EXHIBIT 13
[LOGO OF KEWAUNEE SCIENTIFIC CORPORATION APPEARS HERE]
CELEBRATING
90
YEARS
of
SERVICE
1906-1996
1996 ANNUAL REPORT
________________________________________________________________________________
CORPORATE PROFILE
Kewaunee Scientific Corporation provides innovative products of high quality to
the laboratory furniture marketplace. The Company's corporate headquarters are
located in Statesville, North Carolina. Manufacturing facilities for steel and
wood casework, fume hoods and worksurfaces are also based in Statesville.
Operations in Lockhart, Texas produce technical workstations and workbenches for
light electronic assembly and testing.
The Company is celebrating 90 years as a recognized leader in the design,
manufacture, and installation of laboratory furniture. Kewaunee products are
utilized in laboratories worldwide,... encouraging new discovery.
TABLE OF CONTENTS
2 Letter to our Stockholders 18 Summary of Selected
Financial Data
4 Celebrating 90 Years of Service 20 Quaterly Financial Data
6 Management's Discussion and Analysis 20 Stockholder Information
8 Financial Statements and Notes Corporate Information
17 Reports of Independent Auditors (Inside Back Cover)
and Management
[PICTURE OF THE COMPANY'S PRODUCTS] [PICTURE OF THE COMPANY'S PRODUCTS]
Page 1
LETTER TO OUR STOCKHOLDERS
We are pleased to report good progress in fiscal year 1996 over 1995. Earnings
for the year were $361,000, or $.15 per share, which compares to a net loss of
$1.1 million, or $.46 per share, for the prior year.
Our sales for the year were $57.6 million, down 7.9% from $62.5 million in the
prior year. Substantially all of the sales decline for the year occurred in the
low-margin contract-bid business. This was consistent with our strategy during
the year intended to increase the profit margins on this business.
We continued our major emphasis on the development of new products and
enhancements to existing products. The Supreme Air Series fume hood line was
introduced, which allowed us to consolidate all fume hood products into one
offering. This fume hood line was designed to provide a variety of models and
options so that customers easily can select features and accessories to meet
their needs.
Our wood product line was updated, adding three new styles. Buyers now may
select from a choice of four styles to create an attractive working environment.
Our new solvent storage cabinet recently received the UL mark of safety, one of
the very few such cabinets afforded this designation.
We made excellent progress during the year in strengthening and expanding our
sales network. Fourteen new sales organizations or representatives were added as
part of an on-going effort to upgrade the quality of our agencies and
representatives in all regions of the country.
The Lockhart facility reported excellent financial results for the year, and we
are proud of their performance. Technical Products Group sales were up 10.6%
from the prior year. We expect continued improvement from this group as new
products for local area networks are accepted in the marketplace.
We constantly are striving throughout the organization to reduce costs and
realize higher operating efficiencies. Significant progress was made this past
year as improvements in manufacturing costs were attained as a result of
increased usage of computerized manufacturing machinery in the factories. Cost
reductions were realized in the last half of the year by moving the majority of
our fume hood production from the Lockhart facility to Statesville. These
efforts, together with realizing the full impact of operating expense reductions
made the previous year, resulted in an operating expense reduction of $1.1
million, or 9.9%.
We must compliment our financial organization for strengthening our balance
sheet during the year. Cash generated from collections was used to repay debt,
which was reduced to $2.8 million at year-end, from $5.6 million the previous
year. Receivables were reduced to $13.2 million at year-end, from $15.6 million
at the end of last year. Unused credit available under our bank revolving credit
facility was $4.0 million at year-end.
Several key management changes were made during the year. D. Michael Parker was
elected Vice President of Finance/CFO, Secretary and Treasurer, succeeding
Robert M. Cecchini who retired; Ronald D. Popiel was promoted to Vice President
of Manufacturing, replacing T. Ronald Gewin, who relocated to Texas to serve as
Vice President of Operations for the Technical Products Group; and James J.
Rossi was promoted to Vice President of Human Resources.
Page 2
During the coming year, we expect to continue our established momentum. We will
maintain our pricing strategies for the contract-bid business, continue with the
introduction of several new products, continue strong emphasis on investment in
our factories and, most importantly, continue with our focus on customer
satisfaction in everything that we do.
Your Company has a proud heritage of providing products and services of the
highest quality to the laboratory furniture marketplace. As we begin our 91st
year, our entire team stands committed to continue our traditions. We thank you,
our valued stockholders, for your continuing confidence and support.
Sincerely,
/s/ ELI MANCHESTER, JR.
- -----------------------
Eli Manchester, Jr.
President/CEO
July 1996
[PICTURE OF EXECUTIVE OFFICERS OF THE COMPANY]
Page 3
CELEBRATING 90 YEARS OF SERVICE: 1906...
[PICTURES OF VINTAGE COMPANY CATALOGS]
Shortly after the turn of the century, Kewaunee's founders recognized that
equipment needs of an emerging scientific community far exceeded products
available in the marketplace. The first catalog depicting our laboratory
furniture stated that the designs "considered quality of material and
construction, elegance of appearance, stability and careful attention to
detail." Using those principles as a foundation, Kewaunee has continued as the
leader in meeting the changing needs of the laboratory furniture industry. The
photographs on these pages illustrate how catalog and product designs have
changed with technology.
[PICTURE OF VINTAGE LABORATORY] [PICTURE OF VINTAGE LABORATORY EQUIPMENT]
[PICTURE OF CURRENT COMPANY CATALOGS]
Laboratories of today must comply with new standards and regulations being
implemented to protect the worker. The Company's newest line of Supreme Air fume
hoods and Signature Series wood satisfy these safety corners as well as address
customer demand for innovative products and accessories. During the past year,
we developed an extensive literature program to market these products, using the
theme, ...encouraging new discovery. This expresses Kewaunee's continued
commitment to develop products and provide services that enhance the ability of
our customers to achieve their objectives.
[PICTURE OF MODERN LABORATORY] [PICTURE OF MODERN LABORATORY EQUIPMENT]
Page 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Sales for the year ended April 30, 1996 were $57.6 million, down 7.9% from
fiscal year 1995 sales of $62.5 million. Substantially all of the sales decline
occurred in the low-margin contract-bid laboratory furniture business,
consistent with the Company's bidding strategy to increase the profitability of
this business. Fiscal year 1995 sales decreased 5.4% from fiscal year 1994
sales of $66.1 million. The 1995 sales decrease was primarily attributable to
the lower sales volume and lower selling prices of contract-bid laboratory
furniture, partially offset by increased sales of end-user products.
The Company's unfilled sales order backlog was $23.2 million at April 30, 1996,
as compared to $24.1 million at April 30, 1995 and $25.3 million at April 30,
1994.
Gross profit represented 18.6% of sales in fiscal year 1996, 16.2% of sales in
fiscal year 1995 and 19.3% of sales in fiscal year 1994. As compared to fiscal
year 1995, the fiscal year 1996 gross profit margin was favorably affected by
several factors, including increased profit margins on contract-bid laboratory
furniture sales and continuing cost improvement programs. As compared to fiscal
year 1994, the fiscal year 1995 gross profit margin was unfavorably affected by
the lower sales volume and lower profit margins on contract-bid laboratory
furniture sales. Gross profit margins were increased by LIFO adjustments of
$56,000 in fiscal year 1996, $291,000 in fiscal year 1995, and $925,000 in
fiscal year 1994, as a result of reductions in inventories during these years.
Operating expenses decreased to $9.8 million in fiscal year 1996, from $10.9
million in fiscal year 1995 and $12.8 million in 1994. As a percent of sales,
these expenses were 17.1%, 17.4%, and 19.4% in fiscal years 1996, 1995 and 1994,
respectively. The reductions in operating expenses in fiscal years 1996 and
1995 resulted from a variety of cost improvement actions, including in
particular, significant reductions in management and administrative personnel
which occurred in the second quarter of fiscal year 1995.
Other income was $158,000, $230,000 and $88,000 in fiscal years 1996, 1995 and
1994, respectively. Other income in fiscal year 1996 was primarily attributable
to life insurance proceeds received in connection with one of the Company's
employee benefit plans. Other income in fiscal year 1995 was primarily
attributable to a cash settlement received related to an investment that had
been written-down in a prior year. Interest expense was $694,000, $554,000 and
$291,000 in fiscal years 1996, 1995 and 1994, respectively. The increase in
interest expense in fiscal year 1996 resulted from higher levels of debt during
the first half of the year. The significant increase in interest expense in
fiscal year 1995, as compared to fiscal year 1994, resulted from higher levels
of debt and higher interest rates, as well as costs associated with a debt
restructuring during the year.
No income tax expense or benefit was recorded for fiscal years 1996 or 1995. An
income tax benefit of $44,000 was recorded in fiscal year 1994 related to the
operating loss reported for that year. The effective tax rate for each of these
years differs from the related statutory rates primarily due to adjustments to
the deferred tax valuation allowance. Because of the Company's prior years'
operating losses, valuation allowances of $1.0 million, $1.2 million, and
$815,000 were provided at April 30, 1996, 1995, and 1994, respectively, to
reduce deferred tax assets at these dates to an amount which was considered more
likely than not to be realized.
The Company had net earnings of $361,000, or 15 cents per share, for fiscal year
1996. This compares to a net loss of $1,097,000, or 46 cents per share, for
fiscal year 1995, and a net loss of $203,000, or 9 cents per share, for fiscal
year 1994.
Page 6
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's principal sources of liquidity have been funds
generated from operations, supplemented as needed by short-term borrowings. The
Company believes that these sources will be sufficient to support ongoing
business levels, including capital expenditures and debt service requirements.
The Company had working capital of $5.0 million at April 30, 1996, as compared
to $6.7 million at April 30, 1995. This reduction occurred as cash generated
from collections of receivables was used to repay long-term debt. The ratio of
current assets to current liabilities was 1.5-to-1 at April 30, 1996, slightly
below the April 30, 1995 ratio of 1.6-to-1. The debt-to-equity ratio was .19-to-
1 at April 30, 1996, as compared to .39-to-1 at April 30, 1995.
At April 30, 1996, the Company had unused credit available of $4.0 million under
a revolving credit facility which extends through January 1997. Management
anticipates this facility will be renewed or replaced in fiscal year 1997.
The Company's operations provided cash of $3.1 million in fiscal year 1996,
primarily from operating earnings and a decrease in customer receivables. The
Company's operations used cash of $329,000 in fiscal year 1995 and provided cash
of $1.9 million in fiscal year 1994.
Capital expenditures were $812,000 in fiscal year 1996, $840,000 in fiscal year
1995, and $933,000 in fiscal year 1994. Capital expenditures of approximately
$1.6 million are planned for fiscal year 1997, primarily for the purchase of
production machinery. It is anticipated that these expenditures will be funded
by cash flows from operations and, to a lesser extent, leasing or financing
arrangements.
The Company did not pay any dividends during fiscal years 1996, 1995, and 1994.
The payment of such dividends in the future will be evaluated by the Company's
Board of Directors on a periodic basis, giving consideration to the Company's
actual and anticipated future operating results.
RECENT ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No.121, Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to be Disposed Of. This
statement requires long-lived assets and certain identifiable intangibles to be
evaluated for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company will
adopt SFAS No. 121 in fiscal year 1997 and does not believe that the
implementation of this Statement will have a material impact on the Company's
financial condition or results of operations.
Page 7
STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30
$ and shares in thousands, except per share data 1996 1995 1994
- ------------------------------------------------------------------------------------------
Net sales (Note 1) $57,559 $62,475 $66,068
- ------------------------------------------------------------------------------------------
Costs of products sold (Note 2) 46,835 52,347 53,325
- ------------------------------------------------------------------------------------------
Gross profit 10,724 10,128 12,743
- ------------------------------------------------------------------------------------------
Operating expenses 9,827 10,901 12,787
- ------------------------------------------------------------------------------------------
Operating earnings (loss) 897 ( 773) ( 44)
- ------------------------------------------------------------------------------------------
Other income, net 158 230 88
- ------------------------------------------------------------------------------------------
Interest expense 694) 554) ( 291)
- ------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 361 (1,097) ( 247)
- ------------------------------------------------------------------------------------------
Income tax benefit (Note 4) - - ( 44)
- ------------------------------------------------------------------------------------------
Net earnings (loss) 361 (1,097) (203)
- ------------------------------------------------------------------------------------------
Retained earnings at beginning of year 9,000 10,097 10,300
- ------------------------------------------------------------------------------------------
Retained earnings at end of year $ 9,361 $ 9,000 $10,097
==========================================================================================
Net earnings (loss) per share $0.15 $( 0.46) $( 0.09)
==========================================================================================
Weighted average number of
common shares outstanding 2,367 2,367 2,368
==========================================================================================
See accompanying notes to financial statements.
Page 8
BALANCE SHEETS
KEWAUNEE SCIENTIFIC CORPORATION APRIL 30
ASSETS (Note 3) $ and shares in thousands 1996 1995
- ---------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash $ 16 $ 58
Short-term investments - 350
Receivables, less allowance - $561 (1996); $624 (1995) 13,212 15,571
Inventories (Note 2) 1,213 1,336
Prepaid expenses and other current assets (Note 4) 1,205 1,115
- ---------------------------------------------------------------------------------------------------
Total current assets 15,646 18,430
- ---------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 109 97
Buildings and improvements 13,383 13,048
Machinery and equipment 12,348 12,088
- ---------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost 25,840 25,233
Accumulated depreciation (15,532) (14,113)
- ---------------------------------------------------------------------------------------------------
Net property, plant and equipment 10,308 11,120
- ---------------------------------------------------------------------------------------------------
OTHER ASSETS 550 524
- ---------------------------------------------------------------------------------------------------
$ 26,504 $ 30,074
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term borrowings (Note 3) $ 2,320 $ 2,239
Current portion of long-term debt 180 111
Accounts payable 4,505 5,494
Employee compensation and amounts withheld 1,182 1,378
Accrued insurance costs 605 1,026
Other accrued expenses 1,807 1,454
- ---------------------------------------------------------------------------------------------------
Total current liabilities 10,599 11,702
- ---------------------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 3) 328 3,206
- ---------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES AND OTHER NON-CURRENT
LIABILITIES (Notes 4 and 6) 1,062 1,012
- ---------------------------------------------------------------------------------------------------
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY (Note 5)
Common stock, $2.50 par value
Authorized- 5,000 shares
Issued- 2,620 shares 6,550 6,550
Additional paid-in-capital 116 116
Retained earnings 9,361 9,000
Common stock in treasury, at cost (253 shares)) ( 1,512) ( 1,512)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 14,515 14,154
- ---------------------------------------------------------------------------------------------------
$ 26,504 $ 30,074
===================================================================================================
See accompanying notes to financial statements.
Page 9
STATEMENTS OF CASH FLOWS
KEWAUNEE SCIENTIFIC CORPORATION YEARS ENDED APRIL 30
$ in thousands 1996 1995 1994
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 361 $(1,097) $( 203)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,624 1,793 1,760
Bad debt provision (credit) 39 125 ( 67)
Deferred income tax benefit ( 71) ( 2) ( 143)
Decrease (increase) in receivables 2,320 ( 569) ( 257)
Decrease in inventories 123 210 695
(Decrease) increase in accounts
payable and accrued expenses (1,253) ( 727) 350
Other, net 5 ( 62) ( 193)
- --------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 3,148 ( 329) 1,942
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ( 474) ( 840) ( 771)
Net decrease (increase) in
short-term investments 350 455 ( 305)
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities ( 124) ( 385) (1,076)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in short-term borrowings 81 1,039 200
Proceeds from revolving credit facility
classified as long-term - 3,000 -
Repayment of long-term debt
(including current maturities) (3,147) (3,429) (1,071)
- --------------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (3,066) 610 ( 871)
- --------------------------------------------------------------------------------------------------
DECREASE IN CASH ( 42) ( 104) ( 5)
CASH AT BEGINNING OF YEAR 58 162 167
- --------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 16 $ 58 $ 162
==================================================================================================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Interest paid $ 760 $ 575) $ 313
Income taxes refunded, net $( 4) $( 94) $( 29)
==================================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Assets acquired under capital leases
and equipment financing $ 338 $ - $ 162
==================================================================================================
See accompanying notes to financial statements.
Page 10
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations. Kenwaunee Scientific Corporation (the "Company") is a
manufacturer of scientific and technical workstations including wood and
steel furniture, fume hoods, worksurface, sinks and other accessories. Sales
are made through purchase orders and contracts submitted by customers, the
Company's commissioned dealers, competitive bids submitted by the Company and
a national distributor. The majority of the Company's products are sold to
customers located in North America, Primarily within the United States. The
company's products are used in chemistry, physics, biology, and other general
science laboratories in the industrial, commercial, educational, governmental
and health-care markets.
Cash. Cash includes highly-liquid investments with original maturities of
three months or less. Cash excludes short-term investments consisting of bank
certificates of deposits which are recorded at cost.
Inventories. Inventories are valued at the lower of cost or market. Cost has
been determined using the last-in, first-out (LIFO) method for all
inventories.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Depreciation is determined for financial reporting purposes principally
on the straight-line method over the estimated useful lives of the individual
assets or, for leaseholds, over the terms of the related leases if shorter.
Straight-line and accelerated methods of depreciation have been used for
income tax purposes.
Use of Estimates. The presentation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates. Significant estimates impacting the accompanying financial
statements relate to the allowance for uncollectible accounts receivable and
the valuation allowance for deferred tax assets.
Fair Value of Financial Instruments. The Company's financial instruments
include cash, short-term investments, long-term debt, accounts receivable and
accounts payable. The carrying value of the cash and long-term debt
approximates their estimated fair values based upon quoted market prices. The
carrying amount of short-term investments, accounts receivable and accounts
payable approximates fair value due to the short maturities of these
instruments.
Sales Recognition and Installation Services. Sales are generally recognized
at the date of shipment and, at that time, provision is made for the cost to
complete installations of products sold.
Income Taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. If
it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance must be provided.
Customer Concentration. Sales to the Company's national distributor
represented 14%, 17% and 13% of the Company's fiscal years 1996, 1995, and
1994 sales, respectively.
Advertising Costs. The Company expenses advertising costs as incurred,
including trade shows, training materials, sales samples, catalogs, and other
related expenses. Advertising costs for the years ended April 30, 1996, 1995,
and 1994 were $587,000, $340,000, and $781,000, respectively.
Page 11
Stock-Based Compensation. In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No.123,
Accounting for Stock-Based Compensation, which will be effective for the
Company beginning May 1, 1996. SFAS No.123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion No.25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will continue
to apply APB Opinion No.25 to its stock based compensation awards to
employees and will disclose the required pro forma effect on net income and
earnings per share.
Recent Accounting Pronouncements. In March 1995, the FASB issued Statement
No.121, Accounting for the Impairment of Long-lived Assets and for Long-
lived Assets to be Disposed Of. This statement requires long-lived assets and
certain identifiable intangibles to be evaluated for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company will adopt SFAS No. 121 in fiscal
year 1997 and does not believe that the implementation of this Statement will
have a material impact on the Company's financial condition or results of
operations.
2. INVENTORIES
Inventories consisted of the following at April 30:
$ in thousands 1996 1995
-------------------------------------------
Finished goods $ 253 $ 280
Work-in-process 280 345
Materials and components 680 711
-------------------------------------------
Total inventories $1,213 $1,336
===========================================
If inventories had been determined using the first-in, first-out (FIFO)
method at April 30, 1996 and 1995, reported inventories would have been $2.2
million greater in both years.
Reductions in LIFO inventory values in fiscal years 1996 and 1995 increased
operating earnings by $56,000 and $291,000, respectively.
Page 12
3. LONG-TERM DEBT AND OTHER CREDIT ARRANGEMENTS
Long-term debt consisted of the following at April 30:
$ in thousands 1996 1995
-----------------------------------------------------------------------
Borrowings under revolving credit facility
classified as long-term $ - $3,000
Equipment financing, 10.5% payable in
monthly installments through the year 2000 302 -
Capital lease obligations 206 317
-----------------------------------------------------------------------
Total long-term debt 508 3,317
Less: current portion (180) ( 111)
-----------------------------------------------------------------------
Long-term portion $ 328 $3,206
======================================================================
The revolving credit facility ("the facility") allows the Company to borrow
the lesser of $8.5 million, or that available under certain eligibility
formulas using qualifying receivables and inventories, as defined under the
credit arrangement. At April 30, 1996, borrowings outstanding under the
facility were $2.3 million and letters of credit issued and outstanding under
the facility were $500,000, leaving $4.0 million of unused credit available
as of that date.
Under the facility, the Company makes monthly interest payments at a rate of
the greater of 8% or 1% over the lender's prime rate, calculated on the
greater of $3.0 million or the average loan balance outstanding during each
month. The prime rate was 8.25% at April 30, 1996. The Company's receivables,
inventories, and property, plant and equipment are pledged to the lender as
collateral securing borrowings under the facility.
The facility extends through January 1997. Management anticipates this
facility will be renewed or replaced in fiscal year 1997. Due to the
facility's maturity date, all borrowings outstanding under the facility at
April 30, 1996 were classified as short-term borrowings.
CAPITAL LEASES
The Company has entered into two lease agreements for machinery and equipment
that are classified as capital leases for financial reporting purposes. These
leases provide the Company with certain early cancellation rights, as well as
renewal and purchase options. Under the terms of the agreements, future
minimum lease payments for years ended April 30 and the present value of such
payments as of April 30, 1996 are as follows:
$ in thousands Amount
---------------------------------------------------
1997 $ 136
1998 33
1999 33
2000 33
---------------------------------------------------
Total minimum lease payments 235
Less - amount representing interest ( 29)
---------------------------------------------------
Present value of net minimum lease payments 206)
Less: current portion (122)
---------------------------------------------------
Long-term portion $ 84)
===================================================
Page 13
4. INCOME TAXES
Income tax expense (benefit) consisted of the following:
$ in thousands 1996 1995 1994
-------------------------------------------------------------------------
Current tax expense $ 71) $ 2) $ 99)
Deferred tax expense (benefit) 140) ( 412) ( 192)
Increase (decrease) in valuation allowance
on deferred tax assets ( 211) 410 49
-------------------------------------------------------------------------
Net income tax benefit $ - $ - $( 44)
=========================================================================
The reasons for the differences between the above net income tax benefit and
the amounts computed by applying the statutory federal income tax rates to
earnings (loss) before income taxes are as follows:
$ in thousands 1996 1995 1994
--------------------------------------------------------------------------
Income tax expense (benefit) at statutory rate $ 123 $( 373) $ ( 91)
State and local taxes, net of federal
income tax expense (benefit) 24 ( 43) ( 11)
Increase (decrease) in valuation allowance
on deferred tax assets ( 211) 410 49
Other 64 6 9
--------------------------------------------------------------------------
Net income tax benefit $ - $ - $ ( 44)
==========================================================================
As of April 30, 1996, the Company had general tax credit carryforwards of
$448,000 and alternative minimum tax credit carryforwards of $338,000
available to offset future taxes payable. The general tax credit
carryforwards expire in 2002.
Significant items comprising the Company's deferred tax assets and
liabilities as of April 30 were as follows:
$ in thousands 1996 1995
------------------------------------------------------------------
Deferred tax assets:
Tax credit carryforwards $ 786 $ 893
Accrued retirement plans expense 434 376
Accrued insurance plans expense 280 423
Allowance for doubtful accounts 233 241
Inventory reserves and capitalized costs 181 184
Net operating loss carryforwards 67 70
Other 147 195
------------------------------------------------------------------
2,128 2,382
Valuation allowance (1,014) (1,225)
------------------------------------------------------------------
Total deferred tax assets 1,114 1,157
------------------------------------------------------------------
Deferred tax liabilities:
Difference between book and tax basis
of property, plant and equipment ( 916) ( 964)
Tax lease benefits ( 66) 115
Other ( 12) ( 29)
------------------------------------------------------------------
Total deferred tax liabilities ( 994) (1,108)
------------------------------------------------------------------
Net deferred tax assets $ 120 $ 49
==================================================================
Page 14
5. STOCK OPTIONS
During fiscal year 1992, stockholders approved the 1991 Key Employee Stock
Option Plan, which replaced the expiring 1982 Incentive Stock Option Plan.
This plan allows the Company to grant options on 130,000 shares of the
Company's common stock to officers and other key employees. Options are
granted at not less than the fair market value at the date of grant. Options
are exercisable in such installments, for such terms (up to ten years) and at
such times as the Board of Directors may determine at the time of the grant.
At April 30, 1996, there were 28,500 shares available for future grants under
the plan.
During fiscal year 1994, the stockholders approved the 1993 Stock Option Plan
for Directors. This plan allows the Company to grant options to non-employee
directors on 40,000 shares of the Company's common stock. Each such director
of the Company is eligible to receive an option to purchase 5,000 shares of
the Company's common stock on the effective date of the plan or on the date
of commencement of service as a director. Options are exercisable in four
equal, annual installments and expire five years from date of grant. Options
are granted at the fair market value at the date of the grant. At April 30,
1996, there were 10,000 shares available for future grants under the plan.
Stock option activity is summarized as follows:
1996 1995 1994
--------------------------------------------------------------------------
Grants outstanding at beginning of year 130,000 162,500 94,500
Granted 63,000 2,000 81,000
Canceled ( 16,500) ( 34,500) ( 13,000)
--------------------------------------------------------------------------
Grants outstanding at end of year* 176,500 130,000 162,500
==========================================================================
Exercisable at end of year 41,625 54,750 15,625
==========================================================================
Exercise price range per share of
options outstanding at end of year $2.313 $3.25 $3.75
to $ 6.50 to $6.50 to $6.50
==========================================================================
*Includes an option on 45,000 shares under the 1982 Incentive Stock Option
Plan which was unexercisable at April 30, 1996 and will expire in February
1997.
6. RETIREMENT BENEFITS
The Company has non-contributory defined benefit pension plans covering
substantially all salaried and hourly employees. The defined benefit plan for
salaried employees provides pension benefits that are based on each
employee's years of service and average annual compensation during the last
10 consecutive calendar years of employment. The benefit plan for hourly
employees provides benefits at stated amounts based on years of service. The
Company's funding policy is to make quarterly contributions to fund the plans
during the participant's working lifetime. The quarterly contributions have
met ERISA's funding requirements. Plan assets consist primarily of common
stocks, government securities and fixed-income funds.
Page 15
The components of net pension expense consisted of the following:
$ in thousands 1996 1995 1994
------------------------------------------------------------------------
Service cost for the benefits earned
during the year $ 266 $ 298 $ 324
Interest cost on projected benefit obligations 384 356 317
Investment return on plan assets (308) (178) ( 176)
Net amortization and deferral ( 57) (137) ( 98)
-------------------------------------------------------------------------
Net pension expense $ 285 $ 339 $ 367
=========================================================================
Accumulated plan benefits, projected benefit obligations, plan net assets and
funded status as of April 30 were as follows:
$ in thousands 1996 1995 1994
------------------------------------------------------------------------
Actuarial present value of accumulated benefit obligations
(assumes no future salary increases):
Vested $3,962 $3,453 $ 2,947
Non-vested 186 11279 271
------------------------------------------------------------------------
Accumulated plan benefits $4,148 $3,732 $3,218
========================================================================
Actuarial present value of projected benefit
obligations for service provided to date
(assumes future salary increases): $5,378 $5,045 $4,574
Transition gain 128 160 192
Unrecognized net loss ( 523) ( 902) ( 754)
Plan net assets at fair value (4,416) (3,751) (3,128)
------------------------------------------------------------------------
Accrued pension cost $ 567) $ 552) $ 884)
========================================================================
The weighted average discount rate and the rate of increase in future
compensation utilized in determining the actuarial present value of the
projected benefit obligations are 8% and 5%, respectively. The assumed rate
of return on plan assets is 9%.
The Company also had an unfunded supplemental executive retirement program
which was terminated in fiscal year 1990. This was a nonqualified plan that
provided certain retired officers with defined pension benefits. At April 30,
1996, 1995 and 1994, the projected benefit obligations recorded in the
balance sheets for this plan totaled $132,907, $154,107, and $173,062,
respectively. Expenses for the plan were not material for the periods
presented.
7. COMMITMENTS
The Company has entered into various operating lease agreements for machinery
and equipment. Under the terms of these agreements, future minimum lease
payments for the years ended April 30 are as follows:
$ in thousands Amount
------------------------------------------------------------------
1997 $ 434
1998 413
1999 404
2000 393
2001 165
Thereafter 14
------------------------------------------------------------------
Total minimum lease payments $1,823
==================================================================
Most leases provide the Company with certain early cancellation rights, as
well as renewal and purchase options. Rent expense under all operating leases
for machinery and equipment was $530,000, $455,000 and $448,000 in fiscal
years 1996, 1995, and 1994, respectively.
Page 16
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Kewaunee Scientific Corporation
We have audited the accompanying balance sheets of Kewaunee Scientific
Corporation as of April 30, 1996 and 1995, and the related statements of
operations and retained earnings and of cash flows for each of the three years
in the period ended April 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Kewaunee Scientific Corporation as of April
30, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended April 30, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
May 31, 1996
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The financial statements and accompanying notes were prepared by management,
which is responsible for their integrity and objectivity. Management believes
the financial statements, which include amounts based on judgments and
estimates, fairly reflect the Company's financial position and operating
results, in accordance with generally accepted accounting principles. All
financial information in this annual report is consistent with the financial
statements.
Management maintains internal accounting control systems and related policies
and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are properly recorded and executed in accordance
with management's authorization and that accounting records may be relied upon
for the preparation of financial statements and other financial information.
The design, monitoring, and revision of internal accounting control systems
involve, among other things, management's judgment with respect to the relative
cost and expected benefits of specific control measures.
The Company's financial statements have been audited by independent auditors who
have expressed their opinion with respect to the fairness of those statements.
Their audits included consideration of the Company's internal accounting control
systems and related policies and procedures. They advise management and the
Audit Committee of significant matters resulting from their audits.
D. Michael Parker
Vice President, Finance
Chief Financial Officer
Page 17
SUMMARY OF SELECTED FINANCIAL DATA
KEWAUNEE SCIENTIFIC CORPORATION
$ and shares in thousands, except per share data 1996 1995 1994
- ------------------------------------------------------------------------------------------------
OPERATING STATEMENT DATA:
Net sales $57,559 $62,475 $66,068
Costs of products sold 46,835 52,347 53,325
- ------------------------------------------------------------------------------------------------
Gross profit 10,724 10,128 12,743
Operating expenses 9,827 10,901 12,787
- ------------------------------------------------------------------------------------------------
Operating earnings (loss) 897 ( 773) ( 44)
Other income, net 158 230 88
Interest expense ( 694) ( 554) ( 291)
- ------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 361 (1,097) ( 247)
Income tax expense (benefit) - - ( 44)
- ------------------------------------------------------------------------------------------------
Net earnings (loss) $ 361 $(1,097) $( 203)
================================================================================================
Average shares outstanding 2,367 2,367 2,368
================================================================================================
PER SHARE DATA:
Net earnings (loss) $ 0.15 $( 0.46) $( 0.09)
Cash dividends - - -
Year-end book value 6.13 5.98 6.43
================================================================================================
BALANCE SHEET DATA:
Current assets $15,646 $18,430 $19,009
Current liabilities 10,599 11,702 11,914
Net working capital 5,047 6,728 7,095
Net property, plant and equipment 10,308 11,120 12,073
Total assets 26,504 30,074 31,566
Long-term debt 328 3,206 3,111
Stockholders' equity 14,515 14,154 15,237
================================================================================================
OTHER DATA:
Capital expenditures $ 812 $ 840 $ 933(d)
Year-end stockholders of record 409 439 458
Year-end employees 499 575 595
================================================================================================
(a) Operating expense for fiscal year 1991 includes a restructuring charge in
the amount of $1.1 million.
(b) Income tax expense for fiscal year 1989 includes a $106,000 charge
representing the cumulative effect of the Company's change in accounting for
income taxes. Prior years' financial statements have not been restated for
this accounting change.
(c) Income tax expense for fiscal year 1988 includes a $331,000 extraordinary
credit resulting from the utilization of operating loss carryforwards.
(d) Capital expenditures for fiscal years 1996, 1994, and 1992 include assets
acquired under capital leases and equipment financing.
Page 18
1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------
$ 66,984 $74,944 $71,104 $74,023 $68,895 $68,578 $ 59,450
56,364 59,538 55,029 58,087 50,606 49,111 50,701
- ---------------------------------------------------------------------------------------------------------------
10,620 15,406 16,075 15,936 18,289 19,467 8,749
13,647 14,396 15,876 (a) 15,161 15,744 18,151 19,436
- ---------------------------------------------------------------------------------------------------------------
(3,027) 1,010 199 775 2,545 1,316 (10,687)
166 475 499 489 261 276 124
( 300) ( 330) ( 473) ( 575) ( 643) ( 740) ( 703)
- ---------------------------------------------------------------------------------------------------------------
(3,161) 1,155 225 689 2,163 852 (11,266)
( 693) 354 145 217 566(b) 66(c) ( 3,531)
- ---------------------------------------------------------------------------------------------------------------
$ (2,468) $ 801 $ 80 $ 472 $ 1,597 $ 786 ($7,735)
===============================================================================================================
2,368 2,412 2,591 2,586 2,587 2,587 2,573
===============================================================================================================
$ (1.04) $0.33 $0.03 $0.18 $0.62 $0.30 ($3.01
0.08 0.16 0.16 0.16 0.04 NN 0.275
6.49 7.44 7.24 7.48 7.46 6.88 6.62
===============================================================================================================
$ 18,334 $22,344 $24,693 $23,191 $22,880 $20,294 $ 22,874
11,777 11,943 12,318 11,651 11,510 11,104 15,892
6,557 10,401 12,375 11,540 11,370 9,190 6,982
12,900 13,214 12,383 14,902 15,280 16,181 17,915
31,776 36,066 37,593 38,193 38,925 37,256 42,175
3,607 4,657 5,090 5,873 6,656 7,439 8,222
15,372 17,955 18,979 19,355 19,297 17,808 17,022
===============================================================================================================
$ 1,316 $ 2,189(d) $ 2,279 $ 521 $ 791 $ 384 $ 2,031
480 492 512 519 560 600 603
636 747 722 784 826 828 820
===============================================================================================================
QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years 1996 and 1995 were as
follows:
$ in thousands, First Second Third Fourth
except per share data Quarter Quarter Quarter Quarter*
-----------------------------------------------------------------------
1996
Net sales $15,548) $ 15,385) $12,719 $13,907
Gross profit 2,673) 2,996) 2,428 2,627
Net earnings 70) 148) 87 56
Net earnings per share 0.03) 0.06) 0.04 0.02
-----------------------------------------------------------------------
1995
Net sales $16,383) $ 15,043) $15,877 $15,172
Gross profit 2,825) 2,041) 2,700 2,562
Net earnings (loss) ( 111 (1,201) 70 145
Net earnings (loss) per share ( 0.05) ( 0.51) 0.03 0.06
-----------------------------------------------------------------------
*Reductions in LIFO inventory values increased gross profits by $56,000 and
$291,000 in the fourth quarter of fiscal years 1996 and 1995, respectively.
RANGE OF MARKET PRICES
Kewaunee's common stock is traded in the NASDAQ/Over-the-Counter Market, under
the symbol KEQU. The following table sets forth the quarterly high and low
prices reported on the NASDAQ National Market System.
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------------------------------
1996 High 31/8 31/2 35/8 41/4
Low 21/8 21/4 25/8 35/8
Close 25/16 37/8 35/8 35/8
---------------------------------------------------------------------------
1995 High 35/8 37/8 27/8 25/8
Low 31/4 23/4 27/8 21/8
Close 35/8 27/8 25/16 21/2
---------------------------------------------------------------------------
STOCKHOLDER INFORMATION
CORPORATE OFFICES
2700 West Front Street
P.O. Box 1842
Statesville, NC 28687-1842
Telephone: 704-873-7202
NOTICE OF ANNUAL MEETING
The Annual Meeting of Stockholders of Kewaunee Scientific Corporation will be
held in the 37th floor Annual Meeting Room at Harris Trust & Savings Bank,
Chicago, IL on August 28, 1996 at 10:00 a.m. Central Daylight Time.
TRANSFER AGENT AND REGISTRAR
All shareholder inquiries, including transfer-related matters, should be
directed to:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
800-288-9541
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Charlotte, NC
FORM 10-K
This detailed financial report, filed annually with the Securities and Exchange
Commission, may be obtained by stockholders without charge by writing the
Secretary of the Company, Kewaunee Scientific Corporation, P.O. Box 1842,
Statesville, NC 28687-1842.
Page 20
CORPORATE INFORMATION
BOARD OF DIRECTORS EXECUTIVE OFFICERS
MARGARET BARR BRUEMMER (1)(2)(3) ELI MANCHESTER, JR.
Attorney President and Chief Executive
Madison, WI Officer
T. RONALD GEWIN
WILEY N. CALDWELL (3)(4) Vice President, Operations
Retired President Technical Products Group
W. W. Grainger, Inc.
Skokie, IL D. MICHAEL PARKER
Vice President, Finance,
JOHN C. CAMPBELL, JR. (1)(2) Chief Financial Officer,
Private Consultant Treasurer, Secretary
Arlington, TX
RONALD D. POPIEL
KINGMAN DOUGLASS (2)(3)(4) Vice President, Manufacturing
Corporate Counselor
Summerland, CA JAMES J. ROSSI
Vice President, Human Resources
ELI MANCHESTER, JR. (1)(3)
President/CEO WILLIAM A. SHUMAKER
Kewaunee Scientific Corporation Vice President, Sales & Marketing
Statesville, NC
THOMAS F. PYLE (3)(4)
Chairman, President, CEO
RAYOVAC Corporation
Madison, WI
JAMES T. RHIND (1)(4)
Counsel to Bell, Boyd & Lloyd
Attorneys
Chicago, IL
(1) Executive Committee
(2) Audit Committee
(3) Financial/Planning Committee
(4) Compensation Committee
CAREER OPPORTUNITIES
People interested in exploring careers with Kewaunee in management, sales and
other areas should contact the Vice President of Human Resources, Kewaunee
Scientific Corporation, P.O. Box 1842, Statesville, NC 28687-1842. Kewaunee
Scientific Corporation is an equal opportunity employer.
PRODUCT INFORMATION
Kewaunee Scientific Corporation products are available through a network of
sales representatives and a national stocking distributor. For more
information, please contact our Marketing Services Department in Statesville,
North Carolina.
Telephone: 704-873-7202
TRADEMARKS
BasikBench, Evolution, FlexTech, Instalab, Kemresin, Kemrock, Kemshield,
Silhouette, Sturdilite, TechStat, Versalab and Visionaire are registered
trademarks of Kewaunee Scientific Corporation.
[LOGO OF KEWAUNEE SCIENTIFIC CORPORATION APPEARS HERE]