at April 30, 2007

  $279   —    $(2,112) $(1,833)

Note 6—Comprehensive Income

The Company entered into one interest rate swap agreement effective May 1, 2002 related to its long-term debt. The interest rate swap agreement matured in February 28, 2006. For its foreign subsidiaries, assets and liabilities are translated at exchange rates prevailing on the balance sheet date. Revenues and expenses are translated at weighted average exchange rates prevailing during the period, and any resulting translation adjustments are reported separately in stockholders’ equity.

31


A reconciliation of net earnings (loss) andCompany’s total comprehensive income (loss) for fiscal years 2007, 2006, 2005, and 20042005 is summarized as follows:

 

$ in thousands

  2006  2005 2004  2007  2006  2005 

Net earnings (loss)

  $193  $(147) $1,462  $1,540  $193  $(147)

Change in fair value of cash flow hedge, net of income tax

   2   11   18

Change in cumulative foreign currency translation adjustment

   57   7   27

Other comprehensive income

   166   59   18 
                   

Total comprehensive income (loss)

  $252  $(129) $1,507  $1,706  $252  $(129)
                   

Note 7—Commitments and Contingencies

During fiscal years 2007, 2006 and 2005, the Company entered into several leases related to the implementation of a new ERP System that were classified as capital leases. The Company entered into a 10-year operating lease for a new distribution center in fiscal year 2003. The Company also leases some of its machinery and equipment under non-cancelable operating leases. Most of these leases provide the Company with renewal and purchase options, and most leases of machinery and equipment have certain early cancellation rights. Rent expense for these operating leases was $1,892,000, $1,637,000, $1,302,000, and $1,219,000$1,302,000 in fiscal years 2007, 2006, 2005, and 2004,2005, respectively. Future minimum payments under the above non-cancelable lease arrangements for the years ended April 30 are as follows:

 

$ in thousands

  Operating  Capital   Operating  Capital 

2007

  $1,552  $329 

2008

   1,343   329   $1,441  $431 

2009

   1,215   252    1,309   367 

2010

   1,031   67    1,079   181 

2011

   827   —      839   10 

2012

   735   —   

Thereafter

   1,215   —      352   —   
              

Total minimum lease payments

  $7,183   977    5,755   989 
              

Less: amount representing interest

   —     (134)   —     (153)
              

Capital lease obligation

   —    $843   $—    $836 
              

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 Company’s financial condition or results of operations.

Note 8—Retirement Benefits

Defined Benefit Plans

In September 2006, the FASB issued SFAS No. 158, which requires that the Company recognize the funded status of its defined benefit plans in its financial statements as of April 30,2007, with changes in the funded status recognized through comprehensive income, net of tax, in the year in which they occur. The Company adopted SFAS No. 158 effective April 30, 2007, and the incremental effect of applying it on individual line items in the consolidated balance sheet as of April 30, 2007 is as follows:

$ in thousands

  Before Application
of SFAS No. 158
  Adjustment  After Application
of SFAS No. 158
 

Prepaid pension cost

  $5,280  $(3,369) $1,911 

Deferred income taxes assets

   —     129   129 

Total other assets

   7,583   (2,112)  5,471 

Total assets

   47,352   (2,112)  45,240 

Deferred income taxes liabilities

   1,128   (1,128)  —   

Total liabilities

   22,320   (1,128)  21,192 

Accumulated other comprehensive income (loss)

   279   (2,112)  (1,833)

Total stockholders’ equity

   26,160   (2,112)  24,048 

The Company has non-contributory defined benefit pension plans covering substantially all salaried and hourly employees. In February 2005, these plans were amended as of April 30, 2005. No further benefits have been, or will be, earned under the plans subsequent to the amendment date, and no additional participants will be added to the plans. The defined benefit plan for salaried employees provide

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 as of April 30, 2005. The benefit plan for hourly employees provides benefits at stated amounts based on years of service as of April 30, 2005. theThe Company uses an April 30 measurement date for its defined benefit plans. The change in projected benefit obligations and the change in fair value of plan assets for the

32


non-contributory defined benefit pension plans for each of the years ended April 30 are summarized as follows:

 

$ in thousands

  2006 2005   2007 2006 

Accumulated Benefit Obligation, April 30

  $14,118  $13,777   $14,619  $14,118 
       

Change in Projected Benefit Obligations

      

Projected benefit obligations, beginning of year

  $13,777  $12,896   $14,118  $13,777 

Service cost

   —     514    —     —   

Interest cost

   797   852    842   797 

Curtailment

   —     (1,972)   —     —   

Actuarial loss

   116   1,992    262   116 

Actual benefits paid

   (572)  (505)   (603)  (572)
              

Projected Benefit obligations, end of year

  $14,118  $13,777   $14,619  $14,118 
       

Change in Plan Assets

      

Fair value of plan assets, beginning of year

  $14,043  $11,373   $15,678  $14,043 

Actual return (loss) on plan assets

   2,207   675 

Actual return on plan assets

   1,454   2,207 

Actual company contributions

   —     2,500    —     —   

Actual benefits paid

   (572)  (505)   (603)  (572)
              

Fair value of plan assets, end of year

  $15,678  $14,043   $16,529  $15,678 
              

Funded Status and Prepaid

      

Funded status of plans

  $1,560  $266   $1,911  $1,560 

Unrecognized net loss

   3,338   4,465    —     3,338 
              

Prepaid pension cost

  $4,898  $4,731   $1,911  $4,898 
              

Amounts Recognized in the Consolidated Statement of Financial Position

      

Prepaid pension cost

  $4,898  $4,731   $1,911  $4,898 

Amounts Recognized in Accumulated Other Comprehensive Income

   

Net actuarial loss

  $3,369   —   

Weighted-Average Assumptions Used to Determine

Benefit Obligations at April 30

      

Discount rate

   6.00%  5.75%   6.00%  6.00%

Rate of compensation increase

   N/A   N/A    N/A   N/A 

Weighted-Average Assumptions Used to Determine

Net Periodic Benefit Cost for Years Ended April 30

      

Discount rate

   5.75%  6.75%   6.00%  5.75%

Expected long-term return on plan assets

   9.00%  9.00%   9.00%  9.00%

Rate of compensation increase

   N/A   3.5-6.5%   N/A   N/A 

As permitted under Paragraph 26 of FASB No. 87, the amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the plan. The components of the net periodic pension costs for each of the three years ended April 30 are as follows:

 

$ in thousands

  2006 2005 2004   2007 2006 2005 

Service cost

  $—    $514  $483   $—    $—    $514 

Interest cost

   797   852   799    842   797   852 

Expected return on plan assets

   (1,239)  (1,004)  (828)   (1,386)  (1,239)  (1,004)

Amortization of prior service cost

   —     11   11    —     —     11 

Recognition of net loss

   275   238   321    163   275   238 
                    

Net periodic pension cost (income)

  $(167) $611  $786   $(381) $(167) $611 
                    

FAS 88 Curtailment Expense

  $—    $28  $—     $—    $—    $28 

The estimated net actuarial loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during the fiscal year 2008 is $142,000.

The Company’s funding policy is to contribute to the plans when pension laws and economics either require or encourage funding. The Company made contributions of $2,500,000 and $750,000 to the plans in fiscal years 2005 and 2004, respectively.year 2005. No contributions were made to the plans in fiscal yearyears 2007 and 2006. No Company contributions are anticipated for fiscal year 2007.2008.

33


The following benefit payments are expected to be paid formfrom the benefit plans in the fiscal years ended April 30:

 

$ in thousands

  Amount  Amount

2007

  $613

2008

  $652  $655

2009

  $695   718

2010

  $749   773

2011

  $787   806

2012-2016

  $4,642

2012

   849

2013-2017

  $5,016

The Company employs a building block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed-income securities are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long-term. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The expected long-term portfolio return is established via a building block approach with proper consideration of diversification and rebalancing. Peer data and historical returns are also reviewed to check for reasonability and appropriateness.

The Company uses the average monthly yields for the Moody’s Aa corporate bond index as the primary benchmark for establishing the discount rate used for measuring GAAP pension obligations. The credit quality of the bonds that underlie this index is consistent with SFAS 87 and other SEC staff guidance. In addition, the current estimated duration of the Company’s pension obligations is about 14 years. The Company’s understanding is that the duration of the bonds that comprise the Moody’s Index is estimated to be about 13 years. Based on that information, there does not appear to be a significant mismatch that would cause the Moody’s Index to be an inappropriate benchmark. A 1% increase/decrease in the discount rate for fiscal years 20062007 and 20052006 would decrease/increase pension expense by approximately $128,000 and $130,000, and $231,000, respectively.

The Company used an analysis of the actual pay increase experience from 1998 to 2003 for plan participants, along with the Company’s expectations for future pay growth, to develop an age-graded salary scale which was used in determining the rate of compensation increase assumptions for fiscal year 2005. The rate of compensation increase assumption is not applicable forto the determination of the benefit obligations at April 30, 20062007 and 20052006 or determinations of future obligations or expense, due to the cessation of benefit accruals.

The Company employs a total return investment approach, whereby a mix of equities and fixed-income investments are used to attempt to maximize the long-term return ofon plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, and small and large capitalizations. The target allocations based on the Company’s investment policy werewas 65% and 70% in equity securities and 35% and 30% in fixed-income securities at April 30, 20062007 and 2005, respectively.2006. A 1% increase/decrease in the expected return on assets for fiscal years 20062007 and 20052006 would decrease/increase pension expense by approximately $138,000$154,000 and $111,000,$138,000, respectively. Plan assets by asset categories as of April 30, 20062007 and 20052006 were as follows:

 

$ in thousands

Asset Category

  2006  2005
  Amount  %  Amount  %

Equity securities

Fixed income securities

Cash and cash equivalents

  $
 
 
9,797
5,721
160
  62
37
1
  $
 
 
8,178
1,702
4,163
  58
12
30
              

Totals

  $15,678  100  $14,043  100
              

34


Cash and cash equivalents at April 30, 2005 include the Company’s contributions to the plans of $2,500,000, which had not yet been diversified into target asset categories.

$ in thousands

  2007  2006
Asset Category  Amount  %  Amount  %

Equity securities

  $10,787  65  $9,797  62

Fixed income securities

   5,619  34   5,721  37

Cash and cash equivalents

   123  1   160  1
              

Totals

  $16,529  100  $15,678  100
              

Defined Contribution Plan

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 three months of service, and who elect to participate. In fiscal yearsyear 2005, and 2004, the Company made matching contributions equal to 50% of the qualifying employee contribution, up to a maximum employer contribution of 2% of the participant’s compensation. Effective May 1, 2005, the plan was amended to provide that the Company make matching contributions equal to 100% of the employee’s qualifying contribution up to 3% of the employee’s compensation, and makes matching contributions equal to 50% of the employee’s contributions between 3% and 5% of the employee’s compensation, resulting in a maximum employer contribution equal to 4% of the employee’s compensation. Additionally, effective May 1, 2005, the plan was amended to provide that the Company make a non-matching contribution for participants employed by the Company on December 31 of each year equal to 1% of the participant’s qualifying compensation for that calendar year. The Company’s contributions to the plan in fiscal years 2007, 2006, and 2005 were $737,000, $588,000, and 2004 were $588,000, $246,000, respectively.

Note 9—Segment Information

The Company’s operations are classified into two business segments: Domestic Operations and $270,000, respectively.International Operations. The Domestic Operations segment principally designs, manufactures, and installs scientific and technical furniture, including steel and wood laboratory cabinetry, fume hoods, flexible systems, worksurfaces, workstations, workbenches, and computer enclosures. The International Operations segment, which consists of three foreign subsidiaries as defined in Note 1, provides both the Company’s products and services, including facility design, detailed engineering, construction, and project management from the planning stage through testing and commissioning of laboratories.

Intersegment transactions are recorded at normal profit margins. All intercompany balances and transactions have been eliminated. Corporate expenses have not been allocated to the business segments.

The following table shows revenues, earnings, and other financial information by business segment for each of the three years ended April 30:

$ in thousands

  

Domestic

Operations

  

International

Operations

  Corporate  Total 

Fiscal Year 2007

      

Revenues from external customers

  $66,585  $14,856  $—    $81,441 

Intersegment revenues

   3,251   968   (4,219)  —   

Depreciation

   1,898   54   —     1,952 

Operating earnings (loss) before income taxes

   3,889   1,393   (2,541)  2,741 

Income tax expense (benefit)

   1,353   433   (884)  902 

Minority interest in subsidiaries

   —     (299)  —     (299)

Net earnings (loss)

   2,536   661   (1,657)  1,540 

Segment assets

   38,085   7,155   —     45,240 

Expenditures for segment assets

   1,661   63   —     1,724 

Revenues (excluding intersegment) to customers in foreign countries

   1,027   14,856   —     15,883 

Fiscal Year 2006

      

Revenues from external customers

   72,027  $12,044   —     84,071 

Intersegment revenues

   3,188   877   (4,065)  —   

Depreciation

   1,984   43   —     2,027 

Operating earnings (loss) before income taxes

   1,081   1,052   (1,436)  697 

Income tax expense (benefit)

   132   331   (175)  288 

Minority interest in subsidiaries

   —     (216)  —     (216)

Net earnings (loss)

   949   505   (1,261)  193 

Segment assets

   44,484   5,988   —     50,472 

Expenditures for segment assets

   1,695   191   —     1,886 

Revenues (excluding intersegment) to customers in foreign countries

   631   12,044   —     12,675 

Fiscal Year 2005

      

Revenues from external customers

   67,838   5,643   —     73,481 

Intersegment revenues

   817   715   (1,532)  —   

Depreciation

   2,012   36   —     2,048 

Operating earnings (loss) before income taxes

   1,534   615   (2,672)  (523)

Income tax expense (benefit)

   954   219   (1,661)  (488)

Minority interest in subsidiaries

   —     (112)  —     (112)

Net earnings (loss)

   580   284   (1,011)  (147)

Segment assets

   43,010   3,202   —     46,212 

Expenditures for segment assets

   965   11   —     976 

Note 9—10—Consolidated Quarterly Data ((Unaudited)Unaudited)

Selected quarterly financial data for fiscal years 20062007 and 20052006 were as follows:

 

$ in thousands,

except per share amounts

  

First

Quarter

  

Second

Quarter

  

Third

Quarter

 

Fourth

Quarter

   

First

Quarter

  

Second

Quarter

  

Third

Quarter

 

Fourth

Quarter

 

2007

       

Net sales

  $19,294  $21,385  $18,041  $22,721 

Gross profit

   3,128   4,080   3,624   4,254 

Net earnings

   133   569   321   517 

Net earnings per share

       

Basic

   0.05   0.23   0.13   0.21 

Diluted

   0.05   0.23   0.13   0.21 

Cash dividends per share

   0.07   0.07   0.07   0.07 

2006

              

Net sales

  $20,308  $22,319  $17,724  $23,720    20,308   22,319   17,724   23,720 

Gross profit

   3,386   3,485   2,446   3,091    3,386   3,485   2,446   3,091 

Net earnings (loss)

   763   239   (555)  (254)   763   239   (555)  (254)

Net earnings (loss) per share

              

Basic

   0.31   0.10   (0.22)  (0.11)   0.31   0.10   (0.22)  (0.11)

Diluted

   0.31   0.10   (0.22)  (0.11)   0.31   0.10   (0.22)  (0.11)

Cash dividends per share

   0.07   0.07   0.07   0.07    0.07   0.07   0.07   0.07 

2005

       

Net sales

  $20,288  $18,365  $15,623  $19,205 

Gross profit

   3,376   3,553   2,037   3,518 

Net earnings (loss)

   193   108   (742)  294 

Net earnings (loss) per share

       

Basic

   0.08   0.04   (0.30)  0.12 

Diluted

   0.08   0.04   (0.30)  0.12 

Cash dividends per share

   0.07   0.07   0.07   0.07 

35


CONSENTCONSENTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

Cherry, Bekaert & Holland, L.L.P.

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-18417 and No. 333-98963) of Kewaunee Scientific Corporation of our report dated June 26, 2006July 12, 2007 relating to the financial statements and financial statement schedule, which report appears in this Form 10-K.

CHERRY, BEKAERT & HOLLAND, L.L.P.

Charlotte, North Carolina

July 11, 200612, 2007

PricewaterhouseCoopers LLP

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-18417 and No. 333-98963) of Kewaunee Scientific Corporation of our report dated June 15, 2005 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.

PricewaterhouseCoopers LLP

Charlotte, North Carolina

July 11, 2006

3616, 2007


KEWAUNEE SCIENTIFIC CORPORATION

SCHEDULE I—I - VALUATION AND QUALIFYING ACCOUNTS

($ IN THOUSANDS)in thousands)

 

  

Balance at
Beginning

of Year

  Bad Debt
Expense
  Deductions* 

Balance at

End of Year

Allowance for Doubtful Accounts:

  Balance
at
Beginning
of Year
  Bad Debt
Expense
  Deductions* Balance
at End
of Year
       

Year ended April 30, 2007

  $450  $136  $(324) $262

Year ended April 30, 2006

  $688  $288  $(526) $450   688   288   (526)  450

Year ended April 30, 2005

  $858  $520  $(690) $688   858   520   (690)  688

Year ended April 30, 2004

  $494  $454  $(90) $858

*Uncollectible accounts written off, net of recoveries.

37


Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We filed an 8-K/A dated July 14, 2005 reporting a change in our certifying accountant to Cherry, Bekaert & Holland, L.L.P. from PricewaterhouseCoopers LLP.and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A.Controls and Procedures

Item 9A. Controls and Procedures

We maintain disclosure controls and procedures that are intended to ensure that the information required to be disclosed in our Exchange Act filings is properly and timely recorded, processed, summarized and reported. Our management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures as of April 30, 20062007 pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that we are able to collect, process, record, and disclose, within the required time periods, the information we are required to disclose in the reports filed with the Securities and Exchange Commission. In designing disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives, and that management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Nevertheless, we believe that our disclosure controls and procedures are effective.

There have been no significant changes in our internal controls over financial reporting that occurred during our fourth fiscal quarter that hashave materially affected, or isare reasonably likely to materially affect, our internal controls over financial reporting.

Item 9b.Other Information

Item 9b. Other Information

None.

38


PART III

Item 10.

Item 10. Directors and Executive Officers of the Registrant

(a)The information appearing in the sections entitled “Election of Directors” and “Meetings and Committees of the RegistrantBoard” included in our proxy statement for use in connection with our annual meeting of stockholders to be held on August 22, 2007 (the “ Proxy Statement”) is incorporated herein by reference. The Proxy Statement will be filed with the SEC within 120 days of our most recently completed fiscal year.

(a) Incorporated by reference from our proxy statement for use in connection with our annual meeting of stockholders to be held on August 23, 2006, sections entitled “Election of Directors” and “Committees of the Board of Directors,” which will be filed with the SEC within 120 days of our most recently completed fiscal year.

(b) The names and ages of our executive officers as of June 30, 2006 and their business experience during the past five years are set forth below:

(b)The names and ages of our executive officers as of July 5, 2007 and their business experience during the past five years are set forth below:

Executive Officers

 

Name

  Age  

Position

William A. Shumaker

  5859  President and Chief Executive Officer

D. Michael Parker

  5455  Senior Vice President, Finance, Chief
Financial Officer, Treasurer and
Secretary

Chief Financial Officer,

Treasurer and Secretary

K. Bain Black

  6061  

Vice President, General Manager

Technical Furniture Group

Dana L. Dahlgren

  5051  

Vice President, Sales and Marketing

Laboratory Products Group

Kurt P. Rindoks

David M. Rausch  48  Vice President, Engineering and
Product DevelopmentConstruction Services
Kurt P. Rindoks49

Vice President, Engineering

and Product Development

Keith D. Smith

  3738  Vice President, Manufacturing

Sudhir K. (Steve) Vadehra

  5960  

Vice President,

International
Operations

William A. Shumaker has served as President of the Company since August 1999 and Chief Executive Officer since September 2000. He was elected a director of the Company in February 2000. He served as the Chief Operating Officer from August 1998, when he was also elected as Executive Vice President, until September 2000. Mr. Shumaker served as Vice President and General Manager of the Laboratory Products Group from February 1998 to August 1998. He joined the Company in December 1993 as Vice President of Sales and Marketing.

D. Michael Parker joined the Company in November 1990 as Director of Financial Reporting and Accounting and was promoted to Corporate Controller in November 1991. Mr. Parker has served as Chief Financial Officer, Treasurer and Secretary since August 1995. He was elected Vice President of Finance in August 1995 and Senior Vice President of Finance in August 2000.

K. Bain Black joined the Company in August 2004 as the General Sales Manager for the Technical Products Group. He was elected Vice President and General Manager of the Technical Products Group, effective July 1, 2005. Prior to joining the Company, Mr. Black was Director of Marketing for Newton Instrument Company, a manufacturer of products for the telecom industry, from 2001 to 2003. Prior thereto, he was a partner and President of TechMetals, LLC from 1997.

Dana L. Dahlgren joined the Company in November 1989 as a Regional Sales Manager and was promoted to Director of Sales and Marketing of the Laboratory Products Group in September 1998. Mr. Dahlgren was elected Vice President of Sales and Marketing of the Laboratory Products Group in June 2004.

David M. Rausch joined the Company in March 1994 as Manager of Estimating and was promoted to Southeast Regional Sales Manager in December 1996, then to Director of Sales for Network Storage Systems products in May 2000. In August 2001, he was promoted to Project Sales Manager, and in this position, he also had direct management responsibility for the Estimating Department. Mr. Rausch was elected Vice President of Construction Services in June 2007.

39


Kurt P. Rindoks joined the Company in JulyJanuary 1985 as an engineer. He was promoted to Director of Product Development in August 1991 and assumed the additional responsibilities of Director of Engineering in July 1995. He has served as Vice President of Engineering and Product Development since September 1996. Additionally, from May 1998 through October 2001, he served as General Manager of the Company’s Resin Materials Division.

Keith D. Smith joined the Company in 1993 as a department supervisor in the Metal Plant and served as Resin Plant Manager from 1995 until April 2001 when he was promoted to Wood Plant Manager. He served as Wood Plant Manager until he assumed the position of Director of Manufacturing in November 2003, a position he held until he was promoted to Vice President of Manufacturing, effective July 1, 2005.

Sudhir K. (Steve) Vadehra joined the Company in October 1999. He was elected Vice President of International Operations in June 2004. He also has served as the Managing Director of Kewaunee Labway Asia Pte. Ltd., the Company’s joint venture subsidiary in Singapore, since the subsidiary’s formation in June 1998.

Section 16(a) Beneficial Ownership Reporting Compliance

Incorporated by reference from our proxy statement for useThe information appearing in connection with our annual meeting of stockholders to be held on August 23, 2006,the section entitled “Securities Ownership of Certain Beneficial Owners—Owners – Section 16(a) Beneficial Ownership Reporting Compliance,” which will be filed withCompliance” in the SEC within 120 days of our most recently completed fiscal year.Proxy Statement is incorporated herein by reference.

Code of Ethics

A copy of our code of ethics that applies to our Chief Executive Officer and Chief Financial Officer, entitled “Code of Ethics for Officers and Key Associates,” is available free of charge through our website atwww.kewaunee.com.

Audit Committee

The information appearing in the section entitled “Election of Directors – Meetings and Committees of the Board” in our Proxy Statement is incorporated herein by reference.

Item 11.Executive Compensation

Incorporated by reference from our proxy statement for useItem 11. Executive Compensation

The information appearing in connection with our annual meeting of stockholders to be held on August 23, 2006, section entitled “Executive Compensation,” sectionthe sections entitled “Compensation Committee Report on Executive Compensation,Discussion and Analysis,and section entitled“Compensation Tables,” “Agreements with Certain Executives.Executives,The proxy statement will be filed withand “Election of Directors – Compensation Committee Interlocks and Insider Participation” in the SEC within 120 days of our most recently completed fiscal year.

40Proxy Statement is incorporated herein by reference.


Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding the security ownership of certain beneficial ownersCertain Beneficial Owners and management is incorporated by reference from our proxy statement for useManagement and Related Stockholder Matters

The information appearing in connection with our annual meeting of stockholders to be held on August 23, 2006,the sections entitled “Security Ownership of Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners,” which will be filed withOwners” in the SEC within 120 days of our most recently completed fiscal year.Proxy Statement is incorporated herein by reference.

The following table sets forth certain information as of April 30, 20062007 with respect to compensation plans under which our equity securities are authorized for issuance:

 

Plan Category

  

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights

(a)

  

Weighted average
exercise price of
outstanding options,
warrants and rights

(b)

  

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))

(c)

  

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights

(a)

  

Weighted average
exercise price of
outstanding options,
warrants and rights

(b)

  

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))

(c)

Equity Compensation Plans approved by Security Holders:

            

1991 Key Employee Stock Option Plan

  $101,100  $10.39  -0-  98,600  $10.45  —  

1993 Stock Option Plan for Directors

   5,000  $9.95  -0-

2000 Key Employee Stock Option Plan

   60,500  $9.33  39,350  58,750  $9.33  41,100

Equity Compensation Plans not approved by Security Holders:

   —     —    —    —     —    —  

Refer to FootnoteNote 5 of the Company’s consolidated financial statements for additional information.

Item 13.Certain Relationships and Related Transactions

Incorporated by reference from our proxy statement for useItem 13. Certain Relationships and Related Transactions

The information appearing in connection with our annual meeting of stockholders to be held on August 23, 2006,the section entitled “Election of Directors” and section entitled “Agreements with Certain Executives,” which will be filed withExecutives” in the SEC within 120 days of our most recently completed fiscal year.Proxy Statement is incorporated herein by reference.

Item 14.Principal Accounting Fees and Services

Incorporated by reference from our proxy statement for useItem 14. Principal Accounting Fees and Services

The information appearing in connection with our annual meeting of stockholders to be held on August 23, 2006, sectionsthe section entitled “Independent Auditors-AuditRegistered Public Accounting Firm – Audit Fees and Non-Audit Fees” and “Independent Public Accountants-Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services,” which will be filed within the SEC within 120 days of our most recently completed fiscal year.

41Proxy Statement is incorporated herein by reference.


PART IV

Item 15.Exhibits, Financial Statement Schedules

Item 15. Exhibits, Financial Statement Schedules

The following documents are filed or incorporated by reference as part of this Annual Report:

 

     Page
(a)(1) Consolidated Financial Statements  

Report of Independent Registered Public Accounting Firm
Cherry, Bekaert & Holland, L.L.P.

  18

Report of Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP

  19

Consolidated Statements of Operations
Years ended April 30, 2007, 2006 2005 and 2004

2005
  20

Consolidated Statements of Stockholders’ Equity
Years ended April 30, 2007, 2006 2005 and 2004

2005
  21

Consolidated Balance Sheets—Sheets – April 30, 20062007 and 2005

2006
  22

Consolidated Statements of Cash Flows—Flows Years endedEnded April 30, 2007, 2006 2005 and 2004

2005
  23

Notes to Consolidated Financial Statements

  24
(a)(2) Consolidated Financial Statement Schedule  

Consent

Consents of Independent Registered Public Accounting Firms

  3638
 

Schedule I—I – Valuation and Qualifying Accounts

  3739
 

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 4446 through 4649 and which is incorporated herein by reference.

  

42


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/    WILLIAMs/ William A. SHUMAKER        Shumaker

 

William A. Shumaker

President and Chief Executive Officer

Date: July 12, 200613, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and on the dates indicated have signed this report below.

 

(i)           

Principal Executive Officer

  

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

/S/    WILLIAM A. SHUMAKER

William A. Shumaker

President and Chief Executive Officer

   

(ii) Principal Financial and Accounting Officer

/S/    D. MICHAEL PARKER

D. Michael Parker

Senior Vice President, Finance

Chief Financial Officer

Treasurer and Secretary

) 
  July 12, 2006

(iii) A majority of the Board of Directors:

 ) 

/S/    MARGARET BARR BRUEMMER

Margaret Barr Bruemmer

 

/S/    SILAS KEEHN

Silas Keehn

/S/    JOHN C. CAMPBELL, JR.

John C. Campbell, Jr.

/S/    ELI MANCHESTER, JR.

Eli Manchester, Jr.

/S/    WILEY N. CALDWELL

Wiley N. Caldwell

/S/    JAMES T. RHIND

James T. Rhind

/S/    WILLIAM A. SHUMAKER

s/ William A. Shumaker

  )
William A. Shumaker)
President and Chief Executive Officer)
)
(ii)Principal Financial and Accounting Officer)
)

/s/ D. Michael Parker

)
D. Michael Parker)
Senior Vice President, Finance)
Chief Financial Officer,)
Treasurer and Secretary)
)
(iii)A majority of the Board of Directors:)July 13, 2007
)

/s/ Margaret B. Pyle

/s/ Silas Keehn

)
Margaret B. PyleSilas Keehn)
)

/s/ John C. Campbell, Jr.

/s/ Eli Manchester, Jr.

)
John C. Campbell, Jr.Eli Manchester, Jr.)
)

/s/ Wiley N. Caldwell

/s/ James T. Rhind

)
Wiley N. CaldwellJames T. Rhind)
)

/s/ William A. Shumaker

)
William A. Shumaker) 

43


KEWAUNEE SCIENTIFIC CORPORATION

Exhibit Index

 

        Page Number
(or Reference)
       

Page Number
(or Reference)

3  Articles of incorporation and by-laws   Articles of incorporation and by-laws  
  3.1  Restated Certificate of incorporation (as amended)  (2) 3.1  Restated Certificate of Incorporation (as amended)  (2)
  3.2  By-Laws (as amended as of May 22, 2002)  (10) 3.2  By-Laws (as amended as of May 22, 2002)  (10)
10  Material Contracts   Material Contracts  
  10.1*  Re-Established Retirement Plan for Salaried Employees of Kewaunee Scientific Corporation (as amended and restated Effective as of May 1, 2001)  (11) 10.1*  Re-Established Retirement Plan for Salaried Employees of Kewaunee Scientific Corporation (as amended and restated Effective as of May 1, 2001)  (11)
  10.1A*  First Amendment to the Re-Established Retirement Plan for Salaried Employees of Kewaunee Scientific Corporation  (14) 10.1A*  First Amendment to the Re-Established Retirement Plan for Salaried Employees of Kewaunee Scientific Corporation  (12)
  10.1B*  Second Amendment to the Re-Established Retirement Plan for Salaried Employees of Kewaunee Scientific Corporation  (15) 10.1B*  Second Amendment to the Re-Established Retirement Plan for Salaried Employees of Kewaunee Scientific Corporation  (13)
  10.2  Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation (as amended and restated Effective as of May 1, 2001)  (11) 10.2  Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation (as amended and restated Effective as of May 1, 2001)  (11)
  10.2A  First Amendment to the Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation  (11) 10.2A  First Amendment to the Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation  (11)
  10.2B  Second Amendment to the Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation  (14) 10.2B  Second Amendment to the Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation  (12)
  10.2C  Third Amendment to the Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation  (15) 10.2C  Third Amendment to the Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation  (13)
  10.2D  Fourth Amendment to the Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation  (17) 10.2D  Fourth Amendment to the Re-Established Retirement Plan for Hourly Employees of Kewaunee Scientific Corporation  (15)
  10.3*  Kewaunee Scientific Corporation Supplemental Retirement Plan  (3) 10.3*  Kewaunee Scientific Corporation Supplemental Retirement Plan  (3)
  10.19*  Kewaunee Scientific Corporation 1991 Key Employee Stock Option Plan  (4) 10.19*  Kewaunee Scientific Corporation 1991 Key Employee Stock Option Plan  (4)
  10.19A*  First Amendment dated August 28, 1996 to the Kewaunee Scientific Corporation Key Employee Stock Option Plan  (6) 10.19A*  First Amendment dated August 28, 1996 to the Kewaunee Scientific Corporation Key Employee Stock Option Plan  (6)
  10.19B*  Second Amendment dated August 26, 1998 to the Kewaunee Scientific Corporation Key Employee Stock Option Plan  (7)
  10.21*  Kewaunee Scientific Corporation Executive Deferred Compensation Plan (as amended and restated effective January 1, 2005)  (14)
  10.26  Kewaunee Scientific Corporation Stock Option Plan for Directors  (5)
  10.30*  Kewaunee Scientific Corporation Executive Severance Pay Policy  (16)
  10.34*  401(K) Incentive Savings Plan for Salaried and Hourly Employees of Kewaunee Scientific Corporation (as amended and restated effective May 1, 2005)  (15)

44


        

Page Number
(or Reference)

 

10.19B*

Second Amendment dated August 26, 1998 to the Kewaunee Scientific Corporation Key Employee Stock Option Plan(7)
 

10.21*

Kewaunee Scientific Corporation Executive Deferred Compensation Plan (as amended and restated effective January 1, 2005)(12)

10.30*

Kewaunee Scientific Corporation Executive Severance Pay Policy(14)

10.34*

401(K) Incentive Savings Plan for Salaried and Hourly Employees of Kewaunee Scientific Corporation (as amended and restated effective May 1, 2005)(13)

10.38*

  Change of Control Agreement dated as of November 12, 1999 between William A. Shumaker and the Company  (8)(8)
 

10.38A*

  Change of Control Agreement extension dated as of March 22, 2005 between William A. Shumaker and the Company  (15)(13)
 

10.38B*

  First Amendment to the Change of Control Agreement between William A. Shumaker and the Company  (16)(14)
 

10.39*

  Change of Control Agreement dated as of November 12, 1999 between D. Michael Parker and the Company  (8)(8)
 

10.39A*

  Change of Control Agreement extension dated as of March 22, 2005 between D. Michael Parker and the Company  (15)(13)
 

10.39B*

  First Amendment to the Change of Control Agreement between D. Michael Parker and the Company  (16)(14)
 

10.40*

  Change of Control Agreement dated as of August 25, 2004 between Dana L. Dahlgren and the Company  (15)(13)
 

10.40A*

  Change of Control Agreement extension dated as of March 22, 2005 between Dana L. Dahlgren and the Company  (15)(13)
 

10.40B*

  First Amendment to the Change of Control Agreement between Dana L. Dahlgren and the Company  (16)(14)
 

10.41*

  Change of Control Agreement dated as of January 20, 2000 between Kurt P. Rindoks and the Company  (8)(8)
 

10.41A*

  Change of Control Agreement extension dated as of March 22, 2005 between Kurt P. Rindoks and the Company  (15)(13)
 

10.41B*

  First Amendment to the Change of Control Agreement between Kurt P. Rindoks and the Company  (16)(14)
 

10.42*

  Kewaunee Scientific Corporation Pension Equalization Plan (as amended and restated effective January 1, 2005)  (15)
10.43*Employment Letter Agreement dated as of August 2, 2004 between K. Bain Black and the Company(15)
10.44*Change of Control Agreement dated as of March 22, 2005 between Keith D. Smith and the Company(15)
10.44B*First Amendment to the Change of Control Agreement between Keith D. Smith and the Company(16)
10.45*Kewaunee Scientific Corporation 2000 Key Employee Stock Option Plan(9)
10.46*Fiscal Year 2007 Incentive Bonus Plan(1)
10.47*Long-Term Performance Incentive Plan for the Period FY2004-FY2006(12)
10.48*Long-Term Performance Incentive Plan for the Period FY2005-FY2007(13)(13)

45


         Page Number
(or Reference)
 
  10.49*  Long-Term Performance Incentive Plan for the Period FY 2006-FY2008  (15)
  23.1  Consent dated July 11, 2006 of Cherry, Bekaert & Holland LLP, Independent Registered Public Accounting Firm (incorporated by reference to page 36 of this Report on Form 10-K)  (1)
  23.2  Consent dated July 11, 2006 of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (incorporated by reference to page 36 of this Report on Form 10-K)  (1)
  31.1  Certification of Principal Executive Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a)  (1)
  31.2  Certification of Principal Financial Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a)  (1)
  32.1  Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (1)
  32.2  Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (1)
        

Page Number
(or Reference)

 

10.43*

  Employment Letter Agreement dated as of August 2, 2004 between K. Bain Black and the Company  (13)
 

10.44*

  Change of Control Agreement dated as of March 22, 2005 between Keith D. Smith and the Company  (13)
 

10.44B*

  First Amendment to the Change of Control Agreement between Keith D. Smith and the Company  (14)
 

10.45*

  Kewaunee Scientific Corporation 2000 Key Employee Stock Option Plan  (9)
 

10.46*

  Change of Control Agreement extension dated as of March 22, 2005 between David M. Rausch and the Company  (1)
 

10.46B*

  First Amendment to the Change of Control Agreement between David M. Rausch and the Company  (1)
 

10.49*

  Long-Term Performance Incentive Plan for the Period FY 2006-FY2008  (13)
 

23.1

  Consent dated July 12, 2007 of Cherry, Bekaert & Holland L.L.P., Independent Registered Public Accounting Firm (incorporated by reference to page 38 of this Report on Form 10-K)  (1)
 

23.2

  Consent dated July 16, 2007 of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm (incorporated by reference to page 38 of this Report on Form 10-K)  (1)
 

31.1

  Certification of Principal Executive Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a)  (1)
 

31.2

  Certification of Principal Financial Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or Rule 15d-14(a)  (1)
 

32.1

  Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (1)
 

32.2

  Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  (1)

*The referenced exhibit is a compensatory contract, plan or arrangement.

(All other exhibits are either inapplicable or not required.)

Footnotes

 

(1)Filed with this Form 10-K 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, 1985, 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, 1985,1984, and incorporated herein by reference.

(4)Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement dated July 26, 1991, and incorporated herein by reference.

(5)Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement dated July 23, 1993, and incorporated herein by reference.

(6)Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement dated July 31, 1996, 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, 1999, and incorporated herein by reference.

(8)Filed as an exhibit to the Kewaunee Scientific Corporation Quarterly Report to the Securities and Exchange Commission on Form 10-Q (Commission File No. 0-5286) for the quarterly period ended January 31, 2000, and incorporated herein by reference.

46


(9)Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement dated July 20, 2000 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, 2002, 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, 2003, and incorporated herein by reference.

(12)Filed as an exhibit to the Kewaunee Scientific Corporation Quarterly Report to the Securities and Exchange Commission on Form 10-Q (Commission File No. 0-5286) for the quarterly period ended July 31, 2003, and incorporated herein by reference.

(13)Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0-5286) for the fiscal year ended April 30, 2004, and incorporated herein by reference.

(14)Filed as an exhibit to the Kewaunee Scientific Corporation Quarterly Report to the Securities and Exchange Commission on Form 10-Q (Commission File No. 0-5286) for the quarterly period ended January 31, 2005, and incorporated herein by reference.

(15)
(13)Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0-5286) for the fiscal year ended April 30, 2005, and incorporated herein by reference.

(16)
(14)Filed as an exhibit to the Kewaunee Scientific Corporation Quarterly Report to the Securities and Exchange Commission on Form 10-Q (Commission File No. 0-5286) for the quarterly period ended October 31, 2005 and incorporated herein by reference.

(17)
(15)Filed as an exhibit to the Kewaunee Scientific Corporation Quarterly Report to the Securities and Exchange Commission on Form 10-Q (Commission File No. 0-5286) for the quarterly period ended January 31, 2006 and incorporated herein by reference.

 

4749