KEWAUNEE SCIENTIFIC CORP /DE/ - Annual Report: 2004 (Form 10-K)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended April 30, 2004

or

For the transition period from                     to                     

Commission file number 0-5286

KEWAUNEE SCIENTIFIC CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (704) 873-7202

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:                     

Common Stock $2.50 par value

(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). Yes  ¨    No  x.

The aggregate market value of shares of voting stock held by non-affiliates of the Registrant was approximately $18,206,658 based on the last reported sale price of the Registrant’s Common Stock on October 31, 2003, 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) were excluded as shares held by affiliates. By including or excluding shares owned by anyone, the Registrant does not admit for any other purpose that any person is or is not an affiliate of the Registrant.)

As of July 6, 2004, the Registrant had outstanding 2,490,270 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE: Those portions of Kewaunee Scientific Corporation’s annual report to stockholders for the fiscal year ended April 30, 2004, and of the proxy statement for use in connection with Kewaunee Scientific Corporation’s annual meeting of stockholders to be held on August 25, 2004, indicated in this report are incorporated by reference into Parts I, II and III hereof.

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PART I

General

The principal business of the Registrant 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.

The Registrant’s products are sold primarily through purchase orders and contracts submitted by customers, through the Registrant’s dealers and commissioned agents, a national distributor, competitive bids submitted by the Registrant, and its 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. The Registrant considers the markets in which it competes 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, because the 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. Since prices are normally quoted on a firm basis in the industry, the Registrant bears the burden of possible increases in labor and material costs between receipt of an order and delivery of the product. The impact of such possible increases are considered when determining the sales price.

The need for working capital and the credit practices of the Registrant are comparable to those of other companies manufacturing, selling, and installing similar products in similar markets. Payments for the Registrant’s 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.

The principal raw materials and products manufactured by others used by the Registrant in its products are cold-rolled carbon and stainless steel, hardwood lumber and plywood, paint, chemicals, resins, hardware, plumbing and electrical fittings. Such materials and products are purchased from multiple suppliers and are readily available.

The Registrant holds various patents and patent rights but does not consider that its success or growth is dependent upon its patents or patent rights. The Registrant’s business is not dependent upon licenses, franchises or concessions.

The Registrant’s business is not cyclical, although sales are sometimes lower during the Registrant’s third quarter because of slower construction activity in certain areas of the country during the winter months. The Registrant’s business is not dependent on any one or a few customers; however, sales to its national distributor, VWR International, represented 11 percent, 14 percent, and 12 percent of the Registrant’s total sales in fiscal years 2004, 2003 and 2002, respectively.

The Registrant’s order backlog at April 30, 2004 was $43.1 million, as compared to $51.5 million at April 30, 2003 and $34.2 million at April 30, 2002. All but $4,404,501 of the backlog at April 30, 2004 was scheduled for shipment during fiscal year 2005; however, it may reasonably be expected that delays in shipments will occur because of customer rescheduling or delay in completion of projects which involve the installation of the Registrant’s products. Based on scheduled shipment dates and past experience, the Registrant expects that more than 85 percent of its order backlog at April 30, 2004 will be shipped during fiscal year 2005.

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Competition

The Registrant considers the industries in which it competes to be highly competitive and believes that the principal competitive factors are price, product performance, and customer service. A significant portion of the business of the Registrant is based upon competitive public bidding.

Research and Development

The amount spent during the fiscal year ended April 30, 2004 on Company-sponsored research and development activities related to new or re-designed products was $791,305. The amounts spent for similar purposes in the fiscal years ended April 30, 2003 and 2002 were $721,571 and $618,273, 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 the Registrant. There are no material capital expenditures anticipated for such purposes, and no material effect therefrom is anticipated on the earnings or competitive position of the Registrant.

Employees

The number of persons employed by the Registrant at April 30, 2004 was 533.

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 the Company’s operations, markets, products, services, and prices. The cautionary statements made pursuant to the Reform Act herein and elsewhere by the Company should not be construed as exhaustive. The Company cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. In addition, readers are urged to consider statements that include the terms “believes,” “belief,” “expects,” “plans,” “objectives,” “anticipates,” “intends” or the like to be uncertain and forward-looking.

The Registrant owns and operates three adjacent manufacturing facilities in Statesville, North Carolina. These facilities also house the Registrant’s 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, 2004, the Registrant leased its primary distribution facility and other warehouse facilities totaling 157,000 square feet in Statesville, North Carolina.

The Company also owns and has for sale two vacant buildings which together comprise approximately 129,000 square feet located on 30 acres in Lockhart, Texas. This property was the site of the Company’s Texas operations until it was consolidated in Statesville in fiscal year 2003.

All of the facilities which the Registrant owns are held free and clear of any encumbrances. The Registrant believes its facilities are suitable for their respective uses and are adequate for its current needs.

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From time to time, the Registrant is involved in certain disputes and litigation relating to claims arising out of its operations in the ordinary course of business. Further, the Registrant periodically is subject to government audits and inspections. The Registrant believes that any such matters presently pending will not, individually or in the aggregate, have a material adverse effect on the Registrant’s results of operations or financial condition.

Not Applicable.

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PART II

Incorporated by reference from the Registrant’s annual report to stockholders for the fiscal year ended April 30, 2004, page 27, sections entitled “Range of Market Prices” and “Quarterly Financial Data”. As of July 6, 2004, the Registrant estimates there were approximately 1,000 stockholders of the Registrant’s common shares, of which 265 were stockholders of record.

Incorporated by reference from the Registrant’s annual report to stockholders for the fiscal year ended April 30, 2004, page 26, section entitled “Summary of Selected Financial Data.”

Incorporated by reference from the Registrant’s annual report to stockholders for the fiscal year ended April 30, 2004, pages 6-10, section entitled “Management’s Discussion and Analysis.”

The Registrant is exposed to market risk in the area of interest rates. This exposure is associated with amounts outstanding under a term bank loan, certain lease obligations for production machinery, and any future advances under the revolving credit loan, all of which are priced on a floating rate basis. The Registrant believes that this exposure to market risk is not material. The Registrant entered into an interest swap agreement in fiscal year 2002, whereby $1.5 million of the outstanding principal amount of the bank note effectively converted to a fixed rate of 6.37%, beginning May 1, 2002. The notional amount of this interest rate hedge is reduced in the same proportion as the principal balance of the bank note over the remaining term of the bank note.

Incorporated by reference from the Registrant’s annual report to stockholders for the fiscal year ended April 30, 2004, pages 11-23.

Not Applicable.

The Company maintains disclosure controls and procedures that are intended to ensure that the information required to be disclosed in the Company’s Exchange Act filings is properly and timely recorded, processed, summarized and reported. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of April 30, 2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that the Company is able to collect, process and disclose, within the required time periods, the information the Company is required to disclose in the reports it files with the Securities and Exchange Commission. In designing disclosure controls and procedures, the Company’s management recognizes 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

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required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Nevertheless, management believes that the Company’s disclosure controls and procedures are effective.

There have been no significant changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART III

(a) Incorporated by reference from the Registrant’s proxy statement for use in connection with its annual meeting of stockholders to be held on August 25, 2004, pages 1-4, section entitled “Election of Directors”.

(b) The names and ages of the Registrant’s executive officers as of June 30, 2004 and their business experience during the past five years are set forth below:

Executive Officers of the Registrant

William A. Shumaker has served as President of the Registrant since August 1999 and Chief Executive Officer since September 2000. He was elected a director of the Registrant 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 Registrant in December 1993 as Vice President of Sales and Marketing.

D. Michael Parker joined the Registrant in November 1990 as Director of Financial Reporting and Accounting and was promoted to Corporate Controller in November 1991. Mr. Parker has served as 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.

Dana L. Dahlgren joined the Registrant in November 1989 as 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.

Kurt P. Rindoks joined the Registrant in July 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.

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James J. Rossi joined the Registrant in March 1984 as Corporate Director of Human Resources and has served as Vice President of Human Resources since January 1996.

Sudhir K. Vadehra joined the Registrant in October 1999 as the Registrant’s Director of International Sales-Asia Pacific. He was elected Vice President of International Operations in June 2004. He also served as the Managing Director of Kewaunee Labway Asia Pte. Ltd., the Registrant’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 the Registrant’s proxy statement for use in connection with its annual meeting of stockholders to be held on August 25, 2004, page 14, section entitled “Section 16(a) Beneficial Ownership Reporting Compliance”.

Code of Ethics

A copy of the Company’s code of ethics that applies to the Company’s Chief Executive Officer and Chief Financial Officer, entitled “Special Obligations for Chief Executive Officer and Employees with Financial Reporting Obligations” is available free of charge through the Company’s website at www.kewaunee.com.

Incorporated by reference from the Registrant’s proxy statement for use in connection with its annual meeting of stockholders to be held on August 25, 2004, pages 5-7, section entitled “Executive Compensation,” pages 8-9, section entitled “Compensation Committee Report on Executive Compensation,” and page 12, section entitled “Agreements with Certain Executives.”

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Information regarding the security ownership of certain beneficial owners and management is incorporated by reference from the Registrant’s proxy statement for use in connection with its annual meeting of stockholders to be held on August 25, 2004, pages 13-14, sections entitled “Security Ownership of Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners.”

The following table sets forth certain information as of April 30, 2004 with respect to compensation plans under which the Registrant’s equity securities are authorized for issuance:

Incorporated by reference from the Registrant’s proxy statement for use in connection with its annual meeting of stockholders to be held on August 25, 2004, pages 1-4, section entitled “Election of Directors” and page 12, section entitled “Agreements with Certain Executives.”

Incorporated by reference from the Registrant’s proxy statement for use in connection with its annual meeting of stockholders to be held on August 25, 2004, page 15, sections entitled “Independent Auditors—Audit Fees and Non-Audit Fees” and “Independent Auditors—Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services.”

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PART IV

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

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED

FINANCIAL STATEMENT SCHEDULES

To the Stockholders and Board of Directors of Kewaunee Scientific Corporation

Our audits of the financial statements referred to in our report dated June 4, 2004 appearing in the 2004 Annual Report to Shareholders of Kewaunee Scientific Corporation (which report and financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, Page 1 of this Financial Statement Schedule related to fiscal years ended April 30, 2004, 2003, and 2002 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.

PRICEWATERHOUSECOOPERS LLP

Charlotte, North Carolina

June 4, 2004

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Schedule I, Page 1

Kewaunee Scientific Corporation

Valuation and Qualifying Accounts

($ in thousands)

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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.

Date: July 16, 2004

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.

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KEWAUNEE SCIENTIFIC CORPORATION

Exhibit Index

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

Footnotes

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