<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE ACT OF 1934
FOR THE TRANSITION PERIOD ____ TO ____.
COMMISSION FILE NUMBER 1-9843
MORGAN PRODUCTS LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1095650
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
75 Tri-State International, Suite 222, Lincolnshire, Illinois 60069
(Address of principal executive offices) (Zip Code)
(708) 317-2400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $ .10 par value New York Stock Exchange
Share Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
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__
Aggregate market value of voting stock of the Registrant held
by non-affiliates as of February 1, 1994: $51,788,998.
Number of shares of Common Stock outstanding as of February 1,
1994: 8,496,826 shares; 2,386 shares are held in treasury.
<TABLE>
<CAPTION>
<S> <C>
Documents incorporated by reference Part
----------------------------------- ----
Proxy Statement for the Annual Meeting of Stockholders to be held on May 18, 1994 III
</TABLE>
<PAGE> 2
PART I
ITEM 2. PROPERTIES
The Company owned the following manufacturing facilities as
of February 1, 1994:
<TABLE>
<CAPTION>
Approximate
Square Feet
Location Occupied
-------- ------------
<S> <C>
Oshkosh, Wisconsin (28 buildings; 27.6 acres) . . . . 512,000
Lexington, North Carolina (1 building; 20 acres) . . 216,000
Springfield, Oregon (9 buildings; 11.4 acres) . . . . 324,430
</TABLE>
The Oshkosh, Wisconsin facility is subject to a mortgage in connection with
certain industrial revenue bonds. See Note 6 of Notes to the Consolidated
Financial Statements which appears on page [22] of this Form 10-K Annual Report.
The Company leased the following facilities as of February 1, 1994:
<TABLE>
<CAPTION>
Approximate
Square Foot Lease
Location Occupied Expiring
- - -------- -------- --------
<S> <C> <C>
Birch Run, Michigan . . . . . . . . . . . . . . . . . . . . . . . 113,000 2005
Chesapeake, Virginia . . . . . . . . . . . . . . . . . . . . . . 94,500 1994(1)
Columbia, (Cayce), South Carolina . . . . . . . . . . . . . . . . 89,480 1996
Denver, Colorado . . . . . . . . . . . . . . . . . . . . . . . . 39,970 1997
Decatur, Illinois . . . . . . . . . . . . . . . . . . . . . . . . 93,000 2007(1)
Gainesville, Virginia . . . . . . . . . . . . . . . . . . . . . . 79,500 2006(1)
Harrisburg (Mechanicsburg), Pennsylvania (2 facilities):
Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,570 1998(1)
Warehouse . . . . . . . . . . . . . . . . . . . . . . . . . . 134,910 2002(1)
Kansas City (Shawnee), Kansas . . . . . . . . . . . . . . . . . . 79,500 2000(1)
Lincolnshire, Illinois Corporate Office . . . . . . . . . . . . . 6,200 1999
Oshkosh, Wisconsin:
Manufacturing Division Office . . . . . . . . . . . . . . . . 19,760 1995(2)
Scranton (Dunmore), Pennsylvania . . . . . . . . . . . . . . . . 80,917 1998
Weed, California . . . . . . . . . . . . . . . . . . . . . . . . 460,000(3) 1996(1)
West Chicago, Illinois . . . . . . . . . . . . . . . . . . . . . 86,170 1996(2)
Wilmington (Newark), Delaware . . . . . . . . . . . . . . . . . . 97,421 2000(2)
- - --------------------
</TABLE>
(1) Optional renewal term in excess of five years.
(2) Optional renewal term of five years or less.
(3) In 1990, the Company ceased production of fir doors at this facility.
The Company continues to use approximately 100,000 square feet for the
production of veneer, patio door assembly, and warehousing.
Distribution center leases generally provide for fixed monthly
rental payments, plus the payment, in most cases, of real estate
taxes, utilities, liability insurance and maintenance. In a few
locations, the leases provide escalation clauses requiring the
payment of additional rent according to certain indices or in
specified amounts. The termination dates of these leases vary
widely. See Note 7 of Notes to Consolidated Financial Statements
which appears on page [23] of this Form 10-K Annual Report.
The Company believes that its distribution facilities and
manufacturing capacity are sufficient to serve its existing
markets.
2
<PAGE> 3
PART II
ITEM 6. SELECTED FINANCIAL DATA MORGAN PRODUCTS LTD.
FIVE-YEAR SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OPERATING RESULTS
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1992 ** 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . $ 392,702 $ 387,393 $ 353,144 $ 413,527 $ 429,962
--------- --------- --------- --------- ---------
Gross Profit . . . . . . . . . . . . . . 52,797 51,833 44,924 53,860 50,999
Operating Expenses . . . . . . . . . . . 49,347 58,690 53,292 48,477 49,922
-------- --------- --------- --------- ---------
Operating Income (Loss) . . . . . . . . . 3,450 (6,857) (8,368) 5,383 1,077
-------- --------- --------- --------- ---------
Other Income (Expense) . . . . . . . . . (2,248) (4,325) (4,141) (5,162) (6,697)
-------- --------- --------- --------- ---------
Income (Loss) Before Income
Taxes . . . . . . . . . . . . . . . . . 1,202 (11,182) (12,509) 221 (5,620)
-------- --------- --------- --------- ---------
Net Income (Loss) . . . . . . . . . . . . $ 952 $ (10,178) $ (8,131) $ 135 $ (3,660)
======== ========= ========= ========= =========
Earnings (Loss) Per Share . . . . . . . . $ .11 $ (1.20) $ (.96) $ .02 $ (.43)
======== ========= ========= ========= =========
Weighted Average Common and
Common Equivalent Shares
Outstanding . . . . . . . . . . . . . . 8,495 8,490 8,466 8,438 8,420
<CAPTION>
BALANCE SHEET DATA
AT DECEMBER 31, *
-----------------------------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Working Capital . . . . . . . . . . . . . $ 77,225 $ 69,534 $ 71,274 $ 72,499 $ 70,566
Total Assets . . . . . . . . . . . . . . 133,280 130,355 136,003 156,105 152,647
Long-Term Debt, Net of Cash . . . . . . . 43,215 40,257 38,128 32,750 26,208
Stockholders' Equity . . . . . . . . . . 64,481 63,499 73,640 81,460 81,123
Long-Term Debt, Net of Cash to
Total Capitalization . . . . . . . . . . 40.1% 38.8% 34.1% 28.7% 24.4%
Return on Stockholders'
Equity . . . . . . . . . . . . . . . . 1.5% (14.8)% (10.5)% 0.2% (4.4)%
</TABLE>
*Amounts have been adjusted to reflect a write-off of $1.6 million of
pre-operating costs previously deferred. (See Note 15)
**See Note 15 for discussion of the reclassification of certain retiree medical
benefits costs from the "provision for restructuring" to "costs of goods
sold."
3
<PAGE> 4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended December 31, 1993 vs.
Year Ended December 31, 1992
The Company's net sales for 1993 were $392.7 million, representing an
increase of 1.4% from net sales for the same period in 1992 of $387.4 million.
This increase was the result of more than an $11.1 million increase in net sales
of products distributed by the Company, offset in part, by a decline in net
sales of products manufactured by the Company. Management believes the net
sales decline of manufactured products is a result of continued weakness in the
Northeast and West, key markets for manufactured products, coupled with a
continued escalation of product selling prices as a result of increasing raw
material costs. (See Significant Business Trends).
For 1993 the Company reported net income of $1.0 million, or $.11 per
share compared to a net loss of $10.2 million, or $1.20 per share in the same
period in 1992, on outstanding average shares of 8,494,602 and 8,490,383,
respectively. Included in the 1992 results was a net restructuring charge of
$7.9 million for the writedown of certain idle facilities and equipment to
estimated fair market value, certain expenses associated with the
rationalization of capacity at the Company's three main door manufacturing
facilities and provisions related to the possible sale of part or all of its
Morgan Technologies business unit (see Note 2 of Notes to the Consolidated
Financial Statements).
Excluding the $7.9 million restructuring charge from 1992 results, the
Company reported a net loss of $2.3 million, or $0.27 per share for 1992.
Comparing these results to 1993 results, net income improved $3.3 million or
$0.38 per share. This improvement was the result of a nominal increase in gross
profit, reductions in operating expenses and an improvement in other income
items, offset, in part, by an increase in provision for income taxes. Gross
profit increased slightly from 1992 to 1993 as a result of the aforementioned
net sales increase. There was no change in the gross profit percentage.
Operating expenses for 1993 were $49.3 million, or 12.6% of net sales,
compared to 1992 operating expenses of $58.7 million, or 15.2% of net sales.
Excluding the provision for restructuring, 1992 operating expenses were $50.8
million, or 13.1% of net sales. The decrease in operating expenses (excluding
the restructuring charge) was primarily the result of the elimination of
operating expenses related to the Morgan Technologies business unit and a
decrease in the amount of bad debt expenses.
Other expense in 1993 was $2.2 million compared to $4.3 million in
1992. This improvement resulted primarily from the current year disposition of
idle assets in excess of their carrying value by $1.0 million. In addition,
1992 expenses included the holding costs of these idle assets. The carrying
values recorded due to the restructuring in the fourth quarter of 1992 were
based on independent party evaluations, and the amounts realized in 1993 in
excess of the carrying values occurred from negotiations with the buyers that
did not commence until April, 1993.
The provision for income taxes in 1993 related to the recording of state
income taxes not based entirely on income. The benefit recorded in 1992
reflects utilization of losses to the extent benefit is realized. The 1992
results generated a net operating loss carryforward which may be used to off set
future year taxable income when generated (see Note 11 of Notes to the
Consolidated Financial Statements).
4
<PAGE> 5
RESULTS OF OPERATIONS
Year Ended December 31, 1992 vs.
Year Ended December 31, 1991
The Company's net sales for 1992 were $387.4 million, representing an
increase of 9.7% from net sales for the same period in 1991 of $353.1 million.
Management believes this increase was primarily the result of a reported 14.4%
increase in actual national housing starts in 1992 compared to 1991 and a 9.2%
increase in the level of repair and remodeling expenditures from 1991 to 1992.
This was offset, in part, by a weakening of the Southern California market and
continuing sluggishness in the New England market, both of which are served by
the Company's Morgan Manufacturing business unit. In addition, the Company
ceased operations at its Heritage Hardwoods ("Heritage") subsidiary in 1991.
Excluding sales for Heritage included in 1991, the Company's remaining
businesses, its core business, experienced a net sales increase of 10.6% from
1991 to 1992 on sales of $350.4 million and $387.4 million, respectively.
For 1992 the Company reported a net loss of $10.2 million, or $1.20 per
share compared to a reported net loss of $8.1 million, or $.96 per share in the
same period in 1991, on outstanding average shares of 8,490,383 and 8,466,241,
respectively. Included in the 1992 results was the net restructuring charge of
$7.9 million, previously described (see Note 2 of Notes to the Consolidated
Financial Statements). The 1991 results include a net loss at Heritage of $5.5
million which includes a net charge of $3.6 million to provide for the orderly
liquidation of Heritage (see Note 2 of Notes to the Consolidated Financial
Statements).
Excluding the $7.9 million restructuring charge from 1992 results and
the $5.5 million charge for Heritage from 1991 results, the Company reported a
net loss of $2.3 million, or $.27 per share for 1992 compared to a net loss of
$2.7 million or $.32 per share for 1991. The reduction of the net loss was
primarily the result of increased gross profit, offset, in part, by increased
operating expenses and a reduction in the tax benefit available for the loss.
Gross profit for the Company's core business increased $5.3 million from 1991 to
1992 primarily as a result of the aforementioned 10.6% increase in net sales.
Contributing to the gross profit increase was an improvement in the gross profit
percentage from 13.3% in 1991 to 13.4% in 1992.
Operating expenses for 1992 were $58.7 million, or 15.1% of net sales,
compared to 1991 operating expenses of $53.3 million, or 15.1% of net sales.
Excluding the provisions for restructuring, operating expenses were $50.8
million and $47.7 million for 1992 and 1991, respectively. The increase in
operating expenses is primarily the result of increased employment related costs
due to salary increases and fringe benefit cost, including health care costs.
In addition, the 1992 operating expenses include $1.4 million of operating
expenses at the new Denver, Colorado Distribution Center. The 1991 results do
not include any such expenses.
The Company's effective income tax rate was a benefit of 9.0% in 1992
compared to a benefit of 35.0% in 1991. The difference in rates is primarily
the result of book net operating loss carry forwards generated in 1992 due to
the restructuring charge (see Note 11 of Notes to the Consolidated Financial
Statements).
SIGNIFICANT BUSINESS TRENDS
Management believes that housing starts have a significant influence on
the Company's level of business activity. According to an industry source,
actual national housing starts were 1.19 million for 1993, up approximately 6%
from 1.12 million for 1992. This rate remains below historical levels.
Management believes that this level of housing starts has had an adverse effect
on the Company's ability to generate sales volume, which negatively impacts its
financial performance. Management believes that long-term housing requirements
are significantly greater than the current start levels. However, management is
unable to predict if and when housing starts will continue to improve.
Management also believes that the Company's ability to continue to
penetrate the residential repair and remodeling markets through sales to home
center improvement chains may have a significant beneficial influence on the
Company's level of business activity. Sales to these customers increased 15.6%
in 1993 compared to 1992. Sales to these customers as a percentage of total net
sales increased from 21.9% in 1992 to 24.9% in 1993. Management believes this
market will continue to grow in importance to the Company.
The cost of the Company's primary manufacturing raw materials, pine and
fir lumber, increased substantially in both 1992 and 1993 from historical
levels. This coupled with continuing competitive pricing pressure has had an
adverse impact on the Company's ability to recover cost increases or to improve
gross profits. These costs have continued to increase in early 1994. As a
result, the Company continues to expand
5
<PAGE> 6
the utilization, where appropriate, of veneered and laminated solid wood
components in the manufacture of its products. In addition, the Company has
developed foreign sources for some of its raw material requirements. Management
believes that these actions, together with aggressive price increases where
competitive factors allow, will counteract to some extent the impact of
increases in the cost of materials.
In the fourth quarter of 1993 the Company announced that it had retained
the investment banking firm of Dillon, Read & Company, Inc. to help evaluate
strategic alternatives for the Company, including the possible sale of its
Morgan Manufacturing business unit. On December 17, 1993, the Company further
announced that discussions were being held with a select number of interested
parties for the sale of the Morgan Manufacturing business unit. However, no
decision has been made on whether to proceed to a definitive agreement with any
party.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements are related to its sales
level which, because of its dependency upon housing starts and the repair and
remodeling market, is seasonal and to a degree weather dependent. This
seasonality affects the need for working capital inasmuch as it is necessary to
carry larger inventories and receivables during certain months of the year.
Working capital at December 31, 1993, was $77.2 million with a current
ratio of 4.5 to 1.0, while at December 31, 1992, working capital was $69.5
million with a current ratio of 4.1 to 1.0. The increase in working capital and
the change in the current ratio were primarily caused by a $6.2 million increase
in accounts receivable due to the higher level of sales in December of 1993
compared to December of 1992. In addition, inventories increased $2.4 million
in anticipation of continued improvement in business activity and higher
material costs.
In the fourth quarter of 1993, the Company and the banks party to the
Company's credit agreement agreed to extend the agreement's maturity from
January 3, 1995 to June 30, 1995 and to modify certain financial covenants.
The Company was in compliance with all covenants as of December 31, 1993.
Management believes the Company will be able to remain in compliance with these
new covenants.
Long-term debt, net of cash, increased from $40.3 million at December
31, 1992 to $43.2 million at December 31, 1993. This increase was primarily due
to increased borrowings needed to support the previously mentioned increase in
inventory and account receivable levels. The Company's long-term debt, net of
cash, to total capitalization increased from 38.8% as of December 31, 1992 to
40.1% as of December 31, 1993. This increase is primarily a result of the
aforementioned increases in working capital.
Cash used by operating activities amounted to $3.0 million during 1993.
By comparison, cash generated by operating activities in 1992 was $2.6 million.
Included in the $2.6 million were certain non-cash items related to the
provision for restructuring. Investing activities during 1993 generated $.9
million, compared to $4.6 million utilized in 1992. Financing activities
generated $1.4 million in cash in 1993 compared to $4.4 million generated in
1992.
6
<PAGE> 7
SEASONAL NATURE OF BUSINESS
The building products industry is seasonal, particularly in the
Northeast and Midwest regions of the United States where inclement weather
during the winter months usually reduces the level of building activity in both
the improvement, maintenance and repair market and the new construction market.
The Company's lowest sales levels generally occur during the first and fourth
quarters. However, the Company's Southeast and West Coast door manufacturing
facilities, which serve the more moderate climates, offset, in part, the effect
of seasonal influences on the Company's operations.
The table below sets forth the Company's quarterly net sales during the
years ended December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
---------------------- -------------------
Net % of Net % of
Sales Total Sales Total
---------- ------- ---------- -------
(in millions) (in millions)
<S> <C> <C> <C> <C>
First Quarter $ 95.0 24.2% $ 90.5 23.3%
Second Quarter 96.2 24.5 104.8 27.1
Third Quarter 106.5 27.1 106.1 27.4
Fourth Quarter 95.0 24.2 86.0 22.2
------ ----- ------ -----
Total Year $392.7 100.0% $387.4 100.0%
====== ===== ====== =====
</TABLE>
See Note 14 of Notes to the Consolidated Financial Statements for
further quarterly information.
REPORT OF MANAGEMENT
The management of Morgan Products Ltd. is responsible for the
Consolidated Financial Statements and other information included in this Annual
Report and for ascertaining that the data fairly reflect the Company's financial
condition and results of operations. The Company prepared the Consolidated
Financial Statements in accordance with generally accepted accounting principles
appropriate in the circumstances and such statements necessarily include amounts
that are based on best estimates and judgments with appropriate considerations
given to materiality.
The Company's system of internal control is designed to provide
reasonable assurance that Company assets are safeguarded from loss or
unauthorized use or disposition and that transactions are executed in accordance
with management's authorization and are properly recorded to permit the
preparation of financial statements in accordance with generally accepted
accounting principles. The internal control system is augmented by careful
selection and training of qualified employees, proper division of
responsibilities and the development and dissemination of written policies and
procedures.
The Audit Committee of the Board of Directors is comprised of Directors
who are not employees of the Company. The Audit Committee is responsible for
reviewing and evaluating the Company's financial reporting and accounting
practices and related matters. The Audit Committee meets periodically with
management and the independent accountants to discuss any and all matters within
the Committee's responsibilities. The independent accountants have free access
to the Committee, without the presence of management.
The Company's Consolidated Financial Statements have been audited by
Price Waterhouse, independent accountants, whose report appears on page [23] in
this Form 10-K Annual Report.
<TABLE>
<S> <C>
Arthur L. Knight, Jr. Douglas H. MacMillan
President and Chief Executive Officer Vice President and Chief Financial Officer
</TABLE>
7
<PAGE> 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Form 10-K
Pages
-----
<S> <C>
Consolidated Income Statements for the three years
ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . 9
Consolidated Balance Sheets at December 31, 1993,
and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Consolidated Statements of Cash Flow for the three years
ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . 11-12
Consolidated Statements of Stockholders' Equity for the
three years December 31, 1993 . . . . . . . . . . . . . . . . . . . 13
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 14-22
Report of Independent Accountants . . . . . . . . . . . . . . . . . . 23
</TABLE>
8
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CONSOLIDATED INCOME STATEMENTS
MORGAN PRODUCTS LTD. AND SUBSIDIARIES
(in thousands, except earnings per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . $392,702 $387,393 $353,144
Cost of Goods Sold (Note 15). . . . . . 339,905 335,560 308,220
-------- -------- --------
Gross Profit . . . . . . . . . . . . 52,797 51,833 44,924
-------- -------- --------
Operating Expenses
Sales and Marketing . . . . . . . . . 38,859 38,568 35,634
General and Administrative. . . . . . 10,488 12,256 12,087
Provision for Restructuring and
Disposition of Heritage Hardwoods
(Note 15) . . . . . . . . . . . . -- 7,866 5,571
-------- -------- --------
49,347 58,690 53,292
-------- -------- --------
Operating Income(Loss). . . . . . . . . 3,450 (6,857) (8,368)
-------- -------- --------
Other Income (Expense)
Interest . . . . . . . . . . . . . . (3,968) (3,915) (4,199)
Other . . . . . . . . . . . . . . . . 1,720 (410) 58
-------- -------- --------
(2,248) (4,325) (4,141)
-------- -------- --------
Income (Loss) Before
Income Taxes . . . . . . . . . . . . 1,202 (11,182) (12,509)
Provision (Benefit) for Income Taxes 250 (1,004) (4,378)
-------- -------- --------
Net Income (Loss) . . . . . . . . . . . $ 952 $(10,178) $ (8,131)
======== ======== ========
Earnings (Loss) Per Share . . . . . . . $ .11 $ (1.20) $ (.96)
======== ======== ========
Weighted Average Common Shares
Outstanding . . . . . . . . . . . . . 8,495 8,490 8,466
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
9
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
MORGAN PRODUCTS LTD. AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1993 1992
------ ------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 3,454 $ 4,157
Accounts receivable (Note 3) . . . . . . . . . . . . . 32,264 26,084
Inventories (Note 4) . . . . . . . . . . . . . . . . . 62,715 60,342
Income taxes receivable . . . . . . . . . . . . . . . . 6 107
Other current assets . . . . . . . . . . . . . . . . . 916 1,286
-------- --------
Total current assets . . . . . . . . . . . . . . . . . 99,355 91,976
-------- --------
OTHER ASSETS (Notes 1, 10 and 15) . . . . . . . . . . . . . 5,981 8,063
PROPERTY, PLANT & EQUIPMENT, Net (Note 5) . . . . . . . . . 27,944 30,316
-------- --------
$133,280 $130,355
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt . . . . . . . . . $ 982 $ 1,750
Accounts payable . . . . . . . . . . . . . . . . . . . 13,492 11,270
Accrued compensation and employee benefits . . . . . . 4,021 5,342
Other current liabilities. . . . . . . . . . . . . . . 3,635 4,080
-------- --------
Total current liabilities . . . . . . . . . . . . . . 22,130 22,442
-------- --------
LONG-TERM DEBT (Note 6) . . . . . . . . . . . . . . . . . . 46,669 44,414
STOCKHOLDERS' EQUITY: (Note 8)
Common stock, $.10 par value, 8,496,521 and
8,492,265 shares outstanding, respectively . . . . . 850 849
Paid-in capital . . . . . . . . . . . . . . . . . . . 33,021 32,991
Retained earnings (Note 15) . . . . . . . . . . . . . 30,658 29,707
-------- --------
64,529 63,547
Treasury stock, 2,386 shares, at cost . . . . . . . . . (48) (48)
-------- --------
64,481 63,499
-------- --------
$133,280 $130,355
======== ========
</TABLE>
COMMITMENTS AND CONTINGENCIES (Note 13)
The accompanying notes are an integral
part of the financial statements.
10
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOW
MORGAN PRODUCTS LTD. AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
CASH GENERATED (USED) BY OPERATING
ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ 952 $(10,178) $(8,131)
Add (deduct) noncash items included in income:
Depreciation and amortization. . . . . . . . . . . . . . . 5,055 6,033 6,001
Provision for Doubtful Accounts. . . . . . . . . . . . . . 697 971 1,257
Deferred income taxes. . . . . . . . . . . . . . . . . . . -- (3,302) (184)
Provision for restructuring and disposition of
non-current assets of Heritage Hardwoods . . . . . . . . -- 7,866 3,671
(Gain) loss on sale of property, plant & equipment. . . . (1,394) 38 (12)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 279 (284)
Cash (used) generated by changes in components
of noncash working capital:
Accounts receivable . . . . . . . . . . . . . . . . . . . (6,877) (32) 3,062
Inventories . . . . . . . . . . . . . . . . . . . . . . . (2,273) (4,682) 12,590
Accounts payable. . . . . . . . . . . . . . . . . . . . . 2,342 1,459 (3,277)
Other working capital . . . . . . . . . . . . . . . . . . (1,487) 4,109 (2,456)
----- ------ -------
NET CASH (USED) GENERATED BY OPERATING
ACTIVITIES: . . . . . . . . . . . . . . . . . . . . . . . . . (2,979) 2,561 12,237
------ ------- ------
CASH (USED) GENERATED BY INVESTING
ACTIVITIES:
Acquisition of property, plant & equipment . . . . . . . . . (1,946) (3,339) (5,942)
Proceeds from disposal of property, plant &
equipment. . . . . . . . . . . . . . . . . . . . . . . . . 3,759 445 2,180
Acquisition of other assets, net . . . . . . . . . . . . . . (893) (1,694) (815)
------- -------- ------
NET CASH GENERATED (USED) BY INVESTING
ACTIVITIES: . . . . . . . . . . . . . . . . . . . . . . . . . 920 (4,588) (4,577)
------- -------- ------
CASH GENERATED (USED) BY FINANCING
ACTIVITIES:
Net change in short-term borrowings. . . . . . . . . . . . . (5,651) 18,228 (20,502)
Additions to long-term debt. . . . . . . . . . . . . . . . . 11,226 18,365 37,960
Repayments of long-term debt . . . . . . . . . . . . . . . . (4,250) (32,276) (27,100)
Common stock issued for cash, net. . . . . . . . . . . . . . 31 37 311
------- -------- --------
NET CASH GENERATED (USED) BY
FINANCING ACTIVITIES:. . . . . . . . . . . . . . . . . . . . . 1,356 4,354 (9,331)
------- ------- -------
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . . . . (703) 2,327 (1,671)
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . 4,157 1,830 3,501
------- -------- -------
End of period . . . . . . . . . . . . . . $ 3,454 $ 4,157 $ 1,830
======= ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest . . . . . . . . . . . . . . . . . $ 3,598 $ 3,820 $ 4,564
Income taxes . . . . . . . . . . . . . . . 149 (1,362) (1,663)
</TABLE>
The accompanying notes are an integral
part of the financial statements.
12
<PAGE> 13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MORGAN PRODUCTS LTD. AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
------- ------- -------- --------
<S> <C> <C> <C> <C>
Balance Previously Reported at December 31, 1990 $ 845 $ 32,647 $ 49,588 $ (48)
Adjustment for writeoff of
1987 and 1988 pre-operating costs (Note 15) -- -- (1,572) --
----- -------- -------- ------
Adjusted Balance at December 31, 1990 . . . . . . . . 845 32,647 48,016 (48)
Net Loss. . . . . . . . . . . . . . . . . . . . . . -- -- (8,131) --
Other . . . . . . . . . . . . . . . . . . . . . . . 4 307 -- --
------ ------- -------- ------
Balance at December 31, 1991. . . . . . . . . . . . . 849 32,954 39,885 (48)
Net Loss. . . . . . . . . . . . . . . . . . . . . . -- -- (10,178) --
Other . . . . . . . . . . . . . . . . . . . . . . . -- 37 -- --
----- ------- -------- ------
Balance at December 31, 1992. . . . . . . . . . . . . 849 32,991 29,707 (48)
Net Income. . . . . . . . . . . . . . . . . . . . . -- -- 952 --
Other . . . . . . . . . . . . . . . . . . . . . . . 1 30 (1) --
===== ======= ======= =======
Balance at December 31, 1993. . . . . . . . . . . . . $ 850 $33,021 $30,658 $ (48)
===== ======= ======= =======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
13
<PAGE> 14
MORGAN PRODUCTS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------------------------
DESCRIPTION OF BUSINESS - Morgan Products Ltd. ("Morgan" or
the "Company") manufactures and purchases products (virtually all
considered to be millwork) which are sold to the residential and
light commercial building materials industry and are used for
both new construction and improvements, maintenance and repairs.
In view of the nature of its products and the method of
distribution, management believes that the Company's business
constitutes a single industry segment.
CONSOLIDATION - The consolidated financial statements include
the accounts of Morgan and its wholly-owned subsidiaries. All
intercompany transactions, profits and balances are eliminated.
EARNINGS PER SHARE AND SHARE DATA - Earnings per share are
computed using the weighted average number of common and, when
applicable, common equivalent shares outstanding during the
period.
INVENTORIES - Inventories are valued at the lower of cost or
market. Cost is determined on the first-in, first-out (FIFO)
method.
PROPERTIES - Property, plant and equipment are stated at cost
and depreciated on a straight line basis over the estimated
useful lives of the assets which generally range from 35 years
for buildings, 10 to 20 years for building equipment and
improvements, and 5 to 10 years for machinery and equipment.
Expenditures which substantially increase value or extend useful
life are capitalized. Expenditures for maintenance and repairs
are charged against income as incurred.
OTHER ASSETS - Included in other assets are goodwill, software
costs, deferred debt issue costs, start-up costs and certain
assets held for sale. Software costs are amortized over their
estimated useful lives. Debt issue costs are amortized over the
life of the related debt agreement.
LONG-TERM DEBT - In accordance with SFAS No. 107, the fair
value of the Company's long-term debt is estimated based on the
quoted market prices of the same or similar issues or on the
current rates offered to the Company for debt of the same
remaining maturities.
STATEMENT OF CASH FLOW - The Company considers all highly
liquid debt instruments with a maturity of 91 days or less at the
time of purchase to be cash equivalents.
NOTE 2 - PROVISION FOR RESTRUCTURING AND DISPOSITION OF HERITAGE
HARDWOODS, INC.
- - -----------------------------------------------------------------
During the fourth quarter of 1992, the Company recorded a
$7,866,000 provision for restructuring. The provision for
restructuring includes the writedown of certain idle facilities
and equipment to net realizable value, certain costs associated
with the rationalization of capacity at the Company's three main
door manufacturing facilities and a provision relating to the
possible sale of a part or all of its Morgan Technologies
software development business unit. During 1993 these idle
assets were disposed of at or above their carrying values.
During the second quarter of 1991, the Company announced plans
to dispose of its subsidiary, Heritage Hardwoods, Inc. In
connection with such plans, the Company recorded a $5.6 million
provision to cover anticipated losses on the disposal. In
November 1991, the Company sold certain inventories, machinery
and equipment of Heritage. As of December 31, 1992 remaining
assets consisted of certain inventories and certain property,
plant and equipment. These assets are included in other current
assets and other assets, respectively, in the consolidated
balance sheet at December 31, 1992. These remaining assets were
disposed of in 1993.
14
<PAGE> 15
NOTE 3 - ACCOUNTS RECEIVABLE
- - -----------------------------------------------------------------
Allowance for doubtful accounts consisted of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Balance at beginning of period $1,672 $1,321 $1,207
Provision charged to expense 697 971 1,257
Write-offs (759) (603) (1,100)
Recoveries (162) (17) (43)
------ ------- -------
Balance at end of period $1,448 $1,672 $1,321
====== ====== ======
</TABLE>
NOTE 4 - INVENTORIES
- - -----------------------------------------------------------------
Inventories consisted of the following at (in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
------ ------
<S> <C> <C>
Raw materials $13,855 $12,787
Work-in-process 6,043 7,968
Finished goods 42,817 39,587
------- -------
$62,715 $60,342
======= =======
</TABLE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
- - ---------------------------------------------------------------
Property, plant and equipment consisted of the following at
(in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
-------------------------
1993 1992
------ ------
<S> <C> <C>
Land and improvements $ 2,875 $ 2,927
Buildings and improvements 19,766 19,233
Machinery and equipment 31,249 33,748
Capitalized building and
equipment leases 4,317 4,344
Less accumulated depreciation
and amortization (30,599) (30,431)
Construction in progress 336 495
------ --------
$27,944 $ 30,316
======= ========
</TABLE>
15
<PAGE> 16
NOTE 6 - LONG-TERM DEBT
- - -----------------------------------------------------------------
Long-term debt consisted of the following at (in thousands of
dollars):
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
------ ------
<S> <C> <C>
Revolving credit facilities $38,200 $35,200
Industrial revenue bonds
80% of 91-day U.S. Treasury Bills 1,962 2,279
77.6% of prime rate -- 912
Obligations under capital leases (Note 7) 4,223 4,595
Obligations under financing leases 2,491 2,569
Other 775 609
------- -------
47,651 46,164
Less current maturities (982) (1,750)
------- -------
Total long-term debt $46,669 $44,414
======= =======
</TABLE>
In October 1992 and again in December, 1993, the Company entered into
amended and restated credit agreements with its bank group which provide for a
revolving credit facility of up to $65,000,000 through January 3, 1994, and
$57,666,667 thereafter, and a letter of credit facility of up to $8,000,000
through January 3, 1994 and $6,000,000 thereafter. This credit facility is
secured by certain accounts receivable, inventories and certain other property
of the Company. Available Borrowings are based upon the level of security
provided. Borrowings under the revolving credit facility bear interest, at the
option of the Company, at the prime rate plus an incremental percentage or at
the agent bank's established CD rate plus an incremental percentage. This
increment varies with the tangible net worth of the Company and is stated at 1
1/4 percentage points for prime borrowings and 2 1/4 percentage points for CD
borrowings as of December 31, 1993. The Company also pays an annual commitment
fee of 3/4% on the average unused portion of the revolving credit line and
certain additional fees.
The credit facility contains certain covenants including limitations on
the acquisition and disposition of assets, on the pledging of assets other than
those pledged under industrial revenue bonds, and the requirement that the
Company maintain a minimum tangible net worth and leverage and debt coverage
ratios. The Company was in full compliance with the restrictions contained in
the credit agreement as of December 31, 1993. This agreement has an expiration
date of June 30, 1995.
As of December 31, 1993, the Company had utilized $5,383,000 of its
$8,000,000 letter of credit facility and had borrowings of $38,200,000 under the
revolving credit facility.
The industrial revenue bonds outstanding at December 31, 1993 bear a
floating interest rate equal to eighty percent (80%) of the bond equivalent
yield applicable to 91-day United States Treasury Bills. These bonds are
secured by assets with a book value of $10,422,000 and $2,850,000 in letters of
credit.
The Company believes that the recorded value of its debt obligations at
December 31, 1993 approximates their fair market value.
During 1991, the Company entered into a sale-leaseback transaction,
which based upon the applicable terms, is accounted for as a financing lease.
The term of the agreement is 15 years beginning on December 31, 1991 and expires
on December 29, 2006 at an interest rate of 9.73% annually.
16
<PAGE> 17
Future annual maturities and sinking fund requirements of the Company's
long-term debt as of December 31, 1993 are presented below (in thousands of
dollars):
1994 $ 1,003
1995 39,144
1996 1,023
1997 1,005
1998 942
Later years 4,534
-------
$ 47,651
=======
NOTE 7 - LEASE OBLIGATIONS
- - ---------------------------------------------------------------
Certain leased equipment and distribution facilities have been
capitalized by the Company. The Company also leases certain facilities,
equipment and vehicles under noncancellable lease agreements which are
operating leases.
Future minimum lease payments required under long-term leases in effect
at December 31, 1993 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Capital Operating Total
------- --------- -----
<S> <C> <C> <C>
1994 $ 944 $ 5,073 $ 6,017
1995 922 4,583 5,505
1996 916 3,765 4,681
1997 722 2,761 3,483
1998 722 2,024 2,746
Later years 5,592 2,934 8,526
------ ------ ------
$ 9,818 $21,140 $30,958
====== ======
Less imputed interest (5,595)
-------
$ 4,223
========
</TABLE>
For 1993, 1992, and 1991, rental expense, including usage charges on
the Company's long-haul truck fleet, was $6,737,000, $6,692,000 and $7,592,000,
respectively.
NOTE 8 - STOCKHOLDERS' EQUITY
- - -----------------------------------------------------------------
COMMON STOCK - The number of authorized shares of Common Stock is
20,000,000 shares.
PREFERRED STOCK - The number of authorized shares of Preferred Stock is
5,000,000 shares.
STOCK OPTION PLAN - In June 1985, the Company adopted a Stock Option
Plan which, as amended, provides for, (i) the issuance of incentive stock
options at a purchase price approximating fair market value at the date of
grant and (ii) the issuance of non-qualified options at a price determined by
the Compensation Committee, a committee of the Board of Directors, which cannot
be less than 85% of the market price at the date of grant. In May 1989, the
stockholders ratified a proposal that amended the Company's Stock Option Plan
to increase from 500,000 to 750,000 the number of shares of Common Stock
reserved for issuance under the plan.
17
<PAGE> 18
As of December 31, 1993, the Company has set aside 646,800 shares of
its Common Stock for the granting of such options. The options granted become
exercisable immediately or in two, three, four or five annual installments
after the date of grant, and all of the options granted expire no more than six
years from the date of grant.
The following table provides summary information regarding stock
options under the Stock Option Plan:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Options outstanding at January 1 592,200 465,950
Granted 0 176,000
Exercised 0 (400)
Cancelled (9,000) (49,350)
------- -------
Outstanding at December 31(1) 583,200 592,200
======= =======
Option price range at December 31 $6.63 - $12.50 $6.63 - $12.50
Options exercisable at December 31 435,064 348,200
Options available for grant
at December 31 63,600 54,600
</TABLE>
(1) Options outstanding at December 31, 1993 and 1992 of 583,200 and
592,200, respectively, consist solely of non-qualified options.
In May 1992, the stockholders approved the adoption of a Non-employee
Director Stock Option Plan (the "Director Plan"). The Director Plan provides
for the automatic grant of non-qualified stock options to purchase 1,000 shares
of Common Stock at a purchase price equal to the fair market value at the date
of grant upon a non-employee Director's election or re-election to the Board of
Directors. An aggregate of 50,000 shares of Common Stock will be available for
grant under the Director Plan.
As of December 31, 1993, the Company had set aside 8,000 shares of its
Common Stock for the granting of such options. The options granted become
exercisable in three annual installments after the date of grant and all of the
options granted expire ten years from the date of grant. At December 31, 1993,
1,332 options were exercisable.
NOTE 9 - SHARE PURCHASE RIGHTS PLAN
- - -----------------------------------------------------------------
On March 14, 1989, the Board of Directors of the Company declared a
dividend of one share purchase right for each outstanding share of Common
Stock. The dividend was payable on March 24, 1989 to shareholders of record on
that date. Once exercisable, each right entitles its holder to purchase one
share of Common Stock for $70.00 per share (subject to adjustment). The rights
are not exercisable until 10 days after an acquiror acquires or obtains the
right to acquire 20% of the outstanding Common Stock (the share acquisition
date) or 10 days after a tender offer or exchange offer is announced which would
cause the offeror to own 25% of the outstanding Common Stock, whichever is
earlier.
At any time prior to the tenth day following the share acquisition date
(unless extended), the Company's directors may redeem the rights at a cost of
$0.01 per right. Unless so redeemed, the rights will expire March 15, 1999.
The Company's directors may amend the rights plan before the rights are
exercisable, and thereafter in any manner which does not adversely affect the
interests of the rights holders.
18
<PAGE> 19
NOTE 10 - EMPLOYEE BENEFIT PLANS
- - -----------------------------------------------------------------
The Company has a profit sharing and 401(k) savings plan for all
salaried employees and certain groups of hourly employees. The Company matches
fifty percent of participant contributions to the savings plan, which Company
contributions are limited to three percent of the participant's compensation.
At the discretion of the Board of Directors, the Company may make an additional
contribution which has been targeted at three percent of each participant's
compensation.
Profit sharing costs and the Company's matching contributions to the
employee savings plan charged to operations were $625,000, $693,000 and
$674,000 for 1993, 1992 and 1991, respectively.
The Company has pension plans which cover some of its hourly employees.
These plans generally provide a stated benefit amount for each year of service.
In addition, the Company's Nicolai subsidiary had two salaried pension plans
which were curtailed during 1986 and one hourly pension plan which was
curtailed in 1988.
For the hourly employees not covered by Company pension or profit
sharing plans, the Company makes contributions to multi-employer pension plans
based on compensable hours worked in accordance with union contracts. Under
certain conditions, principally withdrawal from such plans, the Company may
have further obligations for pensions with respect to such employees, but the
amount thereof, if any, cannot be determined at the present time.
Net pension (expense) income for 1993, 1992 and 1991 was $(71,000),
$(75,000) and $27,000, respectively. The projected benefit obligations as of
December 31, 1993 and December 31, 1992 were $13,158,000 and $12,041,000,
respectively. Net assets available for plan benefits, at fair market value, as
of December 31, 1993 and December 31, 1992 were $13,401,000 and $12,871,000,
respectively. Prepaid pension expense at December 31, 1993 and 1992 was
$1,809,000 and $1,710,000, respectively and is included in other assets in the
accompanying consolidated balance sheet.
Plan assets consist of equity and fixed income securities and insurance
annuity contracts. It is the policy of the Company to fund at least the
minimum required amount in accordance with the requirements of the Employee
Retirement Income Security Act of 1974.
NOTE 11 - INCOME TAXES
- - --------------------------------------------------------------------
Effective January 1, 1993, the Company prospectively adopted Statement
of Financial Accounting Standards No. 109 (FAS 109), "Accounting For Income
Taxes". FAS 109 is an asset and liability approach to accounting for deferred
income taxes, that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, FAS 109 generally considers all expected future events
other than enactments of changes in the tax law or rates. Previously, the
Company accounted for income taxes under the FAS 96 asset and liability
approach, which gave no recognition to future events other than the recovery of
assets and settlement of liabilities at their carrying amounts. The adoption
of FAS 109 had no material effect on net income in any period.
19
<PAGE> 20
The components of the net income tax provision (benefit) consisted of
the following: (in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ (2,583)
State 250 192 162
------ ------ ------
Total Current 250 192 (2,421)
------ ------ ------
Deferred:
Federal -- (1,196) (1,957)
State -- -- --
------ ------ ------
Total Deferred -- (1,196) (1,957)
------ ------ ------
Net Income Tax Provision (Benefit) $ 250 $(1,004) $(4,378)
====== ====== ======
</TABLE>
The reconciliation between the U.S. Federal Statutory tax rate
expressed as a percentage of pre-tax income and the effective tax rate was as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
U.S. Federal income tax rate 34.0% (34.0)% (34.0)%
Non-utilization utilization)
of operating loss carryforward (33.4) 27.0 --
State income taxes, net of federal
benefit 5.9 1.1 0.9
Non-deductible items 2.5 1.0 0.2
Other 11.8 (4.1) (2.1)
------- ------- -------
20.8% (9.0)% (35.0)%
====== ====== ======
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities at December 31, 1993 included: (in thousands of dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1993
------------------------------------
- - -------
<S> <C>
Gross Deferred Tax Assets:
Operating loss carryforwards $ 3,921
Accrued expenses and reserves 1,770
Postretirement benefits 174
Other 60
-------
5,925
Valuation allowance (3,130)
------
2,795
------
Gross Deferred Tax Liabilities:
Depreciation and amortization (2,238)
Pensions (557)
------
(2,795)
------
Net Deferred Tax Asset (Liability) $ 0
======
</TABLE>
The 1992 and 1991 deferred income tax provision (benefit) was determined
under the liability method of accounting (FAS 96). The major temporary
differences that give rise to the deferred tax balances are depreciation,
amortization and certain liabilities which are deductible only when paid. The
valuation allowance reflects operating loss carryforwards for which no benefit
has been previously recognized due to uncertainties relating to their future
realizability.
20
<PAGE> 21
As of December 31, 1993, the Company has unused operating loss
carryforwards for tax purposes of approximately $11,531,000,
which expire in years 2002 through 2008. No benefit for the
remaining operating loss carryforwards has been recognized in the
consolidated financial statements.
NOTE 12 - RELATED PARTIES
- - -----------------------------------------------------------------
As of December 31, 1993, Saugatuck Capital Company Limited
Partnership, and certain members of management, in the aggregate,
beneficially owned approximately 30% of the Company's Common
Stock.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
- - -----------------------------------------------------------------
Andersen Corporation ("Andersen"), whose products accounted for
42% of 1993 net sales, distributes its products only through
independent distributors such as the Company. The Company and
its predecessors have distributed Andersen products for over 38
years; however, the Company's agreement with Andersen provides
that Andersen can terminate any of the Company's distributorships
at any time upon 60 days notice. A termination or significant
modification of the distribution relationship with Andersen could
have a material adverse effect on revenues and earnings.
NOTE 14 - INTERIM FINANCIAL INFORMATION (UNAUDITED)
- - -----------------------------------------------------------------
Summarized quarterly financial data for 1993 and 1992 are
presented below (in thousands, except per share data):
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter
-------------------- --------------------
1993 1992 1993 1992
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Sales $94,964 $90,476 $96,205 $104,822
Gross Profit 14,112 11,362 13,704 14,480
Net Income (Loss) 47 (1,032) 103 557
Earnings (Loss)
per Share $ -- $ (.12) $ .01 $ .06
<CAPTION>
3rd Quarter 4th Quarter
-------------------- --------------------
1993 1992 1993 1992
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Sales $106,523 $106,115 $95,010 $85,980
Gross Profit 13,444 14,321 11,537 11,670
Net Income (Loss) 1,006 220 (204) (10,540)
Earnings (Loss) per
Share $ .12 $ .03 $ (.02) $ (1.24)
</TABLE>
The building products industry is seasonal, causing the
Company's lowest sales to occur during the first and fourth
quarters.
21
<PAGE> 22
NOTE 15 - RESTATEMENT OF 1987 AND 1988 FINANCIAL STATEMENTS AND
RECLASSIFICATION OF 1992 RESTRUCTURING COSTS
- - -----------------------------------------------------------------
The Company has restated its 1987 and 1988 financial statements
to charge to expense when incurred preoperating costs previously
deferred (with a pre-tax effect of $.7 million in 1987 and $.9
million in 1988). The Company had previously chosen to amortize
these costs over 15 years. The income statements for 1989-1993
have not been restated because the effect of restating these
years is not material.
The net income and earnings per share impact is summarized below:
<TABLE>
<CAPTION>
1987 1988
---- ----
Net Net
Income Earnings Income Earnings
($ Millions) Per Share ($ Millions) Per Share
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Previously Reported $16.2 $2.00 $5.4 $0.64
Impact of Restatement (0.7) (0.09) (0.9) (0.11)
------ ----- ---- -----
Restated $15.5 $1.91 $4.5 $0.53
====== ===== ==== =====
</TABLE>
Additionally, $.5 million of charges for recognition of
retiree medical benefit costs were reclassified in 1992 from the
provision for restructuring to cost of goods sold. There is no
earnings per share impact for this reclassification.
22
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Morgan Products Ltd.
In our opinion, the statements appearing on pages [9 to 22] of this report
present fairly, in all material respects, the financial position of Morgan
Products Ltd. and its subsidiaries at December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1993, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 15 to the Consolidated Financial Statements, the Company
has restated its 1987 and 1988 financial statements.
Price Waterhouse
Milwaukee, Wisconsin
January 25, 1994
(June 27, 1994 as to Note 15)
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MORGAN PRODUCTS LTD.
By /s/ Douglas H. MacMillan
----------------------------------
Douglas H. MacMillan
Vice President, Chief Financial
Officer and Secretary
June 27, 1994
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MORGAN PRODUCTS LTD.
By
------------------------------------
Douglas H. MacMillan
Vice President, Chief Financial
Officer and Secretary
June 27, 1994
25
<PAGE> 26
EXHIBIT INDEX
EXHIBIT PAGE NO.
- - ------- --------
23 Consent of Price Waterhouse.
26
<PAGE> 27
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (No. 33-32264 and
No. 33-23882) and the Registration Statement on Form S-8 (No. 33-62148) of
Morgan Products Ltd. of our report dated January 25, 1994 and June 27, 1994 as
to Note 15 appearing on page [23] of this Annual Report on Form 10-K.
PRICE WATERHOUSE
Milwaukee, Wisconsin
June 27, 1994
27
