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 October 2, 1999
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 _____
2,076,516 common shares were outstanding as of October 29, 1999.
2,194,822 Class B common shares were outstanding as of October 29, 1999.
The Exhibit Index appears on page 15.
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
--October 2, 1999 and June 30, 1999....................................2
Condensed Consolidated Statements of Income
--Three Months Ended October 2, 1999 and September 30, 1998............3
Condensed Consolidated Statements of Cash Flows
--Three Months Ended October 2, 1999 and September 30, 1998............4
Notes to Condensed Consolidated Financial Statements.................5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................8-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................13
SIGNATURES....................................................................14
EXHIBIT INDEX ................................................................15
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
(Unaudited) (Audited)
Oct. 2, 1999 June 30, 1999
------------- -------------
Assets
<S> <C> <C>
Current assets
Cash and equivalents $ 1,796,579 $ 1,621,002
Accounts receivable - net 19,997,855 18,930,039
Inventories 12,448,574 13,149,649
Prepaid expenses and other 1,993,393 2,008,809
------------- -------------
Total current assets 36,236,401 35,709,499
------------- -------------
Property, plant and equipment 68,827,063 66,656,411
Less accumulated depreciation 32,603,787 31,357,471
------------- -------------
Net property, plant and equipment 36,223,276 35,298,940
------------- -------------
Goodwill 5,182,572 575,433
Other assets 3,198,550 3,476,117
------------- -------------
$ 80,840,799 $ 75,059,989
============= =============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 11,013,838 $ 9,129,514
Other accrued liabilities 8,203,010 8,444,285
------------- -------------
Total current liabilities 19,216,848 17,573,799
------------- -------------
Long-term debt 21,050,000 17,700,000
Deferred income taxes and other long-term liabilities 8,062,863 8,027,405
------------- -------------
Total liabilities 48,329,711 43,301,204
------------- -------------
Stockholders' Equity
Common stock (Common - 2,080,916 and 2,073,148 shares issued,
Class B common - 2,194,822 and 2,238,227 shares issued,
Preferred - unissued) 8,551,476 8,622,750
Additional paid-in capital 3,861,799 4,409,415
Accumulated other comprehensive income:
Foreign currency translation adjustment (30,999) (29,983)
Minimum supplemental executive retirement plan
liability adjustment (448,555) (448,623)
Retained earnings 20,577,367 19,205,226
------------- -------------
Total stockholders' equity 32,511,088 31,758,785
------------- -------------
$ 80,840,799 $ 75,059,989
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
Three Months Ended
Oct. 2, 1999 Sept. 30, 1998
---------------- ----------------
<S> <C> <C>
Net sales $ 35,687,624 $ 43,678,644
Cost of sales 26,294,114 33,784,740
---------------- ----------------
Gross profit 9,393,510 9,893,904
Selling and administrative expenses 5,897,749 6,208,269
---------------- ----------------
Operating income 3,495,761 3,685,635
Other expenses (income) 317,949 (286,347)
---------------- ----------------
Income before income taxes 3,177,812 3,971,982
Income taxes 1,133,000 1,450,000
---------------- ----------------
Net income $ 2,044,812 $ 2,521,982
================ ================
Basic earnings per share:
Net income per share $ 0.48 $ 0.42
================ ================
Weighted average shares outstanding 4,291,166 5,963,149
Diluted earnings per share:
Net income per share $ 0.48 $ 0.42
================ ================
Weighted average shares outstanding 4,296,320 5,981,511
Cash dividend - common stock $ .165 $ .165
Cash dividend - Class B common stock $ .15 $ .15
</TABLE>
See accompanying notes.
3
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Three Months Ended
Oct. 2, 1999 Sept. 30, 1998
---------------- -----------------
<S> <C> <C>
Operating Activities:
Net income $ 2,044,812 $ 2,521,982
Non-cash items:
Depreciation and amortization 1,410,100 1,698,645
Deferred income taxes (65,000) 53,000
Other long-term liabilities 98,778 (25,591)
Stock grants earned - 59,062
Changes in operating assets and liabilities:
Accounts receivable (406,632) (328,597)
Inventories 951,778 554,633
Other current assets 44,114 710,045
Accounts payable and accrued expenses 1,139,374 (3,372,137)
-------------- --------------
Net cash provided by operating activities 5,217,324 1,871,042
-------------- --------------
Investing Activities:
Additions to property, plant and equipment (1,947,282) (373,399)
Sale of Hirsh subsidiary - 18,129,569
Net cash paid for acquisition (5,267,877) -
Payments for other non-current assets 120,001 7,493
-------------- --------------
Net cash provided by (used for) investing activities (7,095,158) 17,763,663
-------------- --------------
Financing Activities:
Cash dividends paid (672,671) (945,069)
Proceeds from issuance of common stock 180,999 410,083
Repurchase and retirement of common stock (806,992) -
Borrowings (payments) on long-term debt 3,350,000 (9,700,000)
-------------- --------------
Net cash provided by (used for) financing activities 2,051,336 (10,234,986)
-------------- --------------
Effect of Exchange Rate Changes on Cash 2,075 (36,116)
-------------- --------------
Net Increase in Cash and Equivalents 175,577 9,363,603
Cash and equivalents, beginning of year 1,621,002 3,057,158
-------------- --------------
Cash and equivalents, end of period $ 1,796,579 $ 12,420,761
============== ==============
Cash Paid During the Period - interest $ 314,987 $ 172,383
- income taxes $ 10,000 $ 217,773
</TABLE>
See accompanying notes.
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
Securities and Exchange Commission. The information furnished reflects all
adjustments, which are, in the opinion of management, necessary for a fair
statement of the results of operations and consist of only normal recurring
adjustments. 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, 1999, 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 1999
annual report.
Effective July 1, 1999, the Company adopted a 52- or 53-week fiscal year,
changing the year-end date from June 30 to the Saturday nearest the end of June.
Certain prior year information has been reclassified to conform to the current
year presentation.
Note 2 - Common Stock and Per Share Information
Common stock is $2 par - shares authorized 6,000,000 of common stock and
4,000,000 of Class B common stock.
The following table reconciles the numerators and denominators used in the
calculations of basic and diluted EPS for each of the periods presented:
<TABLE>
Oct. 2, 1999 Sept. 30, 1998
------------ --------------
<S> <C> <C>
Numerators:
Numerator for both basic and
diluted EPS, net income $ 2,044,812 $ 2,521,982
============= =============
Denominators:
Denominator for basic EPS,
weighted-average common shares
outstanding 4,291,166 5,963,149
Potentially dilutive shares
resulting from stock option plans 5,154 18,362
------------- -------------
Denominator for diluted EPS 4,296,320 5,981,511
============= =============
</TABLE>
The following exercisable stock options were not included in the computation of
diluted EPS because the option prices were greater than average quarterly market
prices.
<TABLE>
Oct. 2, 1999 Sept. 30, 1998
----------------- ------------------
<S> <C> <C>
Exercise Price
$18.41 10,450 -
$20.00 10,000 18,000
</TABLE>
Note 3 - Inventories
Inventories are valued at the lower of FIFO (first-in, first-out) cost or
market. Inventories are summarized as follows:
<TABLE>
Oct. 2, 1999 June 30, 1999
------------ -------------
<S> <C> <C>
Finished products $ 7,692,056 $ 8,523,866
Work in process 1,623,609 1,634,904
Raw materials 3,132,909 2,990,879
------------- -------------
Total $ 12,448,574 $ 13,149,649
============= =============
</TABLE>
5
<PAGE>
Note 4 - New Accounting Standards Not Yet Adopted
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounts Standard No. 133, Accounting for Derivative Instruments and
Hedging Activities. The statement requires companies to recognize all derivative
contracts on the balance sheet at fair value and establishes accounting rules or
changes in fair value that result from hedging activities. The statement is
effective for fiscal years beginning after June 15, 2000. Management is
currently evaluating the impact that the statement may have on its financial
statements.
Note 5 - Comprehensive Income
Comprehensive income is comprised of net income and all changes to stockholders'
equity, except those due to investments by owners and distributions to owners.
Comprehensive income and its components consist of the following:
<TABLE>
Three months ended Oct. 2, 1999 Sept. 30, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 2,044,812 $ 2,521,982
Other comprehensive income:
Foreign currency translation adjustment (1,016) (92,636)
Minimum SERP liability adjustment 68 -
------------- --------------
Comprehensive income $ 2,043,864 $ 2,429,346
============= ==============
</TABLE>
Note 6 - Acquisition
On October 1, 1999, the Company acquired substantially all of the assets of Idea
Industries, Inc. ("Idea"). Idea designs, manufactures and markets ergonomic
office products, including adjustable keyboard mechanisms, keyboard and computer
mouse platforms, wrist rests and CPU holders. The acquisition was recorded using
the purchase method of accounting. Accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed, based on the estimated fair
values at the date of the acquisition. The cost of the acquisition in excess of
net identifiable assets acquired has been recorded as goodwill and is being
amortized on a straight-line basis over 15 years. The financial statements
reflect the preliminary allocation of the purchase price. Goodwill associated
with the acquisition may be adjusted pending subsequent finalization of the
closing balance sheet.
The terms of the Idea acquisition agreement provide for additional consideration
to be paid if Idea's sales exceed certain targeted levels. The consideration, if
earned, will be paid in cash and recorded as additional purchase price. The
maximum amount of contingent consideration is $550,000 payable through 2001.
The results of the acquisition were not material to the Company's consolidated
operating results, therefore pro forma financial statements have not been
prepared.
Note 7 - Sale of The Hirsh Company
On September 1, 1998, the Company sold The Hirsh Company "(Hirsh)", a wholly
owned subsidiary. This resulted in a pre-tax loss of $11,800,000, which was
included in the June 30, 1998, financial results. The loss included the
write-off of the unamortized balance of goodwill recorded in connection with the
purchase of Hirsh. In connection with the sale, the Company recognized an
additional tax cost of $1,000,000, resulting in a total loss related to the sale
of Hirsh of $12,800,000.
Note 8 - Stock Repurchase
On September 1, 1998, the Company announced its intention to purchase up to
1,200,000 shares of the Company's common stock pursuant to a Dutch Auction
self-tender offer at a price range of $19 to $22 per share. The Board of
Directors also approved the purchase in the open market or in privately
negotiated transactions, following the completion of the Dutch Auction, of
shares of common stock in an amount which when added to the number of shares of
common stock purchased in the Dutch Auction
6
<PAGE>
would equal 1,350,000. The Dutch Auction was concluded on October 7, 1998, with
the purchase of 1,230,784 shares at a price of $21 per share.
At each of the January 22, 1999 and the August 20, 1999 Board of Directors
meetings, the Board approved an additional 400,000 shares for the stock
repurchase program. Utilizing these Board authorizations, the Company has
purchased 47,437 shares during the first quarter of fiscal 2000 for
approximately $.8 million with the price per share ranging from approximately
$15.75 to $17.125.
7
<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. When used in this document, the words
"believes," "expects," "anticipates," "goal," "think," "forecast," "project,"
and similar expressions identify forward-looking statements. Forward-looking
statements include, but are not limited to, statements concerning future revenue
growth, and the expected ability of the Company and its key customers, dealers
and suppliers to successfully manage Year 2000 issues. Such statements are
subject to certain risks and uncertainties, which would cause actual results to
differ materially from those expressed or implied by such forward-looking
statements. Readers are cautioned not to place undue reliance on those
forward-looking statements that 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 three-month periods ended:
<TABLE>
Three Months Ended
------------------
Oct. 2, Sept. 30,
1999 % 1998 %
-------------------- ---------------------
<S> <C> <C> <C> <C>
Shelving systems $12.3 34.5% $19.4 44.4%
Drawer slides 16.9 47.3% 17.6 40.3%
Hardware 6.5 18.2% 6.7 15.3%
------------------- ---------------------
Total $35.7 100.0% $43.7 100.0%
=================== =====================
</TABLE>
Net sales for the first quarter of fiscal 2000 were $35.7 million compared to
$43.7 million for the same period in the prior year. The primary reason for the
decline in net sales in the quarter ended October 2, 1999, was the sale of The
Hirsh Company in September 1998. This was also the reason for the decline in the
sales of shelving systems. Excluding the contribution of the Hirsh sales, net
sales were $36.2 million for the first quarter of fiscal 1999.
Gross Profit
Gross profit, as a percentage of net sales, was 26.3% for the first quarter of
fiscal 2000 compared to 22.7% for the same period in the prior year. The
increase in gross profit during the first quarter of fiscal 2000 reflects the
Company's restructuring efforts, including the sale of The Hirsh Company, and
its emphasis on cost reduction combined with continuous improvement in the
manufacturing process.
Operating Expenses
Selling and administrative expenses, as a percentage of net sales, for the first
quarter ended October 2, 1999, were 16.5% compared to 14.2% in the same period
in the prior year. Excluding the Michigan Single Business Tax refunds of
$852,460 pre-tax, prior year selling and administrative expenses would have been
16.2% of net sales. The remaining increase in fiscal 2000 expenses reflected
higher levels of spending associated with the launch of certain new products and
additional development costs being incurred to bring other new products to
market.
8
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Other Expenses/(Income)
Interest expense was $326,348 for the first quarter of fiscal 2000, compared to
$117,165 for the same period in the prior year. The increase in interest expense
was attributable to the higher level of borrowings during the first quarter of
fiscal 2000.
Other miscellaneous income was $8,399 for the first quarter of fiscal 2000,
compared to $403,512 in the prior year. The income recognized in fiscal 1999
reflects interest income received on Michigan Single Business tax refunds and
two patent infringement settlements.
Income Taxes
The effective tax rate for the quarter ended October 2, 1999, was 35.7% compared
with the rate of 36.5% for the same period in the prior year.
Net Income
For the quarter ended October 2, 1999, net income was $2,044,812 or $.48 per
diluted share compared to $2,521,982 or $.42 per diluted share for the first
quarter of last year. As described previously, fiscal 1999 net income was
favorably impacted by $813,582, or $.13 per diluted share for the Michigan
Single Business Tax refunds and the patent and royalty settlements. Fiscal 2000
earnings per share represented a first-quarter record.
Liquidity and Capital Resources
Net cash from operating activities for the first three months provided
$5,217,324 as compared to $1,871,042 for the first three months of fiscal 1999.
Cash flows were positively impacted by the increase in accounts payable and
accrued expenses due to a higher level of raw material purchases and an extra
day added to the quarter due to the conversion to a 52-week fiscal year.
Capital expenditures totaled $1,947,282 for the three months ended October 2,
1999, compared to $373,399 for the three months ended September 30, 1998. The
increased capital spending reflects investments in manufacturing technology and
tooling for new products. There were no significant capital expenditure
commitments at October 2, 1999. Capital expenditures are anticipated to remain
at approximately the same level as in the first quarter.
On October 1, 1999, the Company acquired substantially of all of the assets of
Idea Industries, Inc. ("Idea") for a purchase price of $5,267,877. Idea designs,
manufactures and markets ergonomic office products, including adjustable
keyboard mechanisms, keyboard and computer mouse platforms, wrist rests and CPU
holders. The acquisition was recorded using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed, based on the estimated fair values at the date of the
acquisition. The cost of the acquisition in excess of net identifiable assets
acquired has been recorded as goodwill and is being amortized on a straight-line
basis over 15 years. The financial statements reflect the preliminary allocation
of the purchase price. Goodwill associated with the acquisition may be adjusted
pending subsequent finalization of the closing balance sheet.
The terms of the Idea acquisition agreement provide for additional consideration
to be paid if Idea's sales exceed certain targeted levels. The consideration, if
earned, will be paid in cash and recorded as additional purchase price. The
maximum amount of contingent consideration is $550,000 payable through 2001.
In fiscal 1999, the Company recorded $18,129,569 of proceeds from the sale of
the Hirsh subsidiary and the related loss in fiscal 1998.
9
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
On September 1, 1998, the Company announced its intention to purchase up to
1,200,000 shares of the Company's common stock pursuant to a Dutch Auction
self-tender offer at a price range of $19 to $22 per share. The Board of
Directors also approved the purchase in the open market or in privately
negotiated transactions, following the completion of the Dutch Auction, of
shares of common stock in an amount which when added to the number of shares of
common stock purchased in the Dutch Auction would equal 1,350,000. The Dutch
Auction was concluded on October 7, 1998, with the purchase of 1,230,784 shares
at a price of $21 per share.
At each of the January 22, 1999 and the August 20, 1999 Board of Directors
meetings, the Board approved an additional 400,000 shares for the stock
repurchase program. Utilizing these Board authorizations, the Company has
purchased 47,437 shares during the first quarter of fiscal 2000 for
approximately $.8 million with the price per share ranging from approximately
$15.75 to $17.125. Since the beginning of the stock repurchase program in fiscal
1999, the Company has purchased 1,720,180 shares for approximately $34.2
million.
The long-term debt balance increased to $21,050,000 at October 2, 1999, compared
to $17,700,000 at June 30, 1999. There was no outstanding debt at September 30,
1998. The increase from June 30, 1999, reflects funds utilized to acquire Idea.
The increase from the September 30, 1998, balance reflects funds utilized for
the stock repurchase program.
Anticipated cash flows from operations and available balances on the revolving
credit line are expected to be adequate to fund working capital, capital
expenditures and dividend payments.
Year 2000
The Year 2000 issue is the result of computer systems that use two digits rather
than four to define the applicable year, which may prevent such systems from
accurately processing dates ending in the year 2000 and after. This could result
in system failures or in miscalculations causing disruption of operations,
including, but not limited to, an inability to process transactions, to send and
receive electronic data, or to engage in routine business activities and
operations.
In 1995, the Company established a Year 2000 task force for Information
Technology ("IT") to develop and implement a Year 2000 readiness program. The
Company has developed a Year 2000 readiness plan, and has completed the audit,
assessment and scope phases of its plan. The Company has completed an inventory
of the software applications that it uses. The Company has also installed its
Corporate Information System software at its subsidiaries to improve efficiency
and facilitate Year 2000 compliance. The Company estimates that the
implementation phase is 95% complete for the Company's IT systems. The Company's
readiness program includes installing software releases designed to cause the
software to be Year 2000 compliant. The Company has completed the remediation
and is in the process of testing its IT systems for Year 2000 compliance, and
expects testing activities to continue through 1999. The Company reached its
goal to be substantially Year 2000 compliant by December 1998, to allow for
testing all systems during 1999.
In addition, in 1997 the Company began evaluating non-IT systems such as
imbedded chips in production equipment and personal computer hardware and
software. The Company's goal was to substantially complete the remediation of
non-IT systems by June 30, 1999. The Company presently is finishing the process
of testing and implementation, and is upgrading its non-IT systems to become
Year 2000 compliant, as new releases are available form software vendors.
In addition to reviewing its internal systems, the Company has had formal
communications with its significant customers, vendors and freight companies
concerning Year 2000 compliance, including electronic commerce. There can be no
assurance that the systems of other companies that interact with the Company
will be sufficiently Year 2000 compliant so as to avoid an adverse impact on the
Company's operations, financial condition and results of operations. The Company
does not believe that its products and services involve any Year 2000 risks.
10
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company does not presently anticipate that the costs to address the Year
2000 issue will have a materially adverse effect on the Company's financial
condition, results of operations or liquidity. To date, the Company has spent
approximately $885,000 on the Year 2000 issue and expects to spend an additional
$38,000 to complete this work.
The Company presently anticipates that it will complete its Year 2000 assessment
and remediation by December 31, 1999. However, there can be no assurance that
the Company will be successful in implementing its Year 2000 remediation plan
according to the anticipated schedule.
Although the Company expects its internal systems to be Year 2000 compliant as
described above, the Company is developing contingency plans for major
processes, in the event that it should have an interruption during the first
week. In addition, the Company may be adversely affected by the inability of
other companies, whose systems interact with the Company, to become Year 2000
compliant and by potential interruptions of utility, communication or
transportation systems as a result of Year 2000 issues. The Company is preparing
a scenario where business could be interrupted for 3-5 days similar to an outage
for a major storm. Contingency plans are also considering the possible effects
of a change in business activity, which may be caused by inventory pickup or
slowdown in the last quarter.
11
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in the foreign
currency exchange rate as measured against the U.S. dollar and changes in U.S.
interest rates. The Company holds a derivative instrument in the form of an
interest rate swap, which is viewed as a risk management tool and is not used
for trading or speculative purposes. The intent of the interest rate swap is to
effectively fix the interest rate on part of the borrowings under the Company's
variable rate revolving credit agreement.
Quantitative disclosures relating to financial instruments and debt are included
in the tables below.
The following table provides information on the Company's fixed maturity
investments as of October 2, 1999, that are sensitive to changes in interest
rates. The table also presents the corresponding interest rate swap on this
debt. Since the interest rate swap effectively fixes the interest rate on the
notional amount of debt, changes in interest rates have no current effect on the
interest expense recorded by the Company on the portion of the debt covered by
the interest rate swap.
<TABLE>
Liability Amount Maturity Date
- --------- ------ -------------
<S> <C> <C>
Variable rate revolving credit
agreement $45 million November 1, 2004
First $20,000,000 at an interest rate
of 5.4925% plus weighted average
credit spread of .5%
Amounts in excess of $20,000,000 have
an interest rate of approximately 5.75%
Interest Rate Swap
- ------------------
Notional amount $20 million June 1, 2006
Pay fixed/Receive variable - 5.5025%
Pay fixed interest rate - 6.25%
</TABLE>
The Company has a sales office located in Canada. Sales are typically
denominated in Canadian dollars, thereby creating exposures to changes in
exchange rates. The changes in the Canadian/U.S. exchange rate may positively or
negatively affect the Company's sales, gross margins and retained earnings. The
Company attempts to minimize currency exposure through working capital
management. The Company does not hedge its exposure to translation gains and
losses relating to foreign currency net asset exposures.
12
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
October 2, 1999.
13
<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: November 5, 1999 /s/ William R. Dutmers
William R. Dutmers
Chairman, President and
Chief Executive Officer
Date: November 5, 1999 /s/ Jack D. Poindexter
Jack D. Poindexter
Chief Financial Officer,
Treasurer and Secretary
14
<PAGE>
EXHIBIT INDEX
(27) Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-01-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> OCT-02-1999
<CASH> 1,796,579
<SECURITIES> 0
<RECEIVABLES> 20,492,852
<ALLOWANCES> 494,997
<INVENTORY> 12,448,574
<CURRENT-ASSETS> 36,236,401
<PP&E> 68,827,063
<DEPRECIATION> 32,603,787
<TOTAL-ASSETS> 80,840,799
<CURRENT-LIABILITIES> 19,216,848
<BONDS> 0
0
0
<COMMON> 8,551,476
<OTHER-SE> 23,959,612
<TOTAL-LIABILITY-AND-EQUITY> 80,840,799
<SALES> 35,687,624
<TOTAL-REVENUES> 35,687,624
<CGS> 26,294,114
<TOTAL-COSTS> 26,294,114
<OTHER-EXPENSES> 5,783,353
<LOSS-PROVISION> 105,997
<INTEREST-EXPENSE> 326,348
<INCOME-PRETAX> 3,177,812
<INCOME-TAX> 1,133,000
<INCOME-CONTINUING> 2,044,812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,044,812
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.48
</TABLE>
