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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9843
MORGAN PRODUCTS LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1095650
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
75 Tri-State International, Suite 222, Lincolnshire, Illinois 60069
(Address of principal executive offices, including zip code)
(708) 317-2400
(Registrant's telephone number, including area code)
-------------------------------------
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 ( )
The number of shares outstanding of registrant's Common Stock, par value $.10
per share, at April 25, 1995 was 8,641,828; 2,386 shares are held in treasury.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORGAN PRODUCTS LTD.
Consolidated Balance Sheets
($000, except shares outstanding)
<TABLE>
<CAPTION>
April 1, April 2, December 31
1995 1994 1994
(Unaudited) (Unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 927 $ 1,256 $ 6,195
Accounts Receivable, Net 29,730 34,842 24,361
Inventories 58,320 72,741 54,957
Other Current Assets 1,303 1,488 997
__________ __________ __________
Total Current Assets 90,280 110,327 86,510
__________ __________ __________
PROPERTY, PLANT & EQUIPMENT, net 21,754 27,133 20,780
OTHER ASSETS 6,112 6,013 6,018
__________ __________ __________
$ 118,146 $ 143,473 $ 113,308
__________ __________ __________
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Long
Term Debt $ 1,103 $ 997 $ 1,205
Accounts Payable 9,465 10,399 11,510
Accrued Compensation and
Employee Benefits 8,832 5,243 8,176
Income Tax Payable 187 -- 203
Other Current Liabilities 2,753 3,294 3,777
_________ __________ __________
Total Current Liabilities 22,340 19,933 24,871
__________ __________ __________
LONG-TERM DEBT 41,061 59,396 33,245
STOCKHOLDERS' EQUITY:
Common Stock, $.10 par value,
8,641,828, 8,497,544
and 8,640,713 shares
outstanding, respectively 864 850 864
Paid-In Capital 33,739 33,029 33,733
Retained Earnings 20,747 30,313 21,257
________ __________ __________
55,350 64,192 55,854
Treasury Stock, 2,386 shares,
at cost (48) (48) (48)
Unearned Compensation -
Restricted Stock (557) -- (614)
_________ __________ __________
54,745 64,144 55,192
__________ _________ __________
$ 118,146 $ 143,473 $ 113,308
__________ __________ __________
The accompanying notes are an integral
part of the financial statements
</TABLE>
MORGAN PRODUCTS LTD.
Consolidated Income Statements
($000, except earnings per share amounts)
<TABLE>
<CAPTION>
For the Three Months
Ended
April 1, April 2,
1995 1994
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales $ 80,664 $ 82,803
Cost of Goods Sold 68,696 69,959
__________ _________
Gross Profit 11,968 12,844
__________ _________
Operating Expenses
Sales & Marketing 9,018 9,559
General & Administrative 2,724 2,719
Provision For Restructuring 9 ---
_________ ___________
Total 11,751 12,278
_________ ___________
Operating Income 217 566
_________ ___________
Other Income (Expense)
Interest (882) (991)
Other 185 115
__________ __________
Total (697) (876)
__________ __________
Income (Loss) Before Income Taxes (480) (310)
Provision for Income Taxes 30 35
_________ ___________
Net Income (Loss) $ (510) $ (345)
__________ __________
Income (Loss) Per Share $ (0.06) $ (0.04)
__________ __________
Weighted Average
Common Shares Outstanding 8,641,071 8,497,062
_________ ___________
The accompanying notes are an integral
part of the financial statements.
</TABLE>
MORGAN PRODUCTS LTD.
Consolidated Statements of Cash Flow
($000)
<TABLE>
<CAPTION>
For the Three Months
Ended
April 1, April 2,
1995 1994
(Unaudited) (Unaudited)
<S> <C> <C>
CASH GENERATED (USED) BY OPERATING ACTIVITIES:
Net Income (Loss) $ (510) $ (345)
Add (deduct) noncash items included in income:
Depreciation and amortization 987 1,222
Provision for doubtful accounts 86 9
Provision for restructuring 9 --
(Gain) loss on sale of property, plant,
& equipment (35) (45)
Other (69) 21
Cash generated (used) by changes in components of
working capital:
Accounts Receivable (5,455) (2,587)
Inventories (3,363) (10,026)
Accounts Payable (2,045) (3,093)
Other working capital components (689) 315
________ ___________
NET CASH GENERATED (USED) BY OPERATING ACTIVITIES (11,084) (14,529)
________ ___________
CASH GENERATED (USED) BY INVESTING ACTIVITIES:
Acquisition of property, plant, & equipment (1,797) (228)
Proceeds from disposal of property, plant,
& equipment 37 68
Acquisition of other assets, net (144) (259)
_________ _________
NET CASH GENERATED (USED) BY INVESTING ACTIVITIES (1,904) (419)
_________ _________
CASH GENERATED (USED) BY FINANCING ACTIVITIES:
Net change in revolving credit facility 7,971 19,987
Repayments of long-term debt (257) (7,245)
Common stock issued for cash 6 8
_________ _________
NET CASH GENERATED (USED) BY FINANCING ACTIVITIES 7,720 12,750
_________ _________
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,268) (2,198)
CASH AND CASH EQUIVALENTS:
Beginning of period 6,195 3,454
_________ _________
End of period $ 927 $ 1,256
_________ _________
Cash paid during the period for:
Interest $ 852 $ 864
Income taxes 47 29
The accompanying notes are an integral
part of the financial statements.
</TABLE>
MORGAN PRODUCTS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED APRIL 1, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Morgan Products Ltd. (the "Company") manufactures
and purchases products (virtually all of which are 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
all business units of Morgan Products Ltd. All intercompany transactions,
profits and balances are eliminated.
BASIS OF PRESENTATION - The financial statements at April 1, 1995 and April 2,
1994, and for the three months then ended, are unaudited; however, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the financial position at these
dates and the results of operations and cash flows for these periods have been
included. The results for the three months ended April 1, 1995 are not
necessarily indicative of the results that may be expected for the full year or
any other interim period.
NOTE 2 - INVENTORIES
Inventories consisted of the following at (in thousands of dollars):
April 1, April 2, December 31,
1995 1994 1994
(unaudited) (unaudited)
Raw material $ 9,883 $ 17,331 $ 9,685
Work-in-process 6,599 5,521 5,272
Finished goods 41,838 49,889 40,000
$ 58,320 $ 72,741 $ 54,957
Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out (FIFO) method.
NOTE 3 - PROVISION FOR RESTRUCTURING
The Company's first quarter 1995 results included a $9,000 addition to the $11.3
million restructuring charge incurred in the second quarter of 1994. The
original restructuring charge covered the cost of closing the Springfield,
Oregon plant, the Weed, California veneer operation and other cost reduction and
consolidation within Morgan Products. During the third and fourth quarters of
1994, the Company reviewed the charges reserved for in the restructuring and
determined that certain estimated costs would not be as high as originally
anticipated. At that time, certain other cost reduction and restructuring
actions were approved and provided for, which offset the lower expenses. The
additional expenses related to the restructuring of the Morgan Distribution
operations and costs associated with the relocation of the Corporate
headquarters. At the end of 1994, $4.9 million of the original $11.3 million
had been used and the closing of the two plants was substantially complete. The
remaining reserve at the end of 1994 related primarily to other cost reductions
and consolidation to be taken within the Company, and the Corporate headquarters
relocation.
During the first quarter of 1995, management again evaluated its restructuring
reserves and determined that certain estimated costs would not be as high as had
been expected and adjusted the reserve appropriately. In addition, incremental
restructuring activities for Morgan Distribution (as described below) were
approved during the first quarter.
Since his arrival in September, 1994, the Company's new Chief Executive Officer
and other members of senior management have been evaluating what actions are
necessary to improve Morgan Distribution's profitability. A multi-year plan
involving necessary management structure changes, a new management information
system and future facility requirements was developed. The first phase of this
restructuring plan was implemented during the first quarter of 1995. A new
organizational structure was announced that eliminated several management
positions including the unit president. The costs of severance and certain
other cost reductions were provided for during the first quarter which partially
offset the lower expenses originally anticipated in the 1994 restructuring
charge. No charges were made for changes in physical facilities since there
will be no actions implemented in 1995 with respect to these.
The net result of the additional Morgan Distribution restructuring charges and
the changes in existing reserves resulted in an additional charge of $9,000.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations<PAGE>
Three Months Ended April 1, 1995 vs
Three Months Ended April 2, 1994
The Company's net sales for the first quarter of 1995 were $80.7 million,
representing a decrease of 2.6% from the same period in 1994, when net sales
were $82.8 million. The reduction in net sales was primarily the result of a
decrease in sales of manufactured products reflecting the expected loss of low
margin business following the May, 1994 closing of the Springfield, Oregon
plant. This decrease was partially offset by a 1.0% increase in sales of
distributed products.
For the first quarter of 1995, the Company reported a net loss of $510,000, or
$0.06 per share compared to a net loss of $345,000, or $0.04 per share in the
prior year's comparable quarter, on average shares outstanding of 8,641,071 and
8,497,062 respectively. As discussed in Note 3, included in first quarter 1995
results is an addition of $9,000 to the $11.3 million restructuring that
occurred in the second quarter of 1994. The reduction in net income was
primarily the result of a decrease in gross profit due to the lower sales
levels. Partially offsetting the decrease in overall gross profit was a
decrease in operating expenses and a decrease in other expense.
The gross profit decrease of $.9 million from the first quarter of 1994 to the
corresponding period of 1995 was the result of the aforementioned sales volume
decrease and higher operating costs at the Manufacturing unit's Lexington, North
Carolina facility. The decline was partially offset by the higher volume and
improvement in gross profit percentage of Morgan Distribution. Overall, the
gross profit percentage decreased from 15.5% in the first quarter of 1994 to
14.8% in 1995.
Operating expenses for the first quarter of 1995 were $11.8 million, or 14.6% of
net sales, compared to 1994 first quarter operating expenses of $12.3 million,
or 14.8% of net sales. Contributing to the decline in operating expenses were
decreases in employment related costs, advertising and travel and entertainment
expenses.
Other expense for the first quarter of 1995 was lower than the first quarter of
1994 by $0.2 million primarily due to lower interest expense as a result of
lower debt levels.
The provision for income taxes in both years relates to recording of state
taxes. There is no provision for federal taxes in either period given the
Company's net operating loss position.
Significant Business Trends/Uncertainties
Management believes that housing starts have a significant influence on the
Company's level of business activity. According to an industry source, actual
housing starts were down 11.4% to 263,000 in the first quarter of 1995 compared
to 297,000 in the corresponding period for 1994. Starts in all regions were
down except for New England. Management believes that as the market moves
upscale, increased sales of premium products such as those Morgan manufactures
may follow. However, recent increases in mortgage rates may contribute to a
slower pace in the future.
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 influence on the Company's level of
business activity. Sales to these customers declined 9.2% in the first quarter
of 1995 compared to 1994. Sales to these customers as a percentage of total
sales decreased from 28.3% in the first quarter of 1994 to 26.4% in the
corresponding 1995 period. However, management believes this market will
continue to grow in importance to the Company.
In the past, raw material prices have fluctuated substantially for pine and fir
lumber, and have increased to record levels. This, coupled with continuing
competitive pricing pressure, has had an adverse impact on profits. As a
result, the Company continues its efforts to expand the utilization, where
appropriate, of engineered materials in wood door components and to switch to
alternate wood species. In addition, the Company has established reliable
offshore material resources. Management believes that these actions, together
with aggressive pricing increases where competitive factors allow, will
partially offset the impact of the high costs of raw material.
Liquidity and Capital Resources
The Company's working capital requirements are related to its sales which,
because of its dependency on housing starts and the repair and remodeling
market, are 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 April 1, 1995 was $67.9 million with a current ratio of 4.0
to 1.0, while at April 2, 1994. working capital was $90.4 million with a current
ratio of 5.5 to 1.0. The decrease in working capital was primarily the result
of a $14.4 million decrease in inventory and a $5.1 million decrease in
receivables resulting from the closing of the Springfield and Weed veneer plants
and the subsequent loss of lower margin West Coast business.
Long-term debt, net of cash, decreased to $40.1 million at April 1, 1995, from
$58.1 million at April 2, 1994. The Company's ratio of long-term debt, net of
cash, to total capitalization decreased from 47.5% at April 2, 1994 to 42.3% at
April 1, 1995. These decreases are primarily due to the aforementioned decrease
in working capital. The Company was in compliance with the covenants contained
in its revolving credit agreement.
Cash used by operating activities amounted to $11.1 million in the first quarter
of 1995, primarily to support the normally higher levels of inventory and
receivables. By comparison, the quarter ended April 2, 1994 reflected cash used
by operating activities of $14.5 million. Investing activities in the 1995
first quarter utilized $1.9 million compared to the corresponding period in 1994
when investing activities generated $0.4 million. The 1995 investing activities
include the first purchases of equipment for a new production method to produce
doors in a more rapid and efficient manner. Financing activities provided $7.7
million in the first three months of 1995, primarily to finance the normal
increase in working capital requirements in the first quarter of the year.
During the same period in 1994, financing activities generated $12.8 million in
cash.
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.
MORGAN PRODUCTS LTD.
Date: May 12, 1995 By /s/ Douglas H. MacMillan
Douglas H. MacMillan
Vice President, Secretary and
Chief Financial Officer
(For the Registrant and as
Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> APR-01-1995
<CASH> 927
<SECURITIES> 0
<RECEIVABLES> 30,739
<ALLOWANCES> 1,009
<INVENTORY> 58,320
<CURRENT-ASSETS> 90,280
<PP&E> 48
<DEPRECIATION> 020
<TOTAL-ASSETS> 26,266
<CURRENT-LIABILITIES> 118,146
<BONDS> 22,340
<COMMON> 41,061
0
0
<OTHER-SE> 20,747
<TOTAL-LIABILITY-AND-EQUITY> 118,146
<SALES> 80,664
<TOTAL-REVENUES> 80,664
<CGS> 68,696
<TOTAL-COSTS> 80,447
<OTHER-EXPENSES> (697)
<LOSS-PROVISION> (86)
<INTEREST-EXPENSE> 882
<INCOME-PRETAX> (480)
<INCOME-TAX> 30
<INCOME-CONTINUING> (510)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (510)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
