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FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 5, 1997
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 of (I.R.S. Employer Identification No.)
incorporation or 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 May 14, 1997 was 10,153,120; 2,386 shares are held in treasury.
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Page 1 of 14
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORGAN PRODUCTS LTD.
Consolidated Balance Sheets
($000 Except Shares Outstanding)
April 5, March 30, December 31,
1997 1996 1996
----------- ----------- -------------
(Unaudited) (Unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 774 $ 420 $ 1,467
Accounts receivable, net 40,380 28,480 32,559
Inventories 75,562 52,982 73,683
Other current assets 1,241 1,127 632
-------- -------- --------
Total current assets 117,957 83,009 108,341
-------- -------- --------
OTHER ASSETS 10,805 4,393 10,638
PROPERTY, PLANT & EQUIPMENT, net 23,230 23,626 23,137
-------- -------- --------
TOTAL ASSETS $151,992 $111,028 $142,116
-------- -------- --------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 395 $ 397 $ 0
Current maturities of long-term debt 1,282 898 1,136
Accounts payable 14,148 13,070 19,449
Accrued compensation and employee benefits 5,847 5,223 6,219
Income tax payable 0 119 0
Other current liabilities 3,510 2,613 4,449
-------- -------- --------
Total current liabilities 25,182 22,320 31,253
-------- -------- --------
LONG-TERM DEBT 66,686 36,369 48,880
STOCKHOLDERS' EQUITY:
Common Stock, $.10 par value, 10,152,912, 8,648,136,
and 10,149,816 shares outstanding, respectively 1,015 865 1,015
Paid-in capital 42,252 33,775 42,237
Retained earnings 16,995 18,070 18,927
-------- -------- --------
60,262 52,710 62,179
Treasury stock, 2,386 shares, at cost (48) (48) (48)
Unamortized value of restricted stock (90) (323) (148)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 60,124 52,339 61,983
-------- -------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $151,992 $111,028 $142,116
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 2 of 14
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<TABLE>
<CAPTION>
MORGAN PRODUCTS LTD.
Consolidated Income Statements
($000, except earnings per share amounts
and weighted average shares outstanding)
For the Three Months Ended
---------------------------------
April 5, March 30,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 95,805 $ 74,536
Cost of goods sold 78,381 64,038
----------- -----------
Gross profit 17,424 10,498
----------- -----------
Operating expenses:
Sales & marketing 10,635 8,088
General & administrative 3,894 2,437
Restructuring 2,510 0
Reorganization 1,100 0
----------- -----------
Total 18,139 10,525
----------- -----------
Operating income (loss) (715) (27)
----------- -----------
Other income (expense):
Interest (1,236) (593)
Other 49 80
----------- -----------
Total (1,187) (513)
----------- -----------
Income (loss) before income taxes (1,902) (540)
Provision for income taxes 30 19
----------- -----------
Net income (loss) $ (1,932) $ (559)
=========== ===========
Income (loss) per share $ (0.19) $ (0.06)
=========== ===========
Weighted average number of
common shares outstanding 10,152,111 8,647,871
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 3 of 14
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<TABLE>
<CAPTION>
MORGAN PRODUCTS LTD.
Consolidated Statements of Cash Flows
( $000 ' s )
For the Three Months Ended
--------------------------------------
April 5, March 30,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH GENERATED (USED) BY OPERATING ACTIVITIES:
Net (loss) income $ (1,932) $ (559)
Add (deduct) noncash items included in income:
Depreciation and amortization 1,060 886
Provision for doubtful accounts 20 14
Other 58 59
Cash (used) generated by changes in components of working
capital, net of effects of acquisition of business:
Accounts receivable (7,841) (7,693)
Inventories (1,879) 440
Accounts payable (3,397) 1,949
Other working capital (1,920) (953)
----------- ---------
NET CASH GENERATED (USED) BY OPERATING ACTIVITIES (15,831) (5,857)
----------- ---------
CASH GENERATED (USED) BY INVESTING ACTIVITIES:
Acquisition of property, plant, & equipment (996) (914)
Acquisition of Tennessee Building Products (2,160) 0
Proceeds from disposal of property, plant, & equipment 3 26
Proceeds from surrender of life insurance policies 0 862
Acquisition of other assets, net (71) (17)
----------- ---------
NET CASH GENERATED (USED) BY INVESTING ACTIVITIES (3,224) (43)
----------- ---------
CASH GENERATED (USED) BY FINANCING ACTIVITIES:
Net change in short-term debt 395 397
Proceeds from long-term debt 18,189 952
Repayments of long-term debt (237) (152)
Common stock issued for cash 15 4
Other 0 (16)
----------- ---------
NET CASH GENERATED (USED) BY FINANCING ACTIVITIES 18,362 1,185
----------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (693) (4,715)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,467 5,135
----------- ---------
End of period $ 774 $ 420
=========== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 1,524 $ 854
Income taxes 43 11
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 4 of 14
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MORGAN PRODUCTS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED APRIL 5, 1997
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 5, 1997 and March 30,
1996, 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 5, 1997 are not
necessarily indicative of the results that may be expected for the full year or
any other interim period.
EARNINGS PER SHARE - The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No.128, "Earnings per Share" ("SFAS
128"). SFAS 128 replaces primary EPS with basic EPS, which excludes dilution and
requires presentation of both basic and diluted EPS on the face of the income
statement. Diluted EPS is computed similarly to the current fully diluted EPS.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, and requires restatement of all prior-period EPS data
presented. The adoption of this statement is not expected to materially affect
either future or prior-period EPS.
Page 5 of 14
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NOTE 2 - INVENTORIES
Inventories consisted of the following at (in thousands of dollars):
April 5, 1997 March 30, 1996 December 31, 1996
------------- -------------- -----------------
(unaudited) (unaudited)
Raw material $13,297 $ 9,234 $14,139
Work-in-process 9,711 6,607 9,899
Finished goods 52,554 37,141 49,645
------- ------- -------
$75,562 $52,982 $73,683
======= ======= =======
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 AND REORGANIZATION
In 1994, the Company recorded an $11.3 million restructuring charge to cover the
cost of closing the Springfield, Oregon plant, the Weed, California veneer
operation, and to provide other cost reductions and consolidations within the
Company. At such time, a multi-year plan involving necessary management
structure changes, a new management information system, and future facility
requirements was developed.
During 1995, the Company reviewed the restructuring reserves established in the
1994 restructuring and determined that certain estimated costs would not be as
high as had been expected and adjusted the reserve appropriately. At that time,
certain other cost reduction and restructuring actions for Morgan Distribution
were approved and provided for, which offset the lower expenses.
In the second quarter of 1996, the Company sold its Lexington, North Carolina
door manufacturing facility. The entire line of doors previously manufactured in
Lexington was shifted to the Company's Oshkosh, Wisconsin door manufacturing
facility. The Company recorded an additional restructuring charge in the second
quarter of 1996 of $881,000, of which $356,000, related to the sale of the
Lexington facility and the consolidation of door manufacturing operations into
the Oshkosh facility, and the balance of which was used to cover incremental
costs related to the Springfield and Weed plant closings and the reorganization
of the management structure at Morgan Manufacturing. Additional aggregate
restructuring expenses of $3.8 million were recorded in the third and fourth
quarters of 1996. These restructuring expenses, which included Lexington
operating costs after cessation of production and incremental hiring, training,
and relocation costs associated with the transfer of Lexington production to
Oshkosh were expensed as incurred.
In the first quarter of 1997, the Company recorded an additional restructuring
charge of $2.5 million for excessive costs incurred as a consequence of the
consolidation of manufacturing operations and a delay in the start-up of the new
high-speed door assembly line. The equipment has been installed and management
believes that the line should be functioning at a normal capacity by June 1997.
At April 5, 1997, the restructuring reserve balance was $.9 million as compared
to $1.1 million at December 31, 1996.
Additionally, the Company recorded a $1.1 million reorganization charge in the
first quarter of 1997 in connection with the termination of the employment of
the Chief Financial Officer and Senior Vice President-Human Resources and
Administration of the Company. At April 5, 1997, the reorganization reserve
balance was $1.1 million.
Page 6 of 14
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NOTE 4 - CREDIT AGREEMENT
The Company maintains a credit agreement with a bank group which provides for a
revolving credit facility of up to $65 million through July 13, 1998, including
a letter of credit facility of up to $9 million. On each of March 13, 1997 and
May 16, 1997, the Company and the bank group entered into an amendment altering
the restrictive covenants under the credit Agreement. The amendments have terms
similar to those previously in effect or more favorable to the Company. At April
5, 1997, the Company had borrowings of $59.4 million under the revolving credit
facility. The credit agreement requires the Company, among other things, to
maintain minimum tangible net worth and interest coverage ratios and a maximum
leverage ratio.
Page 7 of 14
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward Looking Statements
Various statements made within this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Amendment to
Quarterly Report on Form 10-Q/A constitute "forward looking statements" for
purposes of the Securities and Exchange Commission's "safe harbor" provisions
under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under
the Securities Exchange Act of 1934, as amended. Investors are cautioned that
all forward looking statements involve risks and uncertainties, including those
detailed in the Company's filings with the Securities and Exchange Commission.
There can be no assurance that actual results will not differ from the Company's
expectations. Factors which could cause materially different results include,
among others, the success of consolidation of manufacturing operations; changes
in relationships with important suppliers and key customers; the pace of
acquisitions; fluctuations in the price of raw materials; and competitive and
general economic conditions, such as housing starts.
Results of Operations
Three Months Ended April 5, 1997 vs.
Three Months Ended March 30, 1996
The Company's net sales for the first quarter of 1997 were $95.8 million,
representing a 28.5% increase over the same period in 1996, when sales were
$74.5 million. $12.6 million of the increase is attributable to the acquisition
of Tennessee Building Products ("TBP"). The remainder is a reflection of the
18.6% quarter-over-quarter improvement in the sales of distributed products,
which management believes is primarily the result of an increase in the number
of shipping days in the first quarter of 1997 as compared to the same period in
1996 and an increase in marketing efforts of the Company in partnership with key
suppliers. Sales of manufactured products for the first quarter of 1997 were
lower than sales of manufactured products for the same period in 1996 by 1.4% or
$361,000 primarily as a consequence of the disruption caused by the
consolidation of the Lexington, North Carolina operations into the Oshkosh,
Wisconsin facility and the delay in start-up of the new high-speed door assembly
line.
For the first quarter of 1997, the Company reported a net loss of $1.9 million
or $0.19 per share compared to a net loss of $559,000 or $0.06 per share for the
same period in 1996, on average shares outstanding of 10,152,111 and 8,647,871,
respectively. Included in the results for the first quarter of 1997 are a $2.5
million restructuring charge to cover the incremental costs of consolidating the
Lexington and Oshkosh manufacturing facilities and a $1.1 million reorganization
charge related to changes in executive management of the Company. Excluding
these restructuring and reorganization charges, the Company had income of $1.7
million for the first quarter of 1997. The increase in income, exclusive of the
restructuring and reorganization charges, was primarily the result of the
acquisition of TBP, the higher sales volume of distributed products, and a
volume incentive reward from a supplier partnership program.
The gross profit increase of $6.9 million from the first quarter of 1996 to the
corresponding period of 1997 was primarily the result of the TBP acquisition,
sales volume gains, and supplier incentive, plus cost reductions and material
cost improvements at both the distribution and manufacturing units.
Operating expenses for the first quarter of 1997, excluding the restructuring
and reorganization charges, were $14.5 million or 15.2% of net sales, compared
to 1996 first quarter operating expenses of $10.5 million, or 14.1% of net
sales. The increases in operating expenses was primarily related to the TBP
acquisition, increased sales commissions, and greater employment costs.
Page 8 of 14
<PAGE>
The provision for income taxes in both first quarter 1997 and 1996 relates to
the recording of state taxes. The provisions for federal taxes in each period is
offset by 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 U.S. Bureau of Census
statistics, single family housing starts in 1996 were 10.1% higher than the
average for the prior five-year period. The Wall Street Journal has recently
reported that the sale of new single family homes in the first quarter of 1997
were the highest for any quarter since 1978. F.W. Dodge has also reported that
housing starts for February 1997 in the Midwest, where the Company has a
significant percentage of its sales, represented the strongest seasonally
adjusted monthly rate since early 1987. No assurances can be given, however,
that any improvement in the level of housing starts will continue, or that
single family housing starts will not decline.
Management also believes that the Company's ability to continue to penetrate the
residential repair and remodeling markets through sales to home center 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. Management further believes that in certain areas of the United States,
sales by distributors directly to the end-user may over time replace, as the
primary channel of distribution, the distribution method of selling to the
retail dealer, who then sells to the end user. The Company intends to respond
aggressively to such changes in distribution methods, including, where
opportunities permit, through the acquisition of distribution businesses that
sell directly to the end-user.
In the past, raw material prices have fluctuated substantially for pine and fir
lumber. Fir prices reached a high in the first quarter of 1995 and remained
within 5% of that level until the fourth quarter of 1996. The average price paid
for fir lumber in the 1997 first quarter is nearly 20% below the price for the
last quarter of 1996. This benefit was more than offset by the price of pine
lumber, which is currently at the highest level since the first quarter of 1994.
In addition, oak prices have risen to their highest level in at least three
years. During the first quarter of 1997 costs for oak lumber were more than 30%
greater than for the last quarter of 1996. Such increases in the price of raw
materials has resulted in reduced profit margins. 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 new offshore sources of raw
material. 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.
In order to expand its capacity and to meet anticipated demand and to reduce its
cost of production, the Company has installed a new high-speed door assembly
line at its Oshkosh facility. Delivery and installation of the new line was
completed during the first quarter of 1997. The new high-speed door assembly
line is operational; however, the new line is not yet operating at normal
capacity. Management currently believes that the line should be functioning at a
normal capacity by June 1997. A performance shortfall could have a detrimental
impact, both on the short-term profitability of the Company and on its long-term
ability to service and retain key customers. Lead-times for standard items rose
from three weeks to eight weeks after the cessation of operations in Lexington,
North Carolina. Lead-times on certain special items were significantly longer.
Management believes that the efficient operation of the new high-speed door
assembly line is critical to reducing lead-times to acceptable levels and
satisfying customers.
An important part of the Company's strategic plan is to expand its distribution
capabilities, particularly in the Southeast and Southwest, or in other area, if
attractive opportunities are presented. In August 1996, the Company acquired
substantially all of the business and assets of Tennessee Building Products, a
regional millwork and specialty building products distributor and light
manufacturer headquartered in Nashville, Tennessee. With the TBP acquisition,
the Company expanded its operations to include Nashville and Chattanooga,
Tennessee; Charlotte, North Carolina; Greenville, South Carolina; and
Huntsville, Alabama.
Page 9 of 14
<PAGE>
Recently, Andersen Corporation ("Andersen") determined to market and sell its
Fibrex(TM) replacement window systems through retail stores which are aimed at
the replacement window buyer. These retail stores, called Renewal by
Andersen(TM) stores, will be devoted exclusively to the promotion and sale of
Fibrex(TM) window systems, with the stores being established in various areas of
the country and principally owned and operated by independent distributors.
Andersen has entered into an agreement with the Company to open one of the first
such stores in Overland Park, Kansas. Such store is owned and operated by the
Company. Fibrex(TM) is a proprietary material developed by Andersen that is made
of a composite of wood fibers and vinyl and is considered to be superior in
certain characteristics to pure vinyl core window systems. In the event that the
Kansas location is successful, the Company and Andersen may consider
establishing additional stores.
As the final major element of its strategic initiatives, the Company is
committed to improving its management information systems. A new Company-wide
integrated management information system has been selected and is in the process
of implementation. The Company has approved a total capital expenditure of $3.4
million for the new management information system project, which will be
financed through a combination of capital leases and borrowings under the
Company's revolving line of credit. Upon completion of this project, the Company
will have achieved significant progress in meeting its goal of being the
industry leader in customer-friendly order processing and fulfillment systems.
Liquidity and Capital Resources
The Company's working capital requirements are related to its sales level,
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 5, 1997 was $92.8 million, with a ratio of current
assets to current liabilities of 4.7 to 1.0, while at December 31, 1996 working
capital was $77.1 million with a ratio of current assets to current liabilities
of 3.5 to 1.0. The increase in working capital reflects seasonality, with
accounts receivable increasing $7.8 million in the quarter compared to $7.7
million in the comparable 1996 period. In addition, inventories rose $1.9
million as a consequence of the consolidation of manufacturing operations and
the delay in the start-up of the new high-speed door assembly line. Accounts
payable and other working capital dropped in the first quarter of 1997 by an
aggregate $5.3 million, primarily as a consequence of the payment of accrued
bonuses and commissions and a large drop in the amount of checks issued and
outstanding.
Long-term debt, net of cash, increased to $65.9 million at April 5, 1997, from
$47.4 million at December 31, 1996. The Company's ratio of long-term debt, net
of cash, to total capitalization increased from 43.3% at December 31, 1996 to
52.3% at April 5, 1997. The $18.5 million increase is attributable to the
aforementioned $15.7 million change in working capital, a final payment of $2.2
million related to the acquisition of TBP, and $1.0 million of capital spending.
Cash used by operating activities totaled $15.8 million for the three months
ended April 5, 1997, as compared to $5.9 million for the three months ended
March 30, 1996. Investing activities in the first three months of 1997 used $3.2
million, compared to the corresponding period in 1996, when investing activities
were cash neutral. 1997 activities included $1.0 million expended to acquire new
equipment and the final payment for the purchase of TBP, while 1996 activities
consisted of $.9 million used for asset acquisitions and $.9 million provided by
the surrender of life insurance policies. Financing activities generated $18.4
million through April 5, 1997, with $18.2 million provided by increases in the
revolving line of credit and $.4 million by short-term financing. Cash used
during the first quarter 1997 was $.2 million for the payment of long-term debt.
During the same period in 1996, financing activities generated $1.2 million from
increased long-term and short-term debt. The $17.2 million difference in the
financing requirements between first quarter 1997 and the comparable period in
1996 reflects the need to finance the $15.8 million cash used by operating
activities and the aforementioned investing activities.
The Company maintains a credit agreement with a bank group which provides for a
revolving credit facility of up to $65 million through July 13, 1998, including
a letter of credit facility of up to $9 million.
Page 10 of 14
<PAGE>
On each of March 13, 1997 and May 16, 1997, the Company and the bank group
entered into an amendment altering the restrictive covenants under the credit
agreement. The amendments have terms similar to those previously in effect or
more favorable to the Company. At April 5, 1997, the Company had borrowings of
$59.4 million under the revolving credit facility. The credit agreement requires
the Company, among other things, to maintain minimum tangible net worth and
interest coverage ratios and a maximum leverage ratio. The Company is in
compliance with the financial covenants under the credit agreement.
The Company believes that it may require additional financing to pursue
attractive acquisition candidates, depending upon the size of the acquisitions.
Restructuring of Operations
Since 1994 the Company has adopted a comprehensive strategic plan to restore
profitability and regain industry leadership by providing customers with quality
products and optimum service at the best price/value relationship. The Company
has taken a series of major initiatives to implement this plan and respond to
continuing challenges in the industry. At Morgan Manufacturing, the Company has
consolidated all of its door manufacturing operations into its Oshkosh facility
and has committed approximately $6 million in capital expenditures for a new
high-speed door assembly line. In addition, management is committed to
controlling manufacturing costs, achieving a substantial savings through
innovative raw material purchasing and manufacturing practices, and developing a
more customer-focused business approach. The Company believes that its
relationship with Andersen has improved in recent years. At Morgan Distribution,
the Company has strengthened its business through a broad series of operating
initiatives and plans to achieve additional growth both through its existing
operations and by acquisition, as opportunities permit. Primarily as the result
of the implementation of its strategic plan, the Company has incurred
substantial restructuring charges. In 1994 and 1995, the Company incurred $11.3
million and $51,000 in restructuring charges, respectively, to cover the costs
of closing the Company's Springfield, Oregon door and Weed, California veneer
plants, the downsizing of Morgan Manufacturing, Company-wide management
structure changes (including terminations and the elimination of certain
positions), the restructuring of the Morgan Distribution operations, the
relocation of the Company's corporate headquarters, and other cost reduction and
consolidation actions.
In the second quarter of 1996, the Company sold its Lexington, North Carolina
door manufacturing facility. The entire line of doors previously manufactured in
Lexington was shifted to the Company's Oshkosh, Wisconsin door manufacturing
facility. The Company recorded restructuring charges in 1996 of $4.71 million,
primarily related to the sale of the Lexington facility and the consolidation of
door manufacturing operations into the Oshkosh facility.
Management believes that with the installation and start-up of the new
high-speed door assembly line at the Oshkosh facility, which occurred in the
first quarter of 1997, lead time increases experienced due to increased
production requirements and related inefficiencies encountered during the
consolidation process may be reversed and, in fact, may be reduced by up to two
weeks. The new high-speed door assembly line is not yet operating at normal
capacity; however, management believes that the line should be functioning at a
normal capacity by June 1997. When the new high-speed door assembly line is
fully operational, management believes that the Oshkosh facility will be
operating at approximately 70% of capacity, based upon current production
levels. It is believed that the consolidation of all door manufacturing
facilities at a single facility will offer the Company significant cost savings
as well as provide customers with the advantage of purchasing the full range of
solid wood door products and wood species from a single manufacturing facility.
In the first quarter of 1997, the Company recorded an additional restructuring
charge of $2.5 million for excessive costs incurred as a consequence of the
consolidation of manufacturing operations and the delayed start-up of the new
high-speed door assembly line. The equipment has been installed and management
believes that the line should be functioning at a normal capacity by June 1997.
The Company expects that it will incur an additional restructuring charge of up
to $2.0 million in the second quarter of 1997 prior to the new high-speed door
assembly line reaching capacity. At April 5, 1997, the
Page 11 of 14
<PAGE>
restructuring reserve balance was $.9 million as compared to $1.1 million at
December 31, 1996, primarily due to costs incurred in connection with severance
and other employee benefit related payments.
Additionally, the Company recorded a $1.1 million reorganization charge in the
first quarter of 1997 in connection with the termination of the employment of
the Chief Financial Officer and Senior Vice President-Human Resources and
Administration of the Company. Such provision is to cover severance and related
payments to such officers. At April 5, 1997, the reorganization reserve balance
was $1.1 million.
Page 12 of 14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Ninth Amendment to Loan and Security Agreement, dated May 16, 1997
among the Company, certain banks and Barclay's Business Credit,
Inc. (succeeded by Fleet Capital), dated July 14, 1994.
27 Financial Data Schedule
(b) No Current Reports on Form 8-K were filed during the first quarter of 1997.
Page 13 of 14
<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: May 22, 1997 By: /s/ Mitchell J. Lahr
---------------------
Mitchell J. Lahr
Vice President, Secretary and
Chief Financial Officer
(For the Registrant and as
Principal Finance Officer)
Page 14 of 14
<PAGE>
Exhibit 10
05/14/97-1
NINTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THE NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Ninth
Amendment") is made as of the 16th day of May, 1997 by and among Morgan Products
Ltd., a Delaware corporation having its chief executive office at 469 McLaws
Circle, Williamsburg, Virginia 23185 ("Borrower I), the lenders who are or who
may from time to time become signatories hereto ("Lenders") arid Fleet Capital
Corporation, a Connecticut corporation having an office at 20800 Swenson Drive,
Waukesha, Wisconsin 53186 ("FCC") which is the successor-in-interest to Barclays
Business Credit, Inc., as agent for the Lenders ("FCC," in such capacity being
"Agent").
W I T N E S S E T H:
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 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 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 dated as of June 30, 1996 by and among Agent, Borrower and
the lender signatories thereto, (vi) a certain Sixth Amendment to Loan and
Security Agreement dated as of August 30, 1996 by and among Agent, Borrower and
the Lender signatories thereto, (vii) a certain Seventh Amendment to Loan arid
Security Agreement dated as of October 22, 1996 by and among Agent, Borrower and
the Lender signatories thereto and (viii) a certain Eighth Amendment to Loan and
Security Agreement dated as of March 13, 1997 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. Definitions. Except as otherwise specifically provided for herein, all
capitalized terms used herein without definition shall have the meanings given
to them in the Loan Agreement.
2. Specific Financial Covenants. Sections 9.3(B) and 9.3(D) of the Loan
Agreement are hereby deleted arid the following are inserted in their stead:
"9.3. Specific Financial Covenants. During the Term of this Agreement, and
thereafter for so long as there are any Obligations to Agent or any Lender,
Borrower covenants that, unless otherwise consented to by Required Lenders in
writing, it shall:
* * *
(B) Total Liabilities to Tangible Net Worth Ratio. Have at the end of each month
within the Term hereof, a ratio of Indebtedness (computed in accordance with
GAAP) to Tangible Net Worth equal to or less than the ratio set forth opposite
such month in the following schedule:
1
<PAGE>
Month Ratio
Each Month within Fiscal Year 1994 1.85 to 1
Each Month within Fiscal Year 1995 1.50 to 1
January, February and March, 1996 1.50 to 1
April, May, June and July, 1996 1.60 to 1
August, September, October and November, 1996 1.90 to 1
December, 1996 and January and February, 1997 1.80 to 1
March, April and May, 1997 1.97 to 1
June, July and August, 1997 1.85 to 1
September, October and November, 1997 1.70 to 1
December, 1997 arid each month thereafter 1.60 to 1
* * *
9.3(D) Minimum Excess Revolving Credit Loan Availability or Minimum Excess
Collateral Availability. Maintain as of any of the following dates, 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; $3,000,000 or more from October 30, 1995 through
October 20, 1996; $5,000,000 or more from October 21, 1996 through November 30,
1996; $8,000,000 or more from December 1, 1996 through April 17, 1997; and
$8,000,000 or more from August 3, 1997 and thereafter." Maintain as of any of
the following dates, average "Excess Collateral Availability" (as defined below)
for the date of determination and the immediately previous twenty-nine (29) days
of: Seven Million Five Hundred Thousand Dollars ($7,500,000) or more from April
18, 1997 through April 25, 1997; and Eight Million Dollars ($8,000,000) or more
from April 26, 1997 through August 2, 1997. "Excess Collateral Availability"
shall mean as of any date the amount, if any, by which the "Collateral Base" (as
defined below) exceeds the aggregate outstanding principal balance of the
Revolving Credit Loans. Collateral Base shall mean, as at any date of
determination thereof, an amount equal to:
(a) an amount equal to:
(i) eighty-five percent (85%) or such lesser percentage as Agent in its
reasonable discretion deems appropriate, of the net amount of Eligible Accounts
outstanding at such date:
PLUS
(ii) the lesser of (A) Forty Million Dollars ($40,000,000) and (B) the
Inventory Percentage of the value of Eligible Inventory at such date consisting
of raw materials and finished goods, calculated on the basis of the lower of
cost or market, as determined by Agent, in its reasonable discretion, on a
first-in, first-out ("FIFO") basis;
MINUS (subtract from clause (a) above)
(b) an amount equal to the sum of (x) the face amount of all LC Guaranties and
Letters of Credit issued by Agent or Bank and outstanding at such date, plus (y)
any amounts which Agent and/or Lenders may then be obligated to pay for the
account of Borrower under this Agreement.
3. Continuing Effect Except as otherwise specifically set out herein, the
provisions of the Loan Agreement shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, this Ninth Amendment has been duly executed as of
the day and year specified at the beginning hereof.
MORGAN PRODUCTS LTD. ("Borrower")
By:
---------------------------------
Name: Dawn E. Neuman
Title: Treasurer
FLEET CAPITAL CORPORATION
("Agent" and "Lender")
By:
---------------------------------
Name: Sandra Evans
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
("Lender")
By:
---------------------------------
Name: Lee A. Vandermyde
Title: Vice President
BANK OF AMERICA ILLINOIS ("Lender")
By:
---------------------------------
Name: Richard J. Kerbis
Title: Vice President
3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Morgan
Products Form 10-Q as of April 5, 1997 and is qualified in its entirety by
reference to such Form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-END> APR-5-1997
<FISCAL-YEAR-END> DEC-31-1997
<CASH> 774
<SECURITIES> 0
<RECEIVABLES> 41,829
<ALLOWANCES> 1,449
<INVENTORY> 75,562
<CURRENT-ASSETS> 117,957
<PP&E> 50,770
<DEPRECIATION> 27,540
<TOTAL-ASSETS> 151,992
<CURRENT-LIABILITIES> 25,182
<BONDS> 66,686
0
0
<COMMON> 43,129
<OTHER-SE> 16,995
<TOTAL-LIABILITY-AND-EQUITY> 151,992
<SALES> 95,805
<TOTAL-REVENUES> 95,805
<CGS> 78,381
<TOTAL-COSTS> 96,520
<OTHER-EXPENSES> (49)
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 1,236
<INCOME-PRETAX> (1,902)
<INCOME-TAX> 30
<INCOME-CONTINUING> (1,932)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,932)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
<PAGE>
</TABLE>
