<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, NW
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 4, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 2-69336
CRAMER, INC.
A Kansas Corporation IRS Employment I.D. #48-0638707
625 Adams Street
Kansas City, Kansas 66105 Telephone No. (913) 621-6700
Check whether the issuer (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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,051,400 shares of common stock, no
par value as of November 5, 1998.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRAMER, INC.
BALANCE SHEET
UNAUDITED
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
ASSETS 10/4/98 12/31/97
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 33 $ 52
Accounts receivable, net of allowance of $21 1,117 990
Inventories 1,462 1,242
Prepaid expenses 223 302
------- -------
Total current assets 2,835 2,586
PROPERTY, PLANT AND EQUIPMENT
At cost 5,731 5,614
Accumulated depreciation 5,030 4,881
------- -------
701 733
OTHER ASSETS:
Intangible pension asset 212 212
Goodwill 195 198
Other non current assets 197 219
------- -------
Total Assets $ 4,140 $ 3,948
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 1,263 $ 1,188
Accounts payable 614 498
Accrued liabilities 608 549
------- -------
Total current liabilities 2,485 2,235
NONCURRENT LIABILITIES:
Pension benefits payable 501 581
Other 280 234
------- -------
Total noncurrent liabilities 781 815
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, 6,000,000 shares;
issued and outstanding 4,051,400 shares at October 4, 1998,
and December 31, 1997 3,824 3,824
Accumulated deficit (2,736) (2,712)
------- -------
1,088 1,112
Minimum pension liability adjustment (214) (214)
------- -------
Net stockholders' equity 874 898
------- -------
Total Liabilities and Stockholders' Equity $ 4,140 $ 3,948
======= =======
</TABLE>
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CRAMER, INC.
STATEMENTS OF INCOME
UNAUDITED
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
10/4/98 9/28/97 10/4/98 9/28/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 3,301 $ 3,092 $ 9,757 $ 9,195
COST OF SALES 2,397 2,276 7,013 6,771
----------- ----------- ----------- -----------
Gross profit 904 816 2,744 2,424
OPERATING EXPENSES:
Selling expenses 596 462 1,780 1,416
General and administrative 312 259 900 785
----------- ----------- ----------- -----------
Total operating expenses 908 721 2,680 2,201
----------- ----------- ----------- -----------
Income (loss) from operations (4) 95 64 223
OTHER EXPENSE:
Interest expense, net (16) (17) (63) (64)
Other, net (20) (24) (25) (19)
----------- ----------- ----------- -----------
Total other expense (36) (41) (88) (83)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (40) 54 (24) 140
INCOME TAX EXPENSE (BENEFIT) 0 0 0 0
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (40) $ 54 $ (24) $ 140
=========== =========== =========== ===========
Net income (loss) per share based on weighted
average number of common equivalent
shares outstanding - basic and diluted $ (0.01) $ 0.01 (0.01) $ 0.04
Weighted Average Common Equivalent
Shares Outstanding: Basic 4,051,400 3,840,650 4,051,400 3,840,650
Diluted 4,051,400 3,855,317 4,051,400 3,855,317
</TABLE>
There is no difference between Net Income and Total Comprehensive Income for the
quarter or nine-month periods ending October 4, 1998 and September 28, 1997.
These interim financial statements include all adjustments required for them not
to be misleading.
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CRAMER, INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
10/4/98 9/28/97
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (24) $ 140
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 174 164
Changes in operating assets and liabilities:
Accounts receivable (127) (31)
Inventories (220) (133)
Prepaid expenses 79 48
Accounts payable and accrued expenses 175 (46)
Other noncurrent liabilities (34) (62)
------- -------
Net cash provided by operating activities 23 80
------- -------
Cash flows from investing activities:
Capital expenditures (117) (124)
Acquisitions of other noncurrent assets 0 (27)
------- -------
Net cash used by investing activities (117) (151)
------- -------
Cash flows from financing activities:
Principal payments on notes payable (3,627) (3,088)
Proceeds from issuance of notes payable 3,702 3,163
------- -------
Net cash provided by financing activities 75 75
------- -------
Net increase (decrease) in cash (19) 4
Cash at beginning of year 52 117
------- -------
Cash at end of quarter $ 33 $ 121
======= =======
Supplemental disclosures:
Cash paid during the period for:
Interest $ 63 $ 64
======= =======
Income tax $ 0 $ 1
======= =======
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
A. FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this report on
Form 10-QSB contains forward-looking statements that involve risk and
uncertainties. The Company's actual results could differ materially. In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Cramer, Inc. reminds readers that there
are many important factors that could cause the Company's actual
results to differ materially from those projected in forward-looking
statements of the Company made by, or on behalf of, the Company. When
used in this Form 10-QSB and in other filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and
in oral statements made with the approval of an authorized executive
officer, words or phrases such as "will likely result", "expects", "are
expected to", "will continue", "is anticipated", "estimate", "project"
or similar expressions are intended to identify forward-looking
statements. The Company wishes to caution readers not to place undue
reliance on such forward-looking statements.
There are a number of reasons why investors should not place undue
reliance on forward-looking statements. Among the risks and
uncertainties that could cause the Company's actual results for future
periods to differ materially from any forward-looking statements made
are the following:
- Fluctuations or reductions in product demand and market acceptance
- The level of product development by the Company
- Capacity and supply constraints or difficulties
- The results of financing efforts
- The effect of new laws and regulations
- Unexpected additional expenses or operating losses
- Competition
- The Company's reliance on certain vendors for key components.
- The possible effect of the year 2000 on computer systems
The foregoing list of risks and uncertainties is not meant to be
complete.
B. POSSIBLE EFFECT OF THE YEAR 2000
As with many other concerns, the Company may be impacted by the "year
2000 problem". The "year 2000 problem" arose because many existing
computer programs use only the last two digits to refer to a year.
Therefore, these computer programs do not properly recognize a year
that begins with "20" instead of the familiar "19". If not corrected,
many computer applications could fail or create erroneous results.
In developing a response to the year 2000 issue, the Company has
considered its core enterprise resource planning system (ERP system)
and other systems where computer controls may exist. The Company has
also
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considered the readiness of its key vendors and customers.
The Company ERP system resides on an IBM advanced 36/AS 400. The
advanced 36/AS400's operating system and the core ERP system, will be
converted to allow recognition of years beginning with a "20" using the
"fixed window" methodology. This methodology converts all dates entered
into the system in a prescribed manner that will allow the ERP system
to consistently handle dates both before and after the turn of the
century. The implementation of the fixed window methodology is
scheduled to be completed during the third quarter of 1999. The
Company's in-house EDP department is developing and installing the
fixed window subroutines that will be used in the ERP system. While
non-essential enhancements to the company's computer systems have been
delayed at times, there are only minimal direct costs associated with
this project.
The Company has appointed an internal task force to review year 2000
compliance issues for other computer systems. At October 1998, the task
force is approximately three-quarters finished with its assessment. The
Company has a minimal number of computer controlled systems not related
to its core ERP system, and, to date, no significant issues have been
identified. The task force is anticipated to complete its review in the
first quarter of 1999.
The Company has developed a questionnaire to assess its vendors
readiness to handle the year 2000 issue. These questionnaires were
distributed to vendors in the 3rd quarter of 1998. The responses to
these questionnaires will be reviewed in the fourth quarter of this
year. Special attention will be given to significant vendors and in
these cases, we will supplement their answers with verbal discussions
with appropriate management and information system professionals.
Through discussions with appropriate parties, the Company is aware that
its 8 largest wholesale and catalog customers are aware of the year
2000 issue and are currently determining how to convert their systems
to handle the problem. Since the remainder of the Company's sales is to
a wide variety of other furniture re-sellers, which change from year to
year, there are no efforts currently underway to assess the status of
these customers year 2000 readiness.
The Company's senior management is continuing to monitor efforts to
prepare for the year 2000. Contingency plans in case the Company, its
vendors, or major customers prove not to be ready for the year 2000 has
not yet been developed. The Company's senior management intends to
prepare appropriate contingency plans in the summer of 1999 based on
their assessment of the Company's, its vendors, and major customers
current progress preparing for the year 2000.
There can be no assurance that year 2000 remediation by the Company or
third parties will be properly and timely completed and failure to do
so could have a material adverse effect on the Company's financial
condition. The
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Company can not predict the actual effects to it of the year 2000
issue, which depends on numerous uncertainties such as (1) whether
major third parties address this issue properly and timely and (2)
whether broad-based or systemic economic failures may occur. The
Company is currently unaware of any events, trends, or condition
regarding this issue that may have a material effect on the Company's
results of operations, liquidity, and financial position. If the year
2000 issue is not resolved by January 1, 2000, the Company's results of
operations or financial condition could be materially adversely
affected.
C. SUMMARY OF OPERATIONS
Intake of new orders was $10,279,000 in the first three-quarters of
1998, an increase of $1,043,000 or 11% as compared to the same period
in the prior year. The company's orders are growing at a faster rate
than the contract furniture industry as a whole. The Business and
Institutional Furniture Manufactures Association (BIFMA) anticipates
growth of 8% in the contract furniture industry during 1998. The
Company attributes its improved performance to the successful launch of
several new seating products in late 1997 and early 1998 and its
success in increasing utility product volume by having sales management
place more emphasis on the major catalog wholesalers who distribute
these products.
At $9,757,000, net sales for the first three-quarters of 1998 were 6%
higher than for the same period in 1997. At October 4, 1998, the
Company's backlog was $1,117,000, an increase of $311,000 from the
level at December 31, 1997. Approximately $165,000 of these orders are
scheduled to ship in 1999; the remainder of the Company's October 4,
1998 backlog is scheduled to ship within the next three months.
The Company's gross margin in the first three-quarters of 1998
increased by $320,000 from the level in the same period last year. As a
percentage of net sales, gross margins in the first three-quarters of
1998 were 28% as compared to 26% in the first three-quarters of 1997.
The improvements in margins reflects (a) sales price increases
instituted in the summer of 1997, (b) improved manufacturing efficiency
achieved as a result of the increased sales volume, and (c) lower
expenses for anticipated product liability defense costs due to the
Company's success in reducing settlements during the past few years.
Selling expenses in the first three-quarters of 1998 increased by
$364,000 as compared to the same period in 1997. Approximately $250,000
of the increase relates to the ongoing introduction costs for the
Company's new articulating keyboard product. Of the remaining $114,000
increase, $80,000 can be attributed to commissions, catalog allowances
and similar costs that vary directly with sales volume.
General and administrative expenses during the first three-quarters of
1998
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<PAGE> 8
increased by $115,000 as compared to the same period in 1997. The
increase consists primarily of additional salaries associated with an
expansion of personnel in the Company's engineering department. The
Company has enhanced its research and development efforts in order to
expand its product offering and to shorten the new product development
cycle.
While sales volumes and margins improved significantly in the first
three-quarters of 1998 as compared to the same period in 1997; as a
result of the increase in operating expenses, income from operations
decreased by $159,000.
The Company's core seating and utility product business remains strong
and management anticipates that the increase in new order intake, net
sales and gross margins realized in the first three-quarters of 1998
will continue through out the remainder of 1998. However, sales of the
Company's new articulating keyboard product have risen slower than
anticipated. The introduction cost for the product line continues to
exceed the gross margin generated from its sales. This situation is
anticipated to continue throughout the remainder of the current year as
distribution of the product is established and as technical
enhancements are completed. As a result, the Company anticipates that
its income from operations and net income for all of 1998 will be less
than the corresponding figures in 1997.
The Company anticipates that for the next 12 months the costs of
developing the articulating keyboard product and its distribution
channels will continue to exceed the gross margin realized from product
sales. However, the Company believes that the product line will be a
successful addition to the Company's product offering providing a net
positive return on amounts invested.
D. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's trade accounts receivable increased by $127,000 from
December 31, 1997 to October 4, 1998. The increase is in line with the
increase in order income and sales rates.
Inventories increased by $220,000 during the first three quarters of
1998. The increase is primarily in raw materials and work in progress.
The Company is maintaining a larger stock of materials in order to
support both the increases in sales volume and its new seating and
computer accessory products.
Capital expenditures aggregated $117,000 during the first three
quarters of 1998 and consisted primarily of factory tooling related to
new product introductions.
The Company's accounts payable increased by $116,000 from the December
31, 1997 balance. The increase is a result of increased purchases of
material to support the increased business activity and a slight
increase in the aging of vendor balances prior to payment.
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<PAGE> 9
The Company continues to participate in a consolidated cash management
and credit facility with its parent, Rotherwood. (See discussion in
Note 3 to the Financial Statements in the Company's 1997 Form 10KSB.)
Management believes that the Company's access to this facility, along
with existing cash balances and cash generated from future operations,
will be adequate to meet future operating requirements and liquidity
needs.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in several lawsuits relating to product
liability claims arising from accidents allegedly occurring in
connection with the use of its products. The claims are covered by
insurance and are being defended by the Company's independent
counsel, or by counsel assigned by the insurance carriers, but are
subject to deductibles ranging from $0 to $100,000. A number of the
claimants allege substantial damages. While management believes the
Company has substantial defenses with respect to the claims, the
ultimate outcome of such litigation cannot be predicted with
certainty. The Company has reasonably estimated and accrued in its
financial statements its portion of the deductible as a product
liability contingency. Such claims are an ordinary aspect of the
Company's business.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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<PAGE> 10
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.
CRAMER, INC.
(Registrant)
Date: November 10, 1998 /s/ Gary A. Rubin
-----------------------------
Gary A. Rubin
Vice President, Finance & CFO
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> OCT-04-1998
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 1117
<ALLOWANCES> 21
<INVENTORY> 1462
<CURRENT-ASSETS> 223
<PP&E> 5731
<DEPRECIATION> 5030
<TOTAL-ASSETS> 4140
<CURRENT-LIABILITIES> 2485
<BONDS> 0
0
0
<COMMON> 3824
<OTHER-SE> (2950)
<TOTAL-LIABILITY-AND-EQUITY> 4140
<SALES> 9757
<TOTAL-REVENUES> 9757
<CGS> 7013
<TOTAL-COSTS> 9693
<OTHER-EXPENSES> (25)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> (24)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
