SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 1997, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ---- to ----.
Commission File No. 0-13805
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Michigan (State of incorporation)
38-0983610 (IRS Employer Identification Number)
171 Monroe Ave. N.W., Suite 600
Grand Rapids, MI, 49503, (616) 336-9400
(Address of principal executive offices, zip code, telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days.
Yes /X/ No / /
The number of shares outstanding of registrant's common stock, par
value $1.00 per share, at August 1, 1997 was 4,259,406 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
June 30 December 31
1997 1996
----------- -----------
(Unaudited)
CURRENT ASSETS:
Accounts receivable, less allowances $16,635,200 $20,721,800
Inventories: Raw Materials 6,784,200 6,841,400
Work in Process 3,327,800 3,380,900
Finished Goods 9,253,000 10,389,900
----------- -----------
19,365,000 20,612,200
Prepaid expenses and other current assets 2,822,500 1,459,400
----------- -----------
Total current assets 38,822,200 42,793,400
PROPERTY AND EQUIPMENT:
Land 265,300 265,300
Buildings and improvements 13,735,300 13,715,300
Machinery and equipment 33,413,100 32,375,700
Construction in progress 766,700 760,200
----------- -----------
48,180,700 47,116,500
Less accumulated depreciation (25,346,000) (23,558,900)
----------- -----------
22,834,700 23,557,600
OTHER ASSETS 795,400 154,500
----------- -----------
$62,452,300 $66,505,500
=========== ===========
CURRENT LIABILITIES:
Accounts payable $ 4,596,700 $ 6,144,500
Payroll and related benefits 3,319,400 2,203,500
Accrued advertising 2,484,500 2,733,100
Other current liabilities 2,658,700 3,271,900
Current portion of long term debt 500,000 500,000
----------- -----------
Total current liabilities 13,559,300 14,853,000
LONG-TERM DEBT 4,500,000 11,100,000
OTHER LONG-TERM LIABILITIES 3,202,900 2,584,000
SHAREHOLDERS' EQUITY:
Common Stock 4,259,400 4,246,400
Additional paid-in capital 20,893,500 20,842,300
Retained earnings 16,037,200 12,879,800
----------- -----------
41,190,100 37,968,500
----------- -----------
$62,452,300 $66,505,500
=========== ===========
See accompanying notes to condensed consolidated financial statements
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Net sales $25,222,800 $23,652,900 $50,203,700 $51,565,900
Cost of sales 21,009,500 18,894,500 41,198,100 41,404,400
----------- ----------- ----------- -----------
Gross profit 4,213,300 4,758,400 9,005,600 10,161 500
Selling, general and
administrative 5,965,400 4,586,400 11,235,700 9,828,400
----------- ----------- ----------- -----------
Operating
income (loss) (1,752,100) 172,000 (2,230,100) 333,100
Other expense (income):
Litigation settlement
income, net (3,930,700)
Interest expense 75,600 111,900 242,300 187,900
Other, net 29,600 (10,600) (33,800) (8,500)
----------- ----------- ---------- -----------
105,200 101,300 (3,722,200) 179,400
----------- ----------- ----------- -----------
Pretax income (loss) (1,857,300) 70,700 1,492,100 153,700
Income taxes (benefit) (649,500) 29,500 (1,665,300) 46,100
----------- ----------- ------------ -----------
NET INCOME (LOSS) $(1,207,800) $ 41,200 $ 3,157,400 $ 107,600
=========== =========== ============ ===========
Average number of common
and common equivalent
shares outstanding 4,285,800 4,266,200 4,291,700 4,231,900
========= ========= ========= =========
Earnings (loss) per share $(0.28) $0.01 $0.74 $0.03
======= ===== ===== =====
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
Six Months Ended
June 30
1997 1996
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES $7,706,000 $(1,595,200)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment (1,170,200) (1,434,200)
Other 13,400
---------- -----------
Net cash used in investing activities (1,170,200) (1,420,800)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from revolving credit agreement 3,700,000 2,750,000
Payments on revolving credit agreement (10,300,000)
Issuance of common stock 64,200 266,000
---------- ----------
Net cash provided by (used in)
financing activities (6,535,800) 3,016,000
---------- ----------
NET INCREASE IN CASH AND EQUIVALENTS 0 0
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 0 0
---------- ----------
CASH AND EQUIVALENTS AT END OF QUARTER $ 0 $ 0
========== ==========
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by Ameriwood Industries International Corporation
("Ameriwood" or the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in Ameriwood's 1996
annual report on Form 10-K.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share". The Statement simplifies the standards for computing earnings
per share, replacing the presentation of primary earnings per share
with a presentation of basic earnings per share. SFAS No. 128 requires
dual presentation of basic and diluted earnings per share on the face
of the income statement for all entities with complex capital
structures. Basic earnings per share is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding. Diluted earnings per share is computed
similarly to fully diluted earnings per share pursuant to APB Opinion
No. 15, Earnings per Share, which is superseded by this Statement.
This Statement is effective for financial statements issued for
periods ending after December 15, 1997, with early application being
prohibited. The Company has not yet determined the impact of this
Statement on its consolidated financial statements.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of June 30,
1997 and December 31, 1996 and the results of its operations and its
cash flows for the three and six month periods ended June 30, 1997 and
1996. All such adjustments are of a normal and recurring nature.
Operating results for the three and six months ended June 30, 1997 are
not necessarily indicative of the results of operations for the year
ending December 31, 1997.
NOTE 2--SHAREHOLDER LITIGATION AND SETTLEMENTS
In April 1997, the Company reached a settlement related to its long-
standing litigation against its former auditors. The litigation
related to services provided to the Company from 1986 to 1990. Under
the terms of the settlement, which was reached in U.S. District Court
for the Western District of Michigan, in Grand Rapids, Mich.,
Ameriwood received $6.25 million, before related expenses, in April
1997. Additionally, a counterclaim against the Company was dropped.
The settlement resulted in a one-time after-tax gain of $4.7 million,
or $1.10 per share for the first quarter ended March 31, 1997. The
recovery is considered a return of capital and therefore, is not
subject to income taxes.
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Net sales for the second quarter were $25.2 million, compared to $23.7
million in the prior year. Furniture and BIC sales were each up
slightly, 3%, while Custom Solutions sales increased 24% for the
quarter. For the first half of 1997, net sales were $50.2 million,
compared to $51.6 million for the first half of 1996. The decline in
Furniture sales for the six months ending June 30, 1997, down 7.0% as
compared to the same period in 1996, was the result of the exit of a
major office superstore customer. Custom Solutions showed strong
progress, with a 13.7% sales increase for the six months ending June
30, 1997 as compared to the same period in 1996. The Custom Solutions
sales increase is the result of the Company's penetration into new
markets.
Gross margin as a percent of net sales was 16.7% for the second
quarter, and 17.9% for the first half of 1997, compared to 20.1% and
19.7% for the quarter and half in 1996. Increased overhead absorption
variances due to excess capacity which was the result of lower than
planned furniture orders caused the decline in gross margin
percentage.
SG&A costs for the first six months were $11.2 million, up from $9.8
million in the first half of 1996. The increase was the result of
expenses related to strengthening of middle management, increased
market research costs, and analysis of operations. In addition, SG&A
costs in the first half of 1996 were favorably affected by
approximately $420,000 in non-recurring pre-tax credits for property
tax and litigation settlements.
Included in income for the first six months of 1997 is a one-time
after-tax gain of $4.7 million, net of related expenses for a
settlement related to litigation against the Company's former
auditors. Please see Note 2-Shareholder Litigation and Settlements in
the accompanying financial statements. Excluding the effect of the
one-time gain, results of operations for the first half of 1997 would
have been a loss of $1,585,200, or $0.37 per share.
CAPITAL RESOURCES AND LIQUIDITY
Accounts receivable of $16.6 million were down $4.1 million from year
end levels. The decrease is the result of lower sales volume and
improved collection efforts. Inventories were down $1.2 million from
year end levels to $19.4 million at June 30, 1997, which is the result
of reduced production and improved scheduling in the second quarter of
1997 as compared to the fourth quarter of 1996.
There were no outstanding borrowings on the Company's $15 million
credit facility at June 30, 1997. Funds from the litigation
settlement were used to pay down borrowings in April 1997.
<PAGE> 7
Capital expenditures of $1.1 million for the first half of 1997
consisted mainly of expenditures for machinery and equipment related
to improving product design capabilities and manufacturing
efficiencies. Ameriwood is currently planning total capital
expenditures for 1997 of approximately $10 million. This increased
investment will enable the Company to offer more innovative designs
to meet consumers' needs.
Management believes the Company's present liquidity, combined with
cash flow from future operations, and the Company's revolving credit
facility, will be adequate to fund operations and capital expenditures
for the remainder of 1997 and 1998. In the event more funds are
required, additional long-term borrowings are an alternative for
meeting liquidity and capital resource needs.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. Reference is made to the index on page 9 of this Form
10-Q.
(b) Reports on Form 8-K. On April 7, 1997, a Form 8-K was filed by
the Registrant regarding a settlement related to litigation against
the Company's former auditors. No other reports were filed during the
three months ended June 30, 1997.
<PAGE> 8
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.
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION
August 12, 1997 /s/ Charles R. Foley
---------------------
Charles R. Foley
President and Chief Executive Officer
(Principal Executive Officer)
August 12, 1997 /s/ Marlan R. Smith
----------------------
Marlan R. Smith
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 9
EXHIBIT INDEX
- ----------------------------------------------------------------------
3(a) Restated Articles of Incorporation, as amended June 24, 1993
(filed as exhibit to Form 10-K for the year ended December 31, 1993
and incorporated by reference)
3(b) Bylaws, as amended through January 28, 1996 (filed as exhibit to
Form 10-K for the year ended December 31, 1995 and incorporated by
reference)
4(a) Indenture of Trust relating to $5,000,000 Michigan Strategic
Fund Industrial Development Revenue Bonds due in 2006, and related
Loan Agreement, Letter of Credit Agreement, Mortgage and Security
Agreement and Irrevocable Transferable Letter of Credit (filed as
exhibits to Form 10-K for the year ended December 31, 1989 and
incorporated by reference)
4(b) Second Amendment, dated June 19, 1992, to Letter of Credit with
Harris Trust and Savings Bank, dated November 1, 1986 (filed as
exhibit to Form 10-Q for the quarter ended June 30, 1992 and
incorporated by reference)
4(c) Third Amendment, dated January 13, 1995, to Letter of Credit
with Harris Trust, dated November 1, 1986 (filed as exhibit to Form 10-
K for the year ended December 31, 1994 and incorporated by reference)
4(d) Letter of Credit Agreement Waiver with Harris Trust and Savings
Bank, dated February 27, 1996 (filed as exhibit to Form 10-K for the
year ended December 31, 1995 and incorporated by reference)
4(e) Fourth Amendment, dated August 2, 1996, to Letter of Credit with
Harris Trust and Savings Bank, dated November 1, 1986 (filed as
exhibit to Form 10-Q for the quarter ended June 30, 1996 and
incorporated by reference)
4(f) Credit Agreement with Harris Trust and Savings Bank and The
First National Bank of Chicago, dated January 13, 1995 (filed as
exhibit to Form 10-K for the year ended December 31, 1994 and
incorporated by reference)
4(g) First Amendment to Credit Agreement and Waiver with Harris Trust
and Savings Bank, dated February 27, 1996 (filed as exhibit to Form 10-
K for the year ended December 31, 1995 and incorporated by reference)
4(h) Second Amendment to Credit Agreement with Harris Trust and
Savings Bank, dated August 2, 1996 (filed as exhibit to Form 10-Q for
the quarter ended June 30, 1996 and incorporated by reference)
4(i) Ameriwood Industries International Corporation common stock
certificate specimen (filed as exhibit to Form 10-Q for the quarter
ended March 31, 1993 and incorporated by reference)
4(j) Rights Agreement, dated April 4, 1996, between Ameriwood
Industries and Harris Trust, as Rights Agent (filed as exhibit to Form
10-Q for the quarter ended June 30, 1996 and incorporated by
reference)
The following contracts identified with "*" are agreements or
compensation plans relating to executive officers, directors or
related parties.
*10(a) 1984 Incentive Stock Option Plan, as amended (filed as exhibit
to Form 10-K for the year ended December 31, 1990 and incorporated by
reference)
<PAGE> 10
*10(b) Ameriwood Industries 1993 Stock Incentive Plan (filed as
Exhibit A to the definitive proxy statement dated May 10, 1993
relating to the Company's 1993 annual meeting incorporated by
reference)
*10(c) Ameriwood Industries 1992 Non-Employee Directors' Stock Option
Plan (filed with the definitive proxy statement dated June 26, 1992
relating to the Company's 1992 annual meeting and incorporated by
reference)
*10(d) Ameriwood Industries 1995 Non-Employee Directors' Stock Option
Plan (filed with the definitive proxy statement dated April 12, 1995
relating to the Company's 1995 annual meeting and incorporated by
reference)
*10(e) Form of Stock Option Agreement dated February 14, 1991 with
Neil L. Diver (filed as exhibit to Form 10-K for the year ended
December 31, 1990 and incorporated by reference)
*10(f) Rospatch Corporation Annual Incentive Plan (filed as exhibit
to Form 10-K for the year ended December 31, 1990 and incorporated by
reference)
*10(g) Non-employee directors consultation fee arrangements (filed as
exhibit to Form 10-K for the year ended December 31, 1992 and
incorporated by reference)
*10(h) Form of Indemnity Agreement entered into between the
registrant and certain executive officers and directors (filed as
exhibit to Form 10-K for the year ended December 31, 1994 and
incorporated by reference)
*10(i) Form of Management Retention Agreement entered into between
the registrant and certain executive officers (filed as exhibit to
Form 10-K for the year ended December 31, 1992 and incorporated by
reference)
*10(j) Form of Variable Life Policy for certain executive officers of
the registrant (filed as exhibit to Form 10-K for the year ended
December 31, 1993 and incorporated by reference)
*10(k) Form of Split-Dollar Life Insurance Agreement entered into
between the registrant and certain executive officers (filed as
exhibit to Form 10-K for the year ended December 31, 1993 and
incorporated by reference)
*10(l) Form of Collateral Assignment Agreement entered into between
the registrant and certain executive officers (filed as exhibit to
Form 10-K for the year ended December 31, 1993 and incorporated by
reference)
*10(m) Form of Severance Compensation Agreement entered into between
the registrant and certain executive officers (filed as exhibit to
Form 10-K for the year ended December 31, 1993 and incorporated by
reference)
*10(r) Letter agreement regarding duties as Interim President and CEO
dated February 22, 1996 between the registrant and Charles R. Foley
(filed as exhibit to Form 10-K for the year ended December 31, 1995
and incorporated by reference)
*10(s) Severance Compensation Agreement entered into between the
registrant and Charles R. Foley, dated April 8, 1997.
27 Financial Data Schedule
April 8, 1997
Dear Mr. Foley:
The Board of Directors appointed you Chief Executive Officer and
President of Ameriwood Industries International (the Company)
effective January 17, 1997. You accepted this appointment and
agreed to render services to the Company, at the pleasure of the
Board of Directors, until terminated by either the Company or
you. As Chief Executive Officer and President, you are employed
in a managerial capacity to manage and operate the Company's
business. You shall conscientiously perform these duties and
reasonably devote all of your compensated time to conduct the
Company's business.
At the date of this letter, and as approved by the Board in the
February 13, 1997 minutes, your base annual salary compensation
is $220,000 which may be adjusted from time to time by the Board
of Directors. Your Company benefits for medical, dental, life,
disability, 401-K, and ESOP will be in accordance with normal
company policy and applicable plans. Your "Management Retention
Agreement", "Indemnity" and "SERP" agreements remain unchanged,
subject to mutual approved modification by you and the Board of
Directors. You continue to be eligible for participation in the
executive management incentive program with amounts and
guidelines as also approved by the Board of Directors on February
13, 1997. Other benefits including a leased car, tax preparation
fees, club membership and vacation, will be in accordance with
normal Company policy (except for the "rollover" vacation
approved by the Board in your interim Chief Executive letter
agreement dated February 19, 1996).
Your employment may be terminated, without any further obligation
by Ameriwood to compensate you as an employee, in the event you
are convicted of any criminal offense arising out of your
employment status with the Company or in the event of active
malfeasance or in the event of your unreasonable failure or
refusal to carry out your duties. In the event you are
terminated under any other circumstances, you shall receive a
lump sum, within fifteen (15) days of the effective date of
termination, equal to your annual salary at the date of
termination, but not less than $220,000; continuance of basic
group benefits (including medical, dental, life and disability
and 401-K and ESOP) in accordance with the applicable plans, for
one year from date of termination; and $10,000 for outplacement
assistance. Any options you have outstanding are governed under
exisiting option plan guidelines for the Company. Your Stock
Appreciation Rights (SAR's), which the Company granted to you on
March 12, 1996, are exercisable beginning concurrent with your
appointment on January 17, 1997 and until as specified in your
SAR agreement.
You also agree that in any event you resign from employment with
Ameriwood for any reason, you will provide Ameriwood with no less
than one month notice of resignation.
Very Truly Yours,
/s/Neil L. Diver
- ----------------
Neil L. Diver
Chairman of the Board
Ameriwood Industries International Corporation
Agreed to by:
/s/ Charles R. Foley
- --------------------
Charles R. Foley
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 17,465,800
<ALLOWANCES> 830,600
<INVENTORY> 19,365,000
<CURRENT-ASSETS> 38,822,200
<PP&E> 48,180,700
<DEPRECIATION> 25,346,000
<TOTAL-ASSETS> 62,452,300
<CURRENT-LIABILITIES> 13,559,300
<BONDS> 4,500,000
0
0
<COMMON> 4,259,400
<OTHER-SE> 36,930,700
<TOTAL-LIABILITY-AND-EQUITY> 62,452,300
<SALES> 50,203,700
<TOTAL-REVENUES> 50,203,700
<CGS> 41,198,100
<TOTAL-COSTS> 41,198,100
<OTHER-EXPENSES> 11,235,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242,300
<INCOME-PRETAX> 1,492,100
<INCOME-TAX> (1,665,300)
<INCOME-CONTINUING> 3,157,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,157,400
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.74
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