UNITED STATES
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 March 31, 1997
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 2-18868
KNAPE & VOGT MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-0722920
(State of Incorporation) (IRS Employer Identification No.)
2700 Oak Industrial Drive, NE
Grand Rapids, Michigan 49505
(Address of principal executive offices) (Zip Code)
(616) 459-3311
(Telephone Number)
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 ______
3,447,515 common shares were outstanding as of April 30, 1997.
2,446,937 Class B common shares were outstanding as of April 30, 1997.
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
--March 31, 1997 and June 30, 1996...................................2
Condensed Consolidated Statements of Income (Unaudited)
--Nine Months and Three Months Ended March 31, 1997 and 1996.........3
Condensed Consolidated Statements of Cash Flows (Unaudited)
--Nine Months Ended March 31, 1997 and 1996..........................4
Notes to Condensed Consolidated Financial Statements (Unaudited).....5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................6-8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................9
SIGNATURES...................................................................10
1
<PAGE>
<TABLE>
<CAPTION>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1997 June 30, 1996
--------------- -------------
<S> <C> <C>
Assets
Cash and equivalents ...................................... $ 304,060 $ 244,271
Accounts receivable - net ................................. 28,060,396 22,763,645
Refundable income taxes ................................... 1,379,812 1,860,191
Inventories ............................................... 23,040,347 23,016,541
Other current assets ...................................... 2,864,037 3,058,021
Net current assets of discontinued operation .............. 1,044,167 1,790,740
------------- -------------
Total current assets ............................. 56,692,819 52,733,409
------------- -------------
Property, plant and equipment ............................. 79,553,870 82,129,435
Less accumulated depreciation ............................. 32,395,262 31,747,827
------------- -------------
Net property, plant and equipment ................ 47,158,608 50,381,608
------------- -------------
Net property, plant and equipment of discontinued operation 1,534,540 1,775,225
Other assets .............................................. 24,058,659 24,334,917
------------- -------------
$ 129,444,626 $ 129,225,159
============= =============
Liabilities and Stockholders' Equity
Accounts payable .......................................... $ 5,592,162 $ 4,825,372
Other accrued liabilities ................................. 6,431,677 8,372,046
------------- -------------
Total current liabilities ........................ 12,023,839 13,197,418
Long-term debt ............................................ 33,800,000 35,000,000
Deferred income taxes and other long-term liabilities ..... 11,559,341 11,853,991
------------- -------------
Total liabilities ................................ 57,383,180 60,051,409
------------- -------------
Stockholders' equity
Common stock .............................................. 11,780,904 11,762,138
Additional paid-in capital ................................ 33,181,131 33,080,087
Foreign currency translation adjustment ................... (1,392,791) (1,211,286)
Retained earnings ......................................... 28,492,202 25,542,811
------------- -------------
Total stockholders' equity ....................... 72,061,446 69,173,750
------------- -------------
$ 129,444,626 $ 129,225,159
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months Ended
Mar. 31, 1997 Mar. 31, 1996 Mar. 31, 1997 Mar. 31, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales .......................... $ 132,675,931 $ 122,739,813 $ 46,072,548 $ 44,813,408
Cost of sales ...................... 99,406,928 93,175,541 34,615,069 33,817,731
------------- ------------- ------------- -------------
Gross profit ....................... 33,269,003 29,564,272 11,457,479 10,995,677
Selling and administrative expenses 21,493,160 20,287,204 7,284,146 7,175,191
Restructuring charges .............. 373,235 0 373,235 0
-------------- ------------- ------------- -------------
Operating income ................... 11,402,608 9,277,068 3,800,098 3,820,486
Other expenses ..................... 1,631,869 1,942,067 542,679 624,526
------------- ------------- ------------- -------------
Income from continuing operations
before income taxes ............. 9,770,739 7,335,001 3,257,419 3,195,960
Income taxes - continuing operations 3,548,000 2,721,000 1,196,000 1,155,000
------------- ------------- ------------- -------------
Income from continuing operations .. 6,222,739 4,614,001 2,061,419 2,040,960
Income (loss) from discontinued
operation, net of taxes ......... (471,624) 52,294 (471,624) 57,877
------------- ------------- ------------- -------------
Net income ......................... $ 5,751,115 $ 4,666,295 $ 1,589,795 $ 2,098,837
============= ============= ============= =============
Per common share:
Income from continuing operations $ 1.06 $ .78 $ .35 $ .34
Income from discontinued operation (.08) .01 (.08) .01
-------------- ------------- ------------- -------------
Net Income $ .98 $ .79 $ .27 $ .35
============== ============= ============= =============
Cash Dividend - Common stock $ .495 $ .495 $ .165 $ .165
Cash Dividend - Class B common stock $ .45 $ .45 $ .15 $ .15
Weighted average shares outstanding 5,891,202 5,883,594 5,901,382 5,883,099
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
Mar. 31, 1997 Mar. 31, 1996
------------- -------------
<S> <C> <C>
Operating Activities:
Net income ................................... $ 5,751,115 $ 4,666,295
Non-cash items:
Depreciation and amortization ............ 5,800,839 5,374,372
Deferred income taxes .................... 10,000 264,000
Other long-term liabilities .............. (303,220) (327,445)
Changes in operating assets & liabilities:
Accounts receivable ................. (5,331,826) (1,578,591)
Inventories ......................... (45,218) (94,749)
Net assets of discontinued operation 903,026 244,551
Other current assets ................ 668,977 (359,452)
Accounts payable & accrued expenses . (1,156,226) 406,081
----------- -----------
Net cash from operating activities ................ 6,297,467 8,595,062
----------- -----------
Investing Activities:
Additions to property and equipment .......... (5,044,891) (5,584,989)
Sale of property and equipment ............... 3,345,678 109,771
Payments for other assets .................... (645,988) (1,125,822)
----------- -----------
Net cash for investing activities ................. (2,345,201) (6,601,040)
----------- -----------
Financing Activities:
Proceeds from issuance of common stock ....... 119,810 16,624
Additions to long-term debt .................. 0 900,000
Payments on long-term debt ................... (1,200,000) 0
Cash dividends paid .......................... (2,801,274) (2,795,366)
----------- -----------
Net cash for financing activities ................. (3,881,914) (1,878,742)
----------- -----------
Effect of Exchange Rate Changes on Cash ........... (10,563) 11,777
----------- -----------
Net Decrease in Cash & Equivalents ................ 59,789 127,057
Cash and Equivalents:
Beginning of year ........................ 244,271 534,280
----------- -----------
End of period ............................ $ 304,060 $ 661,337
=========== ===========
Cash Paid During the Period - interest $ 1,529,813 $ 1,183,989
- income taxes $ 2,775,148 $ 1,310,585
</TABLE>
4
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Financial Statement Preparation
The accompanying unaudited condensed consolidated financial statements and
related notes have been prepared pursuant to the rules and regulations of the
Security and Exchange Commission. The information furnished reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of results of operations. Interim results are not necessarily
indicative of the results for the year end and are subject to year end
adjustments, and audit by independent public accountants. The balance sheet at
June 30, 1996, has been taken from the audited financial statements at that
date. The condensed consolidated financial statements and notes should be read
in conjunction with the Company's 1996 annual report.
Note 2 - Common Stock and Per Share Information
Income per share is determined based on weighted average number of shares
outstanding during each period.
Common stock is $2 par - shares authorized 6,000,000 of common stock and
4,000,000 of Class B common stock. Shares issued: 3,443,515 of common stock;
2,446,937 of Class B stock at March 31, 1997; and 3,327,918 of common stock and
2,553,151 of Class B common stock at June 30, 1996.
Note 3 - Inventories
Inventories are valued at the lower of FIFO (first-in, first-out) cost or
market. Inventories are summarized as follows:
<TABLE>
Mar. 31, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Finished products $ 13,885,693 $ 13,189,032
Work in process 1,738,736 2,665,754
Raw materials 7,415,918 7,161,755
-------------- --------------
Total $ 23,040,347 $ 23,016,541
============== ==============
</TABLE>
5
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed in this section include forward looking statements
which include risks and uncertainties including but not limited to economic,
competitive, governmental and technological factors affecting Knape & Vogt
Manufacturing Company's operations, markets, products, services and prices.
RESULTS OF OPERATIONS
Net Sales
The following table indicates the Company's sales (in millions) and percentage
of total sales by product category for the nine month and three month periods
ended March 31, 1997 and 1996:
<TABLE>
Nine Months ended March 31, Three Months ended March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shelving systems $ 61.8 46.6% $ 60.7 49.5% $ 21.1 45.8% $ 21.0 46.9%
Drawer slides 46.3 34.9% 38.9 31.7% 16.2 35.1% 15.7 35.0%
Hardware 21.6 16.3% 20.8 17.0% 7.5 16.3% 7.3 16.3%
Furniture components 3.0 2.2% 2.3 1.8% 1.3 2.8% 0.8 1.8%
------ ------ ------- ------ ------- ------ ------- ------
Total $ 132.7 100.0% $122.7 100.0% $ 46.1 100.0% $ 44.8 100.0%
====== ====== ====== ====== ======= ====== ======= ======
</TABLE>
Net sales for the nine months and third quarter of fiscal year 1997 increased
$10.0 million, or 8.1%, and $1.3 million, or 2.8%, respectively, over the
comparable periods of fiscal year 1996. The product category of shelving sales
was flat for the quarter. Sales of wall mounted shelving increased during the
quarter due to the addition of two new customers. Free standing metal shelving
sales were flat and Space Solutions (wood storage products) sales declined due
to a slow down in orders from a major customer. Both free standing metal
shelving and Space Solutions are manufactured by Hirsh. Drawer slide sales
increased $.5 million for the quarter due to increases in the sale of precision
drawer slides. Hardware product line sales increased during the quarter by $.2
million from last year, due to increased sales of kitchen and bath products for
the consumer market by Feeny. Furniture component sales from the company's Modar
subsidiary increased during the quarter. Modar was sold on March 28, 1997.
For the remainder of fiscal year 1997 management believes the positive sales
trends of the past three quarters will continue and anticipates approximately an
8 percent growth in sales for the twelve months ended June 30, 1997 compared
with last year.
Costs and Expenses
Cost of sales was 74.9% of sales for the first nine months and 75.1% of sales
for the third quarter of fiscal year 1997 compared to 75.9% and 75.5% of sales
for the first nine months and third quarter of fiscal year 1996, respectively.
The cost of sales for the third quarter was higher than the year-to-date cost of
sales due to a decline in production efficiencies caused by the parent company
in Grand Rapids adding over forty direct labor employees in January and
February. In March the new employees were fully trained and the cost of sales
returned to normal levels.
Selling and administrative expenses for the nine months were 16.2% of sales
compared to 16.5% for the same period last year and for the third quarter
decreased to 15.8% of sales from 16.0% for the same quarter last year. The
decrease as a percentage of sales for the quarter was mainly due to decreases in
administrative expenses, primarily reduced bad debt expense.
6
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The restructuring charge of $373,235 represents the difference between the
original estimate and the actual loss from the decision to sell Modar, Inc.
Modar was sold on March 28, 1997 to Preferred Fixture, Inc. located in
Glastonbury, Connecticut. The after-tax effect of the sale was a loss of
$246,235 or $.04 per share.
Other Expenses
Interest expense was $497,603 for the quarter ended March 31, 1997 compared to
$541,685 for the quarter ended March 31, 1996. The decrease was due to lower
borrowing levels and lower interest rates. Interest expense for the nine months
ended March 31, 1997 was $1,518,791 compared to $1,723,981 last year.
Income Taxes
The effective tax rate for the nine months and quarter ended March 31, 1997, was
36.3% and 36.7% compared to 37.1% and 36.1% for the nine months and quarter
ended March 31, 1996. The effective tax rates are slightly lower for the nine
months ended March 31, 1997 due to foreign and state tax rates.
Income from Continuing Operations
Income from continuing operations was $6,222,739 for the first nine months and
$2,061,419 for the third quarter of 1997. Earnings per share from continuing
operations for the nine months increased 35.9% to $1.06 compared to $.78 last
year and income per share for the quarter rose 2.9% to $.35 compared to $.34 in
the third quarter of last year.
Fiscal year 1997 income from continuing operations for the third quarter and
nine months includes a non-recurring after-tax charge of $246,235 or $.04 per
share for restructuring charges pertaining to the sale of Modar.
Loss from Discontinued Operation
The company recorded a loss of $471,624 or $.08 per share from discontinued
operation, which is an adjustment to the estimated provision for operating
losses of Roll-it through fiscal year 1997. The adjustment was necessary as it
became evident in the third quarter that Roll-it's sales for the year would be
less than the level forecasted in recording the original estimated provision for
operating losses through fiscal year 1997. The lower than expected sales is
primarily attributable to less than forecasted orders from Roll-it's major
customer. Income or loss attributable to Roll-it's operations beyond fiscal year
1997 through the date of the sale will be reflected as incurred in each
reporting period. For the third quarter of last year the discontinued operation
had income of $57,877 or $.01 per share. Knape & Vogt has been seeking a buyer
for Roll-it and has engaged the firm of J.J.B. Hilliard, W.L. Lyons, Inc. to
assist in the sale. Although it is difficult to predict, the company expects to
sell Roll-it during fiscal year 1998.
Net Income
Net income of $5,751,115 for the nine months was 4.3% of sales compared to
$4,666,295 for the first nine months last year which was 3.8% of sales. For the
quarter ended March 31, 1997 net income was $1,589,795 compared to $2,098,837
for the third quarter of last year.
Net income for the third quarter and nine months includes the after-tax charge
of $246,235 or $.04 per share to record the sale of Modar and the charge of
$471,624 or $.08 per share for an adjustment to the estimated provision for
operating losses of Roll-it through fiscal year 1997.
7
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Liquidity and Capital Resources
Cash provided by operating activities totaled $6,297,467 in the first nine
months. Increases in accounts receivable were due to higher sales and an
increase in days sales outstanding. The decrease in accounts payable and accrued
expenses is due mainly to the sale of Modar.
Proceeds from the sale of Modar were recorded in investing activities under sale
of property and equipment.
Capital expenditures were $5,044,891 for the nine months ended March 31, 1997.
The Company is currently forecasting capital expenditures to be approximately $7
million for the fiscal year. The Company had total debt of $33,800,000 at March
31, 1997, a decrease of $1,200,000 from total debt of $35,000,000 at June 30,
1996. It is estimated that debt levels will continue to decrease during the
fourth quarter of the fiscal year. Anticipated cash flow from operations will
adequately fund working capital, capital expenditures and dividend payments.
8
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months
ended March 31, 1997.
9
<PAGE>
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.
Knape & Vogt Manufacturing Company
(Registrant)
Date: May 14, 1997 /s/ Allan E. Perry
Allan E. Perry
President and
Chief Executive Officer
Date: May 14, 1997 /s/ Richard C. Simkins
Richard C. Simkins
Executive Vice President, CFO,
Secretary and Treasurer
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 304,060
<SECURITIES> 0
<RECEIVABLES> 28,903,396
<ALLOWANCES> 843,000
<INVENTORY> 23,040,347
<CURRENT-ASSETS> 56,692,819
<PP&E> 79,553,870
<DEPRECIATION> 32,395,262
<TOTAL-ASSETS> 129,444,626
<CURRENT-LIABILITIES> 12,023,839
<BONDS> 33,800,000
0
0
<COMMON> 11,780,904
<OTHER-SE> 60,280,542
<TOTAL-LIABILITY-AND-EQUITY> 129,444,626
<SALES> 46,072,548
<TOTAL-REVENUES> 46,072,548
<CGS> 34,615,069
<TOTAL-COSTS> 34,615,069
<OTHER-EXPENSES> 7,284,146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 497,603
<INCOME-PRETAX> 3,257,419
<INCOME-TAX> 1,196,000
<INCOME-CONTINUING> 2,061,419
<DISCONTINUED> (471,624)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,589,795
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
