United States of America
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______ to ______
Commission file number 0-20743
OPEN PLAN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1515256
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4299 Carolina Avenue, 23222
Building C, Richmond, Virginia (Zip Code)
(Address of principal executive offices)
(804) 228-5600
(Telephone number of registrant)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No __.
As of the close of business on November 10, 2000, Open Plan Systems, Inc.
had 4,377,391 shares of Common Stock, no par value, outstanding.
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Open Plan Systems, Inc.
Table of Contents
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PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2000 (unaudited) 1
and December 31, 1999
Consolidated Statements of Operations - Three and nine months 2
ended September 30, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows - Nine 3
months ended September 30, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements - September 30, 2000 4
September 30, 2000 (unaudited)
Item 2. Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of 10
Security Holders
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES
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Open Plan Systems, Inc.
Part I
Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets
(amounts in thousands)
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September 30 December 31
2000 1999
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Assets (unaudited)
Current assets:
Cash and cash equivalents $ 98 $ 13
Accounts receivable, net 6,612 7,144
Inventories 8,730 7,862
Prepaids and other 882 638
Refundable income taxes 73 188
Deferred income taxes 214 385
-------------------------------------
Total current assets 16,609 16,230
Property and equipment, net 2,322 2,272
Goodwill, net 3,723 3,898
Deferred income taxes 1,258 1,093
Cash and cash equivalents externally restricted under bond
indenture agreement 2,445 -
Other 155 126
-------------------------------------
Total assets $26,512 $23,619
=====================================
Liabilities and shareholders' equity
Current liabilities:
Revolving line of credit $3,946 $2,419
Trade accounts payable 2,573 3,464
Accrued compensation 205 238
Other accrued liabilities 347 813
Customer deposits 1,358 1,005
Current portion of long-term debt 154 62
-------------------------------------
Total current liabilities 8,583 8,001
Long-term debt 2,519 163
-------------------------------------
Total liabilities 11,102 8,164
Shareholders' equity:
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 - 4,392 18,629 18,651
Additional capital 137 137
Accumulated other comprehensive loss - -
Accumulated deficit (3,356) (3,333)
-------------------------------------
Total shareholders' equity 15,410 15,455
-------------------------------------
Total liabilities and shareholders' equity $26,512 $23,619
=====================================
See accompanying notes.
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Open Plan Systems, Inc.
Consolidated Statements of Operations (Unaudited)
(amounts in thousands, except per share)
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Three Months ended Nine Months ended
September 30 September 30
2000 1999 2000 1999
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<S><C> <C> <C> <C> <C>
Net sales $ 10,398 $ 8,945 $ 30,190 $ 25,332
Cost of sales 7,385 6,071 21,493 17,488
---------------------------------------------------------------------
Gross profit 3,013 2,874 8,697 7,844
Operating expenses:
Amortization of intangibles 68 54 205 160
Selling and marketing 2,042 1,925 5,984 5,344
General and administrative 579 606 2,060 1,633
Arbitration costs - 153 142 281
---------------------------------------------------------------------
2,689 2,737 8,391 7,418
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Operating income 324 137 306 426
Other (income) expense:
Interest expense 118 41 356 130
Minority interest - - (12) -
Other, net 4 (5) (2) (16)
---------------------------------------------------------------------
122 36 342 114
---------------------------------------------------------------------
Income (loss) before income taxes 202 101 (36) 312
Income tax expense (benefit) 82 - (13) -
---------------------------------------------------------------------
Net income (loss) $ 120 $ 101 $ (23) $ 312
=====================================================================
Basic and diluted income (loss) per common share $ .03 $ .02 $ (.01) $ .07
=====================================================================
Basic and diluted weighted average common shares outstanding 4,401 4,628 4,402 4,658
=====================================================================
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See accompanying notes.
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Open Plan Systems, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(amounts in thousands)
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Nine Months ended
September 30
2000 1999
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Operating activities
Net (loss) income $ (23) $ 312
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Provision for losses on receivables 219 26
Depreciation and amortization 881 728
Loss on sale of property 5 3
Deferred income taxes 6 -
Changes in operating assets and liabilities:
Accounts receivable 313 (804)
Inventories (868) (263)
Prepaids and other (188) (283)
Trade accounts payable (891) 703
Customer deposits 353 79
Accrued and other liabilities (499) 155
-----------------------------------
Net cash (used in) provided by operating activities (692) 656
Investing activities
Increase in cash and cash equivalents restricted
under bond indenture agreement (2,445) -
Purchases of property and equipment (731) (641)
-----------------------------------
Net cash used in investing activities (3,176) (641)
Financing activities
Net borrowings on revolving line of credit 1,527 460
Proceeds from borrowing on long-term debt 2,500 -
Notes payable issued - 225
Purchase of common stock (22) (1,073)
Issuance of common stock (net of expenses) - 400
Principal payments on long-term debt (52) (24)
-----------------------------------
Net cash provided by (used in) financing activities 3,953 (12)
-----------------------------------
Increase in cash and cash equivalents 85 3
Cash and cash equivalents at beginning of period 13 2
-----------------------------------
Cash and cash equivalents at end of period $ 98 $ 5
===================================
Supplemental disclosures
Interest paid $ 356 $ 130
===================================
Income taxes paid $ 58 $ -
===================================
</TABLE>
See accompanying notes.
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OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2000
1. Principles of Presentation
The accompanying unaudited consolidated financial statements of Open Plan
Systems, Inc. and subsidiaries (the Company) have been prepared in accordance
with generally accepted accounting principles for interim financial information.
The interim financial statements included herein are unaudited. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. All
significant intercompany balances and transactions are eliminated in
consolidation. In the opinion of management, these financial statements reflect
all adjustments of a normal recurring nature which the Company considers
necessary for a fair presentation. The results for the three and nine month
periods ending September 30, 2000 are not necessarily indicative of the results
that may be achieved for the entire year ending December 31, 2000 or for any
other interim period. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Form 10-K
for the year ended December 31, 1999.
2. Mexican Subsidiaries
In January 2000, the Company entered into a Joint Venture Agreement to open a
new sales office in Mexico City, Mexico. The Company agreed to contribute
approximately 455,000 Pesos, or approximately $50,000, for an 80% interest in
the venture. The Joint Venture Agreement called for the creation of two new
companies, Open Plan Systems, S. de R.L. de C.V. and Open Plan Servicios, S. de
R.L. de C.V., each of which is 80% owned by the Company. The Company has
reported minority interest related to the earnings and the equity of the
minority partner in the accompanying financial statements.
3. Inventories
Inventories are in two main stages of completion and consisted of the following
(amounts in thousands):
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September 30 December 31
2000 1999
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(Unaudited)
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Components and fabric $5,002 $5,243
Jobs in process and finished goods 3,728 2,619
-------------------------------------
$8,730 $7,862
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4. Income Taxes
The Company reported an effective tax rate of 36.1% for the first three quarters
of 2000. The difference between the Company's effective tax rate and the
statutory income tax rate for the third quarter and first three quarters of 2000
is due to permanent differences related to amortization of non-deductible
intangible assets and state taxes. Utilization of net operating loss
carryforwards resulted in no income tax expense for the third quarter and first
nine months of 1999. Related deferred income tax assets were offset by a
valuation allowance in the third quarter and first nine months of 1999.
5. Indebtedness
At September 30, 2000, the Company had outstanding borrowings of $3,946,000 on
its $5,250,000 line of credit. The Company's availability on its line of credit
was $1,304,000.
In April 2000, the Company entered into an agreement with a bank for a new line
of credit to replace its former line of credit. This line of credit closed on
May 1, 2000 and is secured by substantially all assets of the Company. It
provides for availability of up to 80% of eligible accounts receivable along
with up to $2 million in eligible inventory and maximum borrowings of $5
million. Borrowings will bear interest at a floating rate, which is linked to
either LIBOR or prime, at the Company's request. On August 1, 2000, the Company
and the bank amended the agreement to increase the line of credit to $5,250,000.
On June 15, 2000, the Company sold $2.5 million Michigan Strategic Fund
Industrial Revenue Bonds in order to construct a new production facility in
Lansing, Michigan. The proceeds were placed into an escrow account with the
trustee until such time as they are used for building the facility. At the same
time, the Company entered into a letter of credit facility with a bank to secure
the financing on the facility. The letter of credit and the line of credit are
cross-collateralized.
6. Comprehensive Income (Loss)
Comprehensive income for the quarter ended September 30, 2000 was $122,000.
Comprehensive loss for the first nine months of 2000 was $23,000. The difference
between net income (loss) and comprehensive income (loss) is due to foreign
currency translation gains and losses.
7. Repurchases of Common Stock The Company's Board of Directors has approved the
repurchase of up to 100,000 shares of the Company's Common Stock. During the
quarter ended September 30, 2000, the Company repurchased 11,000 shares of its
Common Stock at an aggregate cost of $22,000.
8. Impact of Recently Issued Standards In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"), as amended by Statement
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of FASB
Statement No. 133," which is required to be adopted in years beginning after
June 15, 2000. In June 2000, the Financial Accounting Standards Board issued
SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective date of SFAS No. 133," which addresses the application
of a limited number of Statement 133 issues. The Company plans to adopt this
pronouncement effective January 1, 2001. Management does not anticipate that the
adoption of Statement 133 will have a material effect on the Company's
consolidated financial statements. In March 2000, the FASB issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation", an interpretation of APB Opinion No. 25, "Accounting for Stock
Issued to Employees." The Interpretation clarifies guidance for certain issues
that arose in the application of APB Opinion No. 25. The Company adopted the
Interpretation on July 1, 2000, which did not have any effect on the Company's
consolidated financial statements. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements." SAB 101 provides guidance on applying
generally accepted accounting principles to revenue recognition issues in
financial statements. The Securities and Exchange Commission issued SAB 101B in
June 2000 that further delays the effective date of SAB 101 until no later than
the fourth fiscal quarter of fiscal years beginning after December 15, 1999.
Thus, the Company will adopt SAB 101 in the fourth quarter of 2000. The Company
is currently assessing the impact, if any, that SAB 101 may have on the
Company's consolidated financial statements.
<PAGE>
OPEN PLAN SYSTEMS, INC.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
This commentary should be read in conjunction with the sections of the
Company's Form 10-K for a full understanding of Open Plan Systems financial
condition and results of operations for the year ended 1999.
Results of Operations
Net Sales. Sales for the three months ended September 30, 2000 were
$10,398,000, an increase of approximately $1,453,000 or 16.2% versus the same
period in 1999. Sales for the nine months ended September 30, 2000 were up
$4,858,000 or 19.2% higher than the first nine months of 1999. The Company's
existing sales offices and National Accounts group contributed the majority of
the sales increases for the three and nine month periods. The Company's new
offices in Mexico City and Indianapolis and the Company's introduction of a
remanufactured Steelcase product contributed to greater sales in the third
quarter.
The Company also increased its sales order volume during the third quarter
of 2000. It received orders of $11.5 million in the third quarter of 2000 up
from the $10.0 million in orders booked during the third quarter of 1999.
Additionally, the Company's order backlog at the end of September 2000 of $6.3
million was up $2 million from September 1999 levels.
For the remainder of the year, the Company anticipates continued improved
productivity and sales increases from its existing branch office network and its
new sales offices. The Company will selectively add sales people to key target
markets while it continues to build market share. The National Accounts business
has been strengthened by repeat business from several Fortune 500 companies.
Gross Margin. The gross margin decreased to 29.0% in the third quarter of
2000 from 32.1% in the third quarter of 1999. For the first nine months of 2000,
the Company's gross margin of 28.8% is less than the 31.0% for the comparable
period in 1999. The Company's gross margin during the third quarter of 2000 was
impacted negatively by costs to expand the capacity at the Richmond facility.
This included the addition of new personnel and resources to handle the
additional sales volume the Company has been generating. Additionally, the gross
margin was impacted by increased discounting pressure in certain markets. The
Company anticipates that discounting pressure will moderate due to price
increases by several of the Company's competitors. The Company is pursuing
avenues to improve its production and shipping activities to reduce costs and to
continue to improve quality.
The Company anticipates that margins for the fourth quarter will improve
due to less discounting pressure and reduced level of overhead in relation to
sales as the sales volume continues to increase.
Operating Expenses. The Company's selling and marketing expenses increased
by $117,000 to $2,042,000 from the $1,925,000 reported in the third quarter of
1999. For the nine months ended September 30, 2000, the Company increased
selling and marketing expenses by $640,000 to $5,984,000. While the Company's
selling and marketing expenses increased during the third quarter and nine
months ended September 30, 2000, as a percentage of sales these expenses
decreased to 19.6% and 19.8% of sales, respectively, from the 21.5% and 21.1%
reported in 1999. The Company believes that these expenses as a percentage of
total revenues will continue to decrease as the Company's investments in new
sales personnel and offices should increase revenues at a faster rate than
expenses.
General and administrative expenses decreased to $579,000 in the third
quarter of 2000 from the $606,000 reported in the third quarter of 1999. The
Company reported a $427,000 increase in general and administrative expenses for
the first nine months of 2000. The decrease for the third quarter is due to
tighter cost controls and reduced spending related to personnel reductions
offset somewhat by an increase in the Company's bad debt reserves. The increase
for the nine months is due primarily to a $100,000 increase in the allowance for
doubtful accounts related to a dealer who went out of business and severance
charges in the general and administrative area of approximately $100,000 taken
in the second quarter. The Company expects that the level of general and
administrative expenses will be below budgeted amounts for the remainder of the
year.
Other Non-Operating Income and Expense. Total other expense increased to
$122,000 for the third quarter of 2000 versus $36,000 for the third quarter of
1999. These expenses increased to $342,000 in the first nine months of 2000 from
the $114,000 reported for the comparable period of 1999. The primary reason for
the increase in the third quarter and nine months is related to higher borrowing
levels necessitated by the final settlement of legal matters with former
officers of the Company. Additionally, the increase is related to the Company
increasing its borrowings on the line of credit facility during the fourth
quarter of 1999 and early 2000 to pay for the stock repurchased from a former
officer of the Company. Finally, the Company paid a termination charge related
to its former bank in the second quarter of 2000 but anticipates that the
termination fees will be recouped through lower interest rates over the next
year.
Income Taxes. In the third quarter and first nine months of 2000, the
Company recorded tax expense (benefits) at a rate equal to its expected tax rate
for the year. The Company anticipates that its effective tax rate will exceed
60% for the final quarter of 2000. Utilization of net operating loss
carryforwards resulted in no income tax expense for the first nine months of
1999. In 1999, related deferred income tax assets were offset by a valuation
allowance.
Liquidity and Capital Resources
Inventories. Inventories at September 30, 2000 increased by $868,000
compared to inventories at the end of 1999. This increase was due to additional
inventories needed to support the Company's new Mexican operations and inventory
needed to support higher sales volumes. The Company anticipates that these
levels will decrease somewhat over the remainder of the year.
Accounts Receivable. Accounts receivable decreased by approximately
$532,000 at September 30, 2000 from December 31, 1999. This decrease is directly
related to the improvement in the Company's Days Sales Outstanding (DSO) offset
by higher volume levels. DSO decreased to 57 days at September 30, 2000 from 66
days at December 31, 1999. The Company anticipates that increases in accounts
receivable due to higher sales volumes will be moderated by continued
improvements in DSO.
Other Assets. Other assets increased by approximately $2,500,000 as the
Company escrowed the proceeds of the Lansing facility Industrial Revenue Bonds.
Property & Equipment. The Company increased its property and equipment by
$50,000 during the first nine months of 2000. The majority of the increase was
due to the purchase of land for the new Lansing production facility. The Company
anticipates the Lansing facility costs to be approximately $2,500,000, or the
amount of the bond proceeds. The Company expects its other capital expenditures
will not exceed depreciation for the remainder of the year.
Long-term Debt and Revolving Line of Credit. The Company's long-term debt
increased by approximately $2,500,000 in the first nine months of 2000 due to
issuance of the Lansing facility Industrial Revenue Bonds. Additionally, the
Company increased the borrowings on its line of credit due primarily to
reductions in accounts payable from year end and final payment of approximately
$500,000 related to settlement of an arbitration with former officers of the
Company. The Company anticipates that its line of credit balance will decrease
over the remainder of the year.
Stock Repurchase Program. During the first quarter of 2000, the Company
announced a stock repurchase program for up to 100,000 shares of the Company's
stock. As of November 1, 2000, the Company had acquired 25,500 shares under this
program.
Seasonality and Impact of Inflation
The Company has no discernable pattern of seasonality. Because the Company
recognizes revenues upon shipment and typically ships Work Stations within two
to four 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 sales 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 by inflation in the future.
Forward-Looking Statements
The foregoing discussion contains certain forward-looking statements, which
may be identified by phrases such as "the Company expects" or words of similar
effect. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. The Company has identified certain
important factors that 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 2000 and any interim period to differ materially from those
expressed or implied in any forward-looking statements made by, or on behalf of,
the Company. These factors are set forth under the caption "Forward-Looking
Statements" in Item 7 of the Company's Form 10-K for the fiscal year ended
December 31, 1999, a copy of which is on file with the Securities and Exchange
Commission. The Company assumes no duty to update any of the forward-looking
statements of this report.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
The Company believes that its exposure to market risk associated with
transactions involving derivative and other financial instruments is not
material.
<PAGE>
OPEN PLAN SYSTEMS, INC.
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
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Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
The registrant has included the following exhibits pursuant to Item 601 of Regulation S-K.
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Exhibit No. Description
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11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule (filed electronically only)
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(b) Reports on Form 8-K
Not Applicable
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OPEN PLAN SYSTEMS, INC.
--------------------------
(Registrant)
Date: November 14, 2000 /s/ John L. Hobey
--------------------------
John L. Hobey
Chief Executive Officer
Date: November 14, 2000 /s/ Neil F. Suffa
--------------------------
Neil F. Suffa
Chief Financial & Accounting Officer
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OPEN PLAN SYSTEMS, INC.
EXHIBIT INDEX
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Exhibit No. Description
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<S> <C> <C>
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule (filed electronically only)
</TABLE>
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OPEN PLAN SYSTEMS, INC.
EXHIBIT 11 - Statement Re: Computation of Per Share Earnings
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Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
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<S> <C> <C> <C> <C> >
Weighted average shares outstanding during the
period 4,401 4,627 4,402 4,657
Assumed exercise of options less assumed
acquisition of shares - 1 - 1
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Total 4,401 4,628 4,402 4,658
===============================================================================
Net income (loss) used in computation (in
thousands) $ 120 $ 101 $ (23) $ 312
===============================================================================
Income (loss) per common share $ .03 $ .02 $ (.01) $ .07
===============================================================================
</TABLE>
