-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P6GEg6Zqt6c2BUw7RF0kQq7cS9CtstjKhGuyTqQ33eE9J4cfIWXFHkG2OZsi2/tT mW1t68tPf2BZDxTIwGwe/Q== 0000950131-99-004506.txt : 19990729 0000950131-99-004506.hdr.sgml : 19990729 ACCESSION NUMBER: 0000950131-99-004506 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEWAUNEE SCIENTIFIC CORP /DE/ CENTRAL INDEX KEY: 0000055529 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 380715562 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-05286 FILM NUMBER: 99672020 BUSINESS ADDRESS: STREET 1: 2700 W FRONT ST CITY: STATESVILLE STATE: NC ZIP: 28677 BUSINESS PHONE: 7048737202 MAIL ADDRESS: STREET 1: P O BOX 1842 STREET 2: P O BOX 1842 CITY: STATESVILLE STATE: NC ZIP: 28687-1842 FORMER COMPANY: FORMER CONFORMED NAME: KEWAUNEE SCIENTIFIC EQUIPMENT CORP /DE/ DATE OF NAME CHANGE: 19861216 FORMER COMPANY: FORMER CONFORMED NAME: KEWAUNEE MANUFACTURING CO DATE OF NAME CHANGE: 19680108 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 1999 or -------------- [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission file number 0-5286 ------ KEWAUNEE SCIENTIFIC CORPORATION ------------------------------- (Exact name of registrant as specified in its charter) Delaware 38-0715562 -------- ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2700 West Front Street Statesville, North Carolina 28677-2927 - --------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (704) 873-7202 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock $2.50 par value ---------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of 1,816,984 shares of voting stock held by non- affiliates of the Registrant was approximately $18,851,209 based on the last reported sale price of the Registrant's Common Stock on July 9, 1999. (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 9, 1999, the Registrant had outstanding 2,447,046 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, 1999, and of the proxy statement for use in connection with Kewaunee Scientific Corporation's annual meeting of stockholders to be held on August 25, 1999, indicated in this report are incorporated by reference into Parts I, II and III hereof. 1
Table of Contents Page or Reference ----------------- ----------------- PART I Item 1. Business 3 Item 2. Properties 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 6 Item 6. Selected Financial Data 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 6 Item 8. Financial Statements and Supplementary Data 6 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 6 PART III Item 10. Directors and Executive Officers of the Registrant 7 Item 11. Executive Compensation 8 Item 12. Security Ownership of Certain Beneficial Owners and Management 8 Item 13. Certain Relationships and Related Transactions 8 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 9 SIGNATURES S-1
2 PART I Item 1. Business - ----------------- General The principal business of the Registrant is the design, manufacture and installation of scientific and technical furniture. These products are primarily sold through purchase orders and contracts submitted by customers, through the Registrant's dealers and commissioned agents, a national distributor, and through competitive bids submitted by the Registrant. The Company's operations are classified into two business segments: laboratory products and technical products. The laboratory products segment principally designs, manufactures, and installs steel and wood laboratory furniture, worksurfaces, and fume hoods. Laboratory products are sold principally to industrial and commercial research laboratories, educational institutions, health-care institutions, and governmental entities. The technical products segment principally manufactures and sells technical furniture including workstations, workbenches, computer enclosures, and related accessories to support local area computer networks and for the storage and assembly of computers and light electronics. Technical products are sold principally to manufacturing facilities and users of computer and networking furniture. 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 need for working capital and the credit practices of the Registrant are comparable to those of other companies selling similar products in similar markets. Payments for 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 VWR Scientific Products represented 12 percent, 13 percent, and 14 percent of the Registrant's total sales in fiscal years 1999, 1998 and 1997, respectively. 3 The Registrant's sales order backlog at April 30, 1999 was $27.0 million, up from $24.9 million and $24.2 million at April 30, 1998 and 1997, respectively. All but $1.2 million of the backlog at April 30, 1999 was scheduled for shipment during fiscal year 2000; 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 past experience, the Registrant expects that more than 90 percent of its backlog scheduled for shipment in fiscal year 2000 will be shipped during that year. Competition The Registrant considers the industries in which it competes to be highly competitive and believes that the principal competitive factors are price, product performance, and customer service. A significant portion of the business of the Registrant is based upon competitive public bidding. Research and Development The amount spent during the fiscal year ended April 30, 1999 on company-sponsored research and development activities related to new products or services or improvement of existing products or services was $773,816. The amounts spent for similar purposes in the fiscal years ended April 30, 1998 and 1997 were $822,132 and $663,996, respectively. Seven professional employees were engaged in such research at April 30, 1999. 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, 1999 was 643. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Certain statements included and referenced in this report, including the Letter to Stockholders, narrative text, captions and Management's Discussion and Analysis of Financial Condition and Results of Operations, constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could significantly impact results or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, economic, competitive, governmental, and technological factors, including year 2000 compliance activities of the Company and third parties, affecting the Company's operations, markets, products, services, and prices. The cautionary statements made pursuant to the Reform Act herein and elsewhere by the Company should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Reform Act. The Company cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. In addition, readers are urged to consider statements that include the terms "believes," "belief," "expects," "plans," "objectives," "anticipates," "intends" or the like to be uncertain and forward-looking. 4 Item 2. Properties - ------------------- The Registrant owns and operates three plants in Statesville, North Carolina and one in Lockhart, Texas. The plants are involved in the production of the Registrant's products. The plants in Statesville, North Carolina are located in three separate adjacent buildings which contain manufacturing facilities. Sales and marketing, administration, engineering and drafting personnel and facilities are also located in two of the three buildings. The Registrant's corporate offices are located in the largest building. The plant buildings together comprise approximately 382,000 square feet and are located on approximately 20 acres of land. In addition, the Registrant leases warehouse space of 41,000 square feet in Statesville, North Carolina. The plant in Lockhart, Texas is housed in a building of approximately 129,000 square feet located on approximately 30 acres. In addition, a separate 10,000 square foot office building on this site houses certain administrative personnel. All of the facilities which the Registrant owns are held free and clear of any encumbrances. The Registrant believes its facilities are suitable for their respective uses and are adequate for its current needs. Item 3. Legal Proceedings - -------------------------- 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. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ Not Applicable. 5 PART II Item 5. Market for Registrant's Common Equity and Related - ---------------------------------------------------------- Stockholder Matters ------------------- Incorporated by reference from the Registrant's annual report to stockholders for the fiscal year ended April 30, 1999, page 19, sections entitled "Range of Market Prices" and "Quarterly Financial Data". As of July 9, 1999, the Registrant estimates there were approximately 1,300 stockholders of Kewaunee common shares, of which 349 were stockholders of record. Item 6. Selected Financial Data - -------------------------------- Incorporated by reference from the Registrant's annual report to stockholders for the fiscal year ended April 30, 1999, page 18, section entitled "Summary of Selected Financial Data." Item 7. Management's Discussion and Analysis of Financial - ---------------------------------------------------------- Condition and Results of Operations ----------------------------------- Incorporated by reference from the Registrant's annual report to stockholders for the fiscal year ended April 30, 1999, pages 6-7, section entitled "Management's Discussion and Analysis". Item 7A. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------- The Registrant is exposed to market risk in the area of interest rates. This exposure is directly related to the Registrant's credit facility which is priced on a floating rate basis. At April 30, 1999, advances of $939,000 were outstanding under the revolving credit portion of the credit facility. Based on this balance and the Registrant's expected use of the credit facility, the Registrant believes that its exposure to market risk is not material. The Registrant has not historically used interest rate swaps or other derivative financial instruments for the purpose of hedging fluctuations in interest rates on its floating rate debt. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- Incorporated by reference from the Registrant's annual report to stockholders for the fiscal year ended April 30, 1999, pages 8-17. Item 9. Changes in and Disagreements with Accountants on - --------------------------------------------------------- Accounting and Financial Disclosure ----------------------------------- Not Applicable. 6 PART III Item 10. Directors and Executive Officers of the Registrant - ----------------------------------------------------------- (a) Incorporated by reference from the Registrant's proxy statement for use in connection with its annual meeting of stockholders to be held on August 25, 1999, pages 1-4, section entitled "Election of Directors". (b) The names and ages of the Registrant's executive officers and their business experience during the past five years are set forth below: Executive Officers of the Registrant ------------------------------------ Name Age Position ---- --- -------- Eli Manchester, Jr. 68 President and Chief Executive Officer William A. Shumaker 51 Executive Vice President and Chief Operating Officer T. Ronald Gewin 56 Vice President and General Manager Technical Products Group D. Michael Parker 47 Vice President-Finance, Chief Financial Officer, Treasurer and Secretary James J. Rossi 57 Vice President-Human Resources Kurt P. Rindoks 41 Vice President of Engineering and General Manager of the Resin Materials Division - Laboratory Products Group Eli Manchester, Jr. was elected a director of the Registrant in November 1990. He was elected President and Chief Executive Officer of the Registrant on July 11, 1990. William A. Shumaker joined the Registrant in December 1993 as Vice President of Sales and Marketing. Mr. Shumaker served as Vice President and General Manager of the Laboratory Products Group from February 1998 to August 1998 and has served as Executive Vice President and Chief Operating Officer since September 1998. Prior to joining the Registrant, Mr. Shumaker was with the St. Charles Companies of St. Charles, Illinois, where he served as Vice President of Sales and Marketing with their Institutional Division from 1989 to 1993 and held various other sales and customer service positions from 1969 through 1989. T. Ronald Gewin joined the Registrant in December 1992 as Vice President of Manufacturing and has served as Vice President and General Manager of the Technical Products Group since January 1996. Prior to joining the Registrant, Mr. Gewin was General Manager of a Division of the Grinnell Corporation from 1990 to 1992. D. Michael Parker joined the Registrant in November 1990 as Director of Financial Reporting and Accounting and was promoted to Corporate Controller in November 1991. Mr. Parker has served as Vice President of Finance, Chief Financial Officer, Treasurer and Secretary since August 1995. James J. Rossi joined the Registrant in March 1984 as Corporate Director of Human Resources and has served as Vice President of Human Resources since January 1996. 7 Kurt P. Rindoks joined the Registrant in July 1985 as an engineer and was promoted to Director of Engineering in July 1989 and to Director of Product Development in May 1992. He served as Vice President of Engineering and New Product Development for the Laboratory Products Group from September 1996 through April 1998 and has served as Vice President of Engineering and General Manager of the Resin Materials Division for the Laboratory Products Group since May 1998. Item 11. Executive Compensation - ------------------------------- Incorporated by reference from the Registrant's proxy statement for use in connection with its annual meeting of stockholders to be held on August 25, 1999, pages 5-7, section entitled "Executive Compensation," pages 8-9, section entitled "Compensation Committee Report on Executive Compensation," and page 11, section entitled "Agreements with Certain Executives." Item 12. Security Ownership of Certain Beneficial Owners - -------------------------------------------------------- and Management -------------- Incorporated by reference from the Registrant's proxy statement for use in connection with its annual meeting of stockholders to be held on August 25, 1999, pages 12-13, sections entitled "Security Ownership of Directors and Executive Officers" and "Security Ownership of Certain Beneficial Owners." Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------- Incorporated by reference from the Registrant's proxy statement for use in connection with its annual meeting of stockholders to be held on August 25, 1999, pages 1-4, section entitled "Election of Directors" and page 11, section entitled "Agreements with Certain Executives. 8 "PART IV Item 14. Exhibits, Financial Statement Schedules and Reports - ------------------------------------------------------------ on Form 8-K ----------- The following documents are filed or incorporated by reference as part of this report: Page or (a)(1) Financial Statements Reference -------------------- --------- Statements of Operations Years ended April 30, 1999, 1998 and 1997 8* Statements of Stockholders' Equity Years ended April 30, 1999, 1998 and 1997 8* Balance Sheets - April 30, 1999 and 1998 9* Statements of Cash Flows - Years ended April 30, 1999, 1998 and 1997 10* Notes to Financial Statements 11-16* Report of Independent Accountants 17* (a)(2) Financial Statement Schedule ---------------------------- Report of Independent Accountants on Financial Statement Schedules 10 Schedule II - Valuation and Qualifying Accounts 11-12 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (a)(3) Exhibits -------- Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index which is attached hereto at pages S-2 through S-5 and which is incorporated herein by reference. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the Registrant's fiscal year ended April 30, 1999. ____________________ * Matters incorporated by reference to the page numbers shown in the Registrant's annual report to stockholders for the year ended April 30, 1999. 9 REPORT OF INDEPENDENT ACCOUNTANTS ON 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 3, 1999 appearing in the 1999 Annual Report to Shareholders of Kewaunee Scientific Corporation (which report and financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of Page 1 of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, Page 1 of this Financial Statement Schedule related to fiscal years ended April 30, 1999 and 1998 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. The information on Page 2 of the Financial Statement Schedule, related to fiscal year ended April 30, 1997, appearing in this Form 10-K was audited by other independent accountants whose report dated June 4, 1997 expressed an unqualified opinion thereon. PRICEWATERHOUSECOOPERS LLP Charlotte, North Carolina June 3, 1999 10 Schedule II, Page 1 Kewaunee Scientific Corporation Valuation and Qualifying Accounts ($ in thousands)
Charged Balance (Credited) at to Costs Balance Beginning and at End Description of Period Expenses Deductions* of Period ----------- --------- -------- ----------- --------- Year ended April 30, 1999 Allowance for doubtful accounts $656 $ 16 $(285) $387 ========= ======== =========== ========= Year ended April 30, 1998 Allowance for doubtful accounts $770 $301 $(415) $656 ========= ======== =========== =========
* Uncollectible accounts written off, net of recoveries. 11 Schedule II, Page 2 Kewaunee Scientific Corporation Valuation and Qualifying Accounts ($ in thousands)
Charged Balance (Credited) at to Costs Balance Beginning and at End Description of Period Expenses Deductions* of Period ----------- --------- -------- ----------- --------- Year ended April 30, 1997 Allowance for doubtful accounts $561 $298 $( 89) $770 ========= ======== =========== =========
* Uncollectible accounts written off, net of recoveries. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KEWAUNEE SCIENTIFIC CORPORATION By:/s/ Eli Manchester, Jr. --------------------------------------- Eli Manchester, Jr. President and Chief Executive Officer Date: July 28, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. (i) Principal Executive Officer ) ) /s/ Eli Manchester, Jr. ) --------------------- Eli Manchester, Jr. ) President and Chief Executive Officer ) ) (ii) Principal Financial and Accounting Officer ) ) /s/ D. Michael Parker ) --------------------- D. Michael Parker ) Vice President-Finance, Chief Financial Officer ) Treasurer and Secretary ) ) (iii) A majority of the Board of Directors: ) July 28, 1999 ) ) /s/ Margaret Barr Bruemmer /s/ Eli Manchester, Jr. ) - --------------------------- ----------------------- Margaret Barr Bruemmer Eli Manchester, Jr. ) ) ) /s/ Wiley N. Caldwell /s/ James T. Rhind ) - --------------------------- ----------------------- Wiley N. Caldwell James T. Rhind ) ) ) /s/ John C. Campbell, Jr. /s/ Thomas F. Pyle ) - --------------------------- ----------------------- John C. Campbell, Jr. Thomas F. Pyle ) ) ) /s/ Kingman Douglass ) - --------------------- Kingman Douglass )
S-1 KEWAUNEE SCIENTIFIC CORPORATION Exhibit Index ------------- Page Number (or Reference) -------------- 3 Articles of incorporation and by-laws 3.1 Restated Certificate of incorporation (as amended) (3) 3.2 By-Laws (as amended as of August 28, 1991) (6) 10 Material Contracts 10.9 Kewaunee Scientific Corporation Supplemental Retirement Plan (4) 10.13 Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Salaried Employees (2) 10.13A First Amendment dated June 4, 1996 to the Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Salaried Employees (13) 10.13B Second Amendment dated November 19, 1996 to the Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Salaried Employees (13) 10.14 Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Hourly Employees (2) 10.14A First Amendment dated August 27, 1996 to the Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Hourly Employees (13) 10.14B Second Amendment dated November 19, 1996 to the Kewaunee Scientific Corporation 1985 Re-Established Retirement Plan for Hourly Employees (13) 10.19 Kewaunee Scientific Corporation 1991 Key Employee Stock Option Plan (5) S-2 _____________________ All footnotes located on page S-5 Page Number (or Reference) -------------- 10.19A First Amendment dated August 28, 1996 to the Kewaunee Scientific Corporation Key Employee Stock Option Plan (12) 10.19B Second Amendment dated August 26, 1998 to the Kewaunee Scientific Corporation Key Employee Stock Option Plan (1) 10.21 Kewaunee Scientific Corporation Executive Deferred Compensation Plan (6) 10.21A Second Amendment dated June 17, 1997 to the Kewaunee Scientific Corporation Executive Deferred Compensation Plan (14) 10.21B Third Amendment dated June 17, 1997 to the Kewaunee Scientific Corporation Executive Deferred Compensation Plan (14) 10.21C Fourth Amendment dated December 1, 1998 to the Kewaunee Scientific Corporation Executive Deferred Compensation Plan (1) 10.23 Employment Agreement dated as of December 8, 1992 between T. Ronald Gewin and the Registrant (7) 10.25 Employment Agreement dated as of December 7, 1993 between William A. Shumaker and the Registrant (9) 10.26 Kewaunee Scientific Corporation Stock Option (8) Plan for Directors 10.27 Agreement dated as of December 14, 1994 between T. Ronald Gewin and the Registrant (10) 10.34 401(K) Incentive Savings Plan for Salaried and Hourly Employees of Kewaunee Scientific Corporation (11) 10.34A Amendments (2) dated June 17, 1997 to the 401(k) Incentive Savings plan for Salaried and Hourly Employees of Kewaunee Scientific Corporation (14) S-3 _____________________ All footnotes located on page S-5 Page Number (or Reference) -------------- 10.36 Agreement dated September 17, 1996 between D. Michael Parker and the Registrant (13) 10.37 Fiscal Year 2000 Incentive Bonus Plan (1) 13 Annual Report to Stockholders for the fiscal year ended April 30, 1999 (Such Report, except to the extent incorporated herein by reference, is being furnished for the information of the Securities and Exchange Commission only and is not deemed filed as a part of this annual report on Form 10-K) (1) 27 Financial Data Schedule (1) (All other exhibits are either inapplicable or not required.) S-4 _____________________ All footnotes located on page S-5 Footnotes --------- (1) Appearing only in the manually signed, original Form 10-K filed with the Securities and Exchange Commission. (2) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0- 5286) for the fiscal year ended April 30, 1987, and incorporated herein by reference. (3) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0- 5286) for the fiscal year ended April 30, 1985, and incorporated herein by reference. (4) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0- 5286) for the fiscal year ended April 30, 1985, and incorporated herein by reference. (5) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement dated July 26, 1991, and incorporated herein by reference. (6) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0- 5286) for the fiscal year ended April 30, 1992, and incorporated herein by reference. (7) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0- 5286) for the fiscal year ended April 30, 1993, and incorporated herein by reference. (8) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement dated July 23, 1993, and incorporated herein by reference. (9) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0- 5286) for the fiscal year ended April 30, 1994, and incorporated herein by reference. (10) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0- 5286) for the fiscal year ended April 30, 1995, and incorporated herein by reference. (11) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0- 5286) for the fiscal year ended April 30, 1996, and incorporated herein by reference. (12) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement dated July 31, 1996, and incorporated herein by reference. (13) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0- 5286) for the fiscal year ended April 30, 1997, and incorporated herein by reference. (14) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to the Securities and Exchange Commission on Form 10-K (Commission File No. 0- 5286) for the fiscal year ended April 30, 1998, and incorporated herein by reference. S-5 EX-10.19B 2 SECOND AMENDMENT TO EMPLOYEE STOCK OPTION PLAN Exhibit 10.19B SECOND AMENDMENT TO THE KEWAUNEE SCIENTIFIC CORPORATION 1991 KEY EMPLOYEE STOCK OPTION PLAN The Kewaunee Scientific Corporation 1991 Key Employee Stock Option Plan (the "Plan"), as adopted effective May 29, 1991, is hereby amended as follows, pursuant to the authority retained by the Company pursuant to Article 11 thereof: 1. Article 8, Section (b) is amended to read as follows: "Notwithstanding the foregoing, an option shall to be exercisable after the expiration of its specified term and shall be exercisable only to the extent it was exercisable at the date of such termination of employment, except that if the Optionee's employment is terminated by death, of if the option so provides, by retirement (as defined in the Company's qualified retirement plan for salaried employees), at any time on or after the first anniversary of the option, the option may be exercised in full during its specified term during the period provided above." 2. In all other respects, the plan shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this amendment to be executed this 26th day of August, 1998. KEWAUNEE SCIENTIFIC CORPORATION By /s/ D. M. Parker --------------------------------------- D.M. Parker Its Secretary -------------------------------------- EX-10.21C 3 FOURTH AMEND TO THE EXECUTIVE COMPENSATION PLAN Exhibit 10.21C FOURTH AMENDMENT TO KEWAUNEE SCIENTIFIC CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN (Effective January 1, 1992) The Kewaunee Scientific Corporation Executive Deferred Compensation Plan, as established effective January 1, 1992, and previously amended, is hereby further amended this 1st day of December, 1998, effective January 1, 1999 (except as otherwise provided below), as follows: 1. Section 2.1 is amended by the addition of the following sentence: "The Committee may delegate all or any portion of its authority to such persons as it may determine, and may revoke or revise any such delegation at any time. Unless and until otherwise determined by the Committee, the authority of the Committee to establish rules, regulations and procedures that are administrative or ministerial in nature shall be exercised by the Company's Vice President of Human Resources (or such other officer or employee of the Company as may occupy a comparable position)." 2. Section 3.2 is amended to read as follows: "3.2 Return on Pay Deferral Account. The return on Pay Deferral ------------------------------ Accounts shall be calculated as provided below, and shall be determined and credited or charged at the end of each business day. The Committee shall from time to time designate up to eight Declared Rates (as defined below), and each Participant may elect to have the balance in his Pay Deferral Account divided into subaccounts in percentage increments (which shall be multiples of 5%), each of which shall be credited or charged with a rate of return (positive or negative) based on the Declared Rate elected by the Participant for such subaccount. Each new amount that is credited to a Participant's Pay Deferral Account shall be divided amount such subaccounts in accordance with the percentages so elected by the Participant. A Participant may, in accordance with procedures established by the Committee, either transfer amounts from one subaccount to another, change the percentages of amounts that will be allocated to subaccounts in the future, or both, but no more often than once in every 30 days (or such other period as may be determined by the Committee). For purposes of the Plan, each "Declared Rate" shall be the actual rate of return (including unrealized gain and loss) that would be earned on an actual investment in a predetermined mutual fund selected by the Committee, reduced, if the Committee so determines, by an administrative charge. The Committee shall have the right in its sole discretion to designate Declared Rates, to change the available Declared Rates from time to time, and to determine the Declared Rate applicable to the Pay Deferral Account of a Participant who has not made a valid election; provided that all changes in Declared Rates shall be applied prospectively only, and no Declared Rate shall be used which would cause any portion of the earnings on a Pay Deferral Account to be considered additional compensation for federal income tax purposes. Deferrals will not necessarily be invested by the Company in the investment funds the performance of which is used to determine the Declared Rates." 3. Effective December 1, 1998, Section 5.2 is amended by adding the following new paragraph following the first paragraph of said Section: "After his initial date of participation, a Participant may change his or her elected method of distribution to any method permitted by the preceding paragraph by filing a written election with the Company in accordance with such procedures as the Committee may prescribe, provided that such election is received more than one year prior to the Participant's termination of employment. If a Participant terminates employment for any reason on or prior to the anniversary of the date on which such election is received, such election shall be void and such Participant's benefit shall be distributed in accordance with the preceding paragraph as if such election had not been made." 4. The last sentence of Section 5.2 is deleted and the following substituted in lieu thereof: "Each installment payment shall be charged to the subaccounts into which the Participant's Account is divided pursuant to Section 3.2 in the same percentages that new amounts were credited prior to his termination of employment. The Participant may change such percentages, or transfer amounts between subaccounts, in accordance with the provisions of Section 3.2 until his Account is distributed in full, subject to such additional restrictions and procedures as the Committee may require." 5. In all other respects, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Fourth Amendment to be executed by its duly authorized officers on the date and year first above written. KEWAUNEE SCIENTIFIC CORPORATION By /s/ D. M. Parker ---------------- Its Secretary 2 EX-10.37 4 FISCAL YEAR 2000 INCENTIVE BONUS PLAN Exhibit 10.37 KEWAUNEE SCIENTIFIC CORPORATION FISCAL YEAR 2000 INCENTIVE BONUS PLAN The Fiscal Year 2000 Incentive Bonus Plan (the Plan) will provide for a bonus pool and bonus payouts based upon achievement of various levels of pre-tax earnings (after bonus accruals) for the year and other conditions described herein, as approved by the Company's Board of Directors. The Plan is proposed as a one-year plan for Fiscal Year 2000. The provisions of the Plan are: 1. Eligibility of Participants to Share in the Bonus Pool ------------------------------------------------------ a. Eligible participants of the Plan will be nominated by the President and approved by the Board of Directors, upon recommendation by the Compensation Committee. The bonus potential percentages for each participant in the Plan will also be approved by the Board of Directors, upon recommendation by the Compensation Committee. b. Each participant will be eligible to share in the pool up to the specified percentage of his or her May 1, 1999 base salary. c. In addition to individuals reporting directly to the President, managers fulfilling the following criteria are eligible to participate in the Plan: 1. Salary Grade 14 or above; 2. Seniority of one year or more; 3. Is not currently in another incentive plan (e.g., sales plan); 4. Is a direct report to a direct report to the President; or 5. Is a manager recommended by the President. d. Participants in the Plan and their applicable bonus potential amounts are shown on Exhibits II, III, and IV to the Company's FY 2000 Bonus Schedules (all Exhibits referred to in this Plan are exhibits to such Schedules). 2. Building of a Bonus Pool ------------------------ a. Division Pools -------------- The divisions (the Laboratory Products Group and the Technical Products Group) will start to accrue pools for potential bonus payouts once pre- tax operating earnings of each division reach the amounts shown as Goal 1 on Exhibits II and III, and maximum incentive bonus payouts will be accrued and available for payout based upon the guidelines shown on those exhibits. 1 b. Non-divisional Corporate Pool ----------------------------- A pool will start accumulating once pre-tax earnings reach the amounts shown on Exhibit IV, and maximum bonus payouts will be accrued and available for payout based upon the guidelines shown on that exhibit. 3. Bonus Payout Conditions ----------------------- If the Company achieves pre-tax earnings less than the amount shown as Goal 1 on Exhibit IV, no awards will be paid to any non-divisional corporate employee, except at the discretion of the Board of Directors, upon recommendation by the Compensation Committee. If a division achieves pre-tax earnings less than the amounts shown for it as Goal 1 on Exhibits II or III, no awards will be paid to its employees except at the discretion of the Board of Directors, upon recommendation by the Compensation Committee. All division participants will earn their awards dependent on their division's performance and their individual MBO performance. Beginning with the achievement of Goal 1, the bonus potential percentage for each participant is linear with the increase in pre-tax earnings, up to the individual's maximum bonus potential percentage. Positive or negative financial adjustments outside the control of management (such as, but not limited to, proceeds from insurance claims, gains or losses from the sale of capital assets, adoption of new generally accepted accounting pronouncements, etc.) will be assessed by the Board of Directors and the pre-tax earnings under the Plan may be adjusted for these items. Any portion of the bonus pool not awarded to participants will be retained by the Company. If a participant transfers between performance entities during the year, his or her incentive compensation will be based on the performance of the respective entities on a pro rata basis from his or her transfer date as determined by the President. 2 A participant must be an employee of the Company on the day of the bonus payout to be eligible to receive a bonus. In unusual circumstances, however, the Board of Directors, upon recommendation by the Compensation Committee, may grant a discretionary bonus. The Board of Directors, upon recommendation by the Compensation Committee, may approve the pro rata participation of a participant who joins the Company or who is appointed to a key position within the Company after the outset of the Plan year, with a pro rata increase in the bonus pool. 4. Participant's Bonus Potential ----------------------------- Each participant's bonus potential will be comprised of the following: A Fixed Bonus equal to 75% of each participant's bonus potential will be based on achievement of corporate or divisional pre-tax earnings goals, as set forth in the Plan, and A Discretionary Bonus up to the remaining 25% of each participant's bonus potential will be calculated, taking into account the participant's MBO achievements and other relevant factors during the year. The discretionary portion of each participant's bonus will take into account the participant's achievement of management goals established, and weighted, in July 1999, and approved by the President. The degree of achievement of these goals will be recommended by each participant's manager immediately subsequent to April 30, 2000, and the discretionary bonus, if any, will then be determined and awarded at the discretion of the Board of Directors, upon recommendation by the President and the Compensation Committee. 5. The Plan may be amended at any time by the Board of Directors. 3 EX-13 5 ANNUAL REPORT FOR FISCAL YEAR ENDED APRIL 30, 1999 [LOGO] KEWAUNEE/R/ Scientific Corporation [Background Photo of [Superimposed Photo of Laboratory Setting] Laboratory Workstation] [Superimposed Photo of Laboratory Workstation] 1999 ANNUAL REPORT Corporate Profile ================================================================================ Kewaunee Scientific Corporation, a recognized leader in the design, manufacture, and installation of scientific and technical furniture, provides innovative products of high quality utilized in laboratories and computer facilities worldwide. The Company's corporate headquarters are located in Statesville, North Carolina. The Laboratory Products Group manufacturing facilities, also located in Statesville, North Carolina, produce steel and wood laboratory furniture, fume hoods, flexible systems, and worksurfaces. The Technical Products Group manufacturing facility located in Lockhart, Texas produces technical furniture including workstations, workbenches, computer enclosures, and related accessories to support local area computer networks and for the storage and assembly of computers and light electronics. Product Feature ================================================================================ Kemresin Lite - This innovative (patent pending) premium work top exhibits a full array of features supported by our many years of experience in manufacturing Kemresin work tops. This unique product is the result of advanced material technology and innovative engineering. A 1/4" modified epoxy resin surface is affixed to an engineered substrate which provides a 1" thick work top. Desirable features include: .Renewable surface with conventional cleaning methods .Superior chemical resistance .Integral cast exposed edges and drip groove .Smooth, color blended seams .Five neutral colors compatible with today's interior design trends .Full line of integral sinks .Light-weight construction for ease of handling [PHOTOS OF LABORATORY SETTINGS APPEAR HERE] Kemresin Lite offers a viable work top alternative for varied markets and customers. Research laboratories, schools and universities, and product testing facilities can all benefit from this exciting new product developed and manufactured exclusively by Kewaunee Scientific Corporation. Financial Highlights ================================================================================ Kewaunee Scientific Corporation
Percent $ in thousands, except per share data 1999 1998 Change - ---------------------------------------------------------------------- Operating Data: Net sales $77,478 $73,037 + 6.1 - ---------------------------------------------------------------------- Gross profit $17,696 $17,437 + 1.5 - ---------------------------------------------------------------------- Operating expenses $12,315 $13,096 - 6.0 - ---------------------------------------------------------------------- Operating earnings $ 5,381 $ 4,341 +24.0 - ---------------------------------------------------------------------- Net earnings $ 3,396 $ 2,563 +32.5 - ---------------------------------------------------------------------- Net earnings per share Basic $ 1.40 $ 1.07 +30.8 Diluted $ 1.38 $ 1.06 +30.2 - ---------------------------------------------------------------------- Return on average equity 16.5% 14.4% - ---------------------------------------------------------------------- Cash dividends per share $ 0.22 $ 0.18 +22.2 - ---------------------------------------------------------------------- Year-end Data: Net working capital $10,159 $ 9,566 + 6.2 - ---------------------------------------------------------------------- Total borrowings/long-term debt $ 939 $ - - ---------------------------------------------------------------------- Stockholders' equity $22,032 $19,039 +15.7 - ---------------------------------------------------------------------- Book value per share $ 9.04 $ 7.89 +14.6 - ---------------------------------------------------------------------- Closing market price per share $10.125 $12.625 -19.8 - ----------------------------------------------------------------------
Table of Contents ================================================================================ 2 Letter to our Stockholders 4 Product Profile 6 Forward Looking Statement Disclosure 6 Management's Discussion and Analysis 8 Financial Statements and Notes 17 Reports of Independent Accountants and Management 18 Summary of Selected Financial Data 19 Quarterly Financial Data 20 Corporate Information Page 1 Letter to our Stockholders ================================================================================ Fiscal year 1999 was an excellent year for Kewaunee, as we made progress on many fronts. Some of the key results include: . Record earnings and sales . Market acceptance of our new products . Capital investments of $3.7 million . Reduced manufacturing costs . Increased manufacturing capacities . Increased international representation . Strengthened financial position Net earnings for the year increased to $3,396,000, or $1.38 per diluted share, up 32.5% over last year, while sales for the year increased 6.1% to $77,478,000. Sales of laboratory furniture increased 8.0% over last year, as the marketplace for these products remained strong. The increased sales of laboratory furniture more than offset a 5.7% decline in technical furniture sales during the year caused by a weaker technical furniture marketplace. Our unfilled sales order backlog increased to $27.0 million at year-end, up from $24.9 million at the end of last year. Return on equity increased to 16.5% for the year, up from 14.4% in fiscal year 1998. Sales under our new Research Collection line of steel furniture and our new Alpha System 2000 flexible furniture both exceeded our expectations for the year, and continue to gain momentum. We made significant progress toward increased market acceptance of our new innovative work top, Kemresin Lite, and we have begun to see this product specified on certain projects. Capital investments during the year increased to $3.7 million, and we plan to spend slightly over $4 million in fiscal year 2000. Much of the investment during the year was for computer-controlled production machinery. The modernization of our steel plant in Statesville is progressing ahead of schedule, and we expect to complete this program by April 30, 2000. We already are experiencing significant improvements in productivity, reduced manufacturing costs, and increased manufacturing capacity from these investments. During the year, we increased our international representation through new relationships in Singapore, England, and the Middle East. Although begun on a modest scale early in the year, our joint venture in Singapore, Kewaunee Labway Asia, has exceeded our early expectations. It was awarded several prestigious projects during the year and recently won several more. Our financial position continues to strengthen. Stockholders' equity increased to $22.0 million at year-end, while book value per share increased to $9.04. Our improved financial position allowed us to replace our expiring credit agreement with a new, competitive $8 million agreement. The terms of the new agreement provide more flexibility and support for our long-term growth and profitability. Borrowings under this agreement were $939,000 at year-end. As we look toward the future, we are pursuing three goals that I think are critical to our long-term success: We must strive to be the "supplier of choice" to our customers; Kewaunee must be a good place to work; and we must provide a good investment return to our stockholders. To be the supplier of choice, we must continue to provide superior products at competitive prices and deliver when the customer wants them. We must also be responsive to our customers' needs, serving as their partners in achieving their goals. Our introduction of new products and our programs of capital investment in our factories should assist us in achieving this goal. Page 2 We realize the importance of our associates to our long-term success. We know we must offer competitive wages, and our benefit programs must be attractive. Equally important, we believe each person's work should be satisfying and take place in an atmosphere that is enjoyable, receptive and appreciative of new ideas. We must provide a good investment return to our stockholders. In spite of our significant improvements during fiscal year 1999, our stock price at year-end was lower than it was a year ago, primarily because of unfavorable conditions in the equity markets for companies our size. However, if we continue to make the progress we have over recent years, new investors and higher returns should follow. Looking forward, I think our prospects are excellent. With a continuing strong marketplace, our introductions of new products, our cost reduction programs, and our progress toward the goals discussed above, I feel Kewaunee is well- positioned for increased sales, increased profits, and higher returns for our stockholders. We appreciate the continued support of our stockholders, our associates, our network of agencies and representatives, our national distributor VWR Scientific Products, and our customers. Sincerely, /s/ Eli Manchester, Jr. Eli Manchester, Jr. President Chief Executive Officer July 1999 Earnings Before Income Taxes Millions of Dollars 1997 1998 1999 $2.2 $4.2 $5.6 Year-End Book Value Per Share DOLLARS 1997 1998 1999 $7.01 $7.89 $9.04 Page 3 Product Profile ================================================================================ Kewaunee provides innovative scientific and technical furniture for laboratories and computer facilities worldwide. The photographs in this annual report illustrate varied applications of our extensive product offering. [PHOTO OF LABORATORY WORKSTATION] Steel Research Collection - Two of our five styles are illustrated. The laboratory on the left depicts Trademark, offering a traditional look of straight lines and flat surfaces. Contour, distributed through VWR Scientific Products, is featured below, with a softer look of rounded edges on the doors and drawers. Our electrodeposition paint process, used exclusively by Kewaunee in producing steel laboratory furniture and fumehoods, protects all steel surfaces against the rigors of active laboratories. [PHOTO OF MOBILE WORKSTATION] Alpha System - Our mobile workstations provide a framework that can easily be combined with cabinets, shelving, and worksurfaces to structure unlimited configurations to meet individual needs. [PHOTO OF LABORATORY SETTING] [PHOTO OF LABORATORY WORKSTATION MADE OF WOOD] Wood Signature Series - Four styles, manufactured to the highest standards of construction, offer multiple choices of wood species, finishes, and door and drawer appearances. Silhouette style casework was used in this educational facility shown at left. Page 4 [PHOTO OF LABORATORY WORKSTATION] Evolution - The rugged flexibility and intelligent design of Evolution furniture allows the ability to modify standard components to meet exact needs in a variety of environments. The newly introduced E2 height-adjustable workstation helps users address multi-shift, multi-function productivity issues and ADA requirements. [PHOTO OF LABORATORY DESK AND WORKSTATION] Kemresin Work Tops - Patented Kemresin work tops are molded from modified epoxy resin. In addition, our Kemresin Lite work top is durable, renewable, and available in several designer colors. The chemical resistance of both products is not confined to a surface coating, but is inherent in the formula. [PHOTO OF LABORATORY FUME HOODS] Supreme Air Series Fume Hoods - Our fume hoods assure reliable, efficient operation at the highest levels of safety, and are subjected to stringent testing procedures. A wide variety of models and comprehensive option packages have been designed to enable fume hoods to be tailored for specific requirements. [PHOTO OF LABORATORY WORKSTATIONS] Evolution for LANs - The highly modular and versatile design of Evolution for LANs provides information technology customers an unmatched ability to organize for productivity, integrated work areas, ease of access and security. Open racking, rack mounting, and secured enclosures offer housing solutions for monitors, CPUs, UPSs, back-up storage devices, modems, printers, file servers, keyboards, documentation, and reference manuals. Page 5 Special Note Regarding Forward-Looking Statements ================================================================================ Certain statements in this annual report, including the Letter to Stockholders, narrative text, captions and Management's Discussion and Analysis of Financial Condition and Results of Operations, constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could significantly impact results or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, economic, competitive, governmental, and technological factors, including year 2000 compliance activities of the Company and third parties, affecting the Company's operations, markets, products, services, and prices. The cautionary statements made pursuant to the Reform Act herein and elsewhere by the Company should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Reform Act. The Company cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. In addition, readers are urged to consider statements that include the terms "believes," "belief," "expects," "plans," "objectives," "anticipates," "intends," or the like to be uncertain and forward-looking. Management's Discussion and Analysis ================================================================================ Results of Operations. Fiscal year 1999 sales increased to $77.5 million, up 6.1% from fiscal year 1998 sales of $73.0 million. Assisted by a robust U.S. economy and a continuing healthy laboratory furniture marketplace, sales of laboratory furniture increased 8.0% over the prior year, with unit sales increases and moderate price increases realized in each of this segment's major product lines. Sales of technical furniture decreased 5.7% from the prior year, as sales in this segment were adversely affected by a weaker marketplace during the year. Fiscal year 1998 sales increased 17.9% from fiscal year 1997 sales of $62.0 million. The sales increase for the 1998 fiscal year resulted primarily from increased unit sales of laboratory furniture in the Company's new Research Collection line of steel furniture, Evolution for LANs workstations, and epoxy resin worksurfaces. Sales for 1998 were also favorably impacted by moderate price increases on the Company's other products. The Company's unfilled sales order backlog increased to $27.0 million at April 30, 1999, up from $24.9 million at April 30, 1998, and $24.2 million at April 30, 1997. Gross profit represented 22.8% of sales in fiscal year 1999; 23.9% of sales in fiscal year 1998; and 22.5% of sales in fiscal year 1997. The gross profit margin in fiscal year 1999 was unfavorably affected by start-up costs associated with several new products, a weaker technical furniture marketplace, and a change in the product sales mix. The improved gross profit margin for fiscal year 1998 resulted primarily from significantly higher profit margins achieved on sales of contract-bid laboratory furniture, and to a lesser extent, on an improved product sales mix. Operating expenses were $12.3 million in fiscal year 1999; $13.1 million in fiscal year 1998; and $11.5 million in fiscal year 1997. As a percent of sales, these expenses were 15.9%, 17.9%, and 18.6%, respectively. The most significant factor in the decline in operating expenses in fiscal year 1999 was a reduction in sales commissions, as more of the Company's orders were sold directly to dealers for resale. Significant reductions were also achieved in bad debts expense, legal costs, and other administrative costs. The increase in operating expenses in fiscal year 1998 was primarily attributable to increased sales and marketing costs, including sales commissions associated with the increase in sales. Other income was $325,000, $45,000 and $41,000 in fiscal years 1999, 1998 and 1997, respectively. Other income in fiscal year 1999 included income of $295,000 recorded in the fourth quarter of the year resulting from a litigation settlement with certain suppliers for overcharges in earlier years. Interest expense was $96,000, $149,000 and $344,000 in fiscal years 1999, 1998 and 1997, respectively. The decrease in interest expense for fiscal years 1999 and 1998 resulted primarily from lower levels of borrowings during each year under the Company's revolving credit facility and, to a lesser extent, lower interest rates paid. The Company recorded income tax expense of $2.2 million, and $1.7 million, or 39.5% of pretax earnings, in fiscal years 1999 and 1998, respectively. The Company recorded a net income tax benefit of $97,000 in fiscal year 1997, as the favorable impact of adjustments eliminating the valuation allowance on deferred tax assets exceeded income tax expense associated with that year's earnings. Net earnings increased to $3.4 million, or $1.38 per diluted share, in fiscal year 1999, from $2.6 million, or $1.06 per diluted share, in fiscal year 1998. Net earnings were $2.3 million, or $.95 per diluted share, in fiscal year 1997. Liquidity and Capital Resources. Historically, the Company's principal sources of liquidity have been funds generated from operating activities, supplemented as needed by the Company's credit facility. The Company believes that these sources will be sufficient to support ongoing business levels, including capital expenditures. Operating activities provided cash of $1.3 million, $3.4 million, and $4.2 million in fiscal years 1999, 1998, and 1997, respectively, primarily from earnings in each of these years. Working capital increased to $10.2 million at April 30, 1999, Page 6 from $9.6 million at April 30, 1998, and the ratio of current assets to current liabilities increased to 1.9-to-1 at April 30, 1999 from 1.8-to-1 at April 30, 1998. The improvement in working capital resulted as operating earnings for the year plus depreciation expense exceeded funds used for capital expenditures and cash dividends paid. In January 1999, the Company entered into a new credit facility with another lender replacing the Company's previous revolving credit facility. The new facility allows the Company to borrow up to $3 million under a two-year unsecured revolving credit component and up to $5 million under a seven-year equipment loan component. At April 30, 1999, advances of $939,000 were outstanding under the revolving credit loan. No advances were outstanding under the equipment loan component. Capital expenditures of $3.7 million, $1.5 million, and $1.2 million in fiscal years 1999, 1998, and 1997, respectively, were primarily funded by cash provided by operating activities. Capital expenditures of approximately $4.2 million are planned for fiscal year 2000, primarily for the purchase of production machinery. Fiscal year 2000 expenditures are expected to be funded primarily by cash provided by operating activities during the year supplemented as needed by borrowings under the credit facility. In the third quarter of fiscal year 1999, the Company increased its quarterly cash dividend to six cents per share from five cents per share. Dividends in the amount of five cents per share were declared and paid in the last two quarters of fiscal year 1998, and dividends in the amount of four cents per share were declared and paid in the first two quarters of that year. The Company plans to pay future dividends in line with the Company's actual and anticipated future operating results. Year 2000. Kewaunee Scientific Corporation understands the importance of being prepared for the year 2000. The scope of the Company's Y2K readiness effort has included: (1) evaluating information technology such as hardware and software; (2) investigating other systems or embedded technology contained in various manufacturing, environmental and safety systems, and facilities; (3) assessing the readiness of key third parties, including suppliers and utility vendors; and (4) determining the need for contingency plans, and developing such plans if considered appropriate. The Company established project teams to address the Y2K issue. Through the efforts of the individuals on these teams, key components in both information technology systems and in non-IT systems were inventoried and assessed for compliance, and plans were implemented for any required system modifications or replacements. The majority of the Company's major business systems were Y2K compliant as of the beginning of fiscal year 1999, and planned upgrades during fiscal year 1999 made the remainder of the major business systems Y2K compliant. Remediation and testing activities were substantially completed during the 1999 fiscal year, and are scheduled to be fully completed by September 30, 1999. Members of the Y2K project teams have monitored progress of remediation and performed testing for key components. Progress has also been closely monitored by senior management. The Company is in contact with suppliers and other third parties to assure no interruption occurs concerning Y2K compliance issues. Inquiries were made to all suppliers, with the highest priority placed on suppliers that are critical to the business. For those suppliers that were either determined to be critical to the business or those that were not considered to be making sufficient progress in becoming Y2K compliant in a timely manner, the Company is currently assessing various potential risks and whether contingency plans are appropriate. While the Company does not anticipate a major interruption of its business activities because of the Y2K issue, the greatest exposure to risk will most likely be associated with a supplier rather than due to an internal failure. Although actions described above have been performed to address third party issues, the Company is not able to require compliance actions by such parties, and the Company is not in a position to identify or avoid all possible scenarios. The Company's assessment of whether contingency plans are necessary will continue through calendar year 1999 as the Company learns more about the preparation and vulnerabilities of third parties. If considered necessary, such plans will be put in place prior to December 30, 1999. Due to the large number of variables involved, the Company cannot provide an estimate of potential damages related to possible Y2K failures. The Company's expenditures related to Y2K compliance are expected to be less than $100,000, and substantially all of the expenditures were made in fiscal year 1999 and reflected in the financial statements for that year. Recent Accounting Standards. In fiscal year 1999, the Company adopted SFAS No. 130 "Reporting Comprehensive Income"; SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information"; and SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 130, which is solely a financial statement presentation standard, relates to non- owner changes included in equity and had no impact on the Company's financial statements. SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and in interim financial reports issued to stockholders. The Company has provided the disclosures needed to conform with its requirements in Note 8 of the Financial Statements. SFAS No. 132 only modifies the financial disclosures related to the Company's pension and postretirement benefit obligations and does not impact the measurement of such obligations. Page 7 Statements of Operations ===============================================================================
Kewaunee Scientific Corporation Years Ended April 30 $ and shares in thousands, except per share data 1999 1998 1997 - ------------------------------------------------------------------------------- Net sales $77,478 $73,037 $61,961 Costs of products sold 59,782 55,600 47,996 - ------------------------------------------------------------------------------- Gross profit 17,696 17,437 13,965 Operating expenses 12,315 13,096 11,496 - ------------------------------------------------------------------------------- Operating earnings 5,381 4,341 2,469 Other income, net 325 45 41 Interest expense (96) (149) (344) - ------------------------------------------------------------------------------- Earnings before income taxes 5,610 4,237 2,166 Income tax expense (benefit) 2,214 1,674 (97) - ------------------------------------------------------------------------------- Net earnings $ 3,396 $ 2,563 $ 2,263 =============================================================================== Net earnings per share Basic $ 1.40 $ 1.07 $ 0.96 Diluted $ 1.38 $ 1.06 $ 0.95 =============================================================================== Weighted average number of common shares outstanding Basic 2,432 2,386 2,366 Diluted 2,464 2,423 2,391 ===============================================================================
Statements of Stockholders' Equity ======================================================================================================= Kewaunee Scientific Corporation Years Ended April 30 Additional Total $ in thousands, except per Common Paid-in Retained Treasury Stockholders' share data Stock Capital Earnings Stock Equity - ------------------------------------------------------------------------------------------------------- Balance at April 30, 1996 $6,550 $116 $ 9,361 $(1,512) $14,515 Net earnings 2,263 - 2,263 Cash dividends declared, $.08 per share - - (189) - (189) Purchase of treasury stock, 125 shares - - - (3) (3) - ------------------------------------------------------------------------------------------------------- Balance at April 30, 1997 $6,550 $116 $11,435 $(1,515) $16,586 - ------------------------------------------------------------------------------------------------------- Net earnings - - 2,563 - 2,563 Cash dividends declared, $.18 per share - - (430) - (430) Stock options exercised, 48,875 shares - 28 - 292 320 - ------------------------------------------------------------------------------------------------------- Balance at April 30, 1998 $6,550 $144 $13,568 $(1,223) $19,039 - ------------------------------------------------------------------------------------------------------- Net earnings - - 3,396 - 3,396 Cash dividends declared, $.22 per share - - (535) - (535) Stock options exercised, 21,500 shares - 4 - 128 132 - ------------------------------------------------------------------------------------------------------- Balance at April 30, 1999 $6,550 $148 $16,429 $(1,095) $22,032 - -------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of these Financial Statements. Page 8 Balance Sheets ===============================================================================
Kewaunee Scientific Corporation April 30 ASSETS $ and shares in thousands, except per share data 1999 1998 - ------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 8 $ 1,809 Receivables, less allowance - $387 (1999); $656 (1998) 17,231 13,819 Inventories 2,940 3,710 Deferred income taxes 1,026 1,240 Prepaid expenses and other current assets 626 275 - ------------------------------------------------------------------------------- Total Current Assets 21,831 20,853 - ------------------------------------------------------------------------------- Property, Plant and Equipment Land 109 109 Buildings and improvements 13,556 13,428 Machinery and equipment 16,637 13,526 - ------------------------------------------------------------------------------- Property, plant and equipment 30,302 27,063 Accumulated depreciation (18,177) (17,029) - ------------------------------------------------------------------------------- Net Property, Plant and Equipment 12,125 10,034 - ------------------------------------------------------------------------------- Other Assets 2,079 979 - ------------------------------------------------------------------------------- Total Assets $36,035 $31,866 =============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------- Current Liabilities Short-term borrowings $ 939 $ - Accounts payable 6,566 6,209 Employee compensation and amounts withheld 1,973 2,439 Other accrued expenses 2,194 2,639 - ------------------------------------------------------------------------------- Total Current Liabilities 11,672 11,287 - ------------------------------------------------------------------------------- Deferred Income Taxes 1,074 809 Accrued Employee Benefit Plan Costs 1,257 731 - ------------------------------------------------------------------------------- Total Liabilities 14,003 12,827 - ------------------------------------------------------------------------------- Commitments and Contingencies (Note 7) Stockholders' Equity Common stock, $2.50 par value Authorized- 5,000 shares; Issued- 2,620 shares 6,550 6,550 Additional paid-in-capital 148 144 Retained earnings 16,429 13,568 Common stock in treasury, at cost 184 shares (1999); 205 shares (1998) (1,095) (1,223) - ------------------------------------------------------------------------------- Total Stockholders' Equity 22,032 19,039 - ------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 36,035 $ 31,866 ===============================================================================
The accompanying Notes are an integral part of these Financial Statements. Page 9 Statements of Cash Flows ================================================================================
Kewaunee Scientific Corporation Years Ended April 30 $ in thousands 1999 1998 1997 - ---------------------------------------------------------------------------------- Cash Flows from Operating Activities Net earnings $ 3,396 $ 2,563 $ 2,263 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 1,565 1,312 1,515 Bad debt provision 16 301 298 Deferred income tax expense (benefit) 479 316 ( 617) Decrease (increase) in receivables (3,428) (1,253) 50 Decrease (increase) in inventories 770 1,764 ( 733) (Decrease) increase in accounts payable and accrued expenses ( 554) 1,115 816 Other, net ( 903) 843 578 - ---------------------------------------------------------------------------------- Net cash provided by operating activities 1,341 3,433 4,170 - ---------------------------------------------------------------------------------- Cash Flows from Investing Activities Capital expenditures (3,678) (1,520) (1,163) - ---------------------------------------------------------------------------------- Net cash used in investing activities (3,678) (1,520) (1,163) - ---------------------------------------------------------------------------------- Cash Flows from Financing Activities Dividends paid ( 535) ( 430) ( 189) Net (decrease) increase in short-term borrowings 939 - (2,320) Proceeds from exercise of stock options (including tax benefit) 132 320) - Repayment of long-term debt - - ( 508) - ---------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 536 ( 110) (3,017) - ---------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents (1,801) 1,803 ( 10) Cash and Cash Equivalents at Beginning of Year 1,809 6 16 - ---------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 8 $1,809) $ 6 ================================================================================== Supplemental Disclosure of Cash Flow Information Interest paid $ 82 $ 144 $ 311 Income taxes paid 2,321 1,518 58 ==================================================================================
The accompanying Notes are an integral part of these Financial Statements. Page 10 Notes to Financial Statements ================================================================================ Note 1 -- Summary of Significant Accounting Policies. Kewaunee Scientific Corporation (the "Company") is a manufacturer of scientific laboratory and technical workstations, including wood and steel laboratory furniture, fume hoods, worksurfaces, sinks, and other accessories. Sales are made through purchase orders and contracts submitted by customers, the Company's dealers and agents, a national distributor, and competitive bids submitted by the Company. The majority of the Company's products are sold to customers located in North America, primarily within the United States. The majority of the Company's products are used in chemistry, physics, biology, and other general science laboratories in the industrial, commercial, educational, governmental, and healthcare markets. Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. Inventories. Inventories are valued at the lower of cost or market. Cost has been determined using the last-in, first-out (LIFO) method for all inventories. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation is determined for financial reporting purposes, principally on the straight-line method over the estimated useful lives of the individual assets or, for leaseholds, over the terms of the related leases, if shorter. Straight- line and accelerated methods of depreciation have been used for income tax purposes. The lives, by category, generally are as follows: buildings and improvements, 10-40 years; leasehold improvements, 10 years; furniture, fixtures and office equipment, 3-5 years; computer equipment, 3-5 years; factory machinery and vehicles, 5-10 years. Management reviews the carrying value of property, plant and equipment for impairment whenever changes in circumstances or events indicate that such carrying value may not be recoverable. Use of Estimates. The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Significant estimates impacting the accompanying financial statements relate to the allowance for uncollectible accounts receivable, inventory valuation, and pension liabilities. Fair Value of Financial Instruments. The Company's financial instruments include cash and cash equivalents, cash surrender value of life insurance policies, and short-term borrowings. Management believes the carrying value of these assets and liabilities approximate fair value. Sales Recognition. Product sales are generally recognized at the date of shipment. Service revenue for installation of product sold is recognized as the work is performed. Accounts receivable includes retainage in the amounts of $2,025,000 and $2,333,000 at April 30, 1999 and April 30, 1998, respectively, on certain sales made under contractual agreements. Warranty costs are expensed as incurred. Credit Concentration. The Company's 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. Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is provided. 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, 1999, 1998, and 1997 were $913,000, $812,000, and $720,000, respectively. Earnings Per Share. In fiscal year 1998, the Company adopted SFAS No. 128, "Earnings Per Share." Basic earnings per share is based on the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect the assumed exercise and conversion of outstanding options under the Company's stock option plans, except when options have an antidilutive effect. Reclassifications. Certain prior year accounts have been reclassified to conform with current year presentation. Page 11 Recent Accounting Standards. In fiscal year 1999, the Company adopted SFAS No. 130 "Reporting Comprehensive Income"; SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information"; and SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 130, which is solely a financial statement presentation standard, relates to non- owner changes included in equity and had no impact on the Company's financial statements. SFAS No. 131 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and in interim financial reports issued to stockholders. The Company has provided the disclosures needed to conform with its requirements. SFAS No. 132 only modifies the financial disclosures related to the Company's pension and postretirement benefit obligations and does not impact the measurement of such obligations. Note 2 -- Inventories. The Company's inventories at April 30 consisted of:
$ in thousands 1999 1998 --------------------------------------------- Finished goods $ 594 $1,020 Work-in-process 911 1,016 Materials and components 1,435 1,674 --------------------------------------------- Total inventories $2,940 $3,710 =============================================
If inventories had been determined using the first-in, first-out (FIFO) method at April 30, 1999 and 1998, reported inventories would have been $2.2 million greater in each of these years. Note 3 -- Credit Arrangements. On January 6, 1999, the Company entered into a new credit facility, replacing the Company's previous $8.5 million secured revolving credit facility with another lender. The new facility allows the Company to borrow up to $3 million under a two-year unsecured revolving credit component and up to $5 million under a seven-year equipment loan component. All advances under the equipment loan component must be made during the first two years of the agreement and must be secured by qualifying machinery and equipment. The Company provides monthly interest payments under both components of the facility calculated at the lower of (1) the LIBOR Market Index Rate plus 1.75%, or (2) the lender's Prime Rate minus .75%. The borrowing rate was 6.65% at April 30, 1999. Beginning in the third year of the equipment loan, monthly principal payments will be required in 60 equal installments. The equipment loan includes financial covenants with respect to the Company's tangible net worth, funds flow coverage, current ratio, and ratio of liabilities to tangible net worth. At April 30, 1999, advances of $939,000 were outstanding under the revolving credit loan. No advances were outstanding under the equipment loan. Note 4 -- Income Taxes. The income tax expense (benefit) consisted of the following:
$ in thousands 1999 1998 1997 ----------------------------------------------------------------- Current tax expense: Federal $1,417 $1,047 $ 421 State and local 318 311 99 ----------------------------------------------------------------- Total current tax expense 1,735 1,358 520 ----------------------------------------------------------------- Deferred tax expense: Federal $ 395 $ 327 $ 377 State and local 84 (11) 20 ----------------------------------------------------------------- Total deferred tax expense 479 316 397 ----------------------------------------------------------------- Decrease in valuation allowance on deferred tax assets - - (1,014) ----------------------------------------------------------------- Net income tax expense (benefit) $2,214 $1,674 $ (97) =================================================================
Page 12 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 1999 1998 1997 ------------------------------------------------------------------- Income tax expense at statutory rate $1,907 $1,441 $ 736 State and local taxes, net of federal income tax benefit 266 198 78 Decrease in valuation allowance on deferred tax assets - - (1,014) Other 41 35 103 ------------------------------------------------------------------- Net income tax expense (benefit) $2,214 $1,674 $ (97) ===================================================================
The 1997 decrease in the valuation allowance on deferred tax assets occurred as continued profitability and an improved earnings outlook for the Company provided positive evidence to support a reduction in the valuation allowance. Significant items comprising the Company's deferred tax assets and liabilities as of April 30 were as follows:
$ in thousands 1999 1998 ------------------------------------------------------------------ Deferred tax assets: Accrued employee benefit expenses $ 581 $ 766 Allowance for doubtful accounts 168 272 Inventory reserves and capitalized costs 234 243 Other 43 128 ------------------------------------------------------------------ Total deferred tax assets 1,026 1,409 ------------------------------------------------------------------ Deferred tax liabilities: Book basis in excess of tax basis of property, plant and equipment (1,074) (978) ------------------------------------------------------------------ Total deferred tax liabilities (1,074) (978) ------------------------------------------------------------------ Net deferred tax assets (liabilities) $ (48) $ 431 ==================================================================
Note 5 -- Stock Options. During fiscal year 1992, stockholders approved the 1991 Key Employee Stock Option Plan. During fiscal year 1997, stockholders approved an amendment to increase the number of shares available for options under the plan from 130,000 to 230,000. Options are granted at not less than the fair market value at the date of grant. Options are exercisable in such installments, for such terms (up to 10 years), and at such times, as the Board of Directors may determine at the time of the grant. At April 30, 1999, there were 65,000 shares available for future grants under the plan. During fiscal year 1994, the stockholders approved the 1993 Stock Option Plan for Directors. This plan allows the Company to grant options on 40,000 shares of the Company's common stock. Each non-employee director of the Company is eligible to receive an option to purchase 5,000 shares of the Company's common stock on the effective date of the plan or on the date of commencement of service as a director. Options are exercisable in four equal, annual installments and expire five years from the date of grant. Options are granted at the fair market value at the date of grant. At April 30, 1999, there were 10,000 shares available for future grants under the plan. The Company utilized treasury stock to satisfy the stock options exercised during fiscal years 1999, 1998, and 1997. Stock option activity and weighted average exercise price is summarized as follows:
1999 1998 1997 Options Price Options Price Options Price - --------------------------------------------------------------------------------------------- Outstanding at beginning of year 110,250 $ 4.48 151,375 $3.69 176,500 $3.49 Granted 35,750 12.00 24,500 8.13 26,000 3.88 Canceled - - (16,750) 4.50 (51,000) 5.22 Exercised (21,500) 3.25 (48,875) 3.88 (125) 2.31 - --------------------------------------------------------------------------------------------- Outstanding at end of year 124,500 $ 6.85 110,250 $4.48 151,375 $3.69 ============================================================================================= Exercisable at end of year 46,304 $ 4.34 43,625 $3.90 66,750 $4.06 =============================================================================================
Page 13 The options outstanding and weighted average exercise price within the following price ranges at April 30, 1999 are as follows:
Exercise price range $2.31 - $3.25 $3.87 - $4.62 $8.13 - $12.00 ------------------------------------------------------------------------------------------------------- Options outstanding 22,750 43,500 58,250 Weighted average exercise price $2.68 $4.13 $10.50 Weighted average remaining contractual life (years) 6.1 6.0 8.9 -------------------------------------------------------------------------------------------------------
The options exercisable and weighted average exercise price within the following price ranges at April 30, 1999 are as follows:
Exercise price range $2.31 - $3.25 $3.87 - $4.62 $8.13 - $12.00 ------------------------------------------------------------------------------------------------------- Options exercisable 11,425 29,250 5,629 Weighted average exercise price $2.68 $4.26 $8.13 -------------------------------------------------------------------------------------------------------
Fair Value Disclosures. The Company applies APB Opinion No. 25 and its related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for these plans. Had compensation costs for these plans been determined based on the fair value at the grant dates for awards under the plans consistent with the method of SFAS No. 123, the Company's net earnings and net earnings per share for fiscal years 1999, 1998, and 1997 would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 ------------------------------------------------------------ Net earnings (in thousands) As reported $3,396 $2,563 $2,263 Pro forma 3,332 2,539 2,239 ============================================================ Net earnings per share - Basic As reported $ 1.40 $ 1.07 $ 0.96 Pro forma 1.37 1.06 0.95 ============================================================ Net earnings per share - Diluted As reported $ 1.38 $ 1.06 $ 0.95 Pro forma 1.35 1.05 0.94 ============================================================
The estimated weighted average fair value of options granted under the Company's stock option plans was $5.91 in 1999, $3.96 in 1998, and $1.54 in 1997. The options were valued using the Black-Scholes option-pricing model with the following assumptions used for 1999, 1998, and 1997: dividend yield of 2.0%, 2.0%, and 4.0%; expected volatility of 52%, 49%, and 48%; risk-free interest of 5.20%, 6.27%, and 6.63%; and an expected life of 7.25 years. Note 6 -- Retirement Benefits. The Company has non-contributory defined benefit pension plans covering substantially all salaried and hourly employees. The defined benefit plan for salaried employees provides pension benefits that are based on each employee's years of service and average annual compensation during the last 10 consecutive calendar years of employment. The benefit plan for hourly employees provides benefits at stated amounts based on years of service. The Company's funding policy is to make quarterly contributions to fund the plans during the participant's working lifetime, which have met ERISA's funding requirements. Plan assets consist primarily of common stocks, government securities, and fixed-income funds. 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 six months of service, and who elect to participate. The Company makes matching contributions equal to 50% of the qualifying employee contribution, up to a maximum employer contribution of 2% of the participant's compensation. Contributions by the Company in fiscal years 1999, 1998, and 1997 were $213,000, $197,000, and $185,000, respectively. Page 14 The change in benefit obligations and the change in fair value of plan assets for the non-contributory defined pension plans for each of the years ended April 30 are summarized as follows:
$ in thousands 1999 1998 --------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATIONS Benefit obligations, beginning of year $6,924 $5,745 Service cost 340 254 Interest cost 512 451 Actuarial loss 270 739 Actual benefits paid (272) (265) --------------------------------------------------------------------------------------- Benefit obligations, end of year $7,774 $6,924 ======================================================================================= CHANGE IN PLAN ASSETS Fair value of plan assets, beginning of year $6,396 $5,179 Actual return on plan assets 51 1,284 Actual company contributions 832 198 Actual benefits paid (272) (265) --------------------------------------------------------------------------------------- Fair value of plan assets, end of year $7,007 $6,396 ======================================================================================= FUNDED STATUS AND PREPAID (ACCRUED) Funded status of plans $ (767) $ (528) Unrecognized net transition obligation (32) (64) Unrecognized prior service cost 95 107 Unrecognized net loss 916 134 --------------------------------------------------------------------------------------- Prepaid (accrued) pension cost $ 212 $ (351) ======================================================================================= AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION --------------------------------------------------------------------------------------- Prepaid (accrued) pension cost $ 212 $ (351) ======================================================================================= WEIGHTED-AVERAGE ASSUMPTIONS Discount rate, end of year 7.25% 7.25% Expected return on plan assets 9.00% 9.00% Rate of compensation increase 5.00% 5.00% =======================================================================================
The components of the net periodic pension costs for each of the three years ended April 30 are as follows:
NET PERIODIC PENSION COST 1999 1998 1997 --------------------------------------------------------------------------------------- Service cost $ 340 $ 254 $ 259 Interest cost 512 451 412 Expected return on plan assets (582) (464) (406) Amortization of transition asset (32) (32) (32) Amortization of prior service cost 11 11 11 Recognition of net loss 19 15 14 --------------------------------------------------------------------------------------- Net periodic pension cost $ 268 $ 235 $ 258 =======================================================================================
Note 7 -- Commitments and Contingencies. The Company is involved in certain claims and legal proceedings in the normal course of business which management believes will not have a material adverse effect on the financial condition or results of operations of the Company. The Company has entered into various operating lease agreements for machinery and equipment. Most leases provide the Company with certain early cancellation rights, as well as renewal and purchase options. Rent expense was $577,000, $556,000, and $421,000 in fiscal years 1999, 1998, and 1997, respectively. Page 15 Under the terms of these agreements, future minimum lease payments for the years ended April 30 are as follows:
$ in thousands Amount ----------------------------------------------------- 2000 $ 596 2001 361 2002 190 2003 171 2004 158 Thereafter 31 ----------------------------------------------------- Total minimum lease payments $1,507 =====================================================
Note 8 -- Segment Information. The Company's operations are classified into two business segments: laboratory products and technical products. The laboratory products segment principally designs, manufactures, and installs steel and wood laboratory furniture, worksurfaces, and fume hoods. The technical products segment principally manufactures and sells technical furniture including workstations, workbenches, computer enclosures, and related accessories to support local area computer networks and for the storage and assembly of computers and light electronics. Sales to individual foreign countries did not exceed 1% of any segment sales. Profits by business segment represent net revenues, less costs associated with goods sold and operating expenses. Intersegment transactions are recorded at normal profit margins with appropriate eliminations of intercompany profits. Portions of corporate expenses are included in each segment. Unallocated corporate expenses are included in the corporate column below. Corporate assets include LIFO inventory reserve, fixed assets, deferred tax assets, prepaid expenses, and cash surrender value of life insurance policies. The following table shows net sales, profits, and other financial information by business segment for the fiscal years ended April 30, 1999, 1998, and 1997 (in thousands):
Laboratory Technical Products Products Corporate Total ------------------------------------------------- Fiscal Year Ended April 30, 1999: --------------------------------- Revenues from external customers $67,633 $ 9,845 $ - $77,478 Intersegment revenues - 424 (424) - Depreciation 1,322 236 7 1,565 Segment profit 5,239 567 (196) 5,610 Segment assets 29,243 5,237 1,555 36,035 Expenditures for segment fixed assets 3,524 154 - 3,678 Net sales to customers in foreign countries 1,897 1,115 - 3,012 Fiscal Year Ended April 30, 1998: --------------------------------- Revenues from external customers $62,598 $10,439 $ - $73,037 Intersegment revenues - 782 (782) - Depreciation 1,100 205 7 1,312 Segment profit 3,696 1,315 (774) 4,237 Segment assets 24,587 5,339 1,940 31,866 Expenditures for segment fixed assets 1,261 259 - 1,520 Net sales to customers in foreign countries 984 2,525 - 3,509 Fiscal Year Ended April 30, 1997: --------------------------------- Revenues from external customers $53,671 $ 8,290 $ - $61,961 Intersegment revenues - 1,057 (1,057) - Depreciation 1,290 211 14 1,515 Segment profit 1,873 978 (685) 2,166 Segment assets 22,685 4,557 (243) 26,999 Expenditures for segment fixed assets 1,047 109 7 1,163 Net sales to customers in foreign countries 1,000 299 - 1,299
Revenues from one customer of the Company represented 12%, 13%, and 14% of the Company's total sales in fiscal years 1999, 1998, and 1997, respectively. Page 16 Report of Independent Accountants ================================================================================ To the Stockholders and Board of Directors of Kewaunee Scientific Corporation In our opinion, the accompanying balance sheets and the related statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Kewaunee Scientific Corporation (the "Company") at April 30, 1999 and 1998 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The financial statements of the Company for the year ended April 30, 1997 were audited by other independent accountants whose report dated June 4, 1997 expressed an unqualified opinion on those statements. PRICEWATERHOUSECOOPERS LLP Charlotte, North Carolina June 3, 1999 Management's Report on Financial Statements ================================================================================ To the Stockholders and Board of Directors of Kewaunee Scientific Corporation The financial statements and accompanying notes were prepared by management, which is responsible for their integrity and objectivity. Management believes the financial statements, which include amounts based on judgments and estimates, fairly reflect the Company's financial position and operating results, in accordance with generally accepted accounting principles. All financial information in this annual report is consistent with the financial statements. Management maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are properly recorded and executed in accordance with management's authorization, and that accounting records may be relied upon for the preparation of financial statements and other financial information. The design, monitoring, and revision of internal accounting control systems involve, among other things, management's judgment with respect to the relative cost and expected benefits of specific control measures. The Company's financial statements have been audited by independent accountants who have expressed their opinion with respect to the fairness of those statements. Their audits included consideration of the Company's internal accounting control systems and related policies and procedures. They advise management and the Audit Committee of significant matters resulting from their audits. D. Michael Parker Vice President, Finance Chief Financial Officer Page 17
Summary of Selected Financial Data ================================================================================ Kewaunee Scientific Corporation $ and shares in thousands, except per share data 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- Operating Statement Data: Net sales $77,478 $73,037 $61,961 $57,559 $62,475 Costs of products sold 59,782 55,600 47,996 46,835 52,347 - ------------------------------------------------------------------------------------------------------------- Gross profit 17,696 17,437 13,965 10,724 10,128 Operating expenses 12,315 13,096 11,496 9,827 10,901 - ------------------------------------------------------------------------------------------------------------- Operating earnings (loss) 5,381 4,341 2,469 897 (773) Other income, net 325 45 41 158 230 Interest expense (96) (149) (344) (694) (554) - ------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes 5,610 4,237 2,166 361 (1,097) Income tax expense (benefit) 2,214 1,674 (97) - - - ------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 3,396 $ 2,563 $ 2,263 $ 361 $(1,097) ============================================================================================================= Weighted average shares outstanding Basic 2,432 2,386 2,366 2,367 2,367 Diluted 2,464 2,423 2,391 2,372 2,367 ============================================================================================================= Per Share Data: Net earnings (loss) Basic $ 1.40 $ 1.07 $ 0.96 $ 0.15 $ (0.46) Diluted 1.38 1.06 0.95 0.15 (0.46) Cash dividends 0.22 0.18 0.08 - - Year-end book value 9.04 7.89 7.01 6.13 5.98 ============================================================================================================= Balance Sheet Data: Current assets $21,831 $20,853 $16,465 $15,646 $18,430 Current liabilities 11,672 11,287 9,460 10,599 11,702 Net working capital 10,159 9,566 7,005 5,047 6,728 Net property, plant and equipment 12,125 10,034 9,826 10,308 11,120 Total assets 36,035 31,866 26,991 26,504 30,074 Total borrowings/long-term debt 939 - - 2,648 5,445 Stockholders' equity 22,032 19,039 16,586 14,515 14,154 ============================================================================================================= Other Data: Capital expenditures $ 3,678 $ 1,520 $ 1,163 $ 812 $ 840 Year-end stockholders of record 349 365 392 409 439 Year-end employees 643 619 560 499 575 =============================================================================================================
Page 18 Quarterly Financial Data (unaudited) ===============================================================================
Selected quarterly financial data for fiscal years 1999 and 1998 were as follows: $ in thousands, First Second Third Fourth except per share data Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------- 1999 Net sales $19,624 $19,253 $18,404 $20,197 Gross profit 4,422 4,024 4,102 5,148 Net earnings 766 605 635 1,390 Net earnings per share Basic 0.32 0.25 0.26 0.57 Diluted 0.31 0.25 0.26 0.56 Cash dividends per share 0.05 0.05 0.06 0.06 - --------------------------------------------------------------------------------- 1998 Net sales $17,662 $18,442 $17,333 $19,600 Gross profit 4,138 3,953 4,343 5,003 Net earnings 559 541 583 880 Net earnings per share Basic 0.24 0.23 0.24 0.37 Diluted 0.23 0.22 0.23 0.36 Cash dividends per share 0.04 0.04 0.05 0.05 - ---------------------------------------------------------------------------------
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 - ------------------------------------------------------------------------------- 1999 High 14 1/2 13 13 1/4 11 1/8 Low 9 3/4 9 1/2 10 9 Close 11 7/16 12 3/4 11 3/8 10 1/8 - ------------------------------------------------------------------------------- 1998 High 7 5/8 13 3/4 13 14 1/4 Low 5 7 1/4 9 9 1/8 Close 7 1/4 12 1/4 10 1/2 12 5/8 - -------------------------------------------------------------------------------
Page 19 Corporate Information ============================================================================= Board of Directors Margaret Barr Bruemmer (1)(2)(3) Attorney Milwaukee, WI Wiley N. Caldwell (3)(4) Retired President W. W. Grainger, Inc. Kenilworth, IL John C. Campbell, Jr. (1)(2) Private Consultant Arlington, TX Kingman Douglass (2)(3)(4) Corporate Counselor Summerland, CA Eli Manchester, Jr. (1)(3) President/CEO Kewaunee Scientific Corporation Statesville, NC Thomas F. Pyle (3)(4) Chairman The Pyle Group, LLC Madison, WI James T. Rhind (1)(4) Counsel to Bell, Boyd & Lloyd Attorneys Chicago, IL (1) Executive Committee (2) Audit Committee (3) Financial/Planning Committee (4) Compensation Committee Corporate Offices 2700 West Front Street, Statesville, NC 28677-2927 P.O. Box 1842, Statesville, NC 28687-1842 Telephone: 704-873-7202 Executive Officers Eli Manchester, Jr. President and Chief Executive Officer William A. Shumaker Executive Vice President and Chief Operating Officer D. Michael Parker Vice President, Finance, Chief Financial Officer, Treasurer, Secretary James J. Rossi Vice President, Human Resources T. Ronald Gewin Vice President and General Manager Technical Products Group Kurt P. Rindoks Vice President, Engineering and General Manager Resin Materials Division Laboratory Products Group [PHOTO OF CORPORATE EXECUTIVE OFFICERS] Corporate Executive Officers (left to right): James J. Rossi; William A. Shumaker; Eli Manchester, Jr.; D. Michael Parker; Kurt P. Rindoks; T. Ronald Gewin Employment Opportunities Individuals interested in employment with Kewaunee Scientific Corporation should contact the Vice President of Human Resources, Kewaunee Scientific Corporation, P.O. Box 1842, Statesville, NC 28687-1842. Employment opportunities are also listed on the Internet at http://www.kewaunee.com. Kewaunee Scientific Corporation is an equal opportunity employer. Page 20 Stockholder Information Financial Information The Company's Form 10-K financial report, filed annually with the Securities and Exchange Commission, may be obtained by stockholders without charge by writing the Secretary of the Company, Kewaunee Scientific Corporation, P.O. Box 1842, Statesville, NC 28687-1842. Recent financial information is available on the Internet at http://www.kewaunee.com. Independent Accountants PricewaterhouseCoopers LLP Charlotte, NC Notice of Annual Meeting The Annual Meeting of Stockholders of Kewaunee Scientific Corporation will be held in the 37th floor Annual Meeting Room at Harris Trust & Savings Bank, Chicago, IL on August 25, 1999 at 10:00 a.m. Central Daylight Time. Transfer Agent and Registrar All stockholder inquiries, including transfer-related matters, should be directed to: ChaseMellon Shareholder Services, LLC Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 800-288-9541 Internet at http://www.chasemellon.com Product Information Kewaunee Scientific Corporation products are available through a network of sales representatives and a national stocking distributor. For more information on the Company's laboratory products, contact the Marketing Services Department in Statesville, North Carolina; telephone: 704-873-7202; on the Internet at http://www.kewaunee.com; e-mail: marketing@kewaunee.com. For more information on the Company's technical products, contact the Company's Lockhart, Texas operations; telephone: 512-398-5292; on the Internet at http://www.kewaunee.com; e-mail: marketing@kewaunee.com. Trademarks Advantage, Alpha, BasikBench, Discover, Evolution, Explorer, Kemresin, Kemrock, Kemshield, Signature, Silhouette, Sturdilite, Supreme Air, TechStat, The Research Collection, Trademark, and Visionaire are registered trademarks of Kewaunee Scientific Corporation. FlexTech, and CFHS are pending trademarks of Kewaunee Scientific Corporation. [Superimposed Photo of Laboratory Workstation] [Background Photo of Laboratory Setting] [Superimposed Photo of Laboratory Workstation] [Superimposed Photo of Laboratory Workstation] EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR APR-30-1999 MAY-01-1998 APR-30-1999 8 0 17,618 387 2,940 21,831 30,302 18,177 36,035 11,672 0 0 0 6,550 15,482 36,035 77,478 77,478 59,782 59,782 12,315 0 96 5,610 2,214 3,396 0 0 0 3,396 1.40 1.38
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