SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
(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, 1996 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 $74,874,143 as of September 6, 1996.
Number of shares outstanding of each class of common stock as of September 6,
1996: 3,332,750 shares of Common Stock, par value $2.00 per share, and 2,548,619
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 18, 1996,
are incorporated by reference into Part III of this Report.
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Immediately following are the consolidated balance sheets of the Company and
its subsidiaries as of June 30, 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended June 30, 1996, the notes thereto, summary of accounting policies,
and the independent auditors' report.
<TABLE>
<CAPTION>
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
- -----------------------------------------------------------------------------
Year Ended June 30, 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets:
Current Assets:
Cash and equivalents $ 244,271 $ 534,280
Accounts receivable,
less allowances of $563,000
and $554,000, respectively 22,763,645 23,269,196
Refundable income taxes 1,860,191 229,183
Inventories (Note 5) 23,016,541 23,721,668
Prepaid expenses 3,058,021 2,896,794
Net current assets of
discontinued operation (Note 3) 1,790,740 4,691,453
- -----------------------------------------------------------------------------
Total Current Assets 52,733,409 55,342,574
- -----------------------------------------------------------------------------
Property and Equipment:
Land and improvements 1,981,144 1,980,621
Buildings 18,194,668 18,066,497
Machinery and equipment 61,953,623 57,673,428
- -----------------------------------------------------------------------------
82,129,435 77,720,546
Less accumulated depreciation 31,747,827 29,021,761
- -----------------------------------------------------------------------------
Net Property and Equipment 50,381,608 48,698,785
- -----------------------------------------------------------------------------
Net Property and Equipment of
Discontinued Operation (Note 3) 1,775,225 3,376,618
- -----------------------------------------------------------------------------
Goodwill, net 18,916,360 19,422,953
- -----------------------------------------------------------------------------
Other Assets 5,418,557 4,592,784
- -----------------------------------------------------------------------------
$129,225,159 $131,433,714
=============================================================================
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
Year Ended June 30, 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable $ 4,825,372 $ 4,533,165
Accruals:
Taxes other than income 1,381,324 1,567,103
Compensation 1,410,521 1,801,566
Retirement plan contributions 581,126 605,399
Restructuring Costs (Note 2) 3,440,184 -
Miscellaneous 1,558,891 1,038,588
- -----------------------------------------------------------------------------
Total Current Liabilities 13,197,418 9,545,821
Supplemental Retirement Benefits
(Notes 7 and 8) 1,504,067 1,439,167
Long-Term Debt (Note 6) 35,000,000 35,800,000
Deferred Lease Costs 2,360,124 2,885,090
Deferred Income Taxes (Note 10) 7,989,800 9,049,800
- -----------------------------------------------------------------------------
Total Liabilities 60,051,409 58,719,878
- -----------------------------------------------------------------------------
Commitments (Notes 7, 8 and 9)
Stockholders' Equity (Notes 11 and 12)
Stock:
Common, $2 par - 6,000,000 shares
authorized; 3,327,918 and
3,295,496 issued 6,655,836 6,590,992
Class B common, $2 par -
4,000,000 shares authorized;
2,553,151 and 2,584,418 issued 5,106,302 5,168,836
Preferred, 2,000,000 shares
authorized and unissued - -
Additional paid-in capital 33,080,087 33,065,773
Retained earnings 25,542,811 29,205,000
Cumulative foreign currency
translation adjustment (1,211,286) (1,316,765)
- -----------------------------------------------------------------------------
Total Stockholders' Equity 69,173,750 72,713,836
- -----------------------------------------------------------------------------
$129,225,159 $131,433,714
=============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Income
Year ended June 30, 1996 1995 1994
<S> <C> <C> <C>
Net Sales $163,012,030 $168,190,969 $145,504,536
Cost of Sales 124,408,648 127,296,470 107,701,337
- ------------------------------------------------------------------------------
Gross profit 38,603,382 40,894,499 37,803,199
- ------------------------------------------------------------------------------
Expenses:
Selling and shipping 21,044,004 19,882,242 18,547,404
Administrative and general 6,394,013 6,922,412 6,188,530
Restructuring and impairment
of assets (Note 2) 3,496,000 - -
- ------------------------------------------------------------------------------
Total expenses 30,934,017 26,804,654 24,735,934
- ------------------------------------------------------------------------------
Operating income 7,669,365 14,089,845 13,067,265
- ------------------------------------------------------------------------------
Other Expenses:
Interest 2,253,992 2,471,652 1,426,328
Other, net 277,315 178,488 307,217
- ------------------------------------------------------------------------------
Total other expenses 2,531,307 2,650,140 1,733,545
- ------------------------------------------------------------------------------
Income from continuing operations
before income taxes 5,138,058 11,439,705 11,333,720
Income Taxes-Continuing Operations
(Note 10) 2,035,000 3,849,000 4,020,000
- ------------------------------------------------------------------------------
Income from continuing operations 3,103,058 7,590,705 7,313,720
- ------------------------------------------------------------------------------
Discontinued Operation,
Net of Income
Taxes (Note 3)
Income (loss) from operation (337,926) 654,433 842,556
Estimated loss on sale (2,700,000) - -
- ------------------------------------------------------------------------------
Total discontinued operation,
net of income taxes (3,037,926) 654,433 842,556
- ------------------------------------------------------------------------------
Net Income $ 65,132 $8,245,138 $8,156,276
==============================================================================
Net Income Per Share
(Notes 2, 3 and 12)
From continuing operations $ .53 $ 1.29 $ 1.24
From discontinued operation $ (.52) $ .11 $ .15
- ------------------------------------------------------------------------------
Total Net Income Per Share $ .01 $ 1.40 $ 1.39
==============================================================================
Dividends Per Share
Common stock $ .66 $ .66 $ .60
Class B common stock $ .60 $ .60 $ .545
==============================================================================
Weighted Average Shares
Outstanding (Note 12) 5,883,227 5,890,931 5,877,959
==============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
Cumulative
foreign
Additional currency
Common paid-in Retained translation
stock capital earnings adjustment
<S> <C> <C> <C> <C>
Balance, July 1, 1993 $10,643,990 $23,689,539 $30,044,186 $ (501,753)
Net income for 1994 - - 8,156,276 -
Cash dividends - - (3,373,493) -
Stock issued under
stock option plan
(Note 11) 32,664 209,883 - -
Foreign currency
translation
adjustment - - - (927,402)
- ------------------------------------------------------------------------------
Balance, June 30, 1994 10,676,654 23,899,422 34,826,969 (1,429,155)
Net income for 1995 - - 8,245,138 -
Cash dividends - - (3,722,814) -
10% stock dividend
(Note 12) 1,066,710 9,067,035 (10,144,293) -
Stock issued under
stock option
plan (Note 11) 16,464 99,316 - -
Foreign currency
translation adjustment - - - 112,390
- ------------------------------------------------------------------------------
Balance, June 30, 1995 11,759,828 33,065,773 29,205,000 (1,316,765)
Net income for 1996 - - 65,132 -
Cash dividends - - (3,727,321) -
Stock issued under
stock option
plan (Note 11) 2,310 14,314 - -
Foreign currency
translation adjustment - - - 105,479
- ------------------------------------------------------------------------------
Balance, June 30, 1996 $11,762,138 $33,080,087 $25,542,811 $(1,211,286)
==============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Cash Flows
Year ended June 30, 1996 1995 1994
<S> <C> <C> <C>
Operating Activities
Net income $ 65,132 $ 8,245,138 $ 8,156,276
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation of fixed assets 6,190,031 5,876,391 5,250,453
Amortization of other assets 1,155,322 1,022,047 836,048
Increase (decrease) in
deferred income taxes (1,060,000) 1,339,000 712,000
Increase (decrease) in
supplemental retirement
benefits 64,612 112,089 (23,717)
Increase (decrease) in
deferred lease costs (524,966) (509,234) (289,814)
Loss on sale of the
discontinued operation 3,866,000 - -
Changes in operating assets
and liabilities:
Decrease (increase) in:
Accounts receivable 515,079 (40,221) (1,007,096)
Refundable income
taxes (1,627,737) (502,295) 1,034,359
Inventories 720,025 1,909,457 (122,998)
Net assets of
discontinued
operation 636,106 184,722 (1,702,032)
Prepaid expenses (160,535) (1,410,260) 148,846
Increase (decrease) in:
Accounts payable 289,679 (1,465,580) (2,895,957)
Accrued restructuring
costs 3,440,184 - -
Accruals (83,555) (1,981,633) 64,043
- ------------------------------------------------------------------------------
Net cash provided by
operating activities 13,485,377 12,779,621 10,160,411
- ------------------------------------------------------------------------------
Investing Activities
Additions to property,
plant and equipment (8,032,779) (4,181,472) (3,837,249)
Sales of property,
plant and equipment 175,651 20,015 32,595
Payments for purchase of
subsidiaries - - (29,270,859)
Payments for other assets (1,471,438) (913,762) (738,844)
- ------------------------------------------------------------------------------
Net cash used for investing
activities (9,328,566) (5,075,219) (33,814,357)
- ------------------------------------------------------------------------------
Financing Activities
Purchase of fractional shares - (10,548) -
Cash dividends declared (3,727,321) (3,722,814) (3,373,493)
Proceeds from issuance of
common stock 16,624 115,780 242,547
Additions to long-term debt
including current portion - - 27,250,000
Payments on long-term debt (800,000) (4,200,000) -
- ------------------------------------------------------------------------------
Net cash provided by (used
for) financing activities (4,510,697) (7,817,582) 24,119,054
- ------------------------------------------------------------------------------
Effect of Exchange Rate
Changes on Cash 63,877 80,380 (488,117)
- ------------------------------------------------------------------------------
Net Decrease in Cash and
Equivalents (290,009) (32,800) (23,009)
Cash and Equivalents, beginning
of year 534,280 567,080 590,089
- ------------------------------------------------------------------------------
Cash and Equivalents, end of
year $244,271 $534,280 $567,080
==============================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Principles of Consolidation
Significant
Accounting The consolidated financial statements include the accounts
Policies of Knape & Vogt Manufacturing Company and its wholly-owned
subsidiaries (Company). All material intercompany balances,
transactions and stockholdings have been eliminated in
consolidation.
Description of Business and Concentration of Credit Risk
The Company designs, manufactures and distributes storage
products including decorative and utility shelving systems,
drawer slides, home workshop items, kitchen and closet
storage products and cabinet hardware. The Company announced
its decision to sell its store fixture operation and this
portion of the business is shown as a discontinued
operation. The Company primarily sells its products to
customers in the retail hardware and cabinet manufacturing
industries. No single customer accounts for more than 10% of
consolidated sales. The Company performs ongoing credit
evaluations and maintains reserves for potential credit
losses.
Foreign Currency Translation
The accounts of the foreign subsidiary are translated into
U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52. Assets and liabilities are
translated at year-end exchange rates. Income and expense
accounts are translated at average exchange rates in effect
during the year. Adjustments relating to the translation
process are accumulated and reported in the stockholders'
equity section as a Cumulative Foreign Currency Translation
Adjustment.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments,
which consist of cash, receivables, bank revolving credit
agreement and accounts payable, approximate their fair
values.
Cash Equivalents
All highly liquid debt instruments with a maturity of three
months or less when purchased are classified as cash
equivalents.
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Inventories Inventories are stated at the lower of FIFO (first-in,
first-out) cost or market for 100% and 87% of the
inventories at June 30, 1996 and 1995, respectively. Until
1996, one subsidiary used the LIFO (last-in, first-out)
method to determine cost, the inventory value of which was
approximately $418,000, lower than it would have been under
the FIFO method at June 30, 1995. During 1996, the
subsidiary changed to the FIFO method. The change in
accounting principle was made to provide a better matching
of revenue and expenses. This accounting change was not
material to the financial statements on an annual or
quarterly basis, and accordingly, no retroactive restatement
of prior years' financial statements was made.
Property, Equipment, Depreciation and Amortization
Property and equipment are stated at cost after elimination
of fully depreciated items. For financial reporting
purposes, depreciation is computed over the estimated useful
lives of the assets by the straight-line method. For income
tax purposes, accelerated depreciation methods and shorter
useful lives are used.
Goodwill
Goodwill represents the amount by which the cost of
businesses purchased exceeds the fair value of the net
assets acquired. Goodwill is amortized over a period of 40
years using the straight-line method. Accumulated
amortization of goodwill was $1,347,358 and $840,765 at June
30, 1996 and 1995, respectively. The Company periodically
reviews goodwill for impairment based upon undiscounted
operating income over the remaining life of the goodwill.
Deferred Lease Costs
Deferred lease costs arising from an acquisition represent
the excess of actual rent payments on an operating lease
over the current market rental rate at the acquisition date.
The deferred lease cost is amortized over 57 months, the
remaining life of the lease.
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Employee Retirement Plans
The Company has pension and profit-sharing plans covering
substantially all employees. The Company's policy is to fund
pension costs for the plan in amounts which equal or exceed
the ERISA minimum requirements.
The Company has a supplemental retirement program for
officers. The cost of the supplemental program is
actuarially determined and is accrued but not funded.
Income Taxes
The Company accounts for certain income and expenses in
different periods for financial reporting and income tax
purposes. The Company utilizes the liability method to
account for deferred income taxes by applying statutory tax
rates in effect at the balance sheet date to differences
between the financial reporting and tax bases of assets and
liabilities. The resulting deferred tax liabilities or
assets are adjusted to reflect changes in tax laws or rates
by means of charges or credits to income tax expense.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Accounting for the Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long- Lived
Assets. The Company is required to adopt this statement by
its fiscal year ending in 1997. The new statement requires
the Company to review long-lived assets for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The
Company does not expect the adoption of this statement to
have a material impact on its financial position or results
of operations.
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Advertising
The Company expenses the costs of advertising as incurred.
Advertising expense was $553,000 in 1996, $622,000 in 1995,
and $416,000 in 1994.
Earnings Per Share
Earnings per share are computed on the weighted average
number of the combined common and Class B common shares
outstanding during each year. Earnings per share is computed
using the treasury stock method, under which the number of
shares outstanding reflects the assumed repurchase of shares
of the Company's common stock with the proceeds from the
assumed exercise of outstanding stock options.
2. Restructuring On June 24, 1996, the Board of Directors of the Company
and Impairment approved a restructuring plan designed to improve operating
of Assets efficiencies. The plan involves the shift of wood production
from Modar to Hirsh and the subsequent sale or closure of
the Modar facility, the transfer of redundant manufacturing
operations performed at Knape & Vogt Canada to the corporate
headquarters in Grand Rapids, and an early retirement
program to salaried employees at the Grand Rapids location.
The restructuring and impairment charge of $3,496,000
primarily relates to severance and employee benefit costs
($1,635,000), the write-down of assets to be disposed of to
their fair market value ($1,509,000) and other costs
($352,000). As an additional part of the plan which is
reported as part of costs of sales, the Board of Directors
authorized the liquidation of $863,000 of slow moving
inventories in order to create additional manufacturing and
warehousing space. After an income tax benefit of
$1,534,000, these actions reduced fiscal year 1996 earnings
by $2,825,000 or $.48 per share.
3. Discontinued On August 20, 1996, the Company announced its decision to
Operation sell the Roll-it division of Knape & Vogt Canada Inc.
(Roll-it), the Company's store fixture operation. It is the
Company's intent to sell the Roll-it division within the
next fiscal year through an independent broker. Roll-it is
reported as a discontinued operation, and the consolidated
financial statements have been reclassified to segregate the
net assets and operating results of the business.
<PAGE>
The estimated loss on the sale of Roll-it is $3.9 million,
which includes a reduction in asset values of $3.6 million
and a provision for anticipated closing costs and operating
losses until disposal of $.3 million. The loss is reported
net of an income tax benefit of $1.2 million, for an
after-tax loss of $2.7 million. The amounts are based on
estimates of the proceeds expected to be realized on the
sale of the store fixture operation. The amounts the Company
will ultimately realize could differ materially in the near
term from the amounts assumed in arriving at the loss on
disposal of the discontinued operation. Summary operating
results of the discontinued operation (in thousands) are as
follows:
<TABLE>
June 30, 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 13,540 $ 14,851 $ 14,371
Costs and expenses 13,990 13,823 13,056
- --------------------------------------------------------------------------------------
Income (loss) before taxes (450) 1,028 1,315
Income tax expense (benefit) (112) 374 472
- --------------------------------------------------------------------------------------
Net income (loss) $ (338) $ 654 $ 843
======================================================================================
</TABLE>
Net assets of the discontinued operation at June 30, 1996,
of approximately $3.6 million consisted of $1.8 million of
current assets, deductions for an allowance for the
estimated loss on disposal, estimated operating losses to
the anticipated disposal date, current liabilities and $1.8
million of equipment.
4. Acquisition On November 30, 1993, the Company acquired all of the issued
and outstanding capital stock of The Hirsh Company (Hirsh).
Located in Skokie, Illinois, Hirsh is a manufacturer of
steel shelving products, home workshop items, closet storage
systems and other storage products. Hirsh is being operated
as a subsidiary of the Company. The stock of Hirsh was
purchased with cash, and in connection with the acquisition,
the Company contributed to the capital of Hirsh to repay all
of its outstanding indebtedness. The Company's aggregate
acquisition cost was $29,270,859, and the funds required for
the acquisition were borrowed under the Company's
$47,500,000 line of credit with a local bank. The
transaction was accounted for as a purchase; therefore, the
results of the operations for Hirsh since the acquisition
date are included in the accompanying consolidated financial
statements.
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Unaudited pro forma 1994 results of operations, as if the
acquisition had occurred July 1, 1993, are as follows:
<TABLE>
<S> <C>
Net sales $166,072,763
Net income 7,496,878
Net income per share 1.28
============================================
</TABLE>
5. Inventories Inventories are summarized as follows:
<TABLE>
June 30, 1996 1995
<S> <C> <C>
Finished products $13,189,032 $13,791,986
Work in process 2,665,754 2,275,296
Raw materials and supplies 7,161,755 7,654,386
-------------------------------------------------------
$23,016,541 $23,721,668
=======================================================
</TABLE>
6. Long-Term Debt At June 30, 1996 and 1995, long-term debt consisted of
borrowings under an unsecured revolving credit agreement
which provides for loans up to $47,500,000 with interest
between 40 and 50 basis points above the federal funds rate
depending on the Company's interest coverage ratio. At June
30, 1996 there was a $35,000,000 balance outstanding under
the revolving credit agreement; with an effective interest
rate of 5.45%. The agreement contains certain covenants
which the Company is in compliance with at June 30, 1996.
The revolving credit is required to be repaid by November 1,
1997. Annually, the Company may request that the maturity of
the revolving credit be extended by another year.
7. Retirement The Company has several noncontributory defined benefit
Plans pension plans and defined contribution plans covering
substantially all of its employees. The defined benefit
plans provide benefits based on the participants' years of
service. The Company's funding policy for defined benefit
plans is to make annual contributions which equal or exceed
regulatory requirements. The Company's board of directors
annually approves contributions to defined contribution
plans.
The Company also has a supplemental retirement program for
designated officers of the Company which also includes death
and disability benefits.
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
The cost of retirement benefits is as follows:
<TABLE>
Year ended June 30, 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Discretionary
profit-sharing $ 585,965 $ 576,558 $ 741,187
Pension 261,781 301,349 257,597
Supplemental
retirement 193,960 158,442 132,200
-------------------------------------------------------
$1,041,706 $1,036,349 $1,130,984
=======================================================
</TABLE>
Net periodic cost for the pension plans included the
following components:
<TABLE>
Year ended June 30, 1996 1995 1994
<S> <C> <C> <C>
Service cost -
benefits earned
during the period $ 280,075 $ 251,503 $ 204,733
Interest cost on
projected benefit
obligation 737,433 726,789 711,826
Actual return on
plan assets (1,208,193) (930,192) (25,277)
Net deferral and
amortization of
unrecognized
amounts 452,466 253,249 (633,685)
-------------------------------------------------------
Net periodic
pension cost $ 261,781 $ 301,349 $ 257,597
=======================================================
</TABLE>
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation
of the pension plans was 8.5% at June 30, 1996 and 1995. The
expected long-term rate of return on plan assets was 8.5%.
The funded status of the pension plans is as follows:
<TABLE>
June 30, 1996 1995
<S> <C> <C>
Actuarial present value
of benefit obligations:
Accumulated and projected
benefit obligation,
vested benefits of
$9,149,228 and
$8,790,594 $9,248,880 $8,890,564
Plan assets at fair
value, primarily
equity securities
and fixed income funds 10,183,105 9,169,454
-------------------------------------------------------
Plan assets in excess of
projected benefit
obligations 934,225 278,890
-------------------------------------------------------
Unrecognized net obligations:
Unrecognized net loss 292,637 853,808
Unrecognized prior service
cost 910,955 981,820
Unrecognized transition
net asset, being recognized
over 14.4 years (402,500) (456,900)
-------------------------------------------------------
Unrecognized net obligations 801,092 1,378,728
-------------------------------------------------------
Prepaid pension cost
included in other assets $1,735,317 $1,657,618
=======================================================
</TABLE>
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidate Financial Statements
8. Postretirement The Company maintains a defined benefit postretirement plan
Health Care for substantially all employees which provides certain
Benefits health care benefits. Eligibility and benefits are based on
age and years of service. On July 1, 1992, the Company
adopted SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, on a
prospective basis. The transition obligation represents the
difference between the Company's July 1, 1992, accrued
postretirement benefit costs prior to the adoption of SFAS
No. 106 and the Plan's unfunded liability as of that date
and is being amortized over 20 years. During fiscal year
1994, the Company revised the eligibility definition for
benefits. This reduced the liability as of July 1, 1993 by
$916,457. This decrease in the liability is being amortized
over 17 years, the average remaining service period of the
active employees.
The components of net periodic postretirement benefit cost
are as follows:
<TABLE>
Year ended June 30, 1996 1995 1994
<S> <C> <C> <C>
Service cost -
benefits earned
during the year $ 82,461 $107,493 $114,233
Interest cost on
projected benefit
obligation 126,329 144,266 134,645
Amortization of
transition
liability over
20 years 93,861 93,861 93,861
Amortization of prior
service costs (57,279) (57,279) (25,561)
Amortization of
unrecognized net loss 18,415 37,162 -
-------------------------------------------------------
Net postretirement
health care cost $263,787 $325,503 $317,178
=======================================================
</TABLE>
A reconciliation of the accumulated postretirement benefit
obligation to the liability recognized in the consolidated
balance sheets is as follows:
<TABLE>
June 30, 1996 1995
-------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Active participants $ 828,891 $ 1,010,493
Retirees 704,498 731,874
-------------------------------------------------------
1,533,389 1,742,367
Unrecognized transition
obligation (1,501,763) (1,595,624)
-------------------------------------------------------
31,626 146,743
Unrecognized net loss (443,795) (682,130)
Unrecognized prior service
cost 744,620 801,899
-------------------------------------------------------
Postretirement health care
liability $ 332,451 $ 266,512
=======================================================
</TABLE>
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
The actuarial calculation assumes a health care inflation
rate of 9.8% in 1996 and grades down uniformly to 6.5% in
2002 and remains level thereafter. The health care cost
trend rate has an effect on the amounts reported. Increasing
the health care inflation rate by 1% would increase the June
30, 1996, accumulated postretirement benefit obligation by
$118,378, and the 1996 net postretirement health care cost
by $20,294. The discount rate used in determining the
accumulated postretirement benefit obligation was 8.5%. The
Company's postretirement health care plans are not funded.
Prior to 1993, the cost of providing postretirement benefits
was expensed as incurred.
9. Lease Commitments The Company is leasing certain real
property under the terms of two to five year leases.
Future minimum payments are as follows:
<TABLE>
Year ending June 30,
-------------------------------------------------------
<S> <C>
1997 $1,508,148
1998 1,543,804
1999 1,562,573
2000 1,422,191
2001 217,462
-------------------------------------------------------
$6,254,178
=======================================================
</TABLE>
Rent expense under all operating leases was approximately
$2,076,000, $2,070,000 and $1,461,000 in 1996, 1995 and
1994, respectively.
10. Income Taxes Income from continuing operations before income taxes
consists of:
<TABLE>
Year ended
June 30, 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
United States $5,603,192 $10,708,095 $10,686,317
Foreign (465,134) 731,610 647,403
-------------------------------------------------------
Income from
continuing
operations
before
income taxes $5,138,058 $11,439,705 $11,333,720
=======================================================
</TABLE>
Income tax expense (benefit) from continuing operations
consists of:
<TABLE>
Year ended
June 30, 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Current:
United States $3,189,000 $2,298,000 $2,942,000
Foreign (152,000) 129,000 210,000
State and local 58,000 83,000 103,000
-------------------------------------------------------
Total current 3,095,000 2,510,000 3,255,000
-------------------------------------------------------
<PAGE>
Deferred:
United States (1,159,000) 1,208,000 609,000
Foreign 14,000 121,000 15,000
State and local 85,000 10,000 141,000
-------------------------------------------------------
Total deferred (1,060,000) 1,339,000 765,000
-------------------------------------------------------
Income tax
expense $2,035,000 $3,849,000 $4,020,000
=======================================================
</TABLE>
The difference between the effective tax rates of 40%, 34%,
and 35% in 1996, 1995 and 1994, respectively, and the
federal statutory rate of 34% is due to foreign, state and
local income taxes. The increase in consolidated income tax
expense in 1996 is due to the reduction of use by the
Company of research and development credits compared to
prior years. Tax laws in the United States which created
research and development tax credits expired on June 30,
1995, and the Company was not able to use these credits to
reduce 1996 income tax expense.
The sources of the net deferred income tax liability are as
follows:
<TABLE>
June 30, 1996 1995
-------------------------------------------------------
<S> <C> <C>
Different book/tax basis of
property and equipment $ 9,742,000 $ 9,713,000
Inventory valuation
reserves 478,000 427,000
Net operating loss
carryforward expiring
through 2008 (1,228,000) (1,179,000)
Restructuring accrual (1,207,000) ----
Other 204,800 88,800
-------------------------------------------------------
$ 7,989,800 $ 9,049,800
=======================================================
</TABLE>
The Company has not provided for United States income taxes
on undistributed earnings of foreign subsidiaries. Earnings
are being reinvested, the remittance of which has been
indefinitely postponed. In the event these earnings were
remitted to the Company, foreign tax credits would be used
to offset a substantial portion of the United States income
taxes.
<PAGE>
11. Stock Option The 1987 Stock Option Plan grants key employees of the
Plan Company options to purchase shares of common stock. Options
were granted at or above the market price of the Company's
common stock on the date of the grant, are exercisable from
that date and terminate ten years from the grant date. The
plan, as amended in October 1994 and in October 1991,
authorized a total of 300,000 shares to be available for
issuance under the plan.
Transactions are as follows:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Options outstanding,
beginning of year 129,945 103,411 85,070
Granted 45,000 32,250 36,000
Exercised (1,155) (8,232) (16,332)
Forfeited (1,050) (7,430) (1,327)
10% stock dividend - 9,946 -
-------------------------------------------------------
Options outstanding
and exercisable,
end of year 172,740 129,945 103,411
=======================================================
Options price range,
end of year $ 9.58- $ 9.58- $ 9.58-
20.00 20.00 28.41
Options available
for grant, end
of year 46,967 90,917 14,018
=======================================================
</TABLE>
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 allows companies to continue to
account for their stock-based compensation plans in
accordance with APB Opinion 25, but encourages the adoption
of the new accounting method to record compensation expense
based on the estimated fair value of employee stock-based
compensation. Companies electing not to follow the new fair
value based method are required to provide expanded footnote
disclosures, including pro forma net income and earnings per
share, determined as if the company has adopted the new
method. The Statement is required to be adopted for fiscal
years beginning after December 15, 1995. Management intends
to continue to account for its stock-based compensation
plans in accordance with APB Opinion 25 and provide the
supplemental disclosures as required by SFAS No. 123,
beginning in 1997.
<PAGE>
12. Stockholders' On August 19, 1994, the board of directors declared a 10%
Equity stock dividend of the Company's common stock and Class B
common stock. Applicable share and per share data have been
restated to reflect the 10% stock dividend.
The Company has three classes of stock, common stock, Class
B common stock and unissued preferred stock. Each share of
common stock entitles the holder thereof to one vote on all
matters submitted to the shareholders. Each share of Class B
common stock entitles the holder to ten votes on all such
matters, except that the holders of common stock are
entitled to elect, voting separately as a class, at least
one quarter of the Company's directors to be elected at each
meeting held for the election of directors. In all other
instances, holders of common stock and Class B common stock
vote together, except for matters affecting the powers,
preferences or rights of the respective classes or as
otherwise required under the Michigan Business Corporation
Act. With respect to dividend rights, each share of common
stock is entitled to cash dividends at least ten percent
(10%) higher than those payable on each share of Class B
common stock. Class B common stock is subject to certain
restrictions on transfer, but is convertible into common
stock on a share-for-share basis at anytime.
13. Supplemental Total interest paid during the years ended June 30, 1996,
Cash Flows 1995 and 1994, was $2,245,136, $2,452,649 and $1,319,657,
Information respectively.
Total income taxes paid during the years ended June 30,
1996, 1995 and 1994, were $2,540,139, $3,375,972, and
$2,739,174, respectively.
14. Foreign The Company has operations in the United States and Canada:
Operations
<TABLE>
Year ended
June 30, 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Net sales:
United States $147,691,899 $151,261,132 $132,348,494
Canada 15,320,131 16,929,837 13,156,042
-------------------------------------------------------
$163,012,030 $168,190,969 $145,504,536
=======================================================
Operating income:
United States $ 8,178,485 $ 13,412,124 $ 12,440,250
Canada (509,120) 677,721 627,015
-------------------------------------------------------
$ 7,669,365 $ 14,089,945 $ 13,067,265
=======================================================
Total assets:
United States $116,460,936 $115,120,879 $117,567,637
Canada 12,764,223 16,312,835 15,680,164
-------------------------------------------------------
$129,225,159 $131,433,714 $133,247,801
=======================================================
</TABLE>
<PAGE>
Independent Auditors' Report
Board of Directors
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Knape & Vogt
Manufacturing Company and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Knape & Vogt
Manufacturing Company and subsidiaries at June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
August 21, 1996
<PAGE>
Consent of Independent Certified Public Accountants
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan
We hereby consent to the incorporation by reference of our report dated August
21, 1996, relating to the consolidated financial statements of Knape & Vogt
Manufacturing Company, appearing in that Corporation's annual report on Form
10-K for the year ended June 30, 1996, in that Corporation's previously filed
Form S-8 Registration Statements (file numbers 33-20227, 33-43704, 33-88206 and
33-88212).
/s/ BDO Seidman, LLP
Grand Rapids, Michigan
April 30, 1997
<PAGE>
SIGNATURES
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. Simkins
Richard C. Simkins
Executive Vice President, CFO,
Secretary & Treasurer
Date: May 1, 1997
<PAGE>
