<PAGE>
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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 September 28, 1996
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)
469 McLaws Circle, Williamsburg, Virginia 23185
(Address of principal executive offices, including zip code)
(757) 564-1700
(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 October 22, 1996 was 8,649,517; 2,386 shares are held in treasury.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORGAN PRODUCTS LTD.
Consolidated Balance Sheets
($000 except shares outstanding)
<TABLE>
<CAPTION>
September 28, September 30, December 31,
1996 1995 1995
------------ ------------ ------------
(Unaudited) (Unaudited)
ASSETS
<S> <C> <C> <C>
CURRENTS ASSETS:
Cash and cash equivalents $ 1,717 $ 1,420 $ 5,135
Accounts receivable, net 39,122 31,701 20,801
Inventories 67,540 55,881 53,422
Income tax receivable 306 0 0
Other current assets 892 858 422
---------- ---------- ----------
Total current assets 109,577 89,860 79,780
---------- ---------- ----------
OTHER ASSETS 7,039 6,246 6,235
PROPERTY, PLANT & EQUIPMENT, net 23,171 22,886 23,500
---------- ---------- ----------
TOTAL ASSETS $ 139,787 $ 118,992 $ 109,515
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 88 $ 0 $ 0
Current maturities of long-term debt 1,028 942 954
Accounts payable 18,884 14,481 11,121
Accrued compensation and employee benefits 7,258 6,626 5,625
Income tax payable 0 83 111
Other current liabilities 3,547 3,091 3,295
---------- ---------- ----------
Total current liabilities 30,805 25,223 21,106
---------- ---------- ----------
LONG-TERM DEBT 55,023 39,496 35,574
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value, 8,649,308, 8,646,783
and 8,647,483 shares outstanding, respectively 865 865 865
Paid-in capital 33,782 33,768 33,771
Retained earnings 19,567 20,128 18,629
---------- ---------- ----------
54,214 54,761 53,265
Treasury stock, 2,386 shares, at cost (48) (48) (48)
Unamortized value of restricted stock (207) (440) (382)
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 53,959 54,273 52,835
---------- ---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 139,787 $ 118,992 $ 109,515
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN PRODUCTS LTD.
Consolidated Income Statements
($000, except earnings per share amounts
and weighted average shares outstanding)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 97,377 $ 90,723 $ 267,121 $ 255,649
Cost of goods sold 82,775 78,278 227,642 219,683
---------- ---------- ---------- ----------
Gross profit 14,602 12,445 39,479 35,966
---------- ---------- ---------- ----------
Operating expenses:
Sales & marketing 8,712 8,766 25,353 26,693
General & administrative 2,707 2,726 8,778 7,885
Provision for restructuring 1,956 0 2,837 9
---------- ---------- ---------- ----------
Total 13,375 11,492 36,968 34,587
---------- ---------- ---------- ----------
Operating income (loss) 1,227 953 2,511 1,379
---------- ---------- ---------- ----------
Other income (expense):
Interest (778) (1,006) (2,147) (2,872)
Other 80 116 217 376
---------- ---------- ---------- ----------
Total (698) (890) (1,930) (2,496)
---------- ---------- ---------- ----------
Income (loss) before income taxes 529 63 581 (1,117)
Provision for income taxes (406) (48) (357) 12
---------- ---------- ---------- ----------
Net income (loss) $ 935 $ 111 $ 938 $ (1,129)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income (loss) per share $ 0.11 $ 0.01 $ 0.11 $ (0.13)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding 8,808,636 8,644,423 8,724,938 8,642,362
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN PRODUCTS LTD.
Consolidated Statements of Cash Flows
($000's)
<TABLE>
<CAPTION>
For the Nine Months Ended
----------------------------
September 28, September 30,
1996 1995
(Unaudited) (Unaudited)
------------ -----------
<S> <C> <C>
CASH GENERATED (USED) BY OPERATING ACTIVITIES:
Net income (loss) $ 938 $ (1,129)
Add (deduct) noncash items included in income:
Depreciation and amortization 2,800 2,892
Provision for doubtful accounts 143 (32)
(Gain) loss on sale of property, plant, & equipment 5 (11)
Provision for restructuring 881 0
Other 175 (104)
Cash generated (used) by changes in components of
working capital:
Accounts receivable (11,633) (7,308)
Inventories (6,274) (924)
Accounts payable 5,503 2,971
Other working capital 724 (2,936)
--------- ---------
NET CASH GENERATED (USED) BY OPERATING ACTIVITIES (6,738) (6,581)
--------- ---------
CASH GENERATED (USED) BY INVESTING ACTIVITIES:
Acquisition of property, plant, & equipment (3,864) (3,786)
Acquisition of Tennessee Building Products (15,610) 0
Proceeds from disposal of property, plant, & equipment 4,118 49
Proceeds from surrender of life insurance policies 925 0
Acquisition of other assets, net (1,118) (481)
--------- ---------
NET CASH GENERATED (USED) BY INVESTING ACTIVITIES (15,549) (4,218)
--------- ---------
CASH GENERATED (USED) BY FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 88 0
Proceeds from issuance of long-term debt 20,055 6,739
Payments on long-term debt (1,285) (751)
Common stock issued for cash 11 36
--------- ---------
NET CASH GENERATED (USED) BY FINANCING ACTIVITIES 18,869 6,024
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,418) (4,775)
CASH AND CASH EQUIVALENTS:
Beginning of period 5,135 6,195
--------- ---------
End of period $ 1,717 $ 1,420
--------- ---------
--------- ---------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 2,465 $ 2,848
Income taxes 60 132
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
MORGAN PRODUCTS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 28, 1996
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 the Company. All intercompany transactions, profits
and balances are eliminated.
BASIS OF PRESENTATION - The financial statements at September 28, 1996 and
September 30, 1995, and for the three and nine 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 and nine months ended
September 28, 1996 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):
September 28, September 30, December 31,
1996 1995 1995
----------- ----------- -----------
(unaudited) (unaudited)
Raw material $ 12,461 $ 9,870 $ 9,120
Work-in-process 7,801 7,098 6,536
Finished goods 47,278 38,913 37,766
--------- --------- ---------
$ 67,540 $ 55,881 $ 53,422
--------- --------- ---------
--------- --------- ---------
Inventories are valued at the lower of cost or market. Cost is determined on
the first-in, first-out (FIFO) method.
<PAGE>
NOTE 3 - PROVISION FOR RESTRUCTURING
An $11.3 million restructuring charge was 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
reductions and consolidations within the Company. 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 of 1995.
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. The costs of severance and certain
other cost reductions were provided for during the first quarter which more
than offset the lower than originally anticipated expenses of the 1994
restructuring. No charges were made for changes in physical facilities since
no actions were implemented in 1995 with respect to these facilities.
The Company completed the relocation of the Corporate headquarters from
Lincolnshire, Illinois to Williamsburg, Virginia during the third quarter of
1995. Most, but not all, of the expenses relating to the relocation were
charged against the restructuring reserve in that period.
During the fourth quarter of 1995, no significant activity occurred in the
reserve. At December 31, 1995, a $3.8 million reserve balance remained.
<PAGE>
NOTE 3 - PROVISION FOR RESTRUCTURING -- CONTINUED
During the first quarter of 1996, restructuring expenses charged against the
restructuring reserve totaled $279,000, substantially all of which were employee
benefits resulting from severances.
In the second quarter of 1996, the Company sold its Lexington, North Carolina
door manufacturing facility for $4.1 million. The entire product line of doors
previously manufactured in Lexington will be shifted to the Company's Oshkosh,
Wisconsin door manufacturing facility during the third and fourth quarters of
1996. The Company recorded an additional restructuring charge in the second
quarter of $356,000, primarily related to the loss on the sale of the Lexington
facility.
Also in the second quarter, a $470,000 reserve was recorded for incremental
costs related to the 1994 plant closings in Springfield, Oregon and Weed,
California and the 1995 reorganization of the Manufacturing Division office in
Oshkosh, Wisconsin (primarily due to changes in cost estimates in the
incremental workers compensation claims incurred prior to the commitment date).
At June 29, 1996, the reserve balance was $3.8 million.
In the third quarter of 1996, restructuring costs charged against income
related to the Lexington plant shutdown and consolidation of operations in
Oshkosh totaled $1,956,000. Additionally, $522,000 of restructuring expenses
were charged against the 1996 reserve balance during the quarter. The
September 28, 1996 reserve balance was $3.2 million. It is expected that the
Company will incur additional aggregate restructuring expenses of
approximately $1.0 million in the fourth quarter related to the consolidation
of the Lexington operations into Oshkosh, as previously announced. These
restructuring expenses include Lexington operating costs after cessation of
production and incremental hiring, training, and relocation costs associated
with the transfer of Lexington production to Oshkosh. These costs will be
expensed as incurred.
<PAGE>
NOTE 4 - CREDIT AGREEMENT
The Company maintains a credit agreement with its bank group which provides
for a revolving credit facility of up to $65 million through July 13, 1998,
and includes a letter of credit facility of up to $9 million through July 13,
1998. During the second quarter, the Company and its bank group signed an
amendment extending the existing agreement. The amendment became effective
June 30, 1996 and has terms similar to, or more favorable to, the Company
than those previously in effect. During the third quarter and early fourth
quarter, the parties executed two additional amendments which altered the
financial covenants to give effect to the TBP acquisition. At September 28,
1996 the Company had borrowings of $47.5 million under the revolving credit
facility. The credit agreement requires the Company, among other things, to
maintain minimum tangible net worth, leverage and interest coverage ratios.
<PAGE>
NOTE 5 - ACQUISITION OF TENNESSEE BUILDING PRODUCTS
On August 30, 1996, the Company acquired certain assets and assumed certain
liabilities of Tennessee Building Products, Inc. and subsidiary ("TBP"). TBP,
which had annual sales of approximately $46.8 million for the year ended
December 31, 1995, is a distributor of windows, doors, kitchen cabinets, and
other millwork and glass products, to residential builders and other customers.
The purchase price of $15.6 million, including $.3 million in acquisition costs,
subject to certain purchase price adjustments, was financed through borrowings
on the company's revolving credit facility. The acquisition has been recorded
using the purchase method of accounting. The excess of the aggregate purchase
price over the fair market value of net assets acquired was recognized as
goodwill and is being amortized over 25 years. The operating results of TBP
have been included in the Company's consolidated financial statements since the
date of acquisition.
The following unaudited pro forma results of operations assume the acquisition
occurred as of January 1, 1995 (in thousands except per share amounts):
Nine Months Ended
-----------------
September 28, 1996 September 30, 1995
------------------- -------------------
Net sales $ 301,121 $ 290,003
Net income (loss) $ 1,756 $ (1,370)
Earnings (loss)
per common share $ .20 $ (.16)
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the TBP acquisition been
consummated as of January 1, 1995, nor is it necessarily indicative of future
operating results.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 28, 1996 VS
THREE MONTHS ENDED SEPTEMBER 30, 1995
The Company's net sales for the third quarter of 1996 were $97.4 million,
representing a 7.3% increase over the same period in 1995, when sales were
$90.7 million. The increase in sales reflects a 6.5% increase in sales of
distributed products, a 12.1% decrease in sales of manufactured products, and
the purchase of TBP in August 1996. The decrease in sales of manufactured
goods related to operating difficulties due to the sale of the Lexington,
North Carolina facility and consolidation of operations into the Oshkosh,
Wisconsin plant, rather than a decrease in customer orders. Based upon F.W.
Dodge statistics for July and August 1996, single family housing starts were
at a seasonally adjusted annual rate of slightly below 1.1 million units.
This increase of 7.0% over the same period in 1995 reflected an increase in
construction activity. However, the Northeast region, where the Company
derives a significant portion of its business, experienced only a 6% increase.
For the third quarter of 1996, the Company reported net income of $.9 million or
$0.11 per share compared to a net income of $.1 million or $0.01 per share for
the same period in 1995, on average shares outstanding of 8,808,636 and
8,644,423, respectively. As discussed in Note 3, included in the third quarter
1996 results is a restructuring charge of $1.9 million to cover the costs of
closing the Company's Lexington, North Carolina manufacturing plant. Excluding
the $1.9 million restructuring charge for 1996, the Company reported net income
of $2.8 million or $.33 per share. The increase in net income, exclusive of the
restructuring charge, was primarily caused by higher sales volume, improved
profit margins, reductions to operating expenses, and the acquisition of
Tennessee Building Products.
The gross profit increase of $2.2 million from the third quarter of 1995 to the
corresponding period of 1996 was primarily the result of the aforementioned
sales volume increase, cost reductions, material cost improvements, and the
TBP acquisition.
Operating expenses for the third quarter of 1996 were $11.4 million,
excluding the restructuring charge, or 11.7% of net sales, compared to 1995
third quarter operating expenses of $11.5 million, or 12.7% of net sales.
Operating expenses as a percent of net sales have decreased primarily due to
the closing of the Lexington manufacturing facility and the resulting
elimination of significant duplicate operating expenses.
<PAGE>
Third quarter 1996 interest expense was $.2 million lower than for the similar
period of 1995. Of this, $.1 million was due to the capitalization of interest
incurred in connection with the door manufacturing expansion. The remainder was
a result of lower bank debt levels and lower interest rates in 1996.
The provision for income taxes in both years relates to the recording of state
taxes. The provision for federal taxes is offset by the Company's net operating
loss position. Additionally, 1996's third quarter reflects a tax benefit
related to the amendment of prior year tax returns.
<PAGE>
NINE MONTHS ENDED SEPTEMBER 28, 1996 VS
NINE MONTHS ENDED SEPTEMBER 30, 1995
The Company's net sales for the 1996 nine-month period were $267.1 million,
representing a 4.5% increase from the 1995 nine-month period, when net sales
were $255.6 million. The increase in net sales was primarily the result of a
3.3% increase in the sales of distributed products, a 1.2% increase in the
sales of manufactured products, and the acquisition of TBP. The increase in
the sale of manufactured products would have been materially higher but for the
operating difficulties related to the sale of the Lexington, North Carolina
manufacturing facility and the consolidation of operations into the Oshkosh,
Wisconsin plant.
The Company reported year-to-date 1996 net income of $.9 million or $.11 per
share, compared to a net loss of $1.1 million or $0.13 per share for 1995 on
average shares outstanding of 8,724,938 and 8,642,362 respectively.
Excluding the $2.8 million restructuring charges in 1996, the Company
reported earnings of $3.7 million or $0.43 per share. The increase in net
income, exclusive of the restructuring charges, was primarily caused by the
impact of a higher sales volume, material and other operating cost
reductions, the purchase of TBP, and the 1995 inventory losses at the
Virginia distribution center on gross profit, as well as reduced operating
expenses and lower interest expense. These favorable items were somewhat
offset by less favorable pricing and mix and higher overhead costs.
The gross profit increase of $3.5 million from the first nine months of 1995
to the corresponding period of 1996 was primarily the result of the effect of
the aforementioned increase in sales at both the manufacturing and
distribution divisions and the addition of TBP, in addition to the impact of
the 1995 inventory losses at the Company's Virginia distribution center. The
gross profit percentage improved from 14.1% in the first nine months of 1995
to 14.8% in 1996.
Excluding the restructuring charges, year-to-date operating expenses
decreased $.5 million from 1995 to 1996. Operating expenses for 1996 were
$34.1 million or 12.8% of net sales, compared to 1995 expenses of $34.6
million or 13.5% of net sales, excluding the restructuring charges. The
decline in operating expenses as a percentage of net sales primarily due to
the closing of the Lexington manufacturing facility and the resulting
elimination of significant duplicate operating expenses, tighter cost
controls on non-personnel costs and lower salaries. These were partially
offset by higher 1996 accruals for incentive bonuses and profit sharing. Due
to the losses in 1995, these accruals were not appropriate in the prior year.
<PAGE>
Year-to-date 1996 interest expense was $.7 million lower than for the similar
period of 1995. Of this, $.4 million was due to the capitalization of interest
incurred in connection with the door manufacturing expansion. The remainder was
a result of lower bank debt levels and lower interest rates in 1996.
The provision for income taxes in both years relates to the recording of state
taxes. The provision for federal taxes is offset by the Company's net operating
loss position. Additionally, 1996 reflects a tax benefit related to the
amendment of prior year tax returns.
<PAGE>
SIGNIFICANT BUSINESS TRENDS/UNCERTAINTIES
Management believes that housing starts have a significant influence on the
Company's level of business activity. For the first eight months of 1996, F.W.
Dodge indicates that single family housing starts are 14% greater than for the
similar period of 1995. Lower interest rates and pent up demand are credited
with causing the increase. The expectation is that industry growth will
moderate in the fourth quarter, but that the full year 1996 will show a
significantly higher construction rate than 1995 for single family dwellings.
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. 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. Fir prices at 1995 year-end remained at record high levels, while pine
lumber prices declined by 18.5% during 1995. Due to intense competitive
pricing, this resulted in reduced selling prices rather than increased profit
margins. For the first nine months of 1996, fir prices remained unchanged at
the record level, while pine prices escalated approximately 17.6% from the 1995
year-end price. 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 price increases where competitive
factors allow, will partially offset the impact of the high cost of raw
material.
<PAGE>
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 September 28, 1996 was $78.8 million, with a current ratio
of 3.6 to 1.0, while at December 31, 1995 working capital was $58.7 million
with a current ratio of 3.8 to 1.0. The increase in working capital was
primarily the result of an $11.6 million increase in receivables, as well as
an $11.5 million increase as a result of the TBP acquisition. This increase
was partially offset by a $.7 million decrease in other working capital. As
a consequence of the operational problems the Oshkosh, Wisconsin
manufacturing operation is experiencing in consolidating the Lexington
production, exclusive of TBP inventories were $6.3 million higher, with a
partially compensating $5.5 million increase in accounts payable.
Long-term debt, net of cash, increased to $53.3 million at September 28,
1996, from $30.4 million at December 31, 1995. The Company's ratio of
long-term debt, net of cash, to total capitalization increased from 36.6% at
December 31, 1995 to 49.7% at September 28, 1996. The increase in long-term
debt was a result of the need to finance the $8.6 million increase in working
capital (exclusive of the TBP working capital), the $16.8 million paid to
acquire TBP and pay off its debt, and $3.9 million of capital spending
partially offset by the sale of the Lexington facility for $4.1 million and
the redemption of certain life insurance policies for $.9 million.
Cash used by operating activities amounted to $6.7 million for the nine
months ended September 28, 1996, primarily to support the higher level of
receivables. By comparison, the nine months ended September 30, 1995,
reflected cash used by operating activities of $6.6 million. Investing
activities in the first nine months of 1996 used $15.5 million, compared to
the corresponding period in 1995, when investing activities used $4.2
million. The 1996 investing activities included $.9 million in cash provided
by the surrender of life insurance policies on former executives, $3.9
million expended on capital projects, $15.6 million, including acquisition
costs, for the purchase of TBP and $4.1 million generated by asset disposals.
Financing activities generated $18.8 million through September 28, 1996,
almost exclusively by the increase in the outstanding revolving bank debt.
During the same period in 1995, financing activities provided $6.0 million in
cash. The $12.8 million difference in financing requirements between the
first nine months of 1995 and of 1996 primarily reflects the need to finance
the TBP acquisition discussed previously.
<PAGE>
The Company executed an amended credit agreement with its Bank Group effective
June 30, 1996. The terms are similar to or more favorable to the Company than
the terms previously in effect. The amendment extends the revised credit
agreement through July 13, 1998. The Company executed amendments dated August
30, 1996 and October 21, 1996 which altered the specific financial covenants to
give effect to the TBP acquisition.
The Company was in compliance with the specific financial covenants in its
amended credit agreement with its Bank Group at September 28, 1996.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
10.1 Amendment #7, dated October 22, 1996, to the Loan and
Security Agreement among the Company, certain banks and
Barclay's Business Credit, Inc. (succeeded by Fleet
Capital), dated July 14, 1994.
10.2 Form of Indemnification Agreement, dated September 17, 1996,
between the Company and David A. Braun.
27 Financial Data Schedule
(b) Three reports on Form 8-K were filed during the quarter.
1. Current Report on Form 8-K, pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, was voluntarily
filed with the Commission on September 13, 1996 for the
acquisition of Tennessee Building Products (Commission File
No. 1-9843).
2. Current Report on Form 8-K, pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, was filed with the
Commission on September 26, 1996 for the acquisition of
Tennessee Building Products, with twelve exhibits/material
contracts added (Commission File No. 1-9843).
3. Amendment on Form 8-K/A to Current Report on Form 8-K filed
on September 13, 1996, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, was filed with the
Commission on September 27, 1996 to include the audited
Tennessee Building Products financial statements and the
unaudited pro forma combined financial statements
(Commission File No. 1-9843).
<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.
MORGAN PRODUCTS LTD.
Date: November 7, 1996 By /S/ DOUGLAS H. MACMILLAN
------------------------
Douglas H. MacMillan
Vice President,
Chief Financial Officer and Secretary
(For the Registrant and as
Principal Finance Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
10.1 Amendment #7, dated October 22, 1996, to the Loan and
Security Agreement among the Company, certain banks and
Barclay's Business Credit, Inc. (succeeded by Fleet
Capital), dated July 14, 1994.
10.2 Form of Indemnification Agreement, dated September 17, 1996,
between the Company and David A. Braun.
27 Financial Data Schedule
<PAGE>
Exhibit 10.1
10/18/96
SEVENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THE SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
("Seventh Amendment") is made as of the 22nd day of October, 1996, by and among
Morgan Products Ltd., a Delaware corporation having its chief executive office
at 469 McLaws Circle, Williamsburg, Virginia 23185 ("Borrower"), the lenders who
are or who may from time to time become signatories hereto ("Lenders") and Fleet
Capital Corporation, a Connecticut corporation having an office at 200 West
Madison Street, Chicago, Illinois 60606 ("FCC") which is the
successor-in-interest to Barclays Business Credit, Inc., as agent for the
Lenders ("FCC," in such capacity being "Agent")
WITNESSETH:
WHEREAS, FCC, as Agent and Lender, and Borrower entered into a certain
Loan and Security Agreement dated as of July 14, 1994 as amended by (i) a
certain First Amendment to Loan and Security Agreement ("First Amendment") dated
as of September 30, 1994 by and among Agent, Borrower and the lender signatories
thereto, (ii) a certain Second Amendment to Loan and Security Agreement ("Second
Amendment") dated as of October 20, 1994 by and among Agent, Borrower and the
lender signatories thereto, (iii) a certain First (sic) Amendment to Loan and
Security Agreement ("Third Amendment") dated as of March 29, 1995 by and among
Agent, Borrower and the lender signatories thereto, (iv) a certain Fourth
Amendment to Loan and Security Agreement ("Fourth Amendment") dated as of
October 30, 1995 by and among Agent, Borrower and the lender signatories
thereto, (v) a certain Fifth Amendment to Loan and Security Agreement ("Fifth
Amendment") dated as of June 30, 1996 by and among Agent, Borrower and the
lender signatories thereto, (vi) and a certain Sixth Amendment to Loan and
Security Agreement ("Sixth Amendment") dated as of August 30, 1996 by and among
Agent, Borrower and the lender signatories thereto. Said Loan and Security
Agreement, as amended from time to time, is hereinafter referred to as the "Loan
Agreement"; and
WHEREAS, Borrower, Lenders and Agent desire to amend and modify certain
provisions of the Loan Agreement.
NOW THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained, and any extension of credit heretofore, now or
hereafter made by Lenders and Agent to Borrower, the parties hereto hereby agree
as follows:
1. SECTION 3.3. Section 3.3 of the Loan Agreement is hereby deleted and
the following is inserted in its stead:
"3.3 TERM OF AGREEMENT. Subject to Lenders' right to cease making Loans
to Borrower at any time upon or after the occurrence and during the continuance
of any Default or Event of Default and subject to Borrower's right to terminate
this Agreement pursuant to Section 3.4, this
<PAGE>
Agreement shall be in effect for a period from July 14, 1994, through and
including the Commitment Termination Date."
2. Specific Financial Covenants. Section 9.3(D) of the Loan Agreement is
hereby deleted and the following is inserted in its stead:
"9.3(D) MINIMUM EXCESS REVOLVING CREDIT LOAN AVAILABILITY. Maintain as
of any date within the Term hereof, average Excess Revolving Credit Loan
Availability for the date of determination and the immediately previous
twenty-nine (29) days of, no minimum from July 14, 1994 through October 29,
1995; $8,000,000 or more from October 30, 1995 through October 20, 1996;
$5,000,000 or more from October 21, 1996 through November 30, 1996; and
$8,000,000 or more from December 1, 1996 and thereafter."
2. CONTINUING EFFECT. Except as otherwise specifically set out herein,
the provisions of the Loan Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, this Seventh Amendment has been duly executed as of
the day and year specified at the beginning hereof.
MORGAN PRODUCTS LTD., ("Borrower")
By:/s/ Dawn E. Neuman
-------------------------------
Name: Dawn E. Neuman
Title: Treasurer, Assistant Secretary
FLEET CAPITAL CORPORATION ("Agent" and
"Lender")
By:
-------------------------------
Name: Robert Lund
Title: Vice President
HARRIS TRUST AND SAVINGS BANK ("Lender")
By:/s/ Lee A. Vandermyde
-------------------------------
Name:Lee A. Vandermyde
--------------------------
Title:Vice President
-------------------------
<PAGE>
Exhibit 10.2
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated September 17, 1996 (the "AGREEMENT"),
between MORGAN PRODUCTS LTD., a Delaware corporation (the "CORPORATION"), and
David A. Braun, an officer of the Corporation (the "the INDEMNITEE").
WHEREAS, the ability to attract and retain competent and experienced
persons to serve as directors and officers of the Corporation is in the best
interests of the Corporation and its stockholders, and the Corporation's
ability to attract and retain such persons will be enhanced by providing both
its current and prospective directors and officers with indemnification
agreements as permitted by Delaware law so that such persons will be willing
to serve or continue to serve the Corporation;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. GENERAL INDEMNIFICATION. It is the intention of the parties
hereto that the Corporation shall be required to indemnify the Indemnitee to
the fullest extent permitted by the law (both statutory and common) of the
State of Delaware as now or hereafter in effect. Therefore, in addition to
the indemnification and advancement of expenses specifically provided elsewhere
herein, the Corporation shall indemnify and hold the Indemnitee harmless in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, and
including any action brought by or in the right of the Corporation, to which
the Indemnitee is, was or at any time becomes a party, or is threatened to be
made a party, by reason of the fact that he is or was or has agreed to become
a director, officer, employee or agent of the Corporation, or is or was
serving or has agreed to serve at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action alleged
to have been taken or omitted in any such capacity, against all costs,
charges, expenses (including attorneys' fees and costs), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, to the fullest extent then permitted by the law (both statutory
and common) of the State of Delaware as now or hereafter in effect,
notwithstanding that such indemnification is not specifically mandated or
authorized by the other provisions of this Agreement, the Corporation's
By-Laws or Certificate of Incorporation or otherwise and notwithstanding that
the legal basis for such indemnification may have arisen subsequent to the
act, occurrence or omission with respect to which indemnification is being
sought.
SECTION 2. THIRD PARTY ACTIONS. The Corporation shall indemnify and hold
the Indemnitee harmless in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation
and covered by Section 3 hereof) to which the Indemnitee is, was or at any
time becomes a party, or is threatened to be made a party, by reason of the
fact that he is or was or has agreed to become a director, officer, employee
or agent of the Corporation, or is or was serving or has agreed to serve at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
or by reason of any action alleged to have been taken or omitted in any such
capacity, against all costs, charges, expenses (including attorneys' fees and
costs), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action,
suit or proceeding and any appeal therefrom, if the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
SECTION 3. ACTIONS IN RIGHT OF CORPORATION. The Corporation shall
indemnify and hold the Indemnitee harmless in connection with any threatened,
pending or completed action, suit or proceeding, brought by or in the right
of the Corporation to procure a judgment in the Corporation's favor,
<PAGE>
to which the Indemnitee is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that he is or was or has
agreed to become a director, officer, employee or agent of the Corporation,
or is or was serving or has agreed to serve at the request of the Corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in any such capacity, against
all costs, charges and expenses (including attorneys' fees and costs)
actually and reasonably incurred by him or on his behalf in connection with
such action, suit or proceeding and any appeal therefrom, if the Indemnitee
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which the Indemnitee shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action, suit or proceeding was brought
shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such costs, charges and
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 4. PREVAILING PARTY. Notwithstanding anything herein to the
contrary, to the extent that the Indemnitee has been successful, on the merits
or otherwise, including, without limitation, the dismissal of an action
without prejudice, in defense of any action, suit or proceeding referred to
in Sections 2 or 3 hereof, he shall be indemnified against all costs, charges
and expenses (including attorneys' fees and costs) actually and reasonably
incurred by him or on his behalf in connection therewith. In addition, to the
extent that the Indemnitee has been partially successful, on the merits or
otherwise, including, without limitation, the dismissal without prejudice, as
to one or more but less than all claims issues or matters in any action, suit
or proceeding referred to in Sections 2 or 3 hereof, he shall be indemnified
against all costs, charges and expenses (including attorneys' fees and costs)
actually and reasonably incurred by him or on his behalf in connection with
each successfully resolved claim, issue or matter.
SECTION 5. NO PRESUMPTIONS. The termination of any action, suit or
proceeding by judgement, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 6. ADVANCES; EXPENSES AS WITNESS.
(a) Costs, charges and expenses (including attorneys' fees and costs)
incurred by the Indemnitee in connection with any civil or criminal action,
suit or proceeding (including one brought by or in the right of the
Corporation) which might give rise to a right of indemnification hereunder
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding, provided, however, that the payment of such
costs, charges and expenses (including attorneys' fees and costs) incurred by
the Indemnitee in his capacity as a director or officer (and not in any other
capacity) in advance of the final disposition of such action, suit or
proceeding shall be made only upon receipt of an undertaking by or on behalf
of the Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that the Indemnnitee is not entitled to be
indemnified by the Corporation as authorized in this Agreement. Any
advancement of expenses pursuant to this Agreement shall be made promptly and
in any event within 15 days after receipt of written request therefor from
the Indemnitee, accompanied by any required undertaking.
(b) Notwithstanding any other provision of this Agreement, to the extent
that the Indemnitee is a witness in any action, suit or proceeding referred
to in Sections 2 or 3 and any appeal therefrom to which the Indemnitee is not
a party, the Corporation shall indemnify the Indemnitee against all costs,
charges and expenses (including attorneys' fees and costs) actually or
reasonably incurred by him or on his behalf in connection therewith.
<PAGE>
SECTION 7. PROCEDURE.
(a) Any indemnification pursuant to this Agreement (unless ordered by a
court) shall be made by the Corporation promptly and in any event within 45
days after receipt of a written request therefor from the Indemnitee, unless
a determination is made within such 45 day period (i) by the Board of
Directors of the Corporation by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the vote of the holders of a majority of the issued and
outstanding shares of Common Stock of the Company, that indemnification of
the Indemnitee is not proper in the circumstances because he has not met the
applicable standard of conduct.
(b) The right to indemnification or advancement of expenses shall be
enforceable by the Indemnitee in any court of competent jurisdiction if the
Corporation denies such request, in whole or in part (including by failure to
act thereon) within 45 days after receipt of such written request (or, in the
case of advancements, within 15 days), it being the parties' intention that
if the Corporation denies the Indemnitee's request for indemnification, the
question of the Indemnitee's right thereto shall be for the court to decide.
The Indemnitee's costs and expenses incurred in connection with successfully
establishing his right to indemnification and advancements, in whole or in
part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce
a claim for advancements where the required undertaking, if any, has been
received by the Corporation) that the Indemnitee has not met the applicable
standard of conduct. The burden of proving such defense shall be on the
Corporation, and there shall be a rebuttable presumption that the Indemnitee
did not fail to meet such applicable standard. Neither the failure of the
Corporation (including its Board of Directors, its independent legal counsel
and its shareholders) to have made a determination prior to the commencement
of such action that indemnification of the Indemnitee is proper in the
circumstances because he has met the applicable standard of conduct, nor the
fact that there has been an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel and its
shareholders) that the Indemnitee has not met such applicable standard of
conduct, shall be a defense or sufficient to rebut such presumption that the
Indemnitee has met the applicable standard of conduct.
SECTION 8. NON-EXCLUSIVITY, ETC. The indemnification and advancement of
expenses provided by this Agreement shall not be deemed exclusive of any
other rights to which the Indemnitee may now or hereafter be entitled under
any present or future law (whether statutory or common), agreement, By-Law,
provision of the Certificate of Incorporation, vote of shareholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office or while
employed by or acting as agent of the Corporation. No amendment or repeal of
any present or future provision in the Corporation's Certificate of
Incorporation or By-Laws authorizing or requiring the indemnification of or
advancements to the Indemnitee in any such capacity, and which amendment or
repeal would diminish the Indemnitee's right of indemnification or to
advancements in any respect under such provision, shall be effective against
the Indemnitee unless he shall consent to such amendment or repeal in a signed
writing or by the Indemnitee's vote as a director or shareholder.
SECTION 9. SURVIVAL
(a) The indemnification and advancement of expenses provisions hereof
shall continue after the Indemnitee has ceased to be a director, officer,
employee or agent of the Corporation and shall inure to the benefit of the
Indemnitee's estate, heirs, executors and administrators.
(b) This Agreement shall be binding on the successors and assigns of
the Corporation including, without limitation, any transferee of all or
substantially all of its assets and any successor by merger, consolidation,
operation of law or otherwise.
SECTION 10. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled
pursuant hereto to indemnification for some or a portion of the expenses,
judgments, fines, penalties or amounts paid in
<PAGE>
settlement, actually and reasonably incurred by the Indemnitee but not for the
total amount thereof, the Corporation shall indemnify the Indemnitee for such
portion thereof to which the Indemnitee is entitled.
SECTION 11. EXCEPTIONS. Any other provisions herein to the contrary
notwithstanding, the Corporation shall not be obligated pursuant to the terms
of this Agreement:
(a) To indemnify or advance expenses to the Indemnitee with respect
to proceedings or claims initiated or brought voluntarily by the Indemnitee
and not by way of defense, except with respect to proceedings brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145 of the
Delaware General Corporation Law, but such indemnification or advancement of
expenses may be provided by the Corporation in specific cases if the Board of
Directors finds it to be appropriate.
(b) To indemnify the Indemnitee for expenses or liabilities of any
type whatsoever (including, but not limited to, judgments, fines or
penalties, and amounts paid in settlement) to the extent that such expenses
or liabilities have been paid directly to the Indemnitee by an insurance
carrier under a policy of officers' and directors' liability insurance
maintained by the Corporation.
(c) To indemnify the Indemnitee in connection with a suit or judgment
rendered for an accounting of profits arising from the purchase and sale by
the Indemnitee of securities pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
SECTION 12. SEVERABILITY. If this Agreement or any provision hereof
shall be invalidated or held illegal or unenforceable for any reason
whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of
any section of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired therby; and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable,
that is not itself invalid, illegal or unenforceable) shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
SECTION 13. MISCELLANEOUS.
(a) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and together which shall constitute one and
the same agreement.
(b) Any headings used herein are used solely for convenience and shall
not be deemed to constitute part of this Agreement or to affect the
construction hereof.
(c) All notices, demands, and other communications hereunder must be in
writing and shall be deemed to have been received if delivered by hand or
mailed by certified or registered mail, postage prepaid, or sent by overnight
or express courier, postage prepaid, to the following persons and addresses:
If to the Corporation:
MORGAN PRODUCTS LTD.
469 McLaws Circle
Williamsburg, VA 23185
ATTENTION: PRESIDENT
IF TO THE INDEMNITEE: David A. Braun
1803 Signal Hill Drive
Mechanicsburg, PA 17055
or to such other name and address as to which notice shall duly be given in
accordance with the terms hereof.
<PAGE>
(d) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delware.
(e) The Indemnitee agrees to promptly notify the Corporation upon being
served with any citation, complaint, indictment or other document that might
reasonably result in indemnification or advancement of expenses hereunder.
However, no failure to provide such notice shall result in the Indemnitee
losing any of his rights hereunder or impose any liability whatsoever on the
Indemnitee.
(f) This Agreement may not be modified or amended except in a writing
signed by both parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof nor shall such waiver constitute a continuing waiver.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
MORGAN PRODUCTS LTD.
BY:/s/ Larry R. Robinette
-----------------------------------
NAME: Larry R. Robinette
TITLE: President & Chief Executive Of
/s/ David A. Braun
-----------------------------------
David A. Braun
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Morgan
Products Form 10-Q as of September 28, 1996 and is qualified in its entirety by
reference to such Form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 1,717
<SECURITIES> 0
<RECEIVABLES> 40,463
<ALLOWANCES> 1,341
<INVENTORY> 67,540
<CURRENT-ASSETS> 109,577
<PP&E> 51,538
<DEPRECIATION> 28,367
<TOTAL-ASSETS> 139,787
<CURRENT-LIABILITIES> 30,805
<BONDS> 55,023
0
0
<COMMON> 34,392
<OTHER-SE> 19,567
<TOTAL-LIABILITY-AND-EQUITY> 139,787
<SALES> 97,377
<TOTAL-REVENUES> 97,377
<CGS> 82,775
<TOTAL-COSTS> 96,150
<OTHER-EXPENSES> (80)
<LOSS-PROVISION> 143
<INTEREST-EXPENSE> 778
<INCOME-PRETAX> 529
<INCOME-TAX> (406)
<INCOME-CONTINUING> 935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 935
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
