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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange
Act of 1934 (Fee required) for the fiscal year ended December 31, 1996
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee required) for the transition period
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 Par Value (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and to the best of
registrant's knowledge, will not be contained in any amendment to this
Form 10-K. / /
As of March 14, 1997, the aggregate market value of the registrant's
Common Stock, $1 par value, held by persons other than (a) directors and
executive officers of the registrant and (b) the Ameriwood Industries
Affiliated Employee Stock Ownership and Savings Plan, none of which
persons is hereby acknowledged to be an "affiliate" of the registrant, was
$25,434,000 based on the last sale price on that date as reported on The
Nasdaq Stock Market.
As of March 14, 1997, 4,252,406 shares of the registrant's Common Stock,
$1 par
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value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Certain information from the
registrant's definitive proxy statement relating to the 1997 annual
meeting of shareholders is incorporated in Part III of this report by
reference.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Ameriwood Industries International Corporation ("Ameriwood", or the
"Company") was originally incorporated in Michigan in 1915. It is the
successor to "Rose Patch and Label Company,", and later "Rospatch
Corporation", which reflected the original business--the production of
fabric patches and labels. In December 1991, the name was changed to
"Ameriwood Industries International Corporation," which more closely
identifies the Company with its current core business, wood products.
Ameriwood's corporate offices are located at 171 Monroe Avenue, N.W.,
Suite 600, Grand Rapids, MI, 49503, and its telephone number is (616) 336-
9400.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
All of Ameriwood's operations, for purposes of the consolidated financial
statements included as part of this report, have been in the Wood Products
industry segment. (See Part II, Item 8--Financial Statements and
Supplementary Data.)
NARRATIVE DESCRIPTION OF BUSINESS
Principal Products
Ameriwood manufactures unassembled furniture, stereo speaker cabinets,
fully assembled speaker units, and is an original equipment manufacturer
of various laminated products used by other manufacturers for
incorporation into their own products. All Company-made products are
manufactured at two subsidiary facilities, both of which are located in
the United States. The Company sells its products through its own sales
personnel and through independent sales representatives who are assigned
specific territories.
Ameriwood considers its principal products to be those that, as a group,
contribute ten percent or more to consolidated revenues. The Company
categorizes its furniture products as those of "Ameriwood Furniture" and
its stereo speaker cabinets and other products as those of "Ameriwood
Custom Solutions" (formerly "Ameriwood OEM.").
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Ameriwood Furniture currently sells its unassembled furniture to office
superstores, mass merchant discount stores, home improvement centers,
national chains, catalog showrooms, home furnishings retailers, and
warehouse clubs. Furniture products include, among other items, office
furniture, computer furniture, wall units/organizers, storage units,
wardrobes, bookcases, utility carts, television and VCR stands,
entertainment centers, home theater units and bedroom furniture.
Ameriwood Custom Solutions produces stereo speaker cabinets and
components. These products are sold primarily to consumer electronics
manufacturers, including certain major audio component companies. In
addition, Ameriwood Custom Solutions sells custom products for the point
of purchase and fixtures market, institutional uses, and Company-
fabricated wood grain and opaque laminated particle board to a variety of
manufacturers for use in kitchen and bathroom cabinets, office partitions,
and other furniture and building products.
Raw Materials
Ameriwood purchases raw materials from various domestic and foreign
suppliers. Particle board is the principal raw material used; other raw
materials include furniture hardware, lamination paper and vinyl,
corrugated packaging, glass and various electronic components. Most of
the raw materials, components, and other supplies needed in the Company's
manufacturing processes are available from numerous sources. The raw
materials are not unique to the industry, nor are they rare. To date, no
significant difficulty has been experienced in obtaining these items.
Patents and Trademarks
No significant portion of Ameriwood's business is dependent upon a single
patent or series of patents. Certain individual Company trademarks,
particularly Affordable Furniture, are believed to be significant to the
Company's operations.
Seasonality
The Company believes there is some seasonality in the demand for its
products, with increases in third and fourth quarter consolidated sales
(see table below).
Percent of Consolidated Sales By Quarter
----------------------------------------
Year 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
---- -------- -------- -------- -------- -----
1996 24.4% 20.6% 27.6% 27.4% 100%
1995 25.7% 23.2% 25.8% 25.3% 100%
1994 25.1% 22.5% 25.7% 26.7% 100%
Certain Working Capital Items
The Company engages in no unusual practices with regards to inventories,
receivables, or other items of working capital.
Significant Customers
In 1996, 1995, and 1994 no single customer accounted for 10% or more of
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consolidated net sales.
Backlog
The Company believes that order backlog at any particular point in time is
not predicative of future sales performance, as it is standard in the
furniture industry, a customer may cancel a product order prior to
shipment without penalty.
Competition
Ameriwood Furniture competes with a large number of unassembled and
assembled furniture manufacturers. Based on industry publications and
other sources, Ameriwood believes it is the fourth largest U.S.
manufacturer of unassembled furniture. Principal methods of competition
are price, design, quality and service. Ameriwood Custom Solutions
speaker products compete with similar products manufactured by
approximately ten other companies, including companies which are owned by
various speaker marketers. Principal customers include national brand
name electronics manufacturers and marketers. Principal methods of
competition are quality, design, service and price. Management believes
the Company has sufficient resources, material and personnel to compete
effectively in its present business.
Research and Development
Company research and product development costs are expensed as incurred
and were $642,200 in 1996, $546,700 in 1995, and $636,000 in 1994.
Customer-sponsored research and development activities are not significant
to Ameriwood's operations.
Environmental Matters
As indicated elsewhere in this report (Item 7--Environmental Matters, Note
6--Contingencies in the accompanying financial statements), the Company
has accrued certain environmental investigation and remediation costs in
its financial statements. Compliance with present laws concerning
protection of the environment is not currently expected by management to
have any material effect upon the Company's capital expenditures, earnings
or competitive position.
Human Resources
At December 31, 1996, Ameriwood employed approximately 770 associates on a
full- time basis. The Company does not regularly employ part-time
persons, but does utilize a temporary work force as necessary to meet peak
demand.
Financial Information About Foreign and Domestic Operations
All of Ameriwood's operations are located in the United States. The
Company's wood products are sold throughout North America, but
principally in the United States. Export sales were $2,784,700 in 1996,
$3,385,100 in 1995, and $4,110,700 in 1994.
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ITEM 2. PROPERTIES.
In the aggregate, Ameriwood owns approximately 1,025,000 square feet of
space. Management considers all of the Company's material properties and
equipment to be well-maintained, in good operating condition, and adequate
for their purposes. Listed below is information on the principal
properties owned or leased by Ameriwood as of March 14, 1997.
Location Principal Use Owned or
Leased
---------------- ------------------------------------ ------------
- ---
Dowagiac, MI Manufacturing, warehouse, and office Owned
Tiffin, OH Manufacturing, warehouse, and office Owned
The Dowagiac, Michigan facility secures the Company's indebtedness
pursuant to $5,000,000 of Michigan Strategic Fund Industrial Development
Revenue Bonds and its reimbursement obligations to the issuer of a letter
of credit collateralizing these bonds (see Note 3--Borrowing Arrangements
in the accompanying financial statements).
ITEM 3. LEGAL PROCEEDINGS.
ARTHUR ANDERSEN LITIGATION
In February 1995, Ameriwood filed a complaint in the U.S. District Court
for the Western District of Michigan against Arthur Andersen L.L.P.
("Andersen"), the Company's former auditors, claiming that the Company's
exposure to liability in several securities fraud lawsuits (including the
Atlantis Group, Inc. and class action litigation against the Company,
which settled in 1992, and a related derivative action which was dismissed
in 1991) was the result of Andersen's malfeasance while performing
auditing and other services for the Company from 1986 through 1990. The
Complaint asserts claims for professional malpractice, breach of contract,
and contribution under the federal securities laws.
The complaint seeks recovery of substantial damages to the Company and
costs incurred by the Company as a result of the prior securities fraud
lawsuits brought against the Company and several of its directors and
officers, whom the Company was obligated to indemnify.
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Andersen has denied liability in the matter and filed a counterclaim which
seeks recovery of Andersen's own costs incurred in the same prior lawsuits
in which Andersen was also named as a defendant. Andersen's counterclaim
alleges that any problems with the Company's financial statements audited
by Andersen arose from failures by persons then employed by the Company to
provide Andersen with accurate, complete, and/or timely information, which
injured Andersen by embroiling it in the Atlantis and related litigation.
During discovery regarding the damages alleged in its counterclaim,
Andersen represented that it seeks to recover $4.4 million for the amounts
it paid to settle the prior lawsuits, and an additional $3.7 million for
its attorneys' fees and other defense costs associated with that
litigation. The Company believes that Andersen's claims are barred in
whole or in part by the Bar Order entered by the Court when it approved
the underlying settlements.
The Company is vigorously pursuing its claims against Andersen and
aggressively defending against Andersen's counterclaim in this proceeding.
A jury trial on all of these claims is scheduled to commence on April 8,
1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
Ameriwood's only outstanding common equity is common stock; $1 par value
per share, traded on The Nasdaq Stock Market under the symbol AWII. As of
March 14, 1997, there were approximately 1,800 shareholders of record. No
dividends were paid or declared for 1996 or 1995. Please refer to Note 11-
- -Common Stock Purchase Rights in the accompanying financial statements for
a description of the Company's Rights Agreement. The table below shows
high and low sale prices reported by The Nasdaq Stock Market for the
periods indicated.
Year Quarter High Low
---- ------- ------ ------
1996 Fourth $ 9.75 $ 8.13
Third 9.00 5.75
Second 6.75 5.38
First 5.75 3.88
1995 Fourth $ 6.38 $ 3.88
Third 7.00 6.13
Second 7.75 6.00
First 9.50 6.75
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales* $114,547 $105,998 $109,997 $103,934 $90,069
Operating income (loss) 1,549 (4,236) 5,577 7,125 6,019
Net income (loss) 480 (3,368) 8,625 5,099 6,958
Earnings (loss) per share $ .11 $(0.80) $2.02 $1.21 $1.69
Average shares outstanding 4,255 4,208 4,259 4,221 4,110
Dividends per share -- -- -- -- --
FINANCIAL POSITION
Total assets $66,506 $60,365 $63,385 $49,865 $44,954
Long-term debt 11,100 7,000 7,300 5,000 5,000
Shareholders' equity 37,969 37,211 40,578 31,917 25,612
Book value per share $8.94 $8.88 $9.69 $7.63 $6.27
</TABLE>
*Reclassified certain costs to conform with classifications adopted in
1996 (see Note 2--Summary of Accounting Policies in the accompanying
financial statements).
See Item 8 for complete consolidated balance sheets as of December 31,
1996 and 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996, and the notes thereto.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS -- 1996 Compared to 1995
Beginning in the fourth quarter of 1996, certain allowances relating to
customer advertising and freight, which were previously treated as a
reduction to gross sales, were reclassified to selling, general and
administrative expense (SG&A). These allowances amounted to $6.3 million
in 1996, $5.2 million in 1995 and $4.9 million in 1994. All periods
presented have been reclassified to conform with this presentation.
Consolidated net sales for 1996 were $114.5 million, compared to $106.0
million in 1995, an increase of 8.1%. Furniture sales increased 14.5% to
$88.1 million, accounting for 76.9% of total net sales in 1996. Increases
were experienced in various distribution channels, including office
superstores, catalog showrooms, home centers and warehouse clubs. The
shift in distribution was aided by the development of products designed to
fit consumer needs in the channels mentioned. While sales volume in the
regional discount channel increased slightly, diversification into other
channels continued.
Custom Solutions net sales decreased $1.9 million to $22.2 million,
representing 19.4% of total net sales in 1996. Custom Solutions,
primarily an original equipment manufacturer of speaker products, was
negatively affected by weak sales in the consumer electronics channel of
distribution throughout 1996. The consumer electronics environment also
contributed to the decline in sales volume of $0.8 million to $4.2 million
in 1996 for BIC America, the Company's own proprietary brand of stereo
speakers.
Gross margin as a percent of net sales improved to 21.0%, compared with
18.1% in 1995, and was favorably impacted by productivity gains in the
Company's two manufacturing facilities, stabilizing raw material prices
and the development of products designed to sell at a higher retail price
point.
SG&A expenses as a percentage of net sales declined from 19.7% in 1995 to
18.9% in 1996, benefiting from a streamlining of the organization, offset
by increased spending on advertising. During 1995, several customers
filed for bankruptcy protection. Bad debt expense of $1.0 million in 1995
compared with $0.4 million in 1996. Operating expenses in 1995 also
included a $1.4 million pre-tax charge for management reorganization. The
reorganization eliminated layers of management in order to reduce fixed
costs.
In the fourth quarter of 1996, the Company recorded a pretax charge of
$1.15 million in connection with the voluntary recall of an imported futon
cushion (see Note 7--Product Recall in the accompanying financial
statements). Also included in operating expenses in the fourth quarter of
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1996 was a credit of $0.4 million for recovery of amounts previously
charged against income for environmental matters. In 1995 a $1.2 million
pre-tax charge was recorded for environmental remediation related to the
Company's Dowagiac, Michigan facility (see the "Environmental Matters"
section following and Note 6--Contingencies in the accompanying financial
statements).
The Company recorded litigation related costs of $0.4 million in the
fourth quarter of 1996 in a matter in which it is the plaintiff in a suit
against its former auditors ( see Note 13--Shareholder Litigation and
Settlements in the accompanying financial statements ). Interest expense
increased $0.2 million to $0.5 million in 1996 as a result of increased
borrowing caused by working capital needs and the investment of $3.8
million in capital equipment.
For the twelve months ended December 31, 1996, Ameriwood recorded net
earnings of $0.5 million, or $0.11 per share, compared to a net loss of
$3.4 million, or $0.80 per share, in 1995.
RESULTS OF OPERATIONS -- 1995 Compared to 1994
Consolidated net sales for 1995 were $106.0 million, compared to $110.0
million in 1994. Furniture sales accounted for 71% of total net sales,
and were down 3.9% from 1994. Custom Solutions sales accounted for 24% of
total net sales, and were down 7% from 1994. Regional discount chains,
the Company's largest distribution channel for unassembled furniture, and
consumer electronics retailers, a large distribution channel for Custom
Solutions products, were negatively affected by the soft retail
environment. Competitive pricing and the soft retail environment were the
major factors in the decline in net sales. BIC America stereo speaker
sales increased 7.7% and accounted for 5% of the total.
Cost of sales for 1995 was negatively impacted by unfavorable overhead
absorption. Lower than planned order volume, due to retail softness, and
higher fixed costs, a result of the 1994 capital expansion program,
reduced the Company's ability to absorb fixed manufacturing costs. The
higher cost of sales resulted in a reduction in the gross margin from
23.4% in 1994 to 18.1% in 1995.
SG&A expenses as a percentage of net sales increased from 18.3% in 1994 to
19.7% in 1995. During 1995, several customers filed for bankruptcy
protection and bad debt reserves were increased to cover the potential
losses. Bad debt expense increased from $0.1 million in 1994 to $1.0
million in 1995. Operating expenses in 1995 included a $1.4 million pre-
tax charge for management reorganization. The reorganization eliminated
layers of management in order to lower fixed costs. Also included in
operating expenses for 1995 was a $1.2 million pre-tax charge for
environmental remediation related to the Company's Dowagiac, Michigan
facility (see the "Environmental Matters" section following and Note 6--
Contingencies in the accompanying financial statements).
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Other Income in 1994 included a $3.7 million shareholder litigation
settlement, net of related ESOP expense, for reimbursement of covered
expenses the Company incurred related to shareholder litigation settled in
1992. The payment settled all claims against the Company's former
insurance carrier for directors and officers liability coverage. In
December 1994, Ameriwood sold a junior subordinated note with interest
receivable to an unrelated third party for a net pretax gain of $3.7
million. The sale of this note eliminated quarterly interest payments,
which totaled $.5 million in 1994, and was the reason for the decrease in
interest income from 1994 to 1995 (see Note 12--Sale of Note Receivable,
and Note 13--Shareholder Litigation and Settlements in the accompanying
financial statements).
For the twelve months ended December 31, 1995, Ameriwood recorded a net
loss of $3.4 million, or $.80 per share, compared to net income of $8.6
million, or $2.02 per share, in 1994.
Environmental Matters
During 1989, the Company discovered environmental contamination at its
facility in Dowagiac, Michigan, which was reported to the appropriate
state environmental agency. A remedial investigation and feasibility
study (RI/FS), including final estimates of costs necessary to remediate
the site, was completed in 1996 by an independent consulting engineering
firm The RI/FS report is undergoing review by the State of Michigan.
Based on the opinion of the independent engineering firm and legal
counsel, the Company believes it will receive a favorable ruling.
It is the Company's policy to accrue environmental cleanup costs if it is
probable that a liability has been incurred and an amount is reasonably
estimable. Costs of $1.2 million in 1995 and $0.25 million in 1994 were
recognized as pretax charges to results of operations to cover costs
related to the Dowagiac site, including ongoing monitoring for up to 30
years. Ameriwood filed suit against certain parties who might be required
to contribute toward cleanup of this site. Settlement agreements were
reached with the involved parties and $0.4 million was included in income
in 1996.
As of December 31, 1996, the Company has reserves recorded of $1.7
million. The current portion, $0.5 million, is included in other current
liabilities and the remainder, $1.2 million, is included in other long-
term liabilities. The Company believes any additional costs beyond the
amounts recorded will not be material to its financial position or results
of operations.
The Company is from time to time also a party to certain other lawsuits
and has been threatened with litigation arising out of the normal course
of its business. While the ultimate results of these matters cannot be
predicted with certainty, the Company believes any resulting liability
will not materially affect the financial position or the results of
operations of the Company.
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CAPITAL RESOURCES AND LIQUIDITY
Net accounts receivable were up $3.3 million at the end of 1996, to $20.7
million, as compared to $17.4 million at the end of 1995. Inventories of
$20.6 million at December 31, 1996, were up $3.2 from December 31, 1995
levels. These increases are the result of the increase in furniture
sales and orders over the prior year levels. To fund these increases,
credit facility borrowings increased to $6.6 million at the end of 1996,
up from $2 million at the end of 1995.
Capital expenditures of $3.8 million in 1996 consisted mainly of
expenditures for machinery and equipment related to improving
manufacturing efficiency and design capabilities. Ameriwood currently
anticipates capital expenditures in 1997 will be approximately $4.8
million which will include machinery and equipment purchases at the
Company's Ohio and Michigan manufacturing facilities.
Ameriwood, as authorized by the Board of Directors, repurchased 102,300
shares of common stock during 1996, at a cost of $0.6 million to fund the
ESOP portion of the Company's ESOP/401(k) plan.
Management believes the Company's present liquidity, combined with cash
flow from future operations and the Company's revolving credit agreement,
will be adequate to fund operations in 1997. In the event more funds are
required, additional long-term borrowings may be a possible alternative
for meeting some liquidity and capital resource needs (see Note 3--
Borrowing Arrangements in the accompanying financial statements).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Immediately following are the report of independent accountants;
consolidated balance sheets of Ameriwood Industries International
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31,
1996; the notes thereto; and Schedule II--Valuation and Qualifying
Accounts.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Ameriwood Industries International Corporation
We have audited the consolidated financial statements and the financial
statement schedule of Ameriwood Industries International Corporation and
subsidiaries listed in Item 14(a) of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ameriwood
Industries International Corporation and subsidiaries at December 31, 1996
and 1995, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
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conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
- ------------------------------
Coopers & Lybrand L.L.P.
Grand Rapids, Michigan
February 7, 1997
CONSOLIDATED BALANCE SHEETS
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, less allowances
(1996-$882,100; 1995-$1,055,500) $20,721,800 $17,446,300
Inventories:
Raw material 6,841,400 5,849,900
Work in process 3,380,900 3,629,100
Finished goods 10,389,900 7,944,200
----------- -----------
20,612,200 17,423,200
Prepaid expenses and other current assets 1,459,400 2,149,500
----------- -----------
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Total current assets 42,793,400 37,019,000
PROPERTY AND EQUIPMENT:
Land 265,300 231,900
Buildings and improvements 13,715,300 13,691,200
Machinery and equipment 32,375,700 29,172,000
Construction in progress 760,200 305,300
----------- -----------
47,116,500 43,400,400
Less accumulated depreciation (23,558,900) (20,233,000)
----------- -----------
23,557,600 23,167,400
OTHER ASSETS 154,500 178,700
----------- -----------
$66,505,500 $60,365,100
----------- -----------
----------- -----------
</TABLE>
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<TABLE>
<CAPTION>
December 31
1996 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,144,500 $4,527,700
Accrued liabilities-
Payroll and related benefits 2,203,500 3,262,800
Accrued advertising 2,733,100 2,621,700
Other current liabilities 3,271,900 3,260,100
Current portion of long term debt 500,000
----------- -----------
Total current liabilities 14,853,000 13,672,300
LONG-TERM DEBT 11,100,000 7,000,000
OTHER LONG-TERM LIABILITIES 2,584,000 2,482,200
COMMITMENTS AND CONTINGENCIES (Notes 3,5,6)
SHAREHOLDERS' EQUITY:
Preferred stock, without par value; authorized
5,000,000 shares; none issued
Common stock, par value $1; authorized
20,000,000 shares; 4,246,406 and 4,188,406
shares issued and outstanding at
December 31, 1996 and 1995 4,246,400 4,188,400
Additional paid-in capital 20,842,300 20,622,300
Retained earnings 12,879,800 12,399,900
----------- -----------
37,968,500 37,210,600
----------- -----------
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$66,505,500 $60,365,100
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $114,546,600 $105,997,600 $109,997,300
Cost of sales 90,539,100 86,762,400 84,301,000
------------ ------------ ------------
Gross profit 24,007,500 19,235,200 25,696,300
Selling, general and
administrative expenses 21,658,600 20,896,000 19,869,000
Product recall 1,150,000
Management reorganization 1,375,000
Environmental remediation (credit) (350,000) 1,200,000 250,000
------------ ------------ ------------
22,458,600 23,471,000 20,119,000
------------ ------------ ------------
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Operating income (loss) 1,548,900 (4,235,800) 5,577,300
Other expense (income):
Shareholder litigation and
settlements, net 362,000 (3,707,500)
Gain on sale of note, net (3,671,000)
Interest expense 503,700 337,800 169,500
Interest income (2,900) (12,700) (553,600)
Other, net 500 250,200 72,100
------------ ------------ ------------
863,300 575,300 (7,690,500)
------------ ------------ ------------
Income (loss) before income taxes 685,600 (4,811,100) 13,267,800
Income taxes (benefit) 205,700 (1,443,400) 4,642,800
------------ ------------ ------------
NET INCOME (LOSS) $ 479,900 $(3,367,700) $8,625,000
------------ ------------ ------------
------------ ------------ ------------
Earnings (loss) per common share $ 0.11 $(0.80) $ 2.02
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Total
Additional Share-
Common Paid-in Retained holders'
Stock Capital Earnings Equity
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCES JANUARY 1, 1994 $4,185,100 $20,589,300 $ 7,142,600 $31,917,000
Issued 2,600 shares
under stock option plans 2,600 22,500 25,100
Issued 698 shares for
payment of class
action settlement 700 10,500 11,200
Net income 8,625,000 8,625,000
---------- ----------- ----------- -----------
BALANCES DECEMBER 31, 1994 4,188,400 20,622,300 15,767,600 40,578,300
Net loss (3,367,700) (3,367,700)
---------- ----------- ----------- -----------
BALANCES DECEMBER 31, 1995 4,188,400 20,622,300 12,399,900 37,210,600
Issued 58,000 shares
under stock option plans 58,000 220,000 278,000
Net income 479,900 479,900
---------- ----------- ----------- -----------
BALANCES DECEMBER 31, 1996 $4,246,400 $20,842,300 $12,879,800 $37,968,500
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
<PAGE>
Page 19
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 479,900 $(3,367,700) $8,625,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,483,600 3,337,200 2,778,800
Provision for doubtful accounts 454,000 1,016,000 135,800
Provision for environmental remediation 1,200,000 250,000
Provision for management reorganization 1,375,000
Deferred income taxes 544,900 (973,400) 119,000
Gain on sale of note receivable (3,671,000)
Changes in operating assets and liabilities:
<PAGE>
Page 20
Accounts receivable (3,729,500) 2,204,700 (4,878,600)
Inventories (3,189,000) 52,700 (3,070,800)
Accounts payable 1,616,700 (486,600) 1,082,400
Other current assets and
and liabilities, excluding debt (711,500) (1,613,900) 1,354,900
----------- ---------- ----------
Net cash provided by (used in)
operating activities (1,050,900) 2,744,000 2,725,500
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of note receivable
3,750,000
Purchases of property and equipment (3,840,400) (2,432,700) (8,929,000)
Other 13,300 (11,300) 117,200
----------- ----------- ---------
Net cash (used in) investing activities (3,827,100) (2,444,000) (5,061,800)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit agreement 8,700,000 2,150,000 14,900,000
Payments on revolving credit agreement (4,100,000) (2,450,000) (12,600,000)
Issuance of common stock 278,000 36,300
----------- ----------- ---------
Net cash provided by (used in)
financing activities 4,878,000 (300,000) 2,336,300
----------- ----------- ---------
NET DECREASE IN CASH AND EQUIVALENTS 0 0 0
CASH AND EQUIVALENTS BEGINNING OF YEAR 0 0 0
----------- ----------- ---------
CASH AND EQUIVALENTS END OF YEAR $ 0 $ 0 $ 0
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
<PAGE>
Page 21
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE 1--THE COMPANY AND OTHER INFORMATION
Ameriwood Industries International Corporation ("Ameriwood" or the
"Company") operates in the wood products industry manufacturing
unassembled furniture which is sold to retailers for resale to consumers,
stereo speaker cabinets and fully assembled speaker units for wholesale
and consumer markets, and various laminated products which it supplies to
other manufacturers. In view of the nature of its products and the
production process, management believes the Company's business constitutes
a single industry segment.
In 1996 and 1995 no single customer accounted for 10% or more of
consolidated net sales. As of December 31, 1996 and 1995, approximately
95% and 84% of the company's accounts receivable were from customers in
the retail industry, which includes office superstores, mass
merchandisers, discount retail chains, and home centers. Product design
and development costs are expensed as incurred and were $642,200 in 1996,
$546,700 in 1995, and $636,000 in 1994.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements
include the accounts of Ameriwood and its wholly-owned subsidiaries. All
intercompany accounts, transactions, and profits are eliminated in
consolidation.
Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash Equivalents: The Company considers all highly liquid investments
with maturities of three months or less when purchased to be cash
equivalents.
Inventories: Inventories are stated at the lower of cost, determined on
the first-in, first-out (FIFO) method, or market.
<PAGE>
Page 22
Property and Equipment: Property and equipment are recorded at cost and
include expenditures for major renewals and betterments. Maintenance and
repairs that do not extend the lives of the assets are expensed as
incurred. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Estimated depreciable lives
are: buildings and improvements 5 to 30 years; machinery and equipment 4
to 10 years.
Revenue Recognition: Revenue is recognized when products are shipped and
invoiced to customers. Provisions are made for doubtful receivables,
discounts, returns and allowances.
Advertising Costs: Cooperative advertising costs associated with customer
support programs are accrued when the related revenues are recognized.
Advertising costs expensed were $4.1 million in 1996, $3.2 million in
1995, and $3.5 million in 1994.
Income Taxes: The provision for income taxes is based on income reported
in the financial statements. Deferred income taxes are recognized for all
temporary differences between the tax and financial reporting bases of
assets and liabilities.
Per Share Data: Earnings per share are computed based on the weighted
average shares of common stock and equivalents (stock options) outstanding
during each year. The weighted average shares of common stock and common
stock equivalents outstanding were 4,255,300 in 1996, 4,208,500 in 1995,
and 4,259,400 in 1994.
Reclassifications: Beginning in the fourth quarter of 1996, certain
allowances, relating to customer advertising and freight which previously
were classified as a reduction to gross sales, have been reclassified to
selling, general, and administrative expenses. These allowances amounted
to $6.3 million in 1996, $5.2 million in 1995, and $4.9 million in 1994.
The reclassification has been made to the prior years' consolidated
financial statements to conform with the 1996 presentation.
Financial Instruments: The carrying values of financial instruments
classified in the balance sheet as current assets and liabilities
approximate fair values. The carrying amount of long-term debt
approximates fair value as the floating rates applicable to these
borrowings reflect changes in overall market interest rates.
NOTE 3--BORROWING ARRANGEMENTS
At December 31, 1996, the Company's borrowings under a $15.0 million
unsecured bank revolving credit agreement totaled $6.6 million, bearing
interest at a weighted average of 6.61%. The agreement expires on July
15, 1999; however, the Company, on an annual basis, may request up to two
extensions of the expiration date for an additional twelve months, subject
<PAGE>
Page 23
to approval by the bank. The credit agreement requires the Company to
comply with certain restrictive covenants which, among other things,
include maintaining certain financial ratios and a minimum level of
tangible net worth. At December 31, 1996, the Company was in compliance
with restrictive covenants contained in the credit agreement. Borrowings
under the credit agreement bear interest, at the Company's option, at
LIBOR plus 50 to 100 basis points, or the greater of (a) the bank's prime
rate or (b) an average of the rates at which selected federal funds
brokers offer to sell federal funds to the bank plus 50 basis points. The
Company is required to pay a commitment fee of 1/4% per annum on the
unused portion of the credit agreement.
The Company previously classified outstanding borrowings under its
revolving credit facility as a current obligation on its balance sheet.
Beginning with June 30, 1996, such borrowings have been more appropriately
classified as long-term. The amount outstanding at December 31, 1995 has
been reclassified to conform with this presentation.
Debt at December 31, 1996 and 1995 included $5 million in Michigan
Strategic Fund Industrial Development Revenue Bonds, with a variable
interest rate based on the market rate for similar bonds (4.2% at December
31, 1996). At December 31, 1996, $4.5 million is classified as long term
debt, and $500,000 is classified as the current portion of long term debt.
The bonds are due in November 2006 and require annual principal payments
of $500,000 beginning November 1997. The Company's Michigan facility and
related equipment are pledged as collateral for the bonds. A letter of
credit for approximately $5.2 million with a 1% fee charged annually on
the face amount, is also collateralizing the bonds. The letter of credit
expires on January 13, 1998 and is secured by the Company's Michigan
facility, including certain related equipment. Covenants under the letter
of credit are the same as those relating to the revolving credit facility
The Company made cash payments for interest on all borrowing arrangements
in the amounts of $482,000 in 1996 (net of capitalized interest of
$29,000), $356,200 in 1995 (net of capitalized interest of $72,000), and
$137,900 in 1994 (net of capitalized interest of $145,000).
NOTE 4--INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current-Federal $ (322,300) $ (505,100) $ 4,025,900
State and local (16,900) 35,100 497,900
Deferred 544,900 (973,400) 119,000
----------- ----------- -----------
<PAGE>
Page 24
$ 205,700 $(1,443,400) $ 4,642,800
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
A reconciliation of total income tax expense (benefit) and the amount
computed by applying statutory federal income tax rates to pretax income
(loss) follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense (benefit) at
statutory rates $ 233,100 $(1,635,800) $ 4,543,700
State and local income taxes net of
federal tax reduction 11,200 23,200 323,600
Decrease in deferred tax asset
valuation allowance (272,100)
Other (38,600) 169,200 47,600
----------- ----------- -----------
$ 205,700 $(1,443,400) $ 4,642,800
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Major components of deferred tax assets and liabilities at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Assets:
Environmental accruals $ 611,100 $ 850,400
Inventory reserves 781,600 574,900
Employee benefits 342,100 909,300
Accounts receivable reserves 455,800 614,800
Other accrued liabilities 369,000 220,500
----------- -----------
2,559,600 3,169,900
Liabilities:
Depreciation (1,402,100) (1,329,400)
<PAGE>
Page 25
Prepaid expenses & other (2,006,200) (2,144,300)
----------- -----------
(3,408,300) (3,473,700)
----------- -----------
Net Deferred Tax Liability $ (848,700) $ (303,800)
----------- -----------
----------- -----------
Reported in balance sheet:
Other current assets $ 535,300 $ 978,400
Other long-term liabilities (1,384,000) (1,282,200)
----------- -----------
Net Deferred Tax Liability $ (848,700) $ (303,800)
----------- -----------
----------- -----------
</TABLE>
Income taxes of $1,000,900 were refunded to the Company in 1996. Cash
expended for income taxes amounted to $1,231,500 in 1995, and $3,513,700
in 1994.
NOTE 5--LEASES
The Company and its subsidiaries have entered into various operating
leases for facilities and equipment. Future minimum rental payments
required under lease obligations that have initial or remaining
noncancelable lease terms in excess of one year are $242,000 in 1997,
$227,500 in 1998, $208,200 in 1999, $189,200 in 2000, $113,000 in 2001,
and $50,900 thereafter.
Total rent expense charged against income was $903,100 in 1996, $987,600
in 1995, and $940,000 in 1994.
NOTE 6--CONTINGENCIES
During 1989, the Company discovered environmental contamination at its
facility in Dowagiac, Michigan, which was reported to the appropriate
state environmental agency. A remedial investigation and feasibility
study (RI/FS), including final estimates of costs necessary to remediate
the site, was completed in 1996 by an independent consulting engineering
firm The RI/FS report is undergoing review by the State of Michigan.
Based on the opinion of the independent engineering firm and legal
counsel, the Company believes it will receive a favorable ruling.
<PAGE>
Page 26
It is the Company's policy to accrue environmental cleanup costs if it is
probable that a liability has been incurred and an amount is reasonably
estimable. Costs of $1.2 million in 1995 and $0.25 million in 1994 were
recognized on an undiscounted basis as pretax charges to results of
operations to cover future costs related to the Dowagiac site, including
ongoing monitoring for up to 30 years. Ameriwood filed suit against
certain parties who might be required to contribute toward cleanup of this
site. Settlement agreements were reached with the involved parties and
$350,000 was included in income in 1996.
As of December 31, 1996, the Company has reserves recorded of $1.7
million. The current portion, $0.5 million, is included in other current
liabilities and the remainder, $1.2 million, is included in other long-
term liabilities. The Company believes any additional costs beyond the
amounts recorded will not be material to the its financial position or
results of operations.
The Company is from time to time also a party to certain other lawsuits
and has been threatened with litigation arising out of the normal course
of its business. While the ultimate results of these matters cannot be
predicted with certainty, the Company believes any resulting liability
will not materially affect the financial position or the results of
operations of the Company
NOTE 7--PRODUCT RECALL
In October 1996, management discovered that an imported futon cushion may
not have met applicable U.S. standards. The distribution of this product
was limited to a small number of customers and confined primarily to two
discount retailers with stores in the northeastern United States. The
Company immediately took steps to notify its customers and suspend
distribution of this product. The involved futon cushions are being
replaced with cushions meeting the Company's high quality standards. In
the fourth quarter of 1996, the Company recorded a nonrecurring pretax
charge of $1.15 million, or $.19 per share, for costs associated with this
<PAGE>
Page 27
matter.
NOTE 8--MANAGEMENT REORGANIZATION
In December 1995, the Company initiated a management reorganization plan
for the purpose of eliminating layers of management and redundant staffing
in order to lower fixed costs. The plan included termination of certain
management employees. Accordingly, the Company accrued $1.4 million at
December 31, 1995 to provide for negotiated severance and other
termination benefits for these employees. The plan was substantially
completed by June 30, 1996.
NOTE 9--STOCK OPTIONS
The Company has one active employee stock option plan, the 1993 Stock
Incentive Plan. This Plan permits the issuance of options, stock
appreciation rights (SARs), limited SARs, restricted stock, and other
stock-based awards to selected executives and key employees of the
Company. The plan reserved 300,000 shares of common stock for grant and
provides that the term of each award be determined by a committee of the
Board of Directors (the "Committee") charged with administering the plan.
Under the terms of the plan, options granted may be either nonqualified or
incentive stock options. SARs and limited SARs granted in tandem with an
option shall be exerciseable only to the extent the underlying option is
exercisable and the grant price shall be equal to the exercise price of
the underlying option. Options granted during 1996 and prior years become
exerciseable immediately and expire ten years after the date of grant. At
December 31, 1996, 213,000 shares were available for granting under the
plan and a total of 79,000 shares were outstanding and exerciseable.
Upon the exercise of SARs, the employee renders the unexercised related
option and receives a cash payment equal to the excess of the fair market
value at the time of exercise over the price of the related option.
During 1996, stock appreciation rights on 40,000 shares were granted and
20,000 shares were exercised resulting in 20,000 stock appreciation rights
outstanding at December 31, 1996. The compensation cost associated with
these stock appreciation rights that has been charged against income in
1996 was $117,500. There were no stock appreciation rights granted in
1995 or 1994.
Also active is the 1995 Non-Employee Director Stock Option Plan. The
number of options granted annually is fixed by the plan. Options become
fully exerciseable on the third anniversary of their respective grant date
and expire six years after the date of grant. The total number of shares
to be issued under this plan may not exceed 100,000 shares. At December
31, 1996, 60,000 shares were available for grant under the plan and a
total of 40,000 options were outstanding, but, due to vesting requirements
were not exerciseable.
<PAGE>
Page 28
Although no longer active, the Company has two additional employee stock
option plans, the 1983 Plan and 1984 Plan, which still have 46,300 options
outstanding and exerciseable as of December 31, 1996. Also no longer
active, the 1992 Non-Employee Directors' Stock Option Plan provided one-
time grants of 20,000 shares of common stock to directors at the time they
were elected. At December 31, 1996, 80,000 shares were outstanding under
the 1992 Plan, but due to vesting requirements, only 60,000 shares were
exercisable. Also, At December 31, 1996, options to purchase 20,000
shares of the Company's common stock remain outstanding and exerciseable
due to a 1991 grant to a Director.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, since all options are granted at a
fixed price not less than the fair market value of the Company's common
stock on the date of grant, no compensation cost has been recognized for
its stock option plans. Had compensation cost for the Company's stock
based plans been determined based on the fair value at the 1996 and 1995
grant dates for awards under those plans consistent with the method of
FASB Statement of Accounting Standards No. 123, Accounting for Stock Based
Compensation, the Company's net income (loss) (in thousands) and earnings
(loss) per share would have been reduced to the pro forma amounts
indicated below:
1996 1995
--------- -----------
Net Income (Loss) As Reported $ 479,900 $(3,367,700)
Pro Forma 340,700 (3,588,300)
Earnings (Loss) Per Share As Reported $0.11 $ (0.80)
Pro Forma .08 (0.85)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions for 1996 and 1995, respectively: risk free interest rates of
5.2%, and 7.0%; no dividend yield for each year; expected lives of 5
years; and volatility of 35% for each year. Option valuation models, like
the Black-Scholes model, require the input of highly subjective
assumptions including the expected stock price volatility. Because
changes in the subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock options.
Summary of the status of the Company's stock option plans as of December
31:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 366,550 $ 9.12 304,534 $9.33 257,834 $ 7.57
Granted 70,000 4.63 87,000 8.34 52,950 18.13
<PAGE>
Page 29
Exercised (58,000) 4.79 (2,600) 9.66
Forfeited (113,300) 11.58 (24,984) 8.97 (3,650) 12.09
-------- ------- --------
Outstanding at December 31 265,250 366,550 304,534
-------- ------- --------
-------- ------- --------
Exercisable at December 31 205,250 326,550 236,568
-------- ------- --------
-------- ------- --------
Weighted average fair value of
options granted during year $1.84 $3.86
----- -----
----- -----
</TABLE>
Following is a summary of the outstanding stock options as of December 31,
1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Average
Exercise Out- Contractual Exercise Number Exercise
Prices Standing Life Price Exercisable Price
- ------------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.75 -$ 4.00 62,000 7.5 $ 3.92 62,000 $ 3.92
6.19 - 8.88 164,000 4.5 7.73 104,000 8.03
9.50 - 11.38 19,300 2.0 10.58 19,300 10.58
18.13 19,950 4.7 18.13 19,950 18.13
-------- --------
265,250 5.0 7.81 205,250 7.99
-------- --------
-------- --------
</TABLE>
NOTE 10--EMPLOYEE BENEFIT PLANS
<PAGE>
Page 30
The Company maintains an employee stock ownership (ESOP) and savings plan
which covers substantially all employees. The ESOP component of the plan
is entirely funded by Company contributions. The Company's annual ESOP
contribution is the greater of 10% of "net profits" or 3% of "qualified
wages", as defined by the plan. Employees vest in the Company ESOP
contributions over a five-year period. At December 31, 1996, the ESOP
held 797,000 shares of Ameriwood common stock. Of those shares held,
787,900 shares were allocated to the accounts of plan participants. All
shares held by the ESOP are issued and outstanding shares of the Company
and have been included in calculating earnings per share. The amount of
ESOP compensation expense recognized was $569,300 in 1996, $520,900 in
1995, and $1,084,400 in 1994.
The savings component of the plan allows participants to make voluntary
contributions by salary reduction pursuant to section 401(k) of the
Internal Revenue Code. The Company matches such contributions up to a
maximum of 4% of employee compensation. Employees vest immediately in
their own contribution and vest in Company contributions over a five-year
period. The expense for Ameriwood's 401(k) match totaled $565,300 in
1996, $523,400 in 1995, and $525,700 in 1994.
NOTE 11--COMMON STOCK PURCHASE RIGHTS
Under the terms of the Rights Agreement, dated as of April 4, 1996,
between the Company and Harris Trust and Savings Bank, as Rights Agent,
each outstanding share of Ameriwood common stock currently carries with it
one Right to purchase one additional share of common stock at an exercise
price of $80, subject to adjustment as provided in the agreement. The
Rights are not currently exercisable, but would become exercisable if a
person or group acquired 20% or more (or commenced a tender offer to
acquire 20% or more) of the shares of common stock then outstanding. In
the event a person or group acquires 20% or more of the shares of the
Company's common stock then outstanding, each Right (except for Rights
owned by a person or group or certain successors in interest, which would
have become null and void) would entitle the holder to purchase, for the
exercise price then in effect, shares of the Company's common stock (or,
in some cases, of the other party to a relevant acquisition transaction)
having a market value equal to twice the exercise price.
The Company may redeem the Rights at a price of $0.005 per Right. The
Rights have no voting or dividend privileges and, until such time, if
ever, as the Rights first become exercisable and separate Rights
certificates are distributed (the "Distribution Date"), will be attached
to and trade only with the common stock. Unless earlier exercised or
redeemed, the Rights will expire on May 20, 2006. Prior to redemption,
expiration, or occurrence of the Distribution Date, any additional shares
of common stock issued by Ameriwood will also carry Rights.
<PAGE>
Page 31
NOTE 12--SALE OF NOTE RECEIVABLE
In a 1989 transaction involving the sale of two former subsidiaries, the
Company received $3.8 million face value of the buyer's cumulative
convertible preferred stock. In December 1991, the Company converted the
preferred stock to an unsecured junior subordinated promissory note of
$4.5 million, which included a 20% conversion premium, due December 15,
1994, with interest payable quarterly at 12.5%. The note became due and
payable in full when a required quarterly interest payment was not
received in September 1994. The junior subordinated note and interest
receivable was sold to an unrelated third party for $3.7 million, net of
interest receivable and pertinent legal and professional costs, in
December 1994.
NOTE 13--SHAREHOLDER LITIGATION AND SETTLEMENTS
During 1992, the Company settled legal actions brought against it and
certain co-defendants by Atlantis Group, Inc. ("Atlantis"), formerly a
substantial Ameriwood shareholder, and by shareholders included in a class
action. Expenses associated with that litigation totaled $15.6 million in
1991 and $2 million in 1990. In addition, the Company repurchased all
996,200 shares of Ameriwood stock held by Atlantis for $7.5 million based
on a fair market value of $7.50 per share.
During the third quarter of 1994, Ameriwood received $3.7 million, net of
ESOP expense, which settled all claims against its former insurance
carrier for directors and officers liability coverage. The settlement was
for reimbursement of covered expenses incurred related to the securities
lawsuits.
In 1995, the Company filed a complaint against Arthur Andersen L.L.P., the
Company's former auditors, claiming that the Company's exposure to
liability in the securities lawsuits was the result of Andersen's
malfeasance while performing auditing and other services for the Company
from 1986 through 1990. The complaint asserts claims for professional
malpractice, breach of contract, and contribution under the federal
securities laws.
Andersen has denied liability in the matter and filed a counterclaim which
seeks recovery of Andersen's own costs incurred in the same prior lawsuits
which Andersen was also named as a defendant. Andersen alleges that any
problems with the Company's financial statements audited by Andersen arose
from failures by persons then employed by the Company to provide Andersen
with accurate, complete, and/or timely information, which injured Andersen
by embroiling it in the Atlantis and related litigation. Andersen seeks
to recover $4.4 million for the amounts it paid to settle the prior
lawsuits, and an additional $3.7 million for its attorneys' fees and other
defense costs associated with that litigation. Based on advice of legal
counsel, the Company believes that Andersen's claims are precluded by a
Bar Order entered by the Court when it approved the underlying
settlements.
The Company recognized a pretax charge to results of operations of $0.4
million in 1996 and $0.5 million in 1994 for estimated legal fees related
<PAGE>
Page 32
to this matter. The Company is vigorously pursuing its claims against
Andersen and aggressively defending against Andersen's counterclaim in
this proceeding. A jury trial on all of these claims is scheduled to
commence on April 8, 1997.
While the ultimate result of this matter cannot be predicted with
certainty, based on the advice of counsel, management believes that (1) a
favorable outcome with respect to the claim is likely and, (2) the Company
has a complete defense to the counterclaim and that any resulting
liability from the counterclaim will not materially affect the financial
position of the Company. The ultimate resolution of the Andersen matter
could, however, have a material effect on quarterly or annual operating
results when resolved in a future period.
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Earnings
Net Income (Loss)
Net Sales* Gross Profit* (Loss) Per Share
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
1996 First quarter $ 27,913,000 $ 5,403,200 $ 66,400 $ .02
Second quarter 23,652,900 4,758,400 41,300 .01
Third quarter 31,661,100 6,586,300 524,800 .12
Fourth quarter 31,319,600 7,259,600 (152,600) (.04)
------------ ----------- ------------ ------
$114,546,600 $24,007,500 $ 479,900 $ .11
------------ ----------- ------------ ------
------------ ----------- ------------ ------
1995 First quarter $ 27,195,900 $ 5,414,100 $ 44,000 $ .01
Second quarter 24,641,800 4,324,100 (227,600) (.05)
Third quarter 27,375,100 4,748,100 (689,700) (.16)
Fourth quarter 26,784,800 4,748,900 (2,494,400) (.60)
------------ ----------- ------------ ------
<PAGE>
Page 33
$105,997,600 $19,235,200 $(3,367,700) $ (.80)
------------ ----------- ------------ ------
------------ ----------- ------------ ------
</TABLE>
*Reclassified certain costs to conform with classifications adopted in
1996 (see Note 2--Summary of Accounting Policies in the accompanying
financial statements).
In the fourth quarter of 1996, pretax charges for (1) product recall costs
decreased net income by $1.15 million, or $0.19 per share, and (2) for
legal fees related to the Arthur Andersen litigation of $0.4 million, or
$0.06 per share. The Company also recorded a recovery related to an
environmental remediation matter during the quarter which increased pretax
income by $0.4 million, or $0.06 per share.
In the fourth quarter of 1995 a pretax charge for management
reorganization increased the net loss by approximately $1.4 million, or
$0.23 per share, and estimated costs to complete environmental remediation
increased the pretax net loss by approximately $1.2 million, or $0.20 per
share.
During the third quarter of 1995, charges for bad debts related to
bankruptcy filings of certain customers increased the pretax net loss by
$774,000, or $.13 per share.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
ADDITIONS
BEGINNING CHARGED TO END OF
OF YEAR COSTS AND DEDUCTIONS YEAR
CLASSIFICATION BALANCE EXPENSES (a) BALANCE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $ 752,500 $ 418,000 $(548,200) $ 622,300
<PAGE>
Page 34
Allowance for returns 303,000 36,000 (79,200) 259,800
---------- ---------- --------- ----------
$1,055,500 $ 454,000 $(627,400) $ 882,100
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 496,300 $1,016,000 $(759,800) $ 752,500
Allowance for returns 118,000 185,000 303,000
---------- ---------- --------- ----------
$ 614,300 $1,201,000 $(759,800) $1,055,500
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $ 316,100 $ 135,800 $ 44,400 $ 496,300
Allowance for returns 220,000 (102,000) 118,000
---------- ---------- -------- ----------
$ 536,100 $ 135,800 $(57,600) $ 614,300
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
(a) Uncollectible accounts written off, net of recoveries.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required to be furnished by Items 401 and 405 of Regulation S-
K is included in the Company's definitive Proxy Statement for its 1997
annual meeting of shareholders filed with the Securities and Exchange
Commission (the "1997 Proxy Statement") and is incorporated herein by
<PAGE>
Page 35
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished by paragraphs of Item 402 of
Regulation S-K is included in the 1997 Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required to be furnished by Item 403 of Regulation S-K is
included in the 1997 Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished by Item 404 of Regulation S-K is
included in the 1997 Proxy Statement and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. The following financial statements, all of
which are set forth in Item 8, are filed as a part of this report:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996, 1995
Consolidated Statements of Operations years ended December 31, 1996,
1995, 1994
Consolidated Statements of Shareholders' Equity years ended December 31,
1996, 1995, 1994
Consolidated Statements of Cash Flows years ended December 31, 1996,
1995, 1994
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedule. The following financial statement
schedule is set forth in Item 8 and is filed as a part of this report:
Schedule II--Valuation and Qualifying Accounts for the years ended
December 31, 1996, 1995 and 1994
(a) 3. Exhibits. Reference is made to the Exhibit Index starting on
<PAGE>
Page 36
page 28 of this Form 10-K report.
(b) 1. Reports on Form 8-K. No reports on Form 8-K were filed by the
registrant during the quarter ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 20, 1997 By /s/ Craig G. Wassenaar
-------------------------
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Each
director of the registrant whose signature appears below hereby appoints
Craig G. Wassenaar as his attorney-in-fact to sign in his name and on his
behalf, and to file with the Commission, any and all amendments to this
report to the same extent and with the same effect as if done personally.
March 20, 1997 /s/ Charles R. Foley
-------------------------------------
Charles R. Foley
President and Chief Executive Officer
<PAGE>
Page 37
(Principal Executive Officer)
March 20, 1997 /s/ Craig G. Wassenaar
-------------------------------------
Craig G. Wassenaar
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
March 20, 1997 /s/ Neil L. Diver
-------------------------------------
Neil L. Diver
Board Chairman
March 20, 1997 /s/ Kevin K. Coyne
-------------------------------------
Kevin K. Coyne
Director
March 20, 1997 /s/ Richard J. Pigott
-------------------------------------
Richard J. Pigott
Director
March 20, 1997 /s/ Edwin Wachtel
-------------------------------------
Edwin Wachtel
Director
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)
<PAGE>
Page 38
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 and Savings Bank, 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
International Corporation and Harris Trust and Savings Bank, as Rights
Agent (filed as exhibit to Form 10-Q for the quarter ended June 30, 1996
and incorporated by reference)
The following material contracts identified with "*" are agreements or
compensation plans with or 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)
EXHIBIT INDEX
- --------------------------------------------------------------------------
<PAGE>
Page 39
*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 as Exhibit A to 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 as Exhibit A to 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) Description of 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(n) Employment Agreement dated April 20, 1990 with Joseph J. Miglore
(filed as exhibit to Form 10-K for the year ended December 31, 1990 and
<PAGE>
Page 40
incorporated by reference)
*10(o) Addendum To Miglore Employment Agreement (filed as exhibit to Form
10-K for the year ended December 31, 1992 and incorporated by reference)
EXHIBIT INDEX
- --------------------------------------------------------------------------
*10(p) Management Retention Agreement dated as of November 20, 1992
between the registrant and Joseph J. Miglore (filed as exhibit to Form 10-
K for the year ended December 31, 1992 and incorporated by reference)
*10(q) Mutual Termination and Benefits Agreement dated as of January 18,
1996 between the registrant and Joseph J. Miglore (filed as exhibit to
Form 10-K for the year ended December 31, 1995 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 Agreement dated April 10, 1996 between the registrant
and James Meier (filed as exhibit to Form 10-Q for the quarter ended June
30, 1996 and incorporated by reference)
21 Subsidiaries of the Registrant
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
<PAGE>
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Rospatch Jessco Corporation Michigan
Tiffin Enterprise, Inc. Ohio
(A) B.I.C. America, Inc. Ohio
Rospatch Orlando, Inc. Delaware
(A) A wholly-owned subsidiary of Tiffin Enterprise, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Ameriwood Industries International Corporation on Forms S-8
(File Nos. 2-99965, 33-46777 and 33-67494) of our report, dated February
7, 1997, on our audits of the consolidated financial statements and
financial statement schedule of Ameriwood Industries International
Corporation as of December 31, 1996 and 1995, and for each of the three
years in the period ended December 31, 1996, which report is included in
this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
- -------------------------------
Coopers & Lybrand L.L.P.
Grand Rapids, Michigan
February 7, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 21,603,900
<ALLOWANCES> 882,100
<INVENTORY> 20,612,200
<CURRENT-ASSETS> 42,793,400
<PP&E> 47,116,500
<DEPRECIATION> 23,558,900
<TOTAL-ASSETS> 66,505,500
<CURRENT-LIABILITIES> 14,853,000
<BONDS> 5,000,000
0
0
<COMMON> 4,246,400
<OTHER-SE> 33,722,100
<TOTAL-LIABILITY-AND-EQUITY> 66,505,500
<SALES> 114,546,600
<TOTAL-REVENUES> 114,546,600
<CGS> 90,539,100
<TOTAL-COSTS> 90,539,100
<OTHER-EXPENSES> 22,458,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 503,700
<INCOME-PRETAX> 685,600
<INCOME-TAX> 205,700
<INCOME-CONTINUING> 479,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 479,900
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
