<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 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
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<TABLE>
<CAPTION>
Table of Contents Page or Reference
----------------- -----------------
<S> <C>
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
</TABLE>
2
<PAGE>
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
<PAGE>
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
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Item 2. Properties
- -------------------
The Registrant owns and operates three plants in Statesville, North
Carolina and one in Lockhart, Texas. The plants are involved in the production
of the Registrant's products.
The plants in Statesville, North Carolina are located in three
separate adjacent buildings which contain manufacturing facilities. Sales and
marketing, administration, engineering and drafting personnel and facilities are
also located in two of the three buildings. The Registrant's corporate offices
are located in the largest building. The plant buildings together comprise
approximately 382,000 square feet and are located on approximately 20 acres of
land. In addition, the Registrant leases 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
<PAGE>
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
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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
<PAGE>
Kurt P. Rindoks joined the Registrant in July 1985 as an engineer and
was promoted to Director of Engineering in July 1989 and to Director of Product
Development in May 1992. He served as Vice President of Engineering and New
Product Development for the Laboratory Products Group from September 1996
through April 1998 and has served as Vice President of Engineering and General
Manager of the Resin Materials Division for the Laboratory Products Group since
May 1998.
Item 11. Executive Compensation
- -------------------------------
Incorporated by reference from the Registrant's proxy statement for
use in connection with its annual meeting of stockholders to be held on August
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
<PAGE>
"PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
- ------------------------------------------------------------
on Form 8-K
-----------
The following documents are filed or incorporated by reference as part
of this report:
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
<PAGE>
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
<PAGE>
Schedule II, Page 1
Kewaunee Scientific Corporation
Valuation and Qualifying Accounts
($ in thousands)
<TABLE>
<CAPTION>
Charged
Balance (Credited)
at to Costs Balance
Beginning and at End
Description of Period Expenses Deductions* of Period
----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended April 30, 1999
Allowance for doubtful accounts $656 $ 16 $(285) $387
========= ======== =========== =========
Year ended April 30, 1998
Allowance for doubtful accounts $770 $301 $(415) $656
========= ======== =========== =========
</TABLE>
* Uncollectible accounts written off, net of recoveries.
11
<PAGE>
Schedule II, Page 2
Kewaunee Scientific Corporation
Valuation and Qualifying Accounts
($ in thousands)
<TABLE>
<CAPTION>
Charged
Balance (Credited)
at to Costs Balance
Beginning and at End
Description of Period Expenses Deductions* of Period
----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended April 30, 1997
Allowance for doubtful accounts $561 $298 $( 89) $770
========= ======== =========== =========
</TABLE>
* Uncollectible accounts written off, net of recoveries.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KEWAUNEE SCIENTIFIC CORPORATION
By:/s/ Eli Manchester, Jr.
---------------------------------------
Eli Manchester, Jr.
President and Chief Executive Officer
Date: July 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.
<TABLE>
<S> <C> <C>
(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 )
</TABLE>
S-1
<PAGE>
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>
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>
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
<PAGE>
Footnotes
---------
(1) Appearing only in the manually signed, original Form 10-K filed with the
Securities and Exchange Commission.
(2) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to
the Securities and Exchange Commission on Form 10-K (Commission File No. 0-
5286) for the fiscal year ended April 30, 1987, and incorporated herein by
reference.
(3) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to
the Securities and Exchange Commission on Form 10-K (Commission File No. 0-
5286) for the fiscal year ended April 30, 1985, and incorporated herein by
reference.
(4) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to
the Securities and Exchange Commission on Form 10-K (Commission File No. 0-
5286) for the fiscal year ended April 30, 1985, and incorporated herein by
reference.
(5) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement
dated July 26, 1991, and incorporated herein by reference.
(6) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to
the Securities and Exchange Commission on Form 10-K (Commission File No. 0-
5286) for the fiscal year ended April 30, 1992, and incorporated herein by
reference.
(7) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to
the Securities and Exchange Commission on Form 10-K (Commission File No. 0-
5286) for the fiscal year ended April 30, 1993, and incorporated herein by
reference.
(8) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement
dated July 23, 1993, and incorporated herein by reference.
(9) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to
the Securities and Exchange Commission on Form 10-K (Commission File No. 0-
5286) for the fiscal year ended April 30, 1994, and incorporated herein by
reference.
(10) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to
the Securities and Exchange Commission on Form 10-K (Commission File No. 0-
5286) for the fiscal year ended April 30, 1995, and incorporated herein by
reference.
(11) Filed as an exhibit to the Kewaunee Scientific Corporation Annual Report to
the Securities and Exchange Commission on Form 10-K (Commission File No. 0-
5286) for the fiscal year ended April 30, 1996, and incorporated herein by
reference.
(12) Filed as an exhibit to the Kewaunee Scientific Corporation Proxy Statement
dated July 31, 1996, and incorporated herein by reference.
(13) Filed as an exhibit to the Kewaunee Scientific Corporation 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
<PAGE>
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
--------------------------------------
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
b. Non-divisional Corporate Pool
-----------------------------
A pool will start accumulating once pre-tax earnings reach the amounts
shown on Exhibit IV, and maximum bonus payouts will be accrued and
available for payout based upon the guidelines shown on that exhibit.
3. Bonus Payout Conditions
-----------------------
If the Company achieves pre-tax earnings less than the amount shown as
Goal 1 on Exhibit IV, no awards will be paid to any non-divisional
corporate employee, except 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
<PAGE>
A participant must be an employee of the Company on the day of the
bonus payout to be eligible to receive a bonus. In unusual
circumstances, however, the Board of Directors, upon recommendation by
the Compensation Committee, may grant a discretionary bonus.
The Board of Directors, upon recommendation by the Compensation
Committee, may approve the pro rata participation of a participant who
joins the Company or who is appointed to a key position within the
Company after the outset of the Plan year, with a pro rata increase in
the bonus pool.
4. Participant's Bonus Potential
-----------------------------
Each participant's bonus potential will be comprised of the following:
A Fixed Bonus equal to 75% of each participant's bonus potential will be
based on achievement of corporate or divisional pre-tax earnings goals, as
set forth in the Plan, and
A Discretionary Bonus up to the remaining 25% of each participant's bonus
potential will be calculated, taking into account the participant's MBO
achievements and other relevant factors during the year. The
discretionary portion of each participant's bonus will take into account
the participant's achievement of management goals established, and
weighted, in July 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
<PAGE>
[LOGO] KEWAUNEE/R/
Scientific Corporation
[Background Photo of [Superimposed Photo of
Laboratory Setting] Laboratory Workstation]
[Superimposed Photo of
Laboratory Workstation]
1999 ANNUAL REPORT
<PAGE>
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.
<PAGE>
Financial Highlights
================================================================================
Kewaunee Scientific Corporation
<TABLE>
<CAPTION>
Percent
$ in thousands, except per share data 1999 1998 Change
- ----------------------------------------------------------------------
<S> <C> <C> <C>
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>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
[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
<PAGE>
Special Note Regarding Forward-Looking Statements
================================================================================
Certain statements in this annual report, including the Letter to Stockholders,
narrative text, captions and Management's Discussion and Analysis of Financial
Condition and Results of Operations, constitute "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that could significantly impact results or
achievements expressed or implied by such forward-looking statements. These
factors include, but are not limited to, economic, competitive, governmental,
and technological factors, 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
<PAGE>
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
<PAGE>
Statements of Operations
===============================================================================
<TABLE>
<CAPTION>
Kewaunee Scientific Corporation Years Ended April 30
$ and shares in thousands, except per share data 1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
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
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
Page 8
<PAGE>
Balance Sheets
===============================================================================
<TABLE>
<CAPTION>
Kewaunee Scientific Corporation April 30
ASSETS $ and shares in thousands, except per share data 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
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
===============================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
Page 9
<PAGE>
Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Kewaunee Scientific Corporation Years Ended April 30
$ in thousands 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
Page 10
<PAGE>
Notes to Financial Statements
================================================================================
Note 1 -- Summary of Significant Accounting Policies. Kewaunee Scientific
Corporation (the "Company") is a manufacturer of scientific laboratory and
technical workstations, including wood and steel laboratory furniture, fume
hoods, worksurfaces, sinks, and other accessories. Sales are made through
purchase orders and contracts submitted by customers, the Company's dealers and
agents, a national distributor, and competitive bids submitted by the Company.
The majority of the Company's products are sold to customers located in North
America, primarily within the United States. The majority of the Company's
products are used in chemistry, physics, biology, and other general science
laboratories in the industrial, commercial, educational, governmental, and
healthcare markets.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand and
highly liquid investments with original maturities of three months or less.
Inventories. Inventories are valued at the lower of cost or market. Cost has
been determined using the last-in, first-out (LIFO) method for all inventories.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
Depreciation is determined for financial reporting purposes, principally on the
straight-line method over the estimated useful lives of the individual assets
or, for leaseholds, over the terms of the related leases, if shorter. Straight-
line and accelerated methods of depreciation have been used for income tax
purposes. The lives, by category, generally are as follows: buildings and
improvements, 10-40 years; leasehold improvements, 10 years; furniture, fixtures
and office equipment, 3-5 years; computer equipment, 3-5 years; factory
machinery and vehicles, 5-10 years. Management reviews the carrying value of
property, plant and equipment for impairment whenever changes in circumstances
or events indicate that such carrying value may not be recoverable.
Use of Estimates. The presentation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Significant estimates impacting the accompanying financial statements relate to
the allowance for uncollectible accounts receivable, inventory valuation, and
pension liabilities.
Fair Value of Financial Instruments. The Company's financial instruments include
cash and cash equivalents, 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
<PAGE>
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:
<TABLE>
<CAPTION>
$ in thousands 1999 1998
---------------------------------------------
<S> <C> <C>
Finished goods $ 594 $1,020
Work-in-process 911 1,016
Materials and components 1,435 1,674
---------------------------------------------
Total inventories $2,940 $3,710
=============================================
</TABLE>
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:
<TABLE>
<CAPTION>
$ in thousands 1999 1998 1997
-----------------------------------------------------------------
<S> <C> <C> <C>
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)
=================================================================
</TABLE>
Page 12
<PAGE>
The reasons for the differences between the above net income tax expense
(benefit) and the amounts computed by applying the statutory federal income tax
rates to earnings before income taxes are as follows:
<TABLE>
<CAPTION>
$ in thousands 1999 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C>
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)
===================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
$ in thousands 1999 1998
------------------------------------------------------------------
<S> <C> <C>
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
==================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
Options Price Options Price Options Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
=============================================================================================
</TABLE>
Page 13
<PAGE>
The options outstanding and weighted average exercise price within the following
price ranges at April 30, 1999 are as follows:
<TABLE>
<CAPTION>
Exercise price range $2.31 - $3.25 $3.87 - $4.62 $8.13 - $12.00
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
-------------------------------------------------------------------------------------------------------
</TABLE>
The options exercisable and weighted average exercise price within the following
price ranges at April 30, 1999 are as follows:
<TABLE>
<CAPTION>
Exercise price range $2.31 - $3.25 $3.87 - $4.62 $8.13 - $12.00
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options exercisable 11,425 29,250 5,629
Weighted average exercise price $2.68 $4.26 $8.13
-------------------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------
<S> <C> <C> <C>
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
============================================================
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
$ in thousands 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
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%
=======================================================================================
</TABLE>
The components of the net periodic pension costs for each of the three
years ended April 30 are as follows:
<TABLE>
<CAPTION>
NET PERIODIC PENSION COST 1999 1998 1997
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
=======================================================================================
</TABLE>
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
<PAGE>
Under the terms of these agreements, future minimum lease payments for the years
ended April 30 are as follows:
<TABLE>
<CAPTION>
$ in thousands Amount
-----------------------------------------------------
<S> <C>
2000 $ 596
2001 361
2002 190
2003 171
2004 158
Thereafter 31
-----------------------------------------------------
Total minimum lease payments $1,507
=====================================================
</TABLE>
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):
<TABLE>
<CAPTION>
Laboratory Technical
Products Products Corporate Total
-------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
Summary of Selected Financial Data
================================================================================
Kewaunee Scientific Corporation
$ and shares in thousands,
except per share data 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
=============================================================================================================
</TABLE>
Page 18
<PAGE>
Quarterly Financial Data (unaudited)
===============================================================================
<TABLE>
<CAPTION>
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
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- ---------------------------------------------------------------------------------
</TABLE>
Range of Market Prices
================================================================================
Kewaunee's common stock is traded in the NASDAQ/Over-the-Counter Market, under
the symbol KEQU. The following table sets forth the quarterly high and low
prices reported on the NASDAQ National Market System.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------
</TABLE>
Page 19
<PAGE>
Corporate Information
=============================================================================
Board of Directors
Margaret Barr Bruemmer (1)(2)(3)
Attorney
Milwaukee, WI
Wiley N. Caldwell (3)(4)
Retired President
W. W. Grainger, Inc.
Kenilworth, IL
John C. Campbell, Jr. (1)(2)
Private Consultant
Arlington, TX
Kingman Douglass (2)(3)(4)
Corporate Counselor
Summerland, CA
Eli Manchester, Jr. (1)(3)
President/CEO
Kewaunee Scientific Corporation
Statesville, NC
Thomas F. Pyle (3)(4)
Chairman
The Pyle Group, LLC
Madison, WI
James T. Rhind (1)(4)
Counsel to Bell, Boyd & Lloyd
Attorneys
Chicago, IL
(1) Executive Committee
(2) Audit Committee
(3) Financial/Planning Committee
(4) Compensation Committee
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
<PAGE>
Stockholder Information
Financial Information
The Company's Form 10-K financial report, filed annually with the Securities and
Exchange Commission, may be obtained by stockholders without charge by writing
the Secretary of the Company, Kewaunee Scientific Corporation, P.O. Box 1842,
Statesville, NC 28687-1842.
Recent financial information is available on the Internet
at http://www.kewaunee.com.
Independent Accountants
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: [email protected].
For more information on the Company's technical products, contact the Company's
Lockhart, Texas operations; telephone: 512-398-5292; on the Internet at
http://www.kewaunee.com; e-mail: [email protected].
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.
<PAGE>
[Superimposed Photo of
Laboratory Workstation]
[Background Photo of
Laboratory Setting]
[Superimposed Photo of
Laboratory Workstation]
[Superimposed Photo of
Laboratory Workstation]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 17,618
<ALLOWANCES> 387
<INVENTORY> 2,940
<CURRENT-ASSETS> 21,831
<PP&E> 30,302
<DEPRECIATION> 18,177
<TOTAL-ASSETS> 36,035
<CURRENT-LIABILITIES> 11,672
<BONDS> 0
0
0
<COMMON> 6,550
<OTHER-SE> 15,482
<TOTAL-LIABILITY-AND-EQUITY> 36,035
<SALES> 77,478
<TOTAL-REVENUES> 77,478
<CGS> 59,782
<TOTAL-COSTS> 59,782
<OTHER-EXPENSES> 12,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 5,610
<INCOME-TAX> 2,214
<INCOME-CONTINUING> 3,396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,396
<EPS-BASIC> 1.40
<EPS-DILUTED> 1.38
</TABLE>
