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 December 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 ______
3,485,742 common shares were outstanding as of January 31, 1998.
2,434,134 Class B common shares were outstanding as of January 31, 1998.
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements.
Condensed Consolidated Balance Sheets
--December 31, 1997 (Unaudited) and June 30, 1997...................2
Condensed Consolidated Statements of Income (Unaudited)
--Six Months and Three Months Ended December 31, 1997 and 1996......3
Condensed Consolidated Statements of Cash Flows (Unaudited)
--Six Months Ended December 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............................6-7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..............8
Item 6. Exhibits and Reports on Form 8-K.................................8
SIGNATURES....................................................................9
1
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
Dec. 31, 1997 June 30, 1997
-------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Cash and equivalents ...................................... $ 224,384 $ 1,146,546
Accounts receivable - net ................................. 24,804,609 24,991,341
Refundable income taxes ................................... 1,855,116 1,578,681
Inventories ............................................... 21,067,666 18,629,454
Other current assets ...................................... 3,675,466 3,686,042
Net current assets of discontinued operation .............. 1,285,404 1,462,089
------------- -------------
Total current assets ............................. 52,912,645 51,494,153
------------- -------------
Property, plant and equipment ............................. 83,297,781 80,771,246
Less accumulated depreciation ............................. 35,271,438 32,184,444
------------- -------------
Net property, plant and equipment ................ 48,026,343 48,586,802
------------- -------------
Net property, plant and equipment of discontinued operation 1,290,416 1,440,740
Other assets .............................................. 22,716,766 24,220,003
------------- -------------
$ 124,946,170 $ 125,741,698
============= =============
Liabilities and Stockholders' Equity
Accounts payable .......................................... $ 13,921,753 $ 5,976,683
Other accrued liabilities ................................. 5,420,233 6,251,436
------------- -------------
Total current liabilities ........................ 19,341,986 12,228,119
Long-term debt ............................................ 18,800,000 29,000,000
Deferred income taxes and other long-term liabilities ..... 10,993,351 11,053,081
------------- -------------
Total liabilities ................................ 49,135,337 52,281,200
------------- -------------
Stockholders' equity
Common stock .............................................. 11,838,852 11,807,658
Additional paid-in capital ................................ 33,516,118 33,340,541
Foreign currency translation adjustment ................... (1,719,348) (1,345,978)
Retained earnings ......................................... 32,175,211 29,658,277
------------- -------------
Total stockholders' equity ....................... 75,810,833 73,460,498
------------- -------------
$ 124,946,170 $ 125,741,698
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
Six Months Ended Three Months Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales .......................... $ 87,336,259 $ 86,603,383 $ 42,677,957 $ 41,755,065
Cost of sales ...................... 65,588,877 64,791,859 32,434,480 31,424,900
------------ ------------ ------------ -------------
Gross profit ....................... 21,747,382 21,811,524 10,243,477 10,330,165
Selling and administrative expenses 13,981,742 14,209,014 6,767,474 6,922,933
------------ ------------ ------------ ------------
Operating income ................... 7,765,640 7,602,510 3,476,003 3,407,232
Other expenses ..................... 746,404 1,089,190 323,793 554,504
------------ ------------ ------------ ------------
Income from continuing operations
before income taxes ............. 7,019,236 6,513,320 3,152,210 2,852,728
Income taxes - continuing operations 2,532,000 2,352,000 1,135,000 1,038,000
------------ ------------ ------------ ------------
Income from continuing operations .. 4,487,236 4,161,320 2,017,210 1,814,728
Income (loss) from discontinued
operation, net of taxes ......... (93,639) 0 (294,525) 0
------------ ------------ ------------ ------------
Net income ......................... $ 4,393,597 $ 4,161,320 $ 1,722,685 $ 1,814,728
============ ============ ============ ============
Per common share:
Basic EPS:
Income from continuing operations .. $ .76 $ .71 $ .34 $ .31
Income from discontinued operation . (.02) .00 (.05) .00
------------ ------------ ------------ ------------
Net Income ......................... $ .74 $ .71 $ .29 $ .31
============ ============ ============ ============
Weighted average shares outstanding 5,915,080 5,886,514 5,915,666 5,887,454
Diluted EPS:
Income from continuing operations .. $ .75 $ .71 $ .34 $ .31
Income from discontinued operation . (.01) .00 (.05) .00
------------ ------------ ------------ -----------
Net Income ......................... $ .74 $ .71 $ .29 $ .31
============ ============ ============ ============
Weighted average shares outstanding 5,949,990 5,900,739 5,951,026 5,901,388
Cash Dividend - Common stock ....... $ .33 $ .33 $ .165 $ .165
Cash Dividend - Class B common stock $ .30 $ .30 $ .15 $ .15
</TABLE>
See accompanying notes.
3
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Six Months Ended
Dec. 31, 1997 Dec. 31, 1996
------------- -------------
<S> <C> <C>
Operating Activities:
Net income ................................... $ 4,393,597 $ 4,161,320
Non-cash items:
Depreciation and amortization ............ 3,826,709 3,769,141
Deferred income taxes .................... 155,000 (19,000)
Other long-term liabilities .............. (210,597) (207,029)
Changes in operating assets & liabilities:
Accounts receivable ................. 119,686 (2,070,711)
Inventories ......................... (2,477,121) (107,778)
Net assets of discontinued operation 141,448 367,028
Other current assets ................ (297,528) 1,166,926
Accounts payable & accrued expenses . 7,152,629 (2,223,660)
----------- ------------
Net cash provided by operating activities ......... 12,803,823 4,836,237
----------- ------------
Investing Activities:
Additions to property and equipment .......... (2,673,543) (2,739,039)
Sale of property and equipment ............... 1,705 238,183
Payments for other assets .................... 807,138 (453,295)
----------- ------------
Net cash used for investing activities ............ (1,864,700) (2,954,151)
----------- ------------
Financing Activities:
Proceeds from issuance of common stock ....... 206,771 89,435
Additions to long-term debt .................. 0 400,000
Payments on long-term debt ................... (10,200,000) 0
Cash dividends declared ...................... (1,876,663) (1,866,587)
------------ ------------
Net cash used for financing activities ............ (11,869,892) (1,377,152)
------------ ------------
Effect of Exchange Rate Changes on Cash ........... 8,607 (5,876)
------------ ------------
Net Increase (Decrease) in Cash & Equivalents ..... (922,162) 499,058
Cash and Equivalents:
Beginning of year ........................ 1,146,546 244,271
------------ ------------
End of period ............................ $ 224,384 $ 743,329
============ ============
Cash Paid During the Period - interest............ $ 756,628 $ 1,009,927
- income taxes ....... $ 2,091,110 $ 1,511,663
</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: 3,485,292 of common stock and
2,434,134 of Class B stock at December 31, 1997; 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>
Dec. 31, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Finished products $ 11,727,439 $ 11,219,379
Work in process 3,293,480 1,950,391
Raw materials 6,046,747 5,459,684
---------------- ----------------
Total $ 21,067,666 $ 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 six month and three month periods
ended December 31, 1997 and 1996:
<TABLE>
Six Months Ended December 31, Three Months Ended December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shelving systems $ 41.1 47.1% $ 40.6 46.9% $ 19.4 45.4% $ 18.3 43.7%
Drawer slides 31.9 36.5% 30.1 34.8% 16.3 38.2% 15.1 36.1%
Hardware 14.3 16.4% 14.1 16.3% 7.0 16.4% 7.5 18.1%
Furniture components 0.0 0.0% 1.8 2.0% 0 0.0% 0.9 2.1%
------- ------ ------ ------ ------ ------ ------ ------
Total $ 87.3 100.0% $ 86.6 100.0% $ 42.7 100.0% $ 41.8 100.0%
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
Net sales for the six months and second quarter of fiscal 1998 increased $0.7
million, or 0.8%, and $0.9 million, or 2.2%, respectively, over the comparable
periods of fiscal 1997. Shelving systems sales increased by $1.1 million, or
6.0%, for the quarter due to Hirsh's recent addition of two national retail
customers for its free-standing shelving products. Drawer slide sales increased
by $1.2 million, or 7.9%, for the quarter due to strong sales of precision
drawer slides including initial shipments o precision drawer slides to the metal
office furniture market. Hardware product line sales decreased during the
quarter by $0.5 million from last year despite Feeny's continued increase in the
sales of its kitchen and bath products. This increase was offset by a decrease
in Hirsh's 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 75.1% of sales for the first six months and 76.0% of sales for
the second quarter of fiscal 1998 compared to 74.8% and 75.3% of sales for the
first six months and second quarter of fiscal 1997, respectively. The increase
is due to higher overtime costs and start-up costs associated with the Company's
entry into the metal office furniture market.
Selling and administrative expenses for the six months was 16.0% of sales
compared to 16.4% for the same period last year and for the second quarter
decreased to 15.9% of sales from 16.6% for the same quarter last year. The
reduction is 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.
Other Expenses
Interest expense was $307,921 for the quarter ended December 31, 1997, compared
to $517,881 for the quarter ended December 31, 1996. The Company has reduced its
level of borrowing to $18,800,000 at December 31, 1997, from $35,400,000 at
December 31, 1996. Interest expense for the six months ended December 31, 1997,
was $717,112 compared to $1,021,188 for the six months ended December 31, 1996.
6
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Income Taxes
The effective tax rates for the six months and quarter ended December 31, 1997,
were 36.1% and 36.0% which were relatively consistent with the rates for the six
months and quarter ended December 31, 1996, of 36.1% and 36.4%.
Income from Continuing Operations
Income from continuing operations was at record levels of $4,487,236 for the
first six months and $2,017,210 for the second quarter of 1998. Basic earnings
per share from continuing operations for the six months increased 7.0% to $.76
compared to $.71 last year and basic and diluted income per share for the
quarter rose 9.7% to $.34 compared to $.31 in the second quarter of last year.
Diluted earnings per share for the six months ended December 31, 1997, increased
to $.75 from $.71 for the six months ended December 31, 1996.
Income from Discontinued Operation
Loss from discontinued operation was $93,639, or $.02 basic earnings per share
and $.01 diluted earnings per share, for the first six months and $294,525, or
$.05 basic and diluted earnings per share, for the second quarter of fiscal
1998. The six months and quarter ended December 31, 1996, did not include any
income, or loss, recorded on the discontinued operation as the estimated loss on
discontinued operation recorded at June 30, 1996, included a provision for
fiscal 1997 anticipated operating losses. In accordance with Generally Accepted
Accounting Principles, income or loss attributable to the discontinued operation
subsequent to June 30, 1997, is reflected as incurred.
The Company 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. Several interested
buyers have signed confidentiality agreements with the Company. Although it is
difficult to predict, the Company expects to sell Roll-it during fiscal 1998.
Net Income
Net income of $4,393,597 for the six months was 5.0% of sales compared to
$4,161,320, for the first six months last year which was 4.8% of sales. For the
quarter ended December 31, 1997, net income was $1,722,685 which was 4.0% of
sales compared to $1,814,728 which was 4.3% of sales for the second quarter of
last year.
Liquidity and Capital Resources
Net cash from operating activities for the first six months provided $12,803,823
as compared to $4,836,237 for the first six months of fiscal 1997. Accounts
payable & accrued expenses increased by $7,152,629 in the first six months of
fiscal 1998 compared to a decrease of $2,223,660 in the first six months of
fiscal 1997. Also, accounts receivable decreased $119,686 in the first six
months of fiscal 1998 compared to an increase of $2,070,711 in the first six
months of fiscal 1997. Net cash from operating activities was negatively
impacted by an increase in inventories which is attributable to the increase in
sales and sales backlog. The overall improvement in liquidity is a direct result
of the Company's focus on cash management.
Capital expenditures totaled $2,673,543 for the six months ended December 31,
1997, compared to $2,739,039 for the six months ended December 31, 1996. Capital
expenditures for the fiscal year are expected to be at approximately the same
levels as last year. Long-term debt decreased $10,200,000 due to the 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.
7
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Knape & Vogt Manufacturing Company's Annual Meeting of
Shareholders was held on October 17, 1997.
(b) Proxies were distributed by Knape & Vogt Manufacturing Company
pursuant to Regulation 14A under the Securities Exchange Act of 1934. There
was no opposition to management's nominees as listed in the proxy
statement, and all nominees were elected.
The vote on the nominees was:
For Withheld
John E. Fallon (1) (2) 23,064,719 1,104,917
Allan E. Perry (1) (3) 2,455,075 344,602
(1) Term expires in 2000.
(2) Elected by vote of holders of Common stock and Class B Common stock
voting as a class.
(3) Elected by vote of holders of Common stock voting as a class.
Members of the board of directors whose terms have not yet expired are
William R. Dutmers, term expiring in 1999, Richard S. Knape, term expiring
in 1999, Michael J. Kregor, term expiring in 1999, Mary Rita Cuddohy, term
expiring in 1999, Raymond E. Knape, term expiring in 1998, Herbert F.
Knape, term expiring in 1998, and Richard C. Simkins, term expiring in
1998.
(c) The following proposal was adopted by a vote of the majority of
the outstanding shares of Knape & Vogt Common Stock and Class B Common
Stock as follows:
A proposal to approve the Company's 1997 Stock Incentive Plan.
The vote on the proposal above was:
For 22,075,703
Against 1,366,185
Abstain 242,676
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 December 31, 1997.
8
<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: February 10, 1998 /s/ Allan E. Perry
Allan E. Perry
President and
Chief Executive Officer
Date: February 10, 1998 /s/ Richard C. Simkins
Richard C. Simkins
Executive Vice President, CFO,
Secretary and Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 224,384
<SECURITIES> 0
<RECEIVABLES> 25,510,956
<ALLOWANCES> 706,347
<INVENTORY> 21,067,666
<CURRENT-ASSETS> 52,912,645
<PP&E> 83,297,781
<DEPRECIATION> 35,271,438
<TOTAL-ASSETS> 124,946,170
<CURRENT-LIABILITIES> 19,341,986
<BONDS> 18,800,000
0
0
<COMMON> 11,838,852
<OTHER-SE> 63,971,981
<TOTAL-LIABILITY-AND-EQUITY> 124,946,170
<SALES> 87,336,259
<TOTAL-REVENUES> 87,336,259
<CGS> 65,588,877
<TOTAL-COSTS> 65,588,877
<OTHER-EXPENSES> 13,981,742
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 717,112
<INCOME-PRETAX> 7,019,236
<INCOME-TAX> 2,532,000
<INCOME-CONTINUING> 4,487,236
<DISCONTINUED> (93,639)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,393,597
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
</TABLE>
