UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
For the fiscal year ended April 30, 2003
OR
For the transition period from to
Commission file number 0-5286
KEWAUNEE SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
(State or other jurisdiction
of incorporation or organization)
(IRS Employer
Identification No.)
2700 West Front Street
Statesville, North Carolina
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 shares of voting stock held by non-affiliates of the Registrant was approximately $16,269,597 based on the last reported sale price of the Registrant’s Common Stock on October 31, 2002, the last business day of the Registrant’s most recently completed second fiscal quarter. (Only shares beneficially owned by directors of the Registrant (excluding shares subject to options) were excluded as shares held by affiliates. By including or excluding shares owned by anyone, the Registrant does not admit for any other purpose that any person is or is not an affiliate of the Registrant.)
As of July 3, 2003, the Registrant had outstanding 2,482,745 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, 2003, and of the proxy statement for use in connection with Kewaunee Scientific Corporation’s annual meeting of stockholders to be held on August 27, 2003, indicated in this report are incorporated by reference into Parts I, II and III hereof.
PART I
Item 1.
Item 2.
Item 3.
Item 4
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
PART III
Item 10.
Item 11.
Item 13.
Item 14.
PART IV
Item 15.
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
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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, and subsidiaries located in Singapore and Bangalore, India.
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 cabinetry, fume hoods, flexible systems and worksurfaces. Laboratory products are sold principally to pharmaceutical, biotechnology, industrial, chemical and commercial research laboratories, educational institutions, health care institutions, and governmental entities. The technical products segment principally manufactures and sells technical furniture including network metal cabinetry, network storage systems, workstations, workbenches, and computer enclosures. Technical products are sold principally to manufacturing facilities and users of computer and networking furniture. Financial information pertaining to each of the Registrant’s business segments is presented in Note 9, “Segment Information,” at page 24 of the Registrant’s annual report to stockholders for the year ended April 30, 2003, which Note is incorporated herein by reference.
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 manufacturing and 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 International represented 14 percent, 12 percent, and 13 percent of the Registrant’s total sales in fiscal years 2003, 2002 and 2001, respectively.
The Registrant’s order backlog at April 30, 2003 was $51.5 million, as compared to $34.2 million at April 30, 2002 and $35.5 million at April 30, 2001. All but $947,000 of the backlog at April 30, 2003 was scheduled for shipment during fiscal year 2004; however, it may reasonably be expected that
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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 order backlog at April 30, 2003 will be shipped during fiscal year 2004.
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, 2003 on company-sponsored research and development activities related to new products or services or improvement of existing products or services was $721,571. The amounts spent for similar purposes in the fiscal years ended April 30, 2002 and 2001 were $618,273 and $742,860, respectively.
Environmental Compliance
In the last three fiscal years, compliance with federal, state or local provisions enacted or adopted regulating the discharge of materials into the environment has had no material effect on the Registrant. There are no material capital expenditures anticipated for such purposes, and no material effect therefrom is anticipated on the earnings or competitive position of the Registrant.
Employees
The number of persons employed by the Registrant at April 30, 2003 was 543.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements included and referenced in this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could significantly impact results or achievements expressed or implied by such forward-looking statements. These factors include, but are not limited to, economic, competitive, governmental, and technological factors affecting the Company’s operations, markets, products, services, and prices. The cautionary statements made pursuant to the Reform Act herein and elsewhere by the Company should not be construed as exhaustive. The Company cannot always predict what factors would cause actual results to differ materially from those indicated by the forward-looking statements. In addition, readers are urged to consider statements that include the terms “believes,” “belief,” “expects,” “plans,” “objectives,” “anticipates,” “intends” or the like to be uncertain and forward-looking.
The Registrant owns and operates three plants in Statesville, North Carolina. The plants are involved in the production of the Registrant’s products. The plants are located in three separate adjacent buildings, which contain manufacturing facilities and warehouse space. Sales and marketing, administration, engineering and drafting personnel and facilities are also located in each 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, at April 30, 2003, the Registrant leased warehouse facilities totaling 132,000 square feet in Statesville, North Carolina.
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The Company also owns and has for sale two vacant buildings which together comprise approximately 129,000 square feet located on 30 acres in Lockhart, Texas. This property was the site of the Company’s technical products business until this business was relocated to Statesville in fiscal year 2003.
All of the facilities which the Registrant owns are held free and clear of any encumbrances. The Registrant believes its facilities are suitable for their respective uses and are adequate for its current needs.
The Company is involved in a legal dispute with Bernards Bros. Inc., a former customer of the Company. The dispute was the subject of lengthy arbitration proceedings completed in December 2000. In fiscal year 2001, the Company recorded a charge of $391,000, including an estimated liability of $134,000 for final settlement of the matter, based on its interpretation of the Arbitrator’s award. In June 2003, a judgment was entered in the case against the Company and two other defendants identifying the responsibility for the payment of the Arbitrator’s award. The Company continues to analyze the judgment; however, the Company believes its ultimate liability under the judgment approximates the amount previously recorded in the financial statements.
In fiscal year 1998, the Company filed a Complaint against a general contractor to recover certain costs incurred by the Company outside of the scope of a construction contract. On April 28, 2003, an agreement was reached between the Company and the Assistant Attorney General responsible for the New York State University Construction Fund (the “Fund”) for the resolution of this claim. The agreement includes the immediate payment of approximately $500,000 to the Company, with a reservation of the Company’s right to seek additional interest on the agreed upon costs recovered by the Company under the settlement. The agreement remains unenforceable until approval by the Board of Directors of the Fund and additional representatives of the New York State Attorney General’s Office. The Company has been informed orally that such approvals were obtained in the first quarter of fiscal year 2004 and payment of the settlement amount is expected to be received in the first or second quarter of such year. When the settlement is paid, the Company expects to recognize a gain of approximately $300,000 after deducting legal costs in the matter.
From time to time, the Registrant is involved in certain other disputes and litigation relating to claims arising out of its operations in the ordinary course of business. Further, the Registrant periodically is subject to government audits and inspections. The Registrant believes that any such matters presently pending will not, individually or in the aggregate, have a material adverse effect on the Registrant’s results of operations or financial condition.
Not Applicable.
5
Incorporated by reference from the Registrant’s annual report to stockholders for the fiscal year ended April 30, 2003, page 27, sections entitled “Range of Market Prices” and “Quarterly Financial Data”. As of July 3, 2003, the Registrant estimates there were approximately 1,004 stockholders of the Registrant’s common shares, of which 273 were stockholders of record.
Incorporated by reference from the Registrant’s annual report to stockholders for the fiscal year ended April 30, 2003, page 26, section entitled “Summary of Selected Financial Data.”
Incorporated by reference from the Registrant’s annual report to stockholders for the fiscal year ended April 30, 2003, pages 8-11, section entitled “Management’s Discussion and Analysis.”
The Registrant is exposed to market risk in the area of interest rates. This exposure is associated with amounts outstanding under a bank note, certain lease obligations for production machinery, and any future advances under the revolving credit loan, all of which are priced on a floating rate basis. The Registrant believes that this exposure to market risk is not material. The Registrant entered into an interest swap agreement in fiscal year 2002, whereby $1.5 million of the outstanding principal amount of the bank note effectively converted to a fixed rate of 6.37%, beginning May 1, 2002. The notional amount of this interest rate hedge is reduced in the same proportion as the principal balance of the bank note over the remaining term of the bank note.
Incorporated by reference from the Registrant’s annual report to stockholders for the fiscal year ended April 30, 2003, pages 12-24.
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(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 27, 2003, 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
William A. Shumaker
President and Chief Executive Officer
D. Michael Parker
Senior Vice President, Finance,
Chief Financial Officer,
Treasurer and Secretary
Roger L. Eggena
Vice President, Manufacturing
James J. Rossi
Vice President, Human Resources
Kurt P. Rindoks
Vice President, Engineering
and Product Development
Kenneth E. Sparks
Vice President,
General Manager
Technical Furniture Group
William A. Shumaker has served as President of the Registrant since August 1999 and Chief Executive Officer since September 2000. He was elected a director of the Registrant in February 2000. He served as the Chief Operating Officer from August 1998, when he was also elected as Executive Vice President, until September 2000. Mr. Shumaker served as Vice President and General Manager of the Laboratory Products Group from February 1998 to August 1998. He joined the Registrant in December 1993 as Vice President of Sales and Marketing.
D. Michael Parkerjoined the Registrant in November 1990 as Director of Financial Reporting and Accounting and was promoted to Corporate Controller in November 1991. Mr. Parker has served as Chief Financial Officer, Treasurer and Secretary since August 1995. He was elected Vice President of Finance in August 1995 and Senior Vice President of Finance in August 2000.
Roger L. Eggena joined the Registrant in August 1997 as a plant manager and was promoted to Director of Manufacturing in January 1998. He was elected a Vice President of the Registrant in August 2000. Prior to joining the Registrant, Mr. Eggena was Vice President of Manufacturing with MDT Corporation from 1992 to 1996 and a consultant with Phillips Resource Group from 1996 to 1997.
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.
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Kurt P. Rindoks joined the Registrant in July 1985 as an engineer. He was promoted to Director of Product Development in August 1991 and assumed the additional responsibilities of Director of Engineering in July 1995. He has served as Vice President of Engineering and Product Development since September 1996. Additionally, from May 1998 through October 2001, he served as General Manager of the Company’s Resin Materials Division.
Kenneth E. Sparks joined the Registrant in December 1997 as Director of Sales and Marketing of the Technical Furniture Group and was named General Manager of the Technical Furniture Group in August 1999. He was elected a Vice President in February 2001. Prior to joining the Registrant, Mr. Sparks was Vice President of Customer Satisfaction with AllSteel, Inc. from 1996 to 1997 and held various leadership positions in sales and marketing with The HON Company from 1986 to 1996.
Incorporated by reference from the Registrant’s proxy statement for use in connection with its annual meeting of stockholders to be held on August 27, 2003, pages 5-7, section entitled “Executive Compensation,” pages 8-9, section entitled “Compensation Committee Report on Executive Compensation,” and page 12, section entitled “Agreements with Certain Executives.”
Information regarding the security ownership of certain beneficial owners and management is incorporated by reference from the Registrant’s proxy statement for use in connection with its annual meeting of stockholders to be held on August 27, 2003, pages 13-14, sections entitled “Security Ownership of Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners.”
The following table sets forth certain information as of April 30, 2003 with respect to compensation plans under which our equity securities are authorized for issuance:
Plan Category
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available for
future issuance underequity compensation
plans (excluding
securities reflected in
column (a))
(c)
Equity Compensation Plans approved by Security Holders:
1991 Key Employee Stock Option Plan
1993 Stock Option Plan for Directors
2000 Key Employee Stock Option Plan
Equity Compensation Plans not approved by Security Holders:
Incorporated by reference from the Registrant’s proxy statement for use in connection with its annual meeting of stockholders to be held on August 27, 2003, pages 1-4, section entitled “Election of Directors” and page 12, section entitled “Agreements with Certain Executives.”
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We maintain disclosure controls and procedures that are intended to ensure that the information required to be disclosed in our Exchange Act filings is properly and timely recorded, processed, summarized and reported. The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of April 30, 2003. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective for fiscal year 2003 covered by this Form 10-K. In designing disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving desired control objectives, and that management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Nevertheless, management believes that the Company’s disclosure controls and procedures are effective.
There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date of their evaluation.
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The following documents are filed or incorporated by reference as part of this report:
Financial Statements
Page or
Reference
Consolidated Statements of Operations Years ended April 30, 2003, 2002 and 2001
Consolidated Statements of Stockholders’ Equity Years ended April 30, 2003, 2002 and 2001
Consolidated Balance Sheets – April 30, 2003 and 2002
Consolidated Statements of Cash Flows – Years ended April 30, 2003, 2002 and 2001
Notes to Financial Statements
Report of Independent Accountants
Financial Statement Schedule
Report of Independent Accountants on Financial Statement Schedules
Schedule I – Valuation and Qualifying Accounts
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REPORT OF INDEPENDENT ACCOUNTANTS ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
To the Stockholders and Board of Directors of Kewaunee Scientific Corporation
Our audits of the financial statements referred to in our report dated June 4, 2003 appearing in the 2003 Annual Report to Shareholders of Kewaunee Scientific Corporation (which report and financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 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, 2003, 2002, and 2001 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
June 4, 2003
11
Schedule I, Page 1
Kewaunee Scientific Corporation
Valuation and Qualifying Accounts
($ in thousands)
Description
Year ended April 30, 2003
Allowance for doubtful accounts
Year ended April 30, 2002
Year ended April 30, 2001
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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.
By:
/s/ WILLIAM A. SHUMAKER
Date: July 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and on the dates indicated have signed this report below.
)
/s/ D. MICHAELPARKER
Senior Vice President, Finance
Chief Financial Officer
/s/ MARGARET BARRBRUEMMER
Margaret Barr Bruemmer
/s/ SILASKEEHN
Silas Keehn
/s/ JOHN C. CAMPBELL, JR.
John C. Campbell, Jr.
/s/ ELI MANCHESTER, JR.
Eli Manchester, Jr.
/s/ WILEY N. CALDWELL
Wiley N. Caldwell
/s/ JAMES T. RHIND
James T. Rhind
13
I, William A. Shumaker, certify that:
President
and Chief Executive Officer
14
I, D. Michael Parker, certify that:
15
Exhibit Index
Page Number
(or Reference)
Articles of incorporation and by-laws
3.1
Restated Certificate of incorporation (as amended)
By-Laws (as amended as of May 22, 2002)
10.2
16
10.21C
10.21D
10.21E
10.21F
10.26
10.34
10.34A
10.34B
10.38
10.38A
10.39
10.39A
10.40
10.40A
17
10.41
10.41A
10.42
10.42A
10.43
10.44
10.45
10.46
23
Consent of PricewaterhouseCoopers LLP
99
Additional Exhibits
99.1
99.2
(All other exhibits are either inapplicable or not required.)
18
Footnotes
19