SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended June 30, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] 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 or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2700 Oak Industrial Drive, N.E., Grand Rapids, MI 49505
(Address of principal executive offices) (Zip Code)
(616) 459-3311
(Registrant's telephone number, including area code)
Securities registered pursuant to 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.00 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $82,803,515 as of September 8, 1995.
Number of shares outstanding of each class of common stock as of
September 8, 1995: 3,299,918 shares of Common Stock, par value $2.00
per share, and 2,581,151 shares of Class B Common Stock, par value $2.00
per share.
Documents incorporated by reference. Certain portions of the Registrant's
Proxy Statement for the Annual Meeting of Shareholders to be held on
October 20, 1995, are incorporated by reference into Part III of this
Report.
<PAGE>
Item 1 - BUSINESS SECTION IN 1995 10-K
Item 1(a) - General Development of Business
The Company is engaged primarily in the design, manufacture, and marketing of
storage products, which serve the consumer, contract builder, hardware, and
orignal equipment manufacturer markets. The Company was incorporated in Michigan
in 1906, reorganized in Delaware in 1961, and reorganized in Michigan in 1985.
The Company's main plant and corporate offices are located at 2700 Oak
Industrial Drive, N.E., Grand Rapids, Michigan 49505, and its telephone number
is (616) 459-3311. Unless otherwise noted or indicated by the context, the term
"Company" includes Knape & Vogt Manufacturing Company, its predecessors and it
subsidiaries.
Item 1(b) - Financial Information About Industry Segments
The Company believes that a dominant portion of the Company's operations (more
than 95%) is in a single industry segment - the design, manufacture, and
marketing of storage products. Accordingly, no separate industry segment
information is presented.
Item 1(c) -- Narrative Description of Business
Products, Services, Markets, and Methods of Distribution. The Company's storage
products include a complete line of decorative and utility wall shelving systems
(adjustable steel and aluminum standards, brackets, shelf supports, and wood
shelves), drawer slides, closet rods, kitchen storage aids, and general hardware
items. These products are manufactured by the parent company (except for wood
shelving) and a Canadian-based division, Knape & Vogt Canada. A wholly-owned
subsidiary, Modar, Inc., supplies wood products to the parent Company, The Hirsh
Company and Knape & Vogt Canada, and also manufactures furniture components on a
contractual basis. The Hirsh Company, a wholly-owned subsidiary, manufactures
free-standing steel shelving systems, worksystem items, closet storage systems,
and other storage products. Feeny Manufacturing Company, another wholly-owned
subsidiary, manufactures a complete line of kitchen storage products. These
divisions serve the consumer market through sales to the contract builder,
original equipment manufacturer and commercial retailer markets. Roll-it, a
Canadian-based division, manufactures a complete line of commercial store
fixture hardware and display equipment. Roll-it's sales are made directly to
commercial retailers, and its products are used by retailers in their store
operations.
The Company's products are sold throughout the United States and Canada, as well
as in 50 other countries. During the past fiscal year, the Company estimates
that approximately 46% of the Company's sales were to major co-op wholesalers,
contract hardware jobbers, specialty wholesalers, independent hardware
distributors and commercial retailers. Approximately 53% of sales were to export
outlets, various government agencies, original equipment manufacturers,
<PAGE>
national mass merchants, large home centers, and building supply outlets. The
remaining 1% were miscellaneous sales not elsewhere classified.
While the Company does not maintain precise sales records by product category,
management believes that the approximate sales of the Company's major product
groups during the last three fiscal years were as follows:
<TABLE>
Year ended June 30,
----------------------------------
Class of Products 1995 1994 1993
- ------------------------------------------------ ------------------------------
(dollars in millions)
Sales Sales Sales
- ------------------------------------------------ ------------------------------
<S> <C> <C> <C>
Shelving Systems $ 80.9 $ 65.4 $ 46.4
Drawer Slides 52.0 50.9 44.5
Hardware * 29.7 22.7 15.9
Store Fixtures ** 14.9 14.4 9.4
Furniture Components 5.5 6.5 7.2
- ------------------------------------------------ ------------------------------
Total $ 183.0 $ 159.9 $ 123.4
================================================ ==============================
</TABLE>
*Hardware includes closet systems, kitchen storage products, and workshop items.
**Store Fixtures includes commercial store fixture hardware and display
equipment.
<PAGE>
New Product or Industry Segment Information. The Company has not made any public
announcement of, or otherwise made public information about, a new product or
industry segment which would require the investment of a material amount of the
Company's assets or which would otherwise be material.
Sources and Availability of Raw Materials. Most of the Company's storage
products are produced primarily from steel or wood. During the past fiscal year,
the Company experienced no difficulty in obtaining these raw materials. The
Company's results of operations have been affected by significant increases in
steel, particle board, plastics and packaging prices. The Company estimates that
material price increases impacted fiscal year 1995 net income by $2,215,000.
Patents, Licenses, Etc. Patents, trademarks, licenses, franchises, or
concessions do not play an important part in the Company's business.
Seasonal Nature of Business. The business of the Company is not seasonal with
the exception of store fixtures which usually experience lower sales in the
second quarter, as retail customers typically do not refixture their stores
during the holiday season.
Working Capital Practices. The Company does not believe that it, or the industry
in general, has any special practices or special conditions affecting working
capital items that are significant for an understanding of the Company's
business.
<PAGE>
Importance of Limited Number of Customers. The Company estimates that at present
it has over 5,000 active customers with approximately 35,000 outlets, of which
the five largest customers account for less than 14% of sales and no one of
which accounts for more than 4% of sales. The Company does not believe that its
business is dependent upon any single or small number of customers, the loss of
which would have a materially adverse effect upon the Company.
Backlog of Orders. The Company does not believe that information concerning
backlog is material to an understanding of its business.
Government contracts. The Company does not believe that any portion of its
business is subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the government.
Competition. All aspects of the business in which the Company is engaged are
highly competitive. In the various markets served by the Company, it competes
with a number of manufacturers that have significantly greater resources and
sales, including several conglomerate corporations, and with numerous smaller
companies. While no reliable statistics are available to enable the Company
accurately to determine its relative position in the industry, either overall or
with respect to any particular product or market, the Company believes that it
is one of the three leading manufacturers of its type of shelving systems and
that it is one of the four leading manufacturers of drawer slides. The Company's
products are widely regarded in the hardware trade as being of the finest
available quality and are generally sold at prices higher than competing lines.
Research, Design and Development. Approximately $1,508,000 was spent during the
last fiscal year in the development of new products and in the improvement of
existing products; approximately $1,577,000 was spent in fiscal year 1994 and
$1,644,000 in fiscal year 1993 for the same purposes. The amount of research and
development expenditures are determined by specific identification of the costs,
which are expensed as incurred.
Environmental Matters. The Company does not believe that existing environmental
regulations will have any material effect upon the capital expenditures,
earnings, and competitive position of the Company.
Employees. An average of 1,274 persons were employed by the Company during the
fiscal year ended June 30, 1995. There were 1,338 persons employed by the
Company in July 1994, and 1,336 in June 1995. None of the Company's employees
are represented by collective bargaining agents except the hourly employees at
Roll-it, who are represented by the United Steelworkers of America, and the
hourly employees at The Hirsh Company, who are represented by the International
Association of Bridge, Structural and Ornamental Iron Workers.
Item 1(d) - Information About Foreign Operations
The Company's Canadian operations accounted for approximatley 19% of cosolidated
sales and 14% of consolidated net income during fiscal year 1995. Approximately
3.5% of consolidated net sales and 3.5% of consolidated net income were derived
from export shipments from the Company's United States operations to customers
in other foreign countries. The Company does not know of any particular risks
attendant thereto, except that fluctuating exchange rates between the United
States and Canadian currencies and other factors beyond the control of the
Company, such as tariff and foreign economic policies, may affect future results
of such business. Reference is made to Note 14 of the Notes to the Company's
Consolidated Financial Statements contained herein for the fiscal year ended
June 30, 1995, for a presentation of additional information concerning the
Company's foreign operations.
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company achieved record sales and operating earnings in 1995. A full year of
sales following the acquisition of The Hirsh Company helped to increase net
sales to a record high of $183,042,266, an increase of 14.5 percent over last
year. Operating income increased 5.1 percent to $15,122,231 and net income of
$8,245,138 was up 1.1 percent over the prior year. The Company's balance sheet
remained strong with working capital increasing 15.7 percent to $45,796,753 and
book value per share increasing 6.7 percent to $12.34. Management believes that
the Company is well positioned to achieve its future business goals and
objectives.
RESULTS OF OPERATIONS
Net Sales
Net sales in 1995 increased $23,166,779 to a record $183,042,266, or 14.5
percent, over 1994 sales of $159,875,487. The full year of sales from Hirsh
contributed $14.8 million to the increase in sales. Shelving system sales
increased $15.5 million or 23.7 percent, due to $12.8 million of Hirsh shelving
sales in this product line. Hardware sales increased $7.0 million or 30.8
percent, with $3.1 million of the increase due to KV Canada's contract painting
customer increased their volumes and $2.0 million of the increase due to Hirsh
sales of worksystem products. Drawer slide sales increased $1.1 million or 2.2
percent, primarily due to the continuing demand for precision drawer slides
since the Company introduced the 8400 line of precision drawer slides in fiscal
1994. Furniture component sales decreased $1.0 million or 15.4 percent. During
the year the Company consolidated its wood lamination operations at Modar and
the subsidiary concentrated its efforts on intercompany production of wood
products to Hirsh and shelves to Knape & Vogt and Knape & Vogt Canada, which
resulted in lower sales volumes with furniture component customers. Based on the
increasing demand for drawer slides and shelving, as well as the introduction of
new products in these categories, management believes that sales volume
increases in drawer slides and shelving will continue in fiscal 1996. Hardware
sales in 1996 are expected to increase at Feeny and KV Canada. Modar is
continuing to produce more intercompany products and sales of furniture
components are expected to decrease slightly. Store fixture sales to Roll-it's
major customer were flat as compared to 1994. Store fixture sales in 1996 are
expected to increase at Roll-it based on the major customer's plans to refixture
more stores than in 1995.
Net sales in 1994 increased $36,468,976 to a record $159,875,487, or 29.6
percent, over 1993 sales of $123,406,511. The acquisition of The Hirsh Company
on November 30, 1993, contributed $23.1 million to the increase in sales.
Shelving system sales increased $19.0 million or 40.9 percent, due to adding
$19.3 million of Hirsh shelving sales to this product line. Hardware sales
increased $6.8 million or 42.8 percent, with $3.8 million of the increase due to
<PAGE>
Hirsh sales of worksystem products, a $1.3 million increase in Feeny hardware
sales due to additional OEM customers, and the remaining hardware sales increase
due to greater sales of KV hardware products to existing customers. Store
fixture sales increased $5.0 million or 53.2% mainly due to strong sales to a
major customer of Roll-it. The major customer refixtured a substantially higher
portion of its total stores than in fiscal year 1993. Drawer slide sales
increased $6.4 million or 14.4 percent, primarily due to sales of 8400 precision
drawer slides and other precision drawer slides. The Company was able to
increase its share of the drawer slide market by the successful introduction of
the 8400 precision drawer slide which increased sales of other precision drawer
slides. Furniture component sales decreased $.7 million or 9.7 percent, as the
Modar subsidiary concentrated its efforts on intercompany production of shelves
and had lower sales volumes with furniture component customers.
Cost and Expenses
Cost of sales as a percentage of sales was 75.5 percent in 1995 compared to 73.6
percent in 1994 and 71.9 percent in 1993. Price increases in steel,
particleboard, plastic and packaging added 1.9 percent and 1.1 percent to the
cost of sales in 1995 and 1994, respectively. Sales price decreases to obtain
new business and maintain existing relationships also contributed to the
decrease in margins in 1995. The impact of the Hirsh acquisition increased cost
of sales in 1995 and 1994, as these products have lower margins. Production
improvement savings in 1995 and 1994 at the Grand Rapids location helped offset
some of these increases to cost of sales.
Selling expenses in 1995 decreased to 12.1 percent of sales from 13.2 percent in
1994 and 13.8 percent in 1993. Hirsh contributed to the decrease in selling
expense as a percentage of sales in 1995 and 1994 due to the combining of sales
forces after the acquisition. In 1995 all locations showed a decrease in selling
expense as a percentage of sales. In 1994 decreases in selling expense as a
percentage of sales were due to Roll-it maintaining selling expenses at the same
level as 1993 while experiencing an increase in sales.
Administrative expenses as a percentage of sales were 4.1 percent of sales in
1995, down from 4.2 percent in 1994 and 5.3 percent in 1993. Administrative
expense in 1995 and 1994 decreased due to Hirsh having lower administrative
expense as a percentage of sales. The decrease in 1995 and 1994 is also due to
the continued reduction in bad debt expense as collections of accounts
receivable have improved.
Restructuring Expense
During the third quarter of 1993 the Company instituted a restructuring program
designed to reduce costs and improve operating efficiencies at the Roll-it
operation. The program included closing the Vancouver, British Columbia,
warehouse, a write down of inventory, severance payments that were part of the
downsizing and costs incurred in hiring a new general manager, sales manager and
controller. The restructuring program totaled $1,529,000 and resulted in an
after tax charge of $963,000, or $0.16 per share.
<PAGE>
Other Income (Expense)
The acquisition of Hirsh increased the Company's long-term debt in November 1994
and was the main factor in the higher interest expense in 1995 and 1994 compared
to 1993. An increase in interest rates in 1995 offset the lower debt levels that
were maintained in the second half of fiscal 1995.
Income Taxes
The effective tax rate was 33.9 percent in 1995 compared to 35.5 percent in 1994
and 1993. The reduction in the effective tax rate in 1995 is due to the use of
research and development and foreign tax credits. The effective tax rate is
composed of federal, foreign, state and local tax rates.
Net Income
Net income in 1995 was $8,245,138 or 4.5 percent of sales, compared to
$8,156,276 or 5.1 percent of sales in 1994. Net income in 1993 of $5,518,132 was
reduced by $963,000 due to the restructuring of the Roll-it operation. Net
income excluding the restructuring charge was $6,481,132 or 5.3 percent of
sales.
FINANCIAL POSITION
Liquidity and Capital Resources
The Company's financial position at June 30, 1995, continues to be strong.
Corporate liquidity as measured by the current ratio remains solid at 4.4-to-1
compared to 3.0-to-1 at June 30, 1994, the difference mainly being a decrease in
the current portion of long-term debt. Financial resources, including borrowing
capacity and anticipated funds from operations, are adequate to satisfy all
short-term obligations and the internal growth objectives of the Company.
CASH FLOW
Operating Activities
Operating activities generated $13,381,587 in 1995 compared to $10,228,962 in
1994. Depreciation and amortization increased mainly due to the increase in
capital expenditures and the amortization of goodwill related to the Hirsh
acquisition. Accounts receivable decreased due to improved collections on past
due accounts. Inventories decreased during the year mainly in the finished goods
area after rising in 1994 due to new product introductions. Prepaid expense
increased mainly due to the Company implementing improved internal control
procedures relating to tooling and repair supplies, which resulted in a prepaid
supplies asset of $697,000. Certain sales expenditures relating to future
periods also increased prepaid expenses. Decreases in accounts payable and
accrued expenses were primarily caused by the timing of when payments for the
liabilities were due. Reduction of certain accrued selling expenses in
association with the combining of sales forces also reduced accrued expenses by
$637,000.
<PAGE>
Investing Activities
Investing activities used $5,603,294 in 1995 compared to $34,301,408 in 1994
when the Hirsh Company was purchased for $29,270,859. In 1995 capital
expenditures were $4,709,920 which is comparable to the $4,331,554 in 1994, and
expenditures during 1996 are expected to remain at lower levels than in 1993
when the Company completed many large projects and purchased a facility for
powder coat painting.
Financing Activities
Financing activities used $7,817,582 in 1995, compared to generating $24,119,054
in 1994, when the Company increased long-term debt by $27,250,000 to help
finance the acquisition of Hirsh. The Company reduced debt by $4,200,000 in
1995, causing the total debt to ending equity ratio to be 49 percent compared to
59 percent last year. The Company received $115,780 from the issuance of common
stock to employees exercising options issued under the Company's stock option
plan, compared to $242,547 in 1994. Cash dividend payments totaled $0.66 per
share on common stock and $0.60 on Class B common stock. At June 30, 1995 the
Company had $35,800,000 outstanding on the $47,500,000 long-term revolving
credit agreement. The Company will use long-term debt to the point where
financial flexibility is preserved and undue financial risk is not incurred.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
KNAPE & VOGT MANUFACTURING COMPANY
By /s/ Richard C. Simkims
Richard C. Simkins
Executive Vice President, CFO
Secretary & Treasurer
Date: May 1, 1997
<PAGE>
