SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-20743
OPEN PLAN SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1515256
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4299 Carolina Avenue, Building C 23222
Richmond, Virginia (Zip Code)
(Address of Principal Executive Offices)
(804) 228-5600
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
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. [ ]
Based on the closing sales price for the Common Stock as reported by the
Nasdaq Stock Market on March 16, 2000 the aggregate market value of the Common
Stock held by non-affiliates of the registrant was $7,372,216.
The number of shares of Common Stock outstanding as of March 16, 2000 was
4,402,891.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders (to be filed) are incorporated by reference into Part
III of this Form 10-K.
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TABLE OF CONTENTS
PART I
Page
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Item 1 Business................................................................................ 1
Item 2 Properties.............................................................................. 7
Item 3. Legal Proceedings....................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders..................................... 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 8
Item 6. Selected Financial Data................................................................. 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................................. 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................. 16
Item 8. Financial Statements and Supplementary Data............................................. 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................................................. 32
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 32
Item 11. Executive Compensation.................................................................. 32
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 32
Item 13. Certain Relationships and Related Transactions.......................................... 32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 33
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PART I
Item 1. .........Business
Open Plan Systems, Inc. (the "Company") was incorporated under the laws of
the Commonwealth of Virginia on September 11, 1989. The Company remanufactures
and markets modular office Work Stations. The Company operates remanufacturing
facilities in Richmond, Virginia and Lansing, Michigan.
The Office Furniture Industry
The trend in the office furniture industry for the past twenty-five years
has been away from a simple desk and file design to a sophisticated Work Station
design because of the flexibility and productivity advantages that such Work
Stations provide. Work Stations have become more sophisticated as the usage of
computers and telecommunications equipment has increased in modern offices.
The Company competes in the office furniture industry with national and
regional manufacturers of new office furniture and with local and regional
remanufacturers of used office furniture. Steelcase, Inc. ("Steelcase"), Herman
Miller, Inc. ("Herman Miller") and Haworth, Inc. ("Haworth") constitute the
dominant manufacturers, collectively representing approximately two-thirds of
the installed base of Work Stations. Each of these manufacturers has created a
unique system for connecting panels, power and telecommunications raceways,
resulting in virtually no interchangeability between products of different
manufacturers. Each manufacturer's Work Stations provide for several hundred
variations. In recent years, more sophisticated telecommunications, power
distribution and wire management elements have been added to Work Stations as
computer usage has increased in offices. With respect to independent
remanufacturers of used Work Stations, the Company believes that the vast
majority of such remanufacturers are local operations serving a single city or
metropolitan area from a single sales office.
Since the mid-1980s, end-users have had four primary options when
considering changes in their existing Work Stations: (i) acquire upgraded power
components, new fabric and panel trim from the Work Station manufacturer to be
retrofitted on existing Work Stations, frequently during installation in a new
facility; (ii) acquire new Work Stations from a manufacturer or dealer while
disposing of existing furniture and Work Stations to a broker or remanufacturing
company; (iii) acquire remanufactured Work Stations while disposing of the old
furniture and Work Stations to brokers or the remanufacturer; and (iv) acquire
"as is" Work Stations.
The business of remanufacturing Work Stations grew steadily during the
1990's and is expected by the Company to do so in the 2000's. The Company
believes this growth is principally due to the greater availability of high
quality remanufactured Work Stations at prices below manufacturers' retail list
prices for new Work Stations, thereby providing end-users with substantial
value. In addition, the growth of the remanufacturing business has been assisted
by the increased availability of used Work Stations for remanufacturing. Used
Work Stations have become more readily available in recent years due to an
increased base of installed Work Stations and corporate events such as mergers,
acquisitions, divestitures, downsizings and relocations. The adoption of
recycling programs or policies by businesses has also been a major factor
leading to increased demand for remanufactured Work Stations.
Overview of the Company's Operations
The Company's primary business is the remanufacture of modular office Work
Stations. The Company purchases used Work Stations from end-users, brokers and
dealers and transports the Work Stations to its facilities in Richmond, Virginia
and Lansing, Michigan. The Work Stations are disassembled, inventoried by
component parts and stored. The Company then restores the used Work Stations
through the remanufacturing process to meet customers' needs. Remanufacturing
usually includes sanding, painting, laminating, reupholstering and updating
electrical components.
The Company's design staff works with customers to optimize use of
available office space through customized space plans. Customers are able to
choose from among several colors of paint, over 300 laminates and over 1,000
different fabrics. After the initial sales call, the Company responds to the
customer's needs with a proposal which includes a computer aided design of the
space, the number of Work Stations and the cost, typically within 72 hours. The
Company has the ability to generate proposals at the customer's site using a
personal computer, or in the case of complex designs, maintains a group of
in-house designers. Once a purchase order is received, the fabric selected by
the customer is applied to the panels, and the various components of the Work
Stations are assembled for shipping. The Work Stations sold by the Company's
direct sales force are installed at the customer's offices by the Company's
employees or by approved outside installers giving the Company control over the
entire process. The Company's large inventory of disassembled component parts
permits shipping generally within two to four weeks of receiving a purchase
order, depending on the product and fabrics required. The Company believes that
its ability to provide high quality Work Stations at discounted prices, coupled
with its emphasis on superior customer service through its design staff and
Company trained or approved installers, gives it a competitive advantage over
manufacturers and other remanufacturers of Work Stations.
The Company's Richmond, Virginia and Lansing, Michigan facilities include
all of the equipment required to remanufacture Work Stations, including closed
and open painting and drying booths as well as sanding, woodworking and
reupholstering equipment. Plant layout has been designed to facilitate the
efficient flow of materials and streamline the remanufacturing process through
disassembly, storage, remanufacturing and shipping. Quality control for the
remanufactured products occurs at various stages during the remanufacturing
process, including the final quality control verifications at shipment and upon
installation.
The Company sells Work Stations primarily through fourteen Company-owned
direct sales offices. The Company believes that each of the fifty largest
metropolitan areas of the United States will support a sales office. In
marketing its products, the Company utilizes several innovative programs,
including its asset banking program, which allows customers to trade-in used
Work Stations in exchange for a credit towards future purchases. Additionally,
the Company sells products through certain authorized dealers throughout the
country.
Products
The Company's principal product is remanufactured Herman Miller and Haworth
Work Stations. The Company anticipates that it will begin to remanufacture and
sell remanufactured Steelcase Work Stations by the end of the second quarter of
2000 with the product rollout anticipated at NeoCon, a trade show, in June.
The Company believes that Work Stations offer significant advantages over
the traditional desk, free-standing file and permanent drywall office layout.
Work Stations enable businesses to house more people in a given space because
Work Stations combine moveable panels, work surfaces, storage units, lighting
and electrical distribution into a single integrated unit. The end result is
less square feet of office space per worker and, therefore, lower facility costs
per employee.
Work Stations often are acoustically treated to provide conversational
privacy required by closer quarters. Because Work Stations usually are lower
than ceiling height, lighting, heating, ventilation and air conditioning are not
confined to individual spaces, allowing distribution among more workers which
reduces building operating costs. Work Stations incorporate electrical circuitry
necessary to operate computers and telecommunications equipment. The Company's
Work Stations meet the safety standards established by Underwriters
Laboratories. The Company believes it is one of only a few remanufacturers whose
Work Station components are listed with Underwriters Laboratories.
Manufacturers and remanufacturers customize Work Stations to accommodate
specific job functions. Each manufacturer offers its Work Stations with or
without power access in a variety of panel heights, widths, paint colors and
fabrics. Work surfaces, drawer and file pedestals, storage components and
accessories are offered with various size and finish options.
The core of the Work Station is a panel two inches thick with widths
varying from 12 inches to 60 inches. Heights vary from 34 inches to 96 inches.
The panel frame may be covered with a laminated surface or, most frequently,
fabric over an acoustical batting to which removable, slotted steel side rails
and top caps are attached to accommodate the customized interconnection of
panels and the hanging of work surfaces or other components. Electrical outlets
and space for telephone and computer cables are provided by removable raceways
of metal and plastic attached at the base of the panel. The Company also sells
certain products which allow telephone and computer cables to be mounted at
worksurface height.
In addition to Work Stations, the Company also sells new office chairs,
desks and other case goods purchased from some pre-selected strategic partners.
The Company continues to develop relationships and partnerships with its vendors
to enhance the quality and cost-effectiveness of these products.
Inventory
The number of installed Work Stations has increased steadily over the past
twenty-five years and is now believed to exceed 30 million. The gradual aging of
this installed base of Work Stations has resulted in the increased availability
of used Work Stations for remanufacturing. The Company continuously seeks
opportunities to purchase used Work Stations throughout the United States
through competitive bids or private negotiations with end-users, brokers and
dealers.
Manufacturers of new Work Stations have developed trade-in programs to
assist their dealers in encouraging their customers to purchase the most current
products. Trade-ins also have been used to entice customers of dealers and
manufacturers to trade-in a competitor's Work Stations for new Work Stations.
While each manufacturer has a slightly different approach to the trade-in
market, all frequently contact a list of brokers or remanufacturers, such as the
Company, to solicit the highest bid for the entire inventory.
At the time the Company purchases inventory, it disassembles the Work
Stations and ships the disassembled Work Stations to its facilities where the
Company determines whether the parts should be cleaned and sold as part of its
"as is" sales program or remanufactured and stored as inventory and sold
thereafter. The Company strives to ship all of its customers' orders in four
weeks or less. The Company initiated a two week lead time program to accommodate
shorter lead times from customers that will use a limited selection of fabrics
and laminates. The Company also has the ability to purchase or produce certain
strategic new parts and accessories which are in short supply in the used
furniture market, thereby eliminating the need to purchase additional Work
Stations for these specific parts. The Company believes its ability to
opportunistically acquire used Work Stations at attractive prices and hold them
for future sale gives it a competitive advantage over other remanufacturers with
less capital.
The Company utilizes a computerized inventory control system which serves
its sales, production, shipping and accounting functions. The system enables the
Company to continually monitor its inventory of component parts, to determine
its needs for additional purchases of used Work Stations, to track its work in
process and to facilitate the prompt delivery of remanufactured Work Stations to
its customers.
Distribution
Sales Offices. The Company currently operates fourteen sales offices,
including the Company's two new sales offices, in the metropolitan areas of
Richmond, Washington D.C., Atlanta, Nashville, Chicago, New York, Philadelphia,
Raleigh, Norfolk, Cincinnati, Lansing and Detroit. In early 2000, the Company
opened sales offices in Indianapolis and Mexico City, Mexico. The Company
believes that marketing and distributing its Work Stations through a direct
sales force located in geographically dispersed sales offices gives it a
competitive advantage over independent remanufacturing competitors who are
typically local companies with limited sales and distribution capacity outside
of their immediate market area. Approximately 80% of the Company's sales
historically have been made to end-users by the Company's own sales
representatives. In 2000, the Company intends to continue its focus on improving
the performance of its existing sales offices, opening new sales offices, as
well as broadening its product line.
Marketing and distributing its Work Stations through its own sales staff
allows the Company to eliminate the costs and additional price mark-up
associated with wholesale distribution, as well as enabling the Company to
retain direct control and oversight of its products and the selling process. A
direct sales force also permits the Company to deliver quality service to each
customer through its design and installation programs.
Dealer Network. In addition to its own sales staff, the Company maintains a
dealer network in those markets that are not sufficiently developed to support a
sales office or in larger markets to supplement the efforts of the direct sales
force. The dealer network allows the Company to market Work Stations on a
cost-effective basis to a large number of businesses which may not be reached by
the Company's sales representatives. Approximately 20% of the Company's sales
historically have been made through dealers. The Company believes that its
limited dealer network complements its strategy of expanding revenues through
its own sales offices. All dealer agreements are non-exclusive and may be
terminated at any time.
"As Is" Sales. A small but profitable portion of the Company's sales is
made to brokers, end-users and others who buy used Work Stations from the
Company on an "as is" basis. The Company's "as is" program involves the
selective purchase of used Work Stations in good condition that do not require
substantial repair or other alteration. The "as is" program appeals to customers
seeking sizable quantities of quality Work Stations at "budget" prices.
Sales and Marketing
General. The Company's sales and marketing strategy relies primarily upon
producing quality products at competitive prices and providing superior customer
service. Each sales office advertises through direct mail, newspapers, business
magazines and journals. The Company often uses booth displays at trade shows for
national organizations of purchasing managers, facility managers, interior
designers, architects and local business groups. The Company is firmly committed
to advertising and constantly re-evaluates the most efficient means of reaching
prospective customers.
The Company's marketing also emphasizes its commitment to the environment.
Through its remanufacturing process, the Company reuses or recycles several
million pounds of office systems furniture each year that might otherwise be
deposited in landfills. Some companies have adopted recycling policies or
programs that require those businesses to purchase recycled products in varying
quantities. Because the Company's remanufactured Work Stations are a recycled
product, the Company may have a marketing advantage over manufacturers of new
Work Stations.
Asset Banking. The Company developed its asset banking program in 1994 as a
means to offer additional services to larger middle market and Fortune 500
businesses who reconfigure, dismantle and warehouse large quantities of Work
Stations as an ongoing part of their operations. The asset banking program
allows businesses to trade-in used Work Stations by "depositing" them with the
Company in exchange for a "credit" toward future purchases of the Company's
remanufactured Work Stations. Work Stations "deposited" by customers become part
of the Company's inventory of used Work Stations that can be remanufactured.
When a business with a "credit" chooses to purchase Work Stations at
then-prevailing prices, the customer can make a complete or partial "withdrawal"
from its account to pay for the Work Stations. The effect of the program is to
make a customer's used Work Stations a renewable asset. The program eliminates
the customer's inventory, storage and maintenance costs for Work Stations not in
use, while at the same time positioning the Company for a future sale and
increasing the Company's inventory which can be immediately remanufactured and
sold. The Company also provides value-added services, such as design and project
management, without charge to the customer to enhance the attractiveness of the
program. The Company is currently able to offer both Herman Miller and Haworth
Work Stations in the program and anticipates adding Steelcase Work Stations to
the program.
Rental Program. The Company's rental program offers an alternative to
ownership of Work Stations. Under the rental program, the Company rents Work
Stations for a minimum term of six months. Rates charged by the Company vary
with the term of the rental, with higher rates being charged for terms of less
than one year. Rent payments typically are due monthly from customers during the
term of the rental. Upon expiration of the term of the rental, the Work Stations
are returned to the Company and can be rented again or remanufactured and sold.
The rental program is an attractive alternative for those customers with capital
spending constraints. In addition, customers who wish to evaluate long-term
furniture requirements are able to defer a commitment to purchase Work Stations
while meeting their short-term requirements for office furniture. The rental
program has not contributed significantly to the Company's past revenues due to
the limited number of rentals which have occurred to date under the program.
Government Services Administration. The United States Government Services
Administration ("GSA") in 1996 approved the Company's inclusion on the New
Introductory Schedule as a distributor of Work Stations and other related
products and services to the federal government. This has enabled the Company to
sell its remanufactured Work Stations to the federal government as well as
develop a previously untapped source of supply through trade-ins and "asset
banking". The GSA program was a solid contributor to 1999 sales volumes and the
Company believes that it can continue to expand this program.
Customers
The Company's customers range from small businesses to Fortune 500
companies. The average size of a customer order is approximately $25,000. The
Company is not dependent upon any single customer or any single group of
customers for a significant portion of its sales. In 1999, the largest customer
accounted for less than 5% of sales. The loss of any one customer would not have
a material adverse effect on the Company.
Competition
The Company experiences intense competition in both the purchase of used
Work Stations and the sale of remanufactured and "as is" Work Stations. In
purchasing used Work Stations, the Company competes with manufacturers, dealers,
brokers and other remanufacturers. The competition between remanufacturers and
either manufacturers or dealers generally takes place in connection with
trade-ins by end-users of used Work Stations for new Work Stations. Brokers
typically purchase used Work Stations for resale to end-users and customers
which may include the Company, while other remanufacturers generally purchase
Work Stations for their own remanufacturing activities.
The Company competes with manufacturers, dealers, brokers and other
remanufacturers in the sale of its remanufactured and "as is" Work Stations.
Competition is primarily based upon price, delivery, design, quality and
customer service. Certain manufacturers, such as Steelcase, remanufacture their
own brand of used Work Stations for resale to customers. These manufacturers and
their dealers are able to offer both new and remanufactured Work Stations to
customers. The Company believes it has a competitive advantage over such
manufacturers and other remanufacturers due to its direct sales force, pricing,
customer service and commitment to reusing product. However, manufacturers and
dealers of new Work Stations have certain competitive advantages including
established distribution channels and marketing programs, substantial financial
strength, long-term customers and ready access to component parts. Manufacturers
also can sell new Work Stations at very substantial discounts which reduces the
Company's pricing advantage.
The Company believes it is the largest independent remanufacturer of Work
Stations in the United States based on gross revenues. Unlike most independent
remanufacturers, which are typically local operations serving a single city or
metropolitan area from a single sales office, the Company is able to compete
effectively in many markets through its distribution channels. The Company also
believes that its remanufacturing services are more comprehensive than the
services provided by most other remanufacturers. Many remanufacturers provide
minor repair services, but lack the personnel, equipment and facilities
necessary to completely remanufacture Work Stations. The Company's production
facilities include all of the equipment required to produce remanufactured Work
Stations including sanding, painting, drying, woodworking and reupholstering
equipment.
Intellectual Property
The Company is the owner of a service mark for "Open Plan Systems"
registered with the United States Patent and Trademark Office. The Company has
no trademarks or patents.
Original equipment manufacturers have obtained United States' patents on
certain component parts and design and manufacturing processes associated with
their own Work Stations. Management of the Company believes its remanufacturing
of Work Stations does not infringe any patents held by these manufacturers.
However, there can be no assurance that infringement claims will not be asserted
against the Company. If such claims were asserted, the Company could incur
significant costs and diversion of resources defending such claims and, in the
event the Company did not prevail in its defense, the Company could incur
substantial damages that could have a material adverse effect on the Company's
financial condition and results of operations.
The Company intends to continue to review existing patents applicable to
Work Stations in the ordinary course of its business.
Seasonality and Backlog
The Company currently has no discernable pattern of seasonality. Because
the Company recognizes revenues upon shipment and typically ships Work Stations
within three weeks of an order, a substantial portion of the Company's revenue
in each quarter results from orders placed by customers during that quarter. As
a result, the Company's revenues and profits are difficult to predict and may
fluctuate from quarter to quarter. The Company typically does not have any
significant backlog of customer orders because it generally ships products
within four weeks of receipt of an order. The Company's backlog at December 31,
1999 was approximately $4,800,000.
Employees
As of December 31, 1999, the Company had 204 full time employees. The
Company also had 3 part time employees. The Company believes that its continued
success depends on its ability to attract and retain highly qualified personnel.
None of the Company's employees are covered by a collective bargaining
agreement. The executive officers and substantially all of the salespersons of
the Company have agreed that they will not disclose certain proprietary
information of the Company, and upon termination, will not solicit any customer
of the Company for two years and will not compete with the Company for one year.
The Company considers its relations with employees to be good.
Government Regulation
The Company's operations are subject to a variety of federal, state and
local environmental laws and regulations including those which limit the
discharge, storage, handling and disposal of hazardous materials. The Company's
principal environmental concerns relate to the handling and disposal of paints
and solvents. Management believes that the Company is in material compliance
with applicable federal, state and local environmental regulations. Compliance
with these regulations has not in the past had any material effect on the
Company's earnings, capital expenditures or competitive position; however, the
effect of such compliance in the future cannot be determined. Regulations
implementing the federal Clean Air Act, as amended in 1990, may require reduced
emissions of volatile organic compounds and hazardous air pollutants, including
certain emissions resulting from the Company's use of paints and solvents in the
remanufacturing process. As a result, the Company may be required to install
emission controls or to institute changes in its remanufacturing processes in
order to comply with these reduced emission standards. The furniture industry
and its suppliers are attempting to develop water-based paint and finishing
materials to replace commonly-used organic-based paints and finishes which are a
major source of regulated emissions. The Company cannot at this time estimate
the impact of these new standards on the Company's operations and future capital
expenditure requirements, or the cost of compliance.
The Company's operations are also governed by laws and regulations relating
to work-place safety and worker health, principally the Occupational Safety and
Health Act and accompanying regulations and various state laws and regulations.
The Company does not believe that future compliance with current laws and
regulations will have a material adverse effect on its financial condition or
results of operations.
Insurance
The Company maintains liability insurance policies covering a number of
risks, including business interruption, property, commercial crime,
comprehensive general liability and workers compensation and employer's
liability insurance. The Company believes that its insurance coverage is
adequate. During 1999, the Company terminated certain "key-man" insurance
policies in the amount of $3,500,000 on the life of its former chief executive
officer. The Company used the proceeds to fund part of a stock repurchase from
the executive.
Item 2. .........Properties
The Company leases 180,000 square feet of space at its facility in
Richmond, Virginia and 91,000 square feet of space at its facility in Lansing,
Michigan. The Richmond lease expires in July 2002. The Company subleases
approximately 36,000 square feet at its Richmond facility. The Lansing lease
expires in September 2000, subject to a one-year renewal option. The Company
also has numerous other leases for its sales offices throughout the
jurisdictions in which it operates. The Company owns substantially all of its
equipment, including office and manufacturing equipment. The Company believes
that its properties are maintained in good operating condition and are suitable
for its purposes.
Item 3. .........Legal Proceedings
A portion of the potential consideration for the 1996 acquisition of
Immaculate Eagle, Inc. (d/b/a TFM Remanufactured Office Furniture)("TFM") was
87,500 shares of common stock of the Company, which was placed in escrow, with
an agreed upon value of $1.3 million, as security for indemnification
obligations of the former shareholders of TFM. In addition, under the terms of
the TFM purchase agreement, if the closing sales price of the Company's common
stock on October 1, 1998 was less than $15 per share, the Company was to make a
cash payment to the former shareholders of TFM equal to the difference between
the closing sales price on that date and $15, multiplied by the 87,500 shares of
common stock (subject to certain adjustments, including claims by the Company
for indemnification). The Company's stock traded at $2.25 per share on October
1, 1998 and accordingly the amount potentially payable to the former TFM
shareholders was $1,115,625.
Prior to October 1, 1998, management of the Company reviewed the
circumstances of the TFM acquisition and concluded the indemnification
obligations of the former TFM shareholders exceeded the $1.3 million agreed
value of the stock in escrow. The Company served notice of the indemnification
claims to the former TFM shareholders. The former shareholders of TFM disputed
the indemnification claims and pursuant to the purchase agreement, the matter
went to arbitration. Based on the indemnification claims, the aggregate
$1,115,625 difference between the stock's market price on October 1, 1998 and
the $15 value assumed in the TFM purchase agreement was recorded as a reduction
in goodwill and shareholders' equity.
In December 1999, the arbitration panel ruled that the former TFM
shareholders had breached their warranties in three instances and awarded the
Company $120,000. As a result, the Company paid approximately $1 million to the
former TFM shareholders, which was recorded as an increase in goodwill. The
former TFM shareholders were also awarded reimbursement of certain legal fees
and other costs and those amounts are included in the arbitration costs of
$1,067,000 reflected in the consolidated statements of operations.
Item 4. .........Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
<PAGE>
PART II
Item 5. .........Market for Registrant's Common Equity and Related
Stockholder Matters
Market for Common Stock. The Company's Common Stock is listed on the Nasdaq
National Market under the symbol "PLAN." The following table shows, for the
periods indicated, the high and low sales prices per share for the Common Stock
as reported by the Nasdaq National Market.
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Calendar Year High Low
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1998
First Quarter ....................................................................$ 3.50 $ 2.63
Second Quarter....................................................................$ 2.82 $ 1.94
Third Quarter.....................................................................$ 3.13 $ 2.06
Fourth Quarter....................................................................$ 3.00 $ 1.94
1999
First Quarter ....................................................................$ 2.92 $ 2.12
Second Quarter....................................................................$ 3.13 $ 2.25
Third Quarter.....................................................................$ 2.50 $ 2.00
Fourth Quarter....................................................................$ 2.44 $ 2.00
2000
First Quarter (through March 16, 2000)............................................$ 2.13 $ 1.31
</TABLE>
As of March 16, 2000, there were approximately 1,300 holders of record of
the Company's Common Stock.
Dividend Policy. Since the Company's initial public offering in 1996, the
Company has not declared or paid any cash dividends or distributions on its
common stock. The Company currently intends to retain earnings of the Company to
support operations and to finance expansion and therefore does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. The payment
of cash dividends in the future will depend upon such factors as earnings
levels, capital requirements, the Company's financial condition and other
factors deemed relevant by the Board of Directors.
<PAGE>
Item 6. Selected Financial Data
The following table presents selected financial data for the Company for
each of the five years in the period ended December 31, 1999. All of the
selected financial data are extracted from the Company's audited financial
statements and should be read in conjunction with the financial statements and
the notes thereto included under "Item 8. Financial Statements and Supplementary
Data" of this Form 10-K.
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Year Ended December 31 1999 1998 1997 1996 1995
(in thousands, except per share amounts)
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Statement of Operations Data
Net Sales $35,058 $33,676 $31,968 $22,398 $15,478
Cost of Sales 24,332 25,765 23,593 15,160 10,435
----------- ------------ -------------- ------------- ------------
Gross Profit 10,726 7,911 8,375 7,238 5,043
Operating Expenses:
Amortization of Intangibles 213 275 275 70 -
Selling and Marketing 7,336 7,220 6,524 3,410 2,056
General and Administrative 2,529 2,811 2,607 1,584 975
Arbitration Costs 1,067 - - - -
Operational Restructuring - 1,290 - - -
----------- ------------ -------------- ------------- ------------
Total Operating Expenses 11,145 11,596 9,406 5,064 3,031
----------- ------------ -------------- ------------- ------------
Operating (Loss) Income (419) (3,685) (1,031) 2,174 2,012
Interest expense 201 236 70 141 163
Other (income) expense, net (24) 12 (84) (284) (36)
----------- ------------ -------------- -------------
------------
(Loss) income before income taxes (596) (3,933) (1,017) 2,317 $1,885
============
(Benefit) provision for income taxes (1,378) - (269) 376
----------- ------------ -------------- -------------
Net income (loss) $782 $(3,933) $(748) $1,941
=========== ============ ============== =============
Pro forma Data
Pro forma income before income taxes $2,317 $1,885
Pro forma provision for income taxes 930 747
------------- ------------
Pro forma net earnings $1,387 $1,138
============= ============
Income (loss) per share $.17 $(.86) $(.17) - -
=========== ============ ============== ============= ============
Pro forma net earnings per share $.38 $.42
=========== ============ ============== ============= ============
Diluted weighted average shares outstanding 4,594 4,582 4,472 3,676 2,716
=========== ============ ============== ============= ============
Balance Sheet Data
Working capital 8,229 9,517 11,765 13,272 3,361
Total assets 23,619 20,005 26,314 23,710 9,009
Long-term debt 163 - - 304 487
Shareholders' equity 15,455 15,346 20,043 20,791 4,327
</TABLE>
The above pro forma income data reflects a provision for income taxes as if
the Company's earnings had been subject to federal and state income taxes as a
regular corporation for all years presented.
Pro forma earnings per common share are based on the weighted average
common shares outstanding increased by the 270,000 shares of common stock deemed
to be outstanding, which represents the approximate number of common shares
deemed sold by the Company at the initial public offering of $10 per share to
fund the final S-Corporation distribution of $2,695,000 to the Company's
shareholders.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1999 Compared to 1998
Net Sales. Net sales for the year ended December 31, 1999 increased to
$35.1 million from $33.7 million for the year ended December 31, 1998, an
increase of 4.2%. The increased volume was the result of continuing demand for
remanufactured office systems and increased sales at ten of the Company's 12
sales offices. The Company's GSA and National Accounts business also contributed
to the overall 1999 results. These results were despite the fact that the
Company shut down three sales offices during 1998. The Company also benefited
from improved retention of its sales people and the average experience level of
its sales people increasing by almost one year during 1999. The Company's sales
strategy remains focused on a direct sales force in those markets of sufficient
potential to justify the investment required. The Company also anticipates
additional contributions from its newly opened sales offices in Indianapolis and
Mexico City during 2000.
Gross Margin. The Company's gross margin increased from $7.9 million or
23.5% for the year ended December 31, 1998 to $10.7 million or 30.5% for the
year ended December 31, 1999. The Company's margins improved as cost reduction
activities continued to be implemented. The Company benefited from reduced
warehousing space and consolidation of certain purchasing activities. The
Company is now experiencing the cost savings that were expected from the
operational restructuring in the prior year.
The Company is continuing to analyze its procurement options with a major
emphasis on determining the best, most efficient manner of procuring each item
used in the manufacture and production of its product offerings. The Company has
implemented a three-pronged approach to product acquisition. The Company will
continue to purchase product on the used furniture market when the cost of such
product does not exceed certain pricing thresholds, it will purchase new product
to meet demand when the purchase price is less than that of remanufacturing or
manufacturing the part, and it will manufacture certain component parts where it
is economically advantageous to do so. During 1999, the Company successfully
implemented a strategy of reducing the cost of its remanufactured products.
Additionally, the Company believes that it can continue to trim inventory levels
in 2000.
Operating Expenses. Selling expenses increased by 1.4% to $7.3 million for
the year ended December 31, 1999 from $7.2 million for the year ended December
31, 1998. Selling expenses, however, decreased as a percentage of sales. The
increase in selling expenses was the result of the Company's efforts to grow the
business during the second half of 1999. The Company increased its visibility
through targeted marketing programs, a new sales and marketing brochure and by
becoming more visible in trade shows. When the Company opens new sales offices,
it typically takes several years to generate enough sales to provide targeted
returns. New sales offices are therefore initially a drain on Company profits
and the Company plans to carefully manage the timing of future openings of new
sales offices. As indicated earlier, the Company has opened sales offices in
Indianapolis and Mexico City in the first quarter of 2000 and expects selling
expenses in relation to sales to remain somewhat higher than normal until these
offices begin to fully impact revenues and gross margins.
General and administrative expenses decreased by 10.7% to $2.5 million for
the year ended December 31, 1999 from $2.8 million for the year ended December
31, 1998. This was primarily related to decreases in corporate management and
personnel expenses as the result of the Company's restructuring in 1998. During
1999, the Company incurred significant litigation and severance expenses related
to two former officers of the Company. This litigation was resolved in December
1999 with the Company ultimately paying $85,000 in severance to the two former
officers. The Company does not believe that general and administrative expenses
will change materially from 1999 levels even as the Company reinstitutes its
geographic expansion efforts.
Arbitration costs of approximately $1.1 million in 1999 relate to the
indemnification claims by the Company against the former shareholders of TFM,
which was acquired in 1996. These costs included legal fees and other related
costs, including those awarded by the arbitration panel to the former TFM
shareholders. See Note 8 of the Notes to Consolidated Financial Statements for
additional information relating to the arbitration proceeding.
Other Non-Operating Income and Expenses. Total other expenses decreased
from $248,000 for the year ended December 31, 1998 to $177,000 for the year
ended December 31, 1999. The primary reasons for the decrease is a reduction in
outstanding borrowings during the year as the Company paid down its line of
credit and increased collections of finance charges on past due accounts.
Income Taxes. The Company recorded a tax benefit for the year of $1.4
million as opposed to no benefit being recorded in 1998. Prior to 1999, as a
result of recent operating losses and the uncertainty of the realization of the
potential tax benefits thereof, the Company did not record potential income tax
benefits of $1.3 million. During the last quarter of 1999, the Company
determined that it was more probable than not that these tax benefits would be
realized and reversed the valuation allowance associated with the income tax
benefits.
Net Income (Loss). The net income for the year ended December 31, 1999 was
$782,000 versus a loss of $3,933,000 for the year ended December 31, 1998. The
net loss in 1998 was principally caused by higher production costs relative to
sales revenue, higher selling expenses and the operational restructuring charge.
The Company benefited in 1999 from increased margins, reduced expenses and
reversal of the valuation allowance on income taxes with offsetting amounts
related to costs noted above related to increased litigation expenses, resulting
in an increase in net income.
1998 Compared to 1997
Net Sales. Net sales for the year ended December 31, 1998 increased to
$33.7 million from $32.0 million for the year ended December 31, 1997, an
increase of 5.3%. The increased volume was the result of continuing demand for
remanufactured office systems and increased sales at nine of the Company's 12
sales offices. Also contributing to the improved sales were shipments to the
federal government which in large part offset a single major $1.4 million order
in 1997. During 1998, three sales offices were closed as part of the operational
restructuring recorded in the second quarter and discussed in detail below. A
key element of the Company's sales strategy during the second half of 1998 was
the return to a focus on the Company's core remanufacturing strategy which
includes the remanufacture of Herman Miller and Haworth Work Stations.
Operational Restructuring. The Company recorded a charge of $1,290,000 in
the second quarter of 1998. The restructuring charge of $1,290,000 recognized
the costs related to three important strategic initiatives: 1) A return to a
focus on the core remanufacturing business; 2) streamlining and consolidation of
warehouse operations; and 3) consolidation of existing sales offices and
reductions in sales training staff. Pursuant to the restructuring plan, the
Company refocused on producing remanufactured product, reduced excess warehouse
space, divested certain assets associated with the new Work Station
manufacturing capabilities, and streamlined operations and reduced sales and
administrative staffing by approximately 30 people.
The restructuring charge recorded included approximately $400,000 for lease
termination costs, $600,000 for asset writedowns, and $100,000 for other costs
associated with streamlining operations. During the third and fourth quarters of
1998, the Company disposed of all fixed assets included in the restructuring and
incurred substantially all of the severance and lease termination costs
associated with the restructuring plan.
Under the restructuring plan, the Company reduced its warehousing capacity
in Dallas, Atlanta, Cincinnati and Richmond as well as at its Lansing, Michigan
facility. The plan called for the reduction of 156,000 square feet of leased
warehouse space. Additionally, the Company divested certain metal working
equipment and wrote off its investment in new software acquired to support new
furniture manufacturing operations. This supported the Company's return to its
focus on remanufacturing.
As part of the sales office restructuring program implemented at the end of
the second quarter of 1998, the Company closed its sales offices in Dallas,
Charlotte and Baltimore and reduced sales training staff in certain other
markets. The sales offices closed contributed less than $800,000 in sales during
1998. The thrust of this program was to reduce the number of low production
sales offices and personnel.
Gross Margin. The Company's gross margin decreased from $8.4 million or
26.2% for the year ended December 31, 1997 to $7.9 million or 23.5% for the year
ended December 31, 1998. This was caused by increased overhead costs during the
early part of 1998 as well as higher material costs and lower productivity
earlier in the year. During the first half of 1998, the Company's gross margin
percentage was 17.5%. The gross margin percentage improved to 29.1% in the
second half of 1998. The effect of the restructuring actions, improved
manufacturing productivity and other cost reduction activities resulted in the
improved margins. In 1998, the Company experienced less price discounting
pressure than in 1997.
Operating Expenses. Selling expenses increased by 10.8% to $7.2 million for
the year ended December 31, 1998 from $6.5 million for the year ended December
31, 1997. Selling expenses also increased as a percentage of sales. The increase
in selling expenses was caused by the Company's efforts in early 1998 to
increase the size of its sales force and branch office network. As noted
previously, the Company restructured its sales efforts at the end of the second
quarter of 1998 to bring these costs more in line with expected revenue trends
and provide a more solid base for future growth. When the Company opens new
sales offices, it typically takes several years to generate enough sales to
provide targeted returns. New sales offices are therefore initially a drain on
Company profits and the Company plans to carefully manage the timing of future
openings of new sales offices.
General and administrative expenses increased by 7.7% to $2.8 million for
the year ended December 31, 1998 from $2.6 million for the year ended December
31, 1997. This was primarily related to increases in corporate management and
personnel expenses during the early part of 1998. During 1998, the Company
incurred significant expenses related to significant changes in senior
management. In 1997, the Company dedicated significant resources to the
evaluation of potential business combinations and acquisitions that were
ultimately determined not to be good strategic fits for the Company. The Company
significantly reduced these expenses in the latter part of 1998, with second
half 1998 expenses down $555,000 from the first half of 1998.
Other Non-Operating Income and Expenses. Total other income and expense
decreased from income of $14,000 for the year ended December 31, 1997 to expense
of $248,000 for the year ended December 31, 1998. The primary reasons were that
the Company drew down its entire cash balance and borrowed on its line of credit
during 1997. Bank debt declined from $2.8 million at the end of the second
quarter of 1998 to $1 million by 1998 year-end.
Income Taxes. The Company recorded no tax benefit for 1998 as opposed to a
benefit of $269,000 in 1997. As a result of recent operating losses and the
uncertainty of the realization of the potential tax benefits thereof, the
Company did not record potential income tax benefits of $1.3 million for 1998.
The deferred income tax asset of $1.3 million at December 31, 1998 was offset by
a valuation allowance.
Net Loss. The net loss for the year ended December 31, 1998 was $3.9
million versus a loss of $748,000 for the year ended December 31, 1997. The net
loss was principally caused by higher production costs relative to sales
revenue, higher selling expenses and the operational restructuring charge.
Liquidity and Capital Resources
Cash Flows from Operating Activities. Net cash provided by operations was
$762,000 for the year ended December 31, 1999 versus cash provided by operations
of $1.2 million for the year ended December 31, 1998. The decrease in cash
provided by operations is due primarily to the amounts spent on certain legal
proceedings associated with two former officers of the Company. Inventory and
receivables also increased during 1999. The Company believes that it will make
progress in 2000 in reducing inventory levels. The Company's increase in
accounts receivable was primarily a function of higher fourth quarter sales.
Cash Flows from Investing Activities. Net cash used in investing activities
was $1.8 million in 1999 versus $.4 million in 1998. The increase in investing
activities was principally the result of the $1.0 million payment to the former
officers of the Company relating to the TFM acquisition with the remaining
increase being attributable to modernization of the Company's truck fleet to
reduce maintenance and other associated costs.
Cash Flows from Financing Activities. Net cash provided by financing
activities was $999,000 in 1999 versus net cash used in financing activities of
$912,000 in 1998. During 1999, the Company repurchased a net $673,000 of stock
from the Company's founder and borrowed money to fund fixed asset acquisitions
and payments to former officers. In 1998, the Company paid down amounts on its
line of credit as inventory levels decreased.
Expected Future Cash Flows. The Company anticipates that current cash
balances plus cash flows from operating activities and borrowings under its line
of credit will be adequate to fund its short term and long term capital needs.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of efforts to
address the Year 2000 issue and the readiness of the Company's computer systems.
In 1999, the Company completed its remediation and testing of systems. As a
result of its planning and implementation efforts, the Company experienced no
significant disruptions in mission critical information technology and
non-information technology systems and believes those systems successfully
responded to the Year 2000 date change. The Company spent less than $25,000 in
testing and remediating its systems. The Company is not aware of any material
problems resulting from Year 2000 issues, either with its products, its internal
systems, or the products and services of third parties. The Company will
continue to monitor its mission critical computer applications and those of its
suppliers and vendors throughout the year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.
Seasonality, Impact of Inflation and Market Risk
The Company has no discernable pattern of seasonality. Because the Company
recognizes revenues upon shipment and typically ships Work Stations within three
weeks of an order, a substantial portion of the Company's revenues in each
quarter results from orders placed by customers during that quarter. As a
result, the Company's results may vary from quarter to quarter.
Inflation has not had a material impact on the Company's net sales or
income to date. However, there can be no assurances that the Company's business
will not be affected in the future by inflation.
The Company is also exposed to changes in interest rates primarily from its
revolving line of credit arrangement; however, the Company's exposure is not
considered material to its financial condition or results of operations. The
Company does not use derivatives.
Forward-Looking Statements
The foregoing discussion and description of the Company's business set
forth in Part I, Item 1 of this Annual Report on Form 10-K contains certain
forward-looking statements, which may be identified by phrases such as "the
Company expects" or words of similar effect. In addition, from time to time, the
Company may publish forward-looking statements relating to such matters as
anticipated financial performance, business prospects and similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. The following important factors, among other things,
in some cases have affected, and in the future could affect, the Company's
actual results and could cause the Company's actual results for fiscal year 2000
and any interim period to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. The Company
assumes no duty to update any of the statements in this report.
Potential Limitations on Future Growth. The Company has experienced
significant growth since it commenced operations in 1989. The Company's
continued growth will be dependent in part on the Company's ability to manage
growth effectively, including the improvement of the Company's financial and
management information systems, the expansion of the Company's manufacturing and
remanufacturing operations and the recruitment and retention of executive staff
and key employees. The Company also will be required to manage working capital
and generate cash flow from operations to meet the needs of an expanding
business. There can be no assurances that the Company's future growth will not
be limited by insufficient cash flow or the lack of adequate financing required
to fund such growth.
Impact of Customer Preferences and Technological Advances on Sales. Certain
potential customers may prefer new Work Stations to the Company's remanufactured
Work Stations due to various factors, including the more developed and better
financed marketing efforts of new Work Station manufacturers and such potential
customers' reluctance to purchase remanufactured products because of image,
perceived questions of quality or other factors. In addition, technological
advances are frequently incorporated into new Work Stations by the leading
manufacturers, particularly with respect to electrical circuits necessary for
more advanced computer and telecommunications features. Although the Company has
the ability to incorporate these technological advances in its remanufactured
Work Stations, any such incorporation may increase remanufacturing costs and may
reduce the price advantage of remanufactured Work Stations over newly
manufactured Work Stations.
Dependence Upon Supply of Work Stations and Component Parts. The Company
presently purchases only used Herman Miller and Haworth Work Stations in its
remanufacturing operations. The Company does not have any binding agreements
relating to the purchase of used Herman Miller or Haworth Work Stations for
remanufacturing and generally purchases such used Work Stations from end-users,
brokers and dealers through competitive bids or directly negotiated
transactions. Although the Company in the past has not experienced a shortage of
used Work Stations at competitive prices, the success of the Company in the
future will depend in part upon its continued ability to obtain Herman Miller,
Haworth and other manufacturers' used Work Stations for remanufacturing in
sufficient quantities and at competitive prices. While the Company believes that
the availability of used Work Stations for remanufacturing will increase as the
installed base of Work Stations increases and ages, there may be periods of
tight supply as the demand for used Work Stations increases which could have a
material adverse effect on the Company's business and profitability.
The Company also purchases new and used component parts for use in the
remanufacture of Work Stations. Although the Company can manufacture certain of
the component parts needed to remanufacture Work Stations, there can be no
assurances that shortages of certain component parts or higher prices for such
parts will not occur in the future. An inability to produce or purchase
necessary component parts in adequate quantities and at competitive prices could
have a material adverse effect on the Company's results of operations and
financial condition.
Dependence on Sales Office Profitability. The Company depends heavily on
its sales offices to provide revenue growth. The Company has opened two new
offices in 2000. The Company's experience indicates that it takes several years
for a sales office to develop adequate sales volumes to generate expected
returns. Until that time, the Company's selling expenses increase faster than
the gross profit generated from those sales. An inability to increase revenues
of new sales offices to levels that would offset the continuing expenses of such
sales offices may adversely affect the profitability of the Company's business.
No Assurance of Expansion of Product Lines and Business. The Company has
concentrated its business on remanufacturing Work Stations manufactured by
Herman Miller and Haworth. The Company is now expanding its product line to
include Steelcase Work Stations. The Company has limited experience in
remanufacturing Work Stations of manufacturers other than Herman Miller and
Haworth. Due to the differences in and lack of interchangeability of the various
Work Stations and certain component parts produced by the major manufacturers,
the Company's expansion of its product line will require additional training of
production personnel, the establishment of additional sources of supply of used
Work Stations and component parts and, in some cases, the establishment of
different remanufacturing processes. As a result of these factors, there can be
no assurance that the Company will be able to expand successfully its product
line or maintain its gross margins.
Dependence Upon Primary Remanufacturing Facilities. The Company primarily
remanufactures Herman Miller Work Stations at one facility in Richmond,
Virginia, and Haworth Work Stations at one facility in Lansing, Michigan.
Although the Company presently maintains $2,000,000 of business interruption
insurance on the Richmond facility and $250,000 of such insurance on the Lansing
facility, a lengthy interruption of its remanufacturing operations at the
Richmond or Lansing facilities would have a material adverse effect on the
Company's results of operations and financial condition.
Tax Matters Associated with Prior S Corporation Status. Until May 31, 1996,
the Company had elected to be taxed under Subchapter S of the Internal Revenue
Code of 1986, as amended, as an S Corporation for federal and state income tax
purposes since its incorporation in 1989. Unlike a regular or "C Corporation,"
an S Corporation is generally not subject to income tax at the corporate level;
instead, the S Corporation's income is taxed on the personal income tax returns
of its shareholders. The Company's status as an S Corporation was terminated
upon commencement of its initial public offering. If the Company's S Corporation
status were denied for any periods prior to this termination by reason of a
failure to satisfy the S Corporation election or eligibility requirements of the
Code, the Company would be subject to tax on its income as if it were a C
Corporation for these periods. The payment of any such tax could have a material
adverse effect on the Company's financial condition and results of operations if
the full amount thereof is not reimbursed by those individuals who were
shareholders of the Company prior to the initial public offering. Such
shareholders have agreed to pay their pro rata share of any such tax and any
applicable interest, penalties and expenses in the event that the Company's S
Corporation status is denied for any taxable periods up to the date of the
termination of the Company's S Corporation status on May 31, 1996.
Potential Fluctuations in Quarterly Results. Because the Company recognizes
revenues upon shipment and typically ships Work Stations within three weeks of
an order, a substantial portion of the Company's revenue in each quarter results
from orders placed by customers in that quarter. Accordingly, quarterly revenue
levels are subject to substantial fluctuations and are often difficult to
predict. Fluctuations in operating results could result in volatility in the
price of the Company's Common Stock. If revenue levels are below expectations,
operating results will be adversely affected.
Competition. Competition in the Work Station segment of the office
furniture industry is intense. The Company competes with many other companies in
the sale of its new and remanufactured products as well as in the purchase of
"as is" Work Stations and component parts for use in the Company's
remanufactured Work Stations. In the sale of remanufactured Work Stations, the
Company competes with manufacturers of new Work Stations and their
remanufacturing subsidiaries, other independent remanufacturers and dealers of
"as is" Work Stations. In the purchase of used Work Stations that are the
primary source of the Company's supply for its remanufacturing operations, the
Company competes with the manufacturers of new Work Stations and their
remanufacturing subsidiaries, both of which sometimes provide a trade-in
allowance to purchasers of their products, other independent remanufacturers and
Work Station brokers and dealers.
Sales of the Company's remanufactured Work Stations depend on maintaining a
successful balance between price and quality so that its Work Stations are
positioned in the marketplace to provide a product that is (i) comparable or
superior in quality, design and appearance to higher cost new Work Stations and
(ii) superior in quality, features and appearance to lower cost "as is" Work
Stations. Failure by the Company to maintain this balance due to increased
competition in either the purchase or sale of Work Stations could adversely
affect the Company's business. Additionally, certain of the Company's
competitors have greater financial, technical, manufacturing, marketing, sales
and other resources than the Company.
Environmental Regulations. The Company is subject to a variety of federal,
state and local governmental regulations related to the storage, use, discharge
and disposal of toxic, volatile or otherwise hazardous chemicals used in its
manufacturing processes. Regulations implementing the federal Clean Air Act, as
amended in 1990, may require reduced emissions of volatile organic compounds and
hazardous air pollutants, including certain emissions resulting from the
Company's use of paints and solvents in the remanufacturing process. As a
result, the Company may be required to install emission controls or to institute
changes in its remanufacturing processes in order to comply with these reduced
emission standards. There can be no assurance that these and other changes in
environmental regulations in the future will not result in the need for capital
expenditures or otherwise impose financial burdens on the Company. Further, such
regulations could restrict the Company's ability to expand its operations. Any
failure by the Company to obtain required permits for, control the use of, or
adequately restrict the discharge of, hazardous substances under present or
future regulations could subject the Company to substantial liability or could
cause its manufacturing operations to be suspended. Such liability or suspension
of manufacturing operations could have a material adverse effect on the
Company's results of operations and financial condition.
Risk of Patent Infringement Claims. Newly manufactured Work Stations
contain numerous patented component parts. Although the Company is not aware of
any existing or threatened patent infringement claims asserted against it and
does not believe that its remanufacturing of Work Stations infringes the
proprietary rights of any third parties, there can be no assurance that
infringement claims will not be asserted against the Company. In addition, the
Company manufactures or purchases certain new and used component parts included
in its remanufactured Work Stations. To the extent that such activities involve
purchasing or manufacturing component parts similar to patented component parts,
the Company could become subject to claims of patent infringement if the
manufacture or use of such component parts infringed the proprietary rights of
third parties. In addition, the existence of third party proprietary rights
could limit the Company's ability to produce or use certain component parts.
Damages for violation of third party proprietary rights could be substantial and
could have a material adverse effect on the Company's financial condition and
results of operation. Regardless of the validity or the successful assertion of
such claims, the Company would incur significant costs and diversion of
resources with respect to the defense thereof.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to this Item is included under the caption
"Seasonality, Impact of Inflation and Market Risk" of this Annual Report on Form
10-K.
<PAGE>
Item 8. Financial Statements and Supplementary Data
The following audited consolidated financial statements of the Company are
included in this report:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statement of Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Open Plan Systems, Inc.
We have audited the accompanying consolidated balance sheets of Open Plan
Systems, Inc. as of December 31, 1999 and 1998 and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Open Plan Systems,
Inc. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
February 4, 2000, except for
the last sentence in Note 5
as to which the date is
March 13, 2000.
<PAGE>
OPEN PLAN SYSTEMS, INC.
Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------------------------
<S><C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 13 $ 2
Accounts receivable, net 7,144 6,289
Inventories (Note 3) 7,862 6,908
Prepaids and other 638 672
Refundable income taxes 188 305
Deferred income taxes (Note 7) 385 -
-------------------------------------
Total current assets 16,230 14,176
Property and equipment, net (Note 4) 2,272 2,288
Goodwill, net (Note 1) 3,898 3,075
Deferred income taxes (Note 7) 1,093 -
Other 126 466
-------------------------------------
Total assets $23,619 $20,005
=====================================
Liabilities and shareholders' equity
Current liabilities:
Revolving line of credit (Note 5) $2,419 $ 952
Trade accounts payable 3,464 1,995
Accrued compensation 238 263
Other accrued liabilities 813 429
Customer deposits 1,005 1,000
Current portion of long-term debt 62 20
-------------------------------------
Total current liabilities 8,001 4,659
Long-term debt 163 -
Deferred income taxes (Note 7) - -
-------------------------------------
Total liabilities 8,164 4,659
Shareholders' equity (Notes 6 and 8):
Preferred stock, no par value:
Authorized shares - 5,000
Issued and outstanding shares - none
- -
Common stock, no par value:
Authorized shares - 50,000
Issued and outstanding shares - 4,403 - 1999 18,651 19,324
- 4,672 - 1998
Additional capital 137 137
Accumulated deficit (3,333) (4,115)
-------------------------------------
Total shareholders' equity 15,455 15,346
-------------------------------------
Total liabilities and shareholders' equity $23,619 $20,005
=====================================
</TABLE>
see accompanying notes to consolidated financial statements.
<PAGE>
OPEN PLAN SYSTEMS, INC.
Consolidated Statements of Operations
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
-------------------------------------------------
<S><C> <C> <C> <C>
Net sales $35,058 $33,676 $31,968
Cost of sales 24,332 25,765 23,593
-------------------------------------------------
Gross profit 10,726 7,911 8,375
Operating expenses:
Amortization of intangibles 213 275 275
Selling and marketing 7,336 7,220 6,524
General and administrative 2,529 2,811 2,607
Arbitration costs 1,067 - -
Operational restructuring - 1,290 -
-------------------------------------------------
11,145 11,596 9,406
-------------------------------------------------
Operating loss (419) (3,685) (1,031)
Other (income) expense:
Interest expense 201 236 70
Interest income (23) (12) (68)
Other, net (1) 24 (16)
-------------------------------------------------
177 248 (14)
-------------------------------------------------
Loss before income taxes (596) (3,933) (1,017)
Benefit for income taxes (Note 7) (1,378) - (269)
-------------------------------------------------
Net income (loss) $ 782 $(3,933) $ (748)
=================================================
Basic and diluted income (loss) per share $ .17 $ (.86) $ (.17)
=================================================
Diluted weighted average common shares outstanding 4,594 4,582 4,472
=================================================
Basic weighted average common shares outstanding 4,593 4,582 4,472
=================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
OPEN PLAN SYSTEMS, INC.
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1999, 1998 and 1997
(amounts in thousands)
<TABLE>
<CAPTION>
Common Additional Retained
Stock Capital Earnings Total
(Deficit)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $20,088 $137 $566 $20,791
Net loss for 1997 - - (748) (748)
-------------------------------------------------------------------------
Balance at December 31, 1997 20,088 137 (182) 20,043
Issuance of common stock (Note 6) 352 - - 352
Reduction in connection with prior year's
acquisition (Note 8) (1,116) - - (1,116)
Net loss for 1998 - - (3,933) (3,933)
-------------------------------------------------------------------------
Balance at December 31, 1998 19,324 137 (4,115) 15,346
Issuance of common stock (Note 6) 400 - - 400
Purchase of common stock (Note 6) (1,073) - - (1,073)
Net income for 1999 - - 782 782
-------------------------------------------------------------------------
Balance at December 31, 1999 $18,651 $137 $(3,333) $15,455
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
OPEN PLAN SYSTEMS, INC.
Consolidated Statements of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities
Net income (loss) $ 782 $ (3,933) $ (748)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for losses on receivables 57 166 59
Depreciation expense 760 788 631
Amortization expense 213 275 275
Operational restructuring - 1,290 -
Loss on disposal of property and equipment 10 18 23
Deferred income taxes (1,478) (4) (50)
Changes in operating assets and liabilities:
Accounts receivable (912) (969) (293)
Inventories (954) 3,847 (3,973)
Prepaids and other current assets 34 1 (255)
Refundable income taxes 117 490 (410)
Other non-current assets 300 (60) (151)
Trade accounts payable 1,469 (416) 954
Customer deposits 5 159 186
Accrued and other liabilities 359 (458) 276
---------------------------------------------------
Net cash provided by (used in) operating activities 762 1,194 (3,476)
Investing activities
Proceeds from sale of property and equipment 33 131 12
Arbitration payment for 1996 acquisition (996) - -
Purchases of property and equipment (787) (484) (1,461)
---------------------------------------------------
Net cash used in investing activities (1,750) (353) (1,449)
Financing activities
Net borrowings (repayments) on revolving lines of credit 1,467 (1,158) 2,110
Proceeds from long-term debt 247 - -
Principal payments on long-term debt and capital lease obligations
(42) (106) (178)
Purchase of common stock (1,073) - -
Proceeds from sale of common stock (net of issuance costs of $83 in 400 352 -
1998)
--------------------------------------------------
Net cash provided by (used in) financing activities 999 (912) 1,932
-------------------------------------------------
Increase (decrease) in cash and cash equivalents 11 (71) (2,993)
Cash and cash equivalents at beginning of year 2 73 3,066
--------------------------------------------------
Cash and cash equivalents at end of year $ 13 $ 2 $ 73
==================================================
Supplemental disclosures
Interest paid $ 179 $ 236 $ 70
==================================================
Income taxes paid $ - $ - $ 191
==================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements
December 31, 1999
Note 1. Summary of Significant Accounting Policies
Open Plan Systems, Inc. (the "Company") was incorporated in Virginia in
September 1989 and is a remanufacturer and marketer of modular office Work
Stations. The Company remanufactures Herman Miller and Haworth product lines and
markets them through Company sales offices located in the East Coast and
Mid-West regions of the United States. In addition, the Company also sells new
product office Work Station components from other manufacturers. The following
is a description of the Company's more significant accounting policies.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany balances
and transactions have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of average cost or market. Work-in-process
inventories include both the direct and indirect costs of manufacturing such
products.
Property and Equipment
Property and equipment is stated on the basis of cost. Depreciation of equipment
and vehicles is provided by straight-line or accelerated methods over the
estimated useful lives of the related assets, generally three to seven years.
Improvements to leased properties are amortized on a straight-line basis over
the shorter of the term of the respective lease or the estimated useful lives of
the related assets.
Goodwill
Goodwill represents the excess of the purchase price of acquired businesses over
the fair value of net assets acquired and is being amortized on the
straight-line method over a period of twenty years. The carrying value of
goodwill is periodically evaluated by management based on undiscounted cash
flows of the related business units to determine if there has been an impairment
in value. Accumulated amortization was $703,000 and $530,000 at December 31,
1999 and 1998, respectively.
Revenue Recognition
Revenues from product sales are recognized upon shipment. Title and risk of loss
pass to the customer upon shipment.
Advertising
Production costs associated with advertising are expensed as incurred.
Communication costs associated with advertising are reported as advertising
expense as the related space is used. Prepaid advertising costs were $177,000
and $217,000 at December 31, 1999 and 1998, respectively. Advertising costs
charged to expense totaled $918,000 in 1999, $887,000 in 1998 and $653,000 in
1997.
Income Taxes
Deferred income taxes are determined based on the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect in the years the differences are expected to reverse.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less when purchased to be cash equivalents.
Use of Estimates
The preparation 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 those estimates.
Earnings Per Share
Basic and diluted earnings per share is calculated in accordance with SFAS No.
128, "Earnings Per Share." For 1999, 1998 and 1997, there was no difference
between basic and diluted earnings per share. 866,000, 799,000 and 172,500 stock
options have been excluded from the calculation of earnings per share in 1999,
1998 and 1997, respectively, as their impact would have been anti-dilutive.
Note 2. Operational Restructuring
During the second quarter of 1998, the Company recorded a restructuring charge
of $1,290,000 related to warehouse consolidation, returning to a focus on
remanufacturing and a sales office consolidation plan. Significant components of
the operational restructuring charge were $138,000 for severance pay, $418,000
related to anticipated payouts under lease agreements and estimated losses of
$627,000 on the disposal of certain fixed assets. In connection with this plan,
the Company reduced sales and administrative staffing by approximately 30
people.
The Company has disposed of all the fixed assets contemplated in the
restructuring and incurred all costs associated with the restructuring plan. No
adjustment to the original charge recorded has been necessary.
Note 3. Inventories
Inventories are in two main stages of completion and consisted of the following
(in thousands $):
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Components and fabric $ 5,243 $ 4,221
Jobs in process and finished goods 2,619 2,687
---------------- ----------------
$ 7,862 $ 6,908
================ ================
</TABLE>
Note 4. Property and Equipment
Property and equipment by major classification was as follows (in thousands $):
<TABLE>
<CAPTION>
December 31
1999 1998
---------------- ----------------
<S> <C> <C>
Production and warehouse equipment $ 2,292 $ 2,123
Office equipment 1,211 1,069
Vehicles 510 258
Leasehold improvements 561 538
Construction-in-process 101 -
---------------- ----------------
4,675 3,988
Accumulated depreciation and amortization (2,403) (1,700)
---------------- ----------------
$ 2,272 $ 2,288
================ ================
</TABLE>
Note 5. Indebtedness
Long-term debt consists of notes payable related to vehicle purchases. Future
scheduled maturities of long-term debt are as follows: $62,000 in 2000; $66,000
in 2001; $60,000 in 2002; and $37,000 in 2003.
During December 1998, the Company negotiated a new revolving line of credit with
a financial institution, and the prior line of credit was paid off in its
entirety. The new credit facility provides for borrowings up to $5,000,000
through December 2001. Borrowings under the line of credit bear interest at
variable rates, the determination of which may vary depending on operating
results. Outstanding borrowings under the line amounted to $2,419,000 at
December 31, 1999 and bore interest at a rate of 9.0%(8.25% at December 31,
1998). Advances under the line are secured by substantially all assets and are
limited to specified percentages of accounts receivable. At December 31, 1999,
the Company had $2,238,000 available under its line of credit. The terms to
maintain this agreement require the Company to meet certain restrictive
covenants, including a defined tangible net worth, an interest coverage ratio
and certain other covenants. The Company was not in compliance at December 31,
1999 with covenants related to capital asset additions, tangible net worth and
interest coverage. On March 13, 2000, the bank waived compliance requirements
for these covenants at December 31, 1999.
Note 6. Shareholders' Equity
The Company maintains two stock option plans, the 1996 Stock Incentive Plan (the
"Incentive Plan") and the 1996 Stock Option Plan for Non-Employee Directors (the
"Outside Directors' Plan").
The maximum aggregate number of shares of common stock that may be issued
pursuant to the Outside Directors' Plan is 25,000. The Outside Directors' Plan
will terminate following the annual meeting of shareholders in 2000. Under the
Outside Directors' Plan, each non-employee director of the Company serving on
the Board of Directors on July 1, 1996 was granted an option to purchase 1,000
shares of common stock of the Company. Thereafter, each non-employee director
serving on the Board of Directors shall receive an option to purchase 1,000
shares of common stock on the first business day following each annual meeting
of shareholders. The exercise price of stock options granted under the Outside
Directors' Plan must be equal to the fair market value of the common stock on
the date of grant. Each option is first exercisable on the date which is six
months from the date of grant of the option and shall continue to be exercisable
for a term of ten years, subject to certain exceptions. At December 31, 1999 and
December 31, 1998, respectively, the Company had 20,000 and 14,000 options
outstanding and exercisable. These options had weighted average remaining
contractual lives of nine years. The exercise prices for these options were;
4,000 at $11.75; 4,000 at $5.97; 6,000 at $2.14; and 6,000 at $2.81 for 1999 and
4,000 at $11.75; 4,000 at $5.97; and 6,000 at $2.14 for 1998. In 1999 and 1998,
the Company granted 6,000 options under the Outside Directors' Plan with
exercise prices of $2.81 and $2.14, respectively. The weighted average fair
value of these options at grant date was $1.20 per share in both 1999 and 1998.
2,000 options with a weighted average exercise price of $6.62 options were
cancelled during 1998.
The maximum aggregate number of shares of common stock that may be issued
pursuant to the Incentive Plan is 400,000. The Incentive Plan provides for
grants of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, and/or phantom stock to any officer,
director, or key employee of the Company. The Incentive Plan will terminate in
March 2006.
The exercise price of non-qualified stock options granted under the Incentive
Plan must be equal to at least the fair market value of the common stock on the
date of grant. The aggregate fair market value of common stock (determined as of
the date of the option grant) for which a non-qualified stock option, or related
stock appreciation rights (no stock appreciation rights have been issued) may
for the first time become exercisable in any calendar year may not exceed
$100,000. These options have a term of seven years. Transactions involving the
Incentive Plan are as follows:
<TABLE>
<CAPTION>
Average
Exercise
Shares Price
--------------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1997 162,500 $7.79
Issued 177,500 $2.73
Cancelled (155,000) $5.29
--------------- -----------
Outstanding at December 31, 1998 185,000 $4.97
Issued 67,000 $2.63
--------------- -----------
Outstanding at December 31, 1999 252,000 $4.35
=============== ===========
</TABLE>
The options outstanding at December 31, 1999 and 1998 had a weighted average
remaining contractual life of five and six years, respectively. For options
outstanding at December 31, 1999, 84,375 options had exercise prices between
$5.97 and $9.88 and 167,625 options had exercise prices between $2.44 and $3.88.
For options outstanding at December 31, 1998, 84,375 options had exercise prices
between $5.97 and $9.88 and 100,625 options had exercise prices between $2.44
and $3.88. At December 31, 1999, there were 53,906 and 84,250 that were
exercisable with weighted average exercise prices of $8.01 and $2.61,
respectively. At December 31, 1998, there were 30,990 and 53,062 options that
were exercisable with weighted average exercise prices of $8.28 and $2.56,
respectively. The options granted in 1999 and 1998 had a weighted average fair
value at grant date of $1.25 and $1.54 per share, respectively.
The Company has elected to recognize expense for stock-based compensation under
these plans based upon the intrinsic value based method as prescribed by
Accounting Principles Board Opinion No. 25. If the Company had accounted for its
stock options based upon fair values at the date of grant, consistent with FASB
Statement No. 123, the net income would have decreased by $92,000, or $.02 per
share, for the year ended December 31, 1999, the net loss would have increased
by $323,000, or $.07 per share for the year ended December 31, 1998 and the net
loss would have increased by $147,000, or $.03 per share for the year ended
December 31, 1997. These amounts are not indicative of future effects of
applying the fair value based method since the vesting period was used to
measure compensation expense. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model assuming a
risk-free interest rate of 5.6%, dividend yield of 0.0%, a weighted average
expected life of the option of 6 years in 1998 and 1997 and 5 years in 1999 and
a volatility factor of .461 for 1999, .522 for 1998 and .706 for 1997.
In June 1998, the Company sold 200,000 shares of common stock to Great Lakes
Capital Corporation, LLC (GLCC) for $2.175 per share and granted nonqualified
stock options to GLCC as follows:
<TABLE>
<CAPTION>
Number of Exercise
Shares Price
<S> <C> <C>
150,000 $3.00
150,000 $4.50
150,000 $6.00
150,000 $7.50
</TABLE>
The GLCC options were not granted under the Incentive Plan. All of the options
are exercisable and expire June 30, 2003. These options had a weighted average
fair value at grant date of $.76 per share.
Additionally, the Company and GLCC entered into a Voting and Standstill
Agreement whereby GLCC will beneficially own no more than 21% of the issued and
outstanding shares of the Company on a fully diluted basis, provided that the
shares GLCC and its affiliates may acquire pursuant to the Incentive Plan and
Outside Directors Plan shall not be deemed to be additional shares.
On September 15, 1999, the Company and certain investors purchased 993,542
shares of Common Stock held by the Company's founder at a price of $2.50 per
share. The transaction resulted in the Company purchasing approximately 430,000
shares of stock. In an event related to this transaction, the Company then
immediately resold 160,000 shares of Common Stock to affiliates of GLCC for
$2.50 per share. This resulted in a net redemption by the Company of
approximately 270,000 shares.
The Company has not declared dividends since its conversion to C-Corporation
status.
Note 7. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following (in
thousands $):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
<S> <C><C> <C> <C> <C>
Current:
Federal $ 89 $ 3 $ (198)
State 11 1 (21)
----------------- ---------------- -----------------
100 4 (219)
Deferred:
Federal (1,322) (3) (49)
State (156) (1) (1)
----------------- ---------------- -----------------
(1,478) (4) (50)
----------------- ---------------- -----------------
$ (1,378) $ - $ (269)
================= ================ =================
</TABLE>
A reconciliation of the benefit from income taxes for the year ended December
31, 1999, 1998 and 1997 and the amount computed by applying the U.S. statutory
federal income tax rate of 34% to loss before income taxes is as follows (in
thousands $):
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Income tax benefits at U.S. statutory rates $ (203) $ (1,337) $ (347)
State taxes, net of federal benefit (14) (157) (21)
Amortization of intangibles 73 86 86
Other, net 78 96 13
Valuation allowance (1,312) 1,312 -
------------------ ----------------- ------------------
Total income tax benefit $ (1,378) $ - $ (269)
================== ================= ==================
</TABLE>
The deferred income tax balances at December 31, 1999 and December 31, 1998
consisted of the following (in thousands $):
<TABLE>
<CAPTION>
1999 1998
------------------ -----------------
<S><C> <C> <C>
Deferred tax assets
Accounts receivable allowances $ 78 $ 104
Accrued liabilities 222 75
Net operating losses 1,143 1,113
Other 86 154
Valuation allowance - (1,312)
Deferred tax liabilities:
Tax over book depreciation (51) (134)
------------------ -----------------
$ 1,478 $ -
================== =================
</TABLE>
Prior to 1999, as a result of recent operating losses and the uncertainty of the
realization of the potential tax benefits thereof, the Company did not record
potential income tax benefits of $1.3 million. During the last quarter of 1999,
the Company determined that it was more probable than not that these tax
benefits would be realized and reversed the valuation allowance associated with
the income tax benefits.
Net operating loss carryforwards of $3.0 million expire in 2019.
Note 8. Commitments and Contingencies
Lease Agreements
The Company leases office space and production facilities in Richmond and
Lansing. The Richmond lease expires in July 2002. The Lansing lease expires in
September 2000. In addition, the Company leases its sales offices under
operating lease agreements expiring in various periods through December 2002.
Certain automobiles are also leased under terms not exceeding three years. All
of these leases are accounted for as operating leases.
Future minimum lease payments were as follows at December 31, 1999 (in thousands
$):
<TABLE>
<CAPTION>
Year
<S> <C> <C>
2000 $ 1,108
2001 911
2002 547
2003 58
2004 26
---------------
$ 2,650
===============
</TABLE>
The above amounts have been reduced by expected sublease rentals of $74,000 in
2000.
Rent expense amounted to $875,000 in 1999 and $1,164,000 in 1998.
Legal Matters
A portion of the potential consideration for the 1996 acquisition of Immaculate
Eagle, Inc. (d/b/a TFM Remanufactured Office Furniture)("TFM") was 87,500 shares
of common stock of the Company, which was placed in escrow, with an agreed upon
value of $1.3 million, as security for indemnification obligations of the former
shareholders of TFM. In addition, under the terms of the TFM purchase agreement,
if the closing sales price of the Company's common stock on October 1, 1998 was
less than $15 per share, the Company was to make a cash payment to the former
shareholders of TFM equal to the difference between the closing sales price on
that date and $15, multiplied by the 87,500 shares of common stock (subject to
certain adjustments, including claims by the Company for indemnification). The
Company's common stock traded at $2.25 per share on October 1, 1998 and,
accordingly, the amount potentially payable to the former TFM shareholders was
$1,115,625.
Prior to October 1, 1998, management of the Company reviewed the circumstances
of the TFM acquisition and concluded the indemnification obligations of the
former TFM shareholders exceeded the $1.3 million agreed value of the stock in
escrow. The Company served notice of the indemnification claims to the former
TFM shareholders. The former shareholders of TFM disputed the indemnification
claims and pursuant to the purchase agreement, the matter went to arbitration.
Based on the indemnification claims, the aggregate $1,115,625 difference between
the stock's market price on October 1, 1998 and the $15 value assumed in the TFM
purchase agreement was recorded as a reduction in goodwill and shareholders'
equity.
In December 1999, the arbitration panel ruled that the former TFM shareholders
had breached their warranties in three instances and awarded the Company
$120,000. As a result, the Company paid approximately $1 million to the former
TFM shareholders, which was recorded as an increase in goodwill. The former TFM
shareholders were also awarded reimbursement of certain legal fees and other
costs and those amounts are included in the arbitration costs of $1,067,000
reflected in the consolidated statements of operations.
Note 9. Employee Benefit Plan
The Company has a defined contribution plan covering substantially all employees
meeting eligibility requirements. Under the plan, participants may elect to
contribute a specified portion of their compensation to the plan on a tax
deferred basis. The Company will match one-half of the participant's
contributions up to six percent of compensation. The Company may make additional
contributions at its discretion.
The Company recorded total expense related to the plan of $147,000 in 1999,
$126,000 in 1998 and $86,000 in 1997.
Note 10. Related Party Transactions
The Company incurred legal fees of $594,000 in 1999, $258,000 in 1998 and
$150,000 in 1997 to a law firm in which one of the Company's directors was a
principal. The Company also had approximately $150,000 in accounts payable to
this firm at December 31, 1999.
The Company purchased and leased a total of 12 vehicles in 1999 from a company
whose chairman is a director of the Company.
A customer whose President is a director of the Company purchased $1,500,000 of
product in 1997.
Note 11. Concentrations of Credit Risk and Financial Instruments
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of accounts receivable. The Company markets its
products and services to customers located primarily in the Eastern and Mid-West
regions of the United States. Production is primarily in response to customer
orders and larger jobs typically require advance deposits. The Company performs
credit evaluations of its customers prior to delivery or commencement of
services and normally does not require collateral. Payments are typically due
within thirty days of billing. The Company maintains an allowance for potential
credit losses and losses have historically been within management's
expectations.
The carrying values of amounts classified as current assets or current
liabilities approximate fair value due to the short-term maturities of these
instruments.
<PAGE>
Results of operations for each of the quarters during the years ended December
31, 1999 and 1998 are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------
March 31st June September December 31st
30th 30th
Year ended December 31, 1999
<S> <C> <C> <C> <C>
Net sales $ 7,509 $ 8,878 $ 8,945 $ 9,726
Gross profit $ 2,121 $ 2,849 $ 2,874 $ 2,882
Operating income (loss) (2) $ 63 $ 226 $ 137 $ (845)
Income (loss) before income taxes (2) $ 26 $ 185 $ 101 $ (908)
Net income (loss) $ 26 $ 185 $ 101 $ 470 (3)
Earnings (loss) per common share $ .01 $ .04 $ .02 $ .11
Year ended December 31, 1998
Net sales $ 7,900 $ 8,332 $ 9,600 $ 7,844
Gross profit $ 1,644 $ 1,189 $ 2,757 $ 2,321
Operating income (loss) $ (1,141) $(3,157)(1) $ 321 $ 292
Income (loss) before income taxes $ (1,207) $(3,229)(1) $ 240 $ 263
Net income (loss) $ (1,207) $(3,229)(1) $ 240 $ 263
Earnings (loss) per common share $ (.27) $ (.72) $ .05 $ .06
</TABLE>
(1) Results of operations for the quarter ended June 30, 1998 include the impact
of a restructuring charge of $1.3 million.
(2) Results of operations for 1999 include the impact of arbitration costs of
$1.1 million, of which $786,000 were recorded in the fourth quarter.
(3) Net income for the quarter of $470,000 includes the effect of the reversal
of the valuation allowance against net deferred tax assets of $1.3 million.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated herein by reference
from the Company's definitive Proxy Statement for its 2000 Annual Meeting of
Shareholders to be filed within 120 days of the end of the 1999 fiscal year.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference
from the Company's definitive Proxy Statement for its 2000 Annual Meeting of
Shareholders to be filed within 120 days of the end of the 1999 fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated herein by reference
from the Company's definitive Proxy Statement for its 2000 Annual Meeting of
Shareholders to be filed within 120 days of the end of the 1999 fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated herein by reference
from the Company's definitive Proxy Statement for its 2000 Annual Meeting of
Shareholders to be filed within 120 days of the end of the 1999 fiscal year.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial statements, financial statement schedules and reports
included in this Annual Report on Form 10-K
(1) Financial Statements
The response to this portion of Item 14 is submitted as a separate
section of this report.
(2) Financial Statement Schedules
The following schedule,for each of the three years in the period ending
December 31, 1999, is included beginning on the page indicated in this
Annual Report on Form 10-K:
Page:
Schedule II - Valuation and Qualifying Accounts 36
Schedules other than that listed above have been omitted because
such schedules are not required or are not applicable.
(3) The exhibits that are required to be filed or incorporated by reference
herein are as follows:
<TABLE>
<CAPTION>
Exhibit No. Document
<S> <C> <C>
3(i) Amended and Restated Articles of Incorporation, incorporated by reference to Exhibit 3(i)
of the Registrant's Form SB-2 Registration Statement, as amended, File No. 333-3188.
3(ii) Amended and Restated Bylaws, incorporated by reference to Exhibit 3(ii) of the
Registrant's Form SB-2 Registration Statement, as amended, File No. 333-3188.
4 Form of Stock Certificate, incorporated by reference to Exhibit 4 of the
Registrant's Form SB-2 Registration Statement, as amended, File No. 333-3188.
10.1 Open Plan Systems, Inc. 1996 Stock Incentive Plan, as amended, incorporated by
reference to Exhibit 4.4 of the Registrant's Form S-8 Registration Statement, File No.
333-15217.
10.2 Open Plan Systems, Inc. 1996 Stock Option Plan For Non-Employee Directors, as amended,
incorporated by reference to Exhibit 4.4 of the Registrant's Form S-8 Registration
Statement, File No. 333-15219.
10.3 Buy-Sell Agreement, dated May 15, 1996, between the Registrant and Gregory P. Campbell,
incorporated by reference to Exhibit 10.8 of the Registrant's Form SB-2 Registration
Statement, as amended, File No. 333-3188.
10.4 Tax Sharing Agreement, dated May 1, 1996, between the Registrant and each of the
shareholders named therein, incorporated by reference to Exhibit 10.9 of the Registrant's
Form SB-2 Registration Statement, as amended, File No. 333-3188.
10.5 Form of Employee Non-Qualified Stock Option Agreement, incorporated by reference
to Exhibit 10.10 of the Registrant's Form 10-KSB filed March 27, 1997 File No. 0-20743
10.6 Form of Non-Employee Director Non-Qualified Stock Option Agreement, incorporated by reference to
Exhibit 10.11 of the Registrant's Form 10-KSB filed March 27, 1997, File No. 0-20743.
10.7 Stock Purchase Agreement, dated as of August 31, 1999, by and between Stan A. Fischer, the
Registrant and A.G. Bertozzi, J. Cullather, J. Wesley Hall, Anthony F. Markel, Gary L. Markel,
Robert F. Mizell, E.W. Mugford and Troy A. Peery, Jr. incorporated by reference to Exhibit 99.2
of the Registrant's Form 8-K filed September 30, 1999, File No. 0-20743.
10.8 Stock Redemption of Sale Agreement, made effective as August 31, 1999, by and between the
Registrant and Thomas H. Carson, William F. Crabtree, John L. Hobey, Charles Kaufmann and W.
Sydnor Settle, incorporated by reference to Exhibit 99.3 of the Registrant's Form 8-K filed
September 30, 1999, File No. 0-20743.
10.9 Stock Purchase Agreement, dated September 24, 1996, between the Registrant, Immaculate Eagle,
Inc., Paul A. Covert, Todd A. Thomann and Siimon, Inc., incorporated by reference to Exhibit 2.1
of the Registrant's Form 8-K filed October 16, 1996, File No. 0-20743.
10.10 Loan and Security Agreement, dated December 1998, by and between Fleet Bank, N.A. and the
Registrant and TFM, incorporated by reference to Exhibit 10.11 of the Registrant's Form 10-KSB
filed April 1, 1999, File 0-20743.
10.11 Management and Consulting Agreement, dated June 17, 1998, between the Registrant and Great
Lakes Capital, incorporated by reference to Exhibit 10.17 of the Registrant's Form 10-Q filed
August 14, 1999, File No. 0-20743.
10.12 Registration Rights Agreement, dated June 17, 1998, between the Registrant and Great Lakes
Capital, LLC incorporated by reference to Exhibit 10.20 of the Registrant's Form 10-Q filed
August 14, 1999, File No. 0-20743
10.13 Voting and Standstill Agreement between, dated June 17, 1998, the Registrant and Great Lakes
Capital, incorporated by reference to Exhibit 10.19 of the Registrant's Form 10-Q filed August
14, 1999, File No. 0-20743
10.14 Commercial Lease Contract, dated May 1, 1998, between Liberty Property Limited Partnership and
the Registrant.
10.15 Commercial Lease Contract, dated September 18, 1998, between Quality Dairy Company and the
Registrant
11 Statement re: Computation of Earnings Per Share
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP*
27 Financial Data Schedule * (filed electronically only)
</TABLE>
________
* Filed herewith
(b) Reports on Form 8-K.
On December 22, 1999, the Registrant filed a Current Report on
Form 8-K, dated December 7, 1999, reporting under Items 5 and 7(c) the
issuance of a press release in which the Registrant announced the
results of an arbitration proceeding concerning the former
shareholders of TFM, a company acquired in 1996 by the Registrant. The
arbitration proceeding determined that these former shareholders had
breached their warranties, awarded the Registrant $120,000 and awarded
reasonable and necessary legal fees and expenses to the former TFM
shareholders.
<PAGE>
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate
section of this report.
<PAGE>
Open Plan Systems, Inc
Schedule II
Valuation and Qualifying Accounts
(Amounts in Thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Other Change Balance
Beginning Costs and Other Add at End
Year Description Year Expenses Account (Deduct)(1) of Year
<S> <C> <C> <C> <C> <C> <C>
1999 Allowance for doubtful accounts 275 57 - (126) 206
Allowance for inventory obsolesence 314 - - (88) 226
1998 Allowance for doubtful accounts 152 166 - (43) 275
Allowance for inventory obsolesence - 314 - - 314
1997 Allowance for doubtful accounts 119 59 - (26) 152
</TABLE>
(1) Bad Debts Written Off
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OPEN PLAN SYSTEMS, INC.
By:/s/ John L. Hobey
John L. Hobey
March 23, 2000 Chief Executive Officer
In accordance with the Exchange Act, 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>
<CAPTION>
Signature Title Date
<S> <C> <C> <C>
/s/ John L. Hebey Chief Executive Officer March 23, 2000
John L. Hobey
/s/ William F. Crabtree Chief Financial Officer (principal March 23, 2000
William F. Crabtree financial officer)
/s/ Neil F. Suffa Corporate Controller and Secretary March 23, 2000
Neil F. Suffa (principal accounting officer)
/s/ Troy A. Peery Director March 15, 2000
Troy A. Peery, Jr.
/s/ Anthony F. Markel Director March 23, 2000
Anthony F. Markel
/s/ Theodore L. Chandler, Jr. Director March 23, 2000
Theodore L. Chandler, Jr.
/s/ Robert F. Mizell Director March 23, 2000
Robert F. Mizell
/s/ W. Sydnor Settle Director March 23, 2000
W. Sydnor Settle
/s/ Edwin W. Mugford Director March 23, 2000
Edwin W. Mugford
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Document
<S> <C> <C>
3(i) Amended and Restated Articles of Incorporation, incorporated by reference to Exhibit 3(i) of the
Registrant's Form SB-2 Registration Statement, as amended, File No. 333-3188.
3(ii) Amended and Restated Bylaws, incorporated by reference to Exhibit 3(ii) of the Registrant's Form
SB-2 Registration Statement, as amended, File No. 333-3188.
4 Form of Stock Certificate, incorporated by reference to Exhibit 4 of the Registrant's Form SB-2
Registration Statement, as amended, File No. 333-3188.
10.1 Open Plan Systems, Inc. 1996 Stock Incentive Plan, as amended, incorporated by reference to
Exhibit 4.4 of the Registrant's Form S-8 Registration Statement, File No. 333-15217.
10.2 Open Plan Systems, Inc. 1996 Stock Option Plan For Non-Employee Directors, as amended, incorporated by
reference to Exhibit 4.4 of the Registrant's Form S-8 Registration Statement, File No. 333-15219.
10.3 Buy-Sell Agreement, dated May 15, 1996, between the Registrant and Gregory P. Campbell, incorporated by
reference to Exhibit 10.8 of the Registrant's Form SB-2 Registration Statement, as amended, File No.
333-3188.
10.4 Tax Sharing Agreement, dated May 1, 1996, between the Registrant and each of the shareholders
named therein, incorporated by reference to Exhibit 10.9 of the Registrant's Form SB-2 Registration
Statement, as amended, File No. 333-3188.
10.5 Form of Employee Non-Qualified Stock Option Agreement, incorporated by reference to Exhibit 10.10
of the Registrant's Form 10-KSB filed March 27, 1997 File No. 0-20743
10.6 Form of Non-Employee Director Non-Qualified Stock Option Agreement, incorporated by reference to Exhibit 10.11 of
the Registrant's Form 10-KSB filed March 27, 1997, File No. 0-20743.
10.7 Stock Purchase Agreement, dated as of August 31, 1999, by and between Stan A. Fischer, the Registrant and A.G.
Bertozzi, J. Cullather, J. Wesley Hall, Anthony F. Markel, Gary L. Markel, Robert F. Mizell, E.W. Mugford and Troy
A. Peery, Jr. incorporated by reference to Exhibit 99.2 of the Registrant's Form 8-K filed September 30, 1999,
File No. 0-20743.
10.8 Stock Redemption of Sale Agreement, made effective as August 31, 1999, by and between the Registrant and Thomas H.
Corson, William F. Crabtree, John L. Hobey, Charles Kaufmann and W. Sydnor Settle, incorporated by reference to
Exhibit 99.3 of the Registrant's Form 8-K filed September 30, 1999, File No. 0-20743.
10.9 Stock Purchase Agreement, dated September 24, 1996, between the Registrant, Immaculate Eagle, Inc.,Paul A. Covert,
Todd A. Thomann and Siimon, Inc., incorporated by reference to Exhibit 2.1 of the Registrant's Form 8-K filed
October 16, 1996, File No. 0-20743.
10.10 Loan and Security Agreement, dated December 1998, by and between Fleet Bank, N.A. and the Regisrant and TFM,
incorporated by reference to Exhibit 10.11 of the Registrant's Form 10-KSB filed April 1, 1999, File 0-20743.
10.11 Management and Consulting Agreement, dated June 17, 1998, between the Registrant and Great Lakes Capital,
incorporated by reference to Exhibit 10.17 of the Registrant's Form 10-Q filed August 14, 1999, File No. 0-20743.
10.12 Registration Rights Agreement, dated June 17, 1998, between the Registrant and Great Lakes Capital, LLC
incorporated by reference to Exhibit 10.20 of the Registrant's Form 10-Q filed August 14, 1999, File No. 0-20743
10.13 Voting and Standstill Agreement dated June 17, 1998, between the Registrant and Great Lakes Capital, LLC
incorporated by reference to Exhibit 10.19 of the Registrant's Form 10-Q filed August 14, 1999, File No. 0-20743
10.14 Commercial Lease Contract, dated May 1, 1998, between Liberty Property Limited Partnership and the Registrant.
10.15 Commercial Lease Contract, dated September 18, 1998, between Quality Dairy Company and the Registrant
11 Statement re: Computation of Earnings Per Share
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP*
27 Financial Data Schedule * (filed electronically only)
</TABLE>
<PAGE>
OPEN PLAN SYSTEMS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
------------------- ------------------------------------------------------------------------
<S> <C> <C>
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule (filed electronically only)
</TABLE>
<PAGE>
OPEN PLAN SYSTEMS, INC.
EXHIBIT 11 - Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Year Ended
December
1999 1998 1997
-------------------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding
during the period 4,594 4,582 4,472
Assumed exercise of options less assumed - - -
acquisition of shares
-------------------------------------------------------
Total 4,594 4,582 4,472
=======================================================
Net income (loss) used in computation $ 782 $ (3,933) $ (748)
=======================================================
Income (loss) per common share $ .17 $ (.86) $ (.17)
========================================================
</TABLE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-15219) pertaining to the Open Plan Systems, Inc. 1996 Stock Option
Plan for Non-Employee Directors and the Registration Statement (Form S-8 No.
333-15217) pertaining to the Open Plan Systems, Inc. 1996 Stock Incentive Plan
of our report dated February 4, 2000 (except for the last sentence in Note 5 as
to which the date is March 13, 2000), with respect to the consolidated financial
statements and schedule of Open Plan Systems, Inc. included in the Annual Report
(Form 10-K) for the year ended December 31, 1999.
/s/ERNST & YOUNG LLP
Richmond, Virginia
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF OPEN PLAN SYSTEMS, INC. AS OF DECMBER 31, 1999 AND THE RELATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE NINE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001011738
<NAME> OPEN PLAN SYSTEMS, INC.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 7,144
<ALLOWANCES> (206)
<INVENTORY> 7,862
<CURRENT-ASSETS> 16,230
<PP&E> 4,675
<DEPRECIATION> (2,403)
<TOTAL-ASSETS> 23,619
<CURRENT-LIABILITIES> 8,001
<BONDS> 0
0
0
<COMMON> 18,651
<OTHER-SE> (3,196)
<TOTAL-LIABILITY-AND-EQUITY> 23,619
<SALES> 35,058
<TOTAL-REVENUES> 35,058
<CGS> 24,332
<TOTAL-COSTS> 24,332
<OTHER-EXPENSES> 11,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201
<INCOME-PRETAX> (596)
<INCOME-TAX> (1,378)
<INCOME-CONTINUING> 782
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 782
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>
