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, 1998
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 ______
3,502,603 common shares were outstanding as of April 30, 1998.
2,433,022 Class B common shares were outstanding as of April 30, 1998.
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
--March 31, 1998 (Unaudited) and June 30, 1997............................2
Condensed Consolidated Statements of Income (Unaudited)
--Nine Months and Three Months Ended March 31, 1998 and 1997..............3
Condensed Consolidated Statements of Cash Flows (Unaudited)
--Nine Months Ended March 31, 1998 and 1997...............................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>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
March 31, 1998 June 30, 1997
--------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Cash and equivalents $ 2,457,213 $ 1,146,546
Accounts receivable - net 27,941,850 24,991,341
Refundable income taxes 200,000 1,578,681
Inventories 18,904,694 18,629,454
Other current assets 4,211,614 3,686,042
Net current assets of discontinued operation 0 1,462,089
------------- -------------
Total current assets 53,715,371 51,494,153
------------- -------------
Property, plant and equipment 84,207,825 80,771,246
Less accumulated depreciation 37,026,644 32,184,444
------------- -------------
Net property, plant and equipment 47,181,181 48,586,802
------------- -------------
Net property, plant and equipment of discontinued operation 0 1,440,740
Other assets 22,104,480 24,220,003
------------- -------------
$ 123,001,032 $ 125,741,698
============= =============
Liabilities and Stockholders' Equity
Accounts payable $ 12,693,431 $ 5,976,683
Other accrued liabilities 9,451,408 6,251,436
------------- -------------
Total current liabilities 22,144,839 12,228,119
Long-term debt 17,400,000 29,000,000
Deferred income taxes and other long-term liabilities 9,003,035 11,053,081
------------- -------------
Total liabilities 48,547,874 52,281,200
------------- -------------
Stockholders' equity
Common stock 11,865,004 11,807,658
Additional paid-in capital 33,684,865 33,340,541
Foreign currency translation adjustment (1,605,305) (1,345,978)
Retained earnings 30,508,594 29,658,277
------------- -------------
Total stockholders' equity 74,453,158 73,460,498
------------- -------------
$ 123,001,032 $ 125,741,698
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
Nine Months Ended Three Months Ended
Mar. 31, 1998 Mar. 31, 1997 Mar. 31, 1998 Mar. 31, 1997
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 136,805,813 $ 132,675,931 $ 49,469,554 $ 46,072,548
Cost of sales 103,503,505 99,406,928 37,914,628 34,615,069
------------- ------------- ------------- -------------
Gross profit 33,302,308 33,269,003 11,554,926 11,457,479
Selling and administrative expenses 21,692,956 21,493,160 7,711,214 7,284,146
Restructuring charges 2,386,971 373,235 2,386,971 373,235
------------- ------------- ------------- -------------
Operating income 9,222,381 11,402,608 1,456,741 3,800,098
Other expenses 1,081,662 1,631,869 335,258 542,679
------------- ------------- ------------- -------------
Income from continuing operations
before income taxes 8,140,719 9,770,739 1,121,483 3,257,419
Income taxes - continuing operations 3,105,000 3,548,000 573,000 1,196,000
------------- ------------- ------------- -------------
Income from continuing operations 5,035,719 6,222,739 548,483 2,061,419
Loss from discontinued operation,
net of taxes (1,368,278) (471,624) (1,274,639) (471,624)
------------- ------------- ------------- -------------
Net income (loss) $ 3,667,441 $ 5,751,115 $ (726,156) $ 1,589,795
============= ============= ============= =============
Per common share:
Basic EPS:
Income from continuing operations $ .85 $ 1.06 $ .09 $ .35
Loss from discontinued operation (.23) (.08) (.21) (.08)
------------- ------------- ------------- -------------
Net income $ .62 $ .98 $ (.12) $ .27
============= ============= ============= =============
Weighted average shares outstanding 5,919,601 5,887,438 5,924,435 5,890,102
Diluted EPS:
Income from continuing operations $ .85 $ 1.05 $ .10 $ .34
Loss from discontinued operation (.23) (.08) (.22) (.08)
------------- ------------- ------------- -------------
Net income $ .62 $ .97 $ (.12) $ .26
============= ============= ============= =============
Weighted average shares outstanding 5,953,418 5,902,206 5,964,794 5,908,438
Cash Dividend - Common stock $ .495 $ .495 $ .165 $ .165
Cash Dividend - Class B common stock $ .45 $ .45 $ .15 $ .15
</TABLE>
See accompanying notes.
3
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Nine Months Ended
Mar. 31, 1998 Mar. 31, 1997
------------- -------------
<S> <C> <C>
Operating Activities:
Net income $ 3,667,441 $ 5,751,115
Non-cash items:
Depreciation and amortization 5,911,058 5,800,839
Deferred income taxes (1,732,000) 10,000
Other long-term liabilities (315,137) (303,220)
Loss on sale of the discontinued operation 937,268 0
Changes in operating assets and liabilities:
Accounts receivable (3,000,045) (5,331,826)
Inventories (297,524) (45,218)
Net assets of discontinued operation 0 903,026
Other current assets 610,815 668,977
Accounts payable and accrued expenses 10,100,202 (1,156,226)
------------ ------------
Net cash from operating activities 15,882,078 6,297,467
------------ ------------
Investing Activities:
Additions to property and equipment (3,548,463) (5,044,891)
Sale of property and equipment 1,693 3,345,678
Disposition of discontinued operation 1,920,352 0
Payments for other assets 1,078,485 (645,988)
------------ ------------
Net cash for investing activities (547,933) (2,345,201)
------------ ------------
Financing Activities:
Proceeds from issuance of common stock 401,670 119,810
Payments on long-term debt (11,600,000) (1,200,000)
Cash dividends paid (2,817,124) (2,801,724)
------------ ------------
Net cash for financing activities (14,015,454) (3,881,914)
------------ ------------
Effect of Exchange Rate Changes on Cash (8,024) (10,563)
------------ ------------
Net Increase in Cash & Equivalents 1,310,667 59,789
Cash and Equivalents:
Beginning of year 1,146,546 244,271
------------ ------------
End of period $ 2,457,213 $ 304,060
============ ============
Cash Paid During the Period - interest $ 1,069,096 $ 1,529,813
- income taxes $ 2,474,702 $ 2,775,148
</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, 1997, 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 1997 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: 3,499,480 of common stock and
2,433,022 of Class B stock at March 31, 1998; and 3,465,664 of common stock and
2,438,165 of Class B common stock at June 30, 1997.
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, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Finished products $ 11,286,174 $ 11,219,379
Work in process 2,975,257 1,950,391
Raw materials 4,643,263 5,459,684
-------------- --------------
Total $ 18,904,694 $ 18,629,454
============== ==============
</TABLE>
Note 4 - New Accounting Standards Not Yet Adopted
Effective for periods beginning after December 15, 1997, the Company must adopt
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" and No. 131, "Disclosures about Segments of an Enterprise and Related
Information." No. 130 will require the Company to report comprehensive income as
part of the consolidated financial statements. No. 131 will require the Company
to report certain information about operating segments in the consolidated
financial statements. The Company is currently evaluating the provisions of
these statements to determine their impact.
Note 5 - Newly Adopted Accounting Standard
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, "Earnings Per Share." The statement simplifies the standards for
computing earnings per share (EPS), and makes them comparable to international
EPS standards. The statement requires the presentation of both "basic" and
"diluted" EPS on the face of the income statement with a supplementary
reconciliation of numerators and denominators used in the calculations. For the
periods presented, the numerators remained the sam in both the basic and diluted
EPS calculations. The denominator was increased in the diluted computation due
to the recognition of stock options as common stock equivalents.
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
involving 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.
Readers are cautioned not to place undue reliance on those forward-looking
statements which speak only as of the date of this report.
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, 1998 and 1997:
<TABLE>
Nine Months ended March 31, Three Months ended March 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shelving systems $ 64.4 47.1% $ 61.8 46.6% $ 23.3 47.1% $ 21.1 45.8%
Drawer slides 50.9 37.2% 46.3 34.9% 19.0 38.4% 16.2 35.1%
Hardware 21.5 15.7% 21.6 16.3% 7.2 14.5% 7.5 16.3%
Furniture components 0.0 0.0% 3.0 2.2% 0.0 0.0% 1.3 2.8%
------- ------ ------- ------ ------- ------ ------- ------
Total $ 136.8 100.0% $ 132.7 100.0% $ 49.5 100.0% $ 46.1 100.0%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
Net sales for the nine months and third quarter of fiscal 1998 increased $4.1
million, or 3.1%, and $3.4 million, or 7.4%, respectively, over the comparable
periods of fiscal 1997. Shelving systems sales increased by $2.2 million, or
10.4%, for the quarter due to the addition of two national retail customers for
the free-standing shelving products which was previously announced in the second
quarter. Drawer slide sales increased by $2.8 million, or 17.3%, for the quarter
due to strong sales of precision drawer slides including continued ramp-up in
shipments of precision drawer slides to the metal office furniture market.
Hardware product line sales decreased during the quarter by $0.3 million from
last year despite Feeny's continued increase in the sales of its kitchen and
bath storage products. This increase was offset by a decrease in the Iron Horse
product line, caused by a reduction in promotions of the product line at major
home centers. Furniture component sales were eliminated with the sale of Modar
at the end of the third quarter of fiscal 1997.
Costs and Expenses
Cost of sales was 75.7% of sales for the first nine months and 76.6% of sales
for the third quarter of fiscal 1998 compared to 74.9% and 75.1% of sales for
the first nine months and third quarter of fiscal 1997, respectively. The
increase is due in part to the Company's continued investments in manufacturing
and sales to aggressively enter the metal office furniture market. The increase
in cost of sales also reflects transition costs that cannot be classified as
restructuring related to the reorganization of the Company's Canadian operation
near Toronto and continued softness in the Canadian dollar.
Selling and administrative expenses for the nine months was 15.9% of sales
compared to 16.2% for the same period last year and for the third quarter
decreased to 15.6% of sales from 15.8% for the same quarter last year. The
reductions are due to the Company's ability to keep costs flat on a higher
revenue stream, as well as the cost savings from the sale of Modar.
A one-time restructuring charge of $2,386,971 was recorded in the third quarter
of fiscal 1998 for Knape & Vogt Canada. Knape & Vogt announced in March 1998 its
plans to reorganize its Canadian operation, including the sale of the Company's
manufacturing facility and equipment in the Toronto area. The Company will
continue to sell and distribute its products in Canada and maintain a sales
office in the Toronto area. The after-tax effect of the sale was a loss of
$1,786,971 or $.30 per share.
6
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The fiscal 1997 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 $298,941 for the quarter ended March 31, 1998, compared to
$497,603 for the quarter ended March 31, 1997. The Company has reduced its level
of borrowing to $17,400,000 at March 31, 1998, from $33,800,000 at March 31,
1997. Interest expense for the nine months ended March 31, 1998, was $1,016,053
compared to $1,518,791 for the nine months ended March 31, 1997.
Income Taxes
The effective tax rate for the nine months and quarter ended March 31, 1998, was
38.1% and 51.1% compared to 36.3% and 36.7% for the nine months and quarter
ended March 31, 1997. The effective tax rates are higher due to a possible
restriction on fully utilizing the net operating losses generated in Canada,
thereby reducing the tax benefit recognized on the restructuring loss recorded
for Knape & Vogt Canada.
Income from Continuing Operations
Income from continuing operations was $5,035,719 for the first nine months and
$548,483 for the third quarter of fiscal 1998. Diluted earnings per share from
continuing operations for the nine months was $.85 compared to $1.05 in fiscal
1997. Diluted earnings per share for the quarter ended March 31, 1998 was $.10
compared to $.34 for the third quarter last year. Excluding the after-tax
restructuring charges of $1,786,971 in fiscal 1998 and $246,235 in fiscal 1997,
diluted earnings per share would have been $1.15 and $.40 for the nine and three
months ended March 31, 1998, respectively, and $1.09 and $.38 for the nine and
three months ended March 31, 1997.
Loss from Discontinued Operation
Loss from discontinued operation was $1,368,278, or $.23 diluted earnings per
share, for the first nine months and $1,274,639, or $.22 diluted earnings per
share for the three months ended March 31, 1998. The discontinued operation,
Roll-it, was sold on March 27, 1998. Included in the fiscal 1998 loss from
discontinued operation is a third quarter loss of $937,268, or $.16 per share,
which represents the difference between the original estimate and the actual
loss from the decision to sell Roll-it.
In the third quarter of fiscal 1997 the Company recorded a loss of $471,624, or
$.08 diluted earnings per share, from discontinued operation, which was an
adjustment to the estimated provision for operating losses of Roll-it through
fiscal year 1997. Income or loss attributable to Roll-it's operations beyond
fiscal year 1997 were recorded as incurred in each reporting period.
Net Income
Net income of $3,667,441 for the nine months was 2.7% of sales compared to
$5,751,115 for the first nine months last year which was 4.3% of sales. For the
quarter ended March 31, 1998, net loss was $726,156 compared to net income of
$1,589,795 for the third quarter of last year.
7
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net income for the third quarter and nine months ended March 31, 1998, includes
the after-tax charge of $1,786,971 to record the restructuring of Knape & Vogt
Canada and a loss from discontinued operation of $1,368,278 for the nine months
and $1,274,639 for the third quarter. Net income for the third quarter and nine
months ended March 31, 1997, includes the after-tax charge of $246,235 for
restructuring and $471,624 for loss from discontinued operation.
Excluding the restructuring charges and loss from discontinued operation
charges, net income was $6,822,690 for the nine months, or 5.0% of sales,
compared to $6,468,974 for the first nine months last year which was 4.9% of
sales. For the quarter ended March 31, 1998, net income would have been
$2,335,454 compared to $2,307,654 for the third quarter of last year.
Liquidity and Capital Resources
Net cash from operating activities for the first nine months of fiscal 1998
provided $15,882,078 as compared to $6,297,467 for the first nine months of
fiscal 1997. Accounts payable and accrued expenses increased by $10,100,202 in
the first nine months of fiscal 1998 compared to a decrease of $1,156,226 in the
first nine months of fiscal 1997. Days sales outstanding at the end of the third
quarter of fiscal 1998 were 54 compared to 58 at the end of fiscal 1997. This
reduction has resulted in an improvement in our accounts receivable collection
of over $2,000,000 compared to the end of the third quarter of fiscal 1997. The
overall improvement in liquidity is a direct result of the Company's focus on
cash management.
Capital expenditures totaled $3,548,463 for the nine months ended March 31,
1998, compared to $5,044,891 for the nine months ended March 31, 1997. Capital
expenditures for the fiscal year are anticipated to be between $4,000,000 and
$5,000,000. Long-term debt of $17,400,000 at the end of the third quarter has
declined $11,600,000 since June 30, 1997, primarily due to cash provided from
operating activities. In the remainder of the year, the Company will continue to
aggressively attempt to generate cash using the newly adopted Economic Value
Added, or EVA, philosophy. Anticipated cash flow from operations will
substantially 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, 1998.
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 8, 1998 /s/Allan E. Perry
Allan E. Perry
President and
Chief Executive Officer
Date: May 8, 1998 /s/ Richard C. Simkins
Richard C. Simkins
Executive Vice President, CFO,
Secretary and Treasurer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,457,213
<SECURITIES> 0
<RECEIVABLES> 28,690,736
<ALLOWANCES> 748,886
<INVENTORY> 18,904,694
<CURRENT-ASSETS> 53,715,371
<PP&E> 84,207,825
<DEPRECIATION> 37,026,644
<TOTAL-ASSETS> 123,001,032
<CURRENT-LIABILITIES> 22,144,839
<BONDS> 17,400,000
0
0
<COMMON> 11,865,004
<OTHER-SE> 62,588,154
<TOTAL-LIABILITY-AND-EQUITY> 123,001,032
<SALES> 136,805,813
<TOTAL-REVENUES> 136,805,813
<CGS> 103,503,505
<TOTAL-COSTS> 103,503,505
<OTHER-EXPENSES> 24,079,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,016,053
<INCOME-PRETAX> 8,140,719
<INCOME-TAX> 3,105,000
<INCOME-CONTINUING> 5,035,719
<DISCONTINUED> (1,368,278)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,667,441
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
