UNITED STATES
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 December 29, 2001
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 Number 0-1859
KNAPE & VOGT MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
| Michigan (State of Incorporation) 2700 Oak Industrial Drive, NE Grand Rapids, Michigan (Address of principal executive offices) | 38-0722920 (IRS Employer Identification No.) 49505 (Zip Code) |
(616) 459-3311
(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
| 2,268,341 | common shares were outstanding as of January 25, 2002. |
| 2,277,517 | Class B common shares were outstanding as of January 25, 2002. |
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
--December 29, 2001 and June 30, 2001.............................................................2
Condensed Consolidated Statements of Income
--Six Months and Three Months Ended December 29, 2001 and December 30, 2000.......................3
Condensed Consolidated Statements of Cash Flows
--Six Months Ended December 29, 2001 and December 30 , 2000.......................................4
Notes to Condensed Consolidated Financial Statements............................................5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................9-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..............................................12
Item 6. Exhibits and Reports on Form 8-K.................................................................12
SIGNATURES .................................................................................................13
1
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
Dec. 29, 2001 June 30, 2001
-------------------- -----------------
Assets
Current assets
Cash and equivalents $ 2,554,741 $ 2,113,940
Accounts receivable - net 15,429,345 17,822,214
Inventories 14,184,583 14,290,096
Prepaid expenses and other 1,474,355 3,271,460
-------------------- -----------------
Total current assets 33,643,024 37,497,710
-------------------- -----------------
Property, plant and equipment 80,817,004 79,549,733
Less accumulated depreciation 41,194,309 38,524,582
-------------------- -----------------
Net property, plant and equipment 39,622,695 41,025,151
-------------------- -----------------
Goodwill 4,955,267 5,137,697
Other assets 6,015,505 6,142,835
-------------------- -----------------
$ 84,236,491 $ 89,803,393
==================== =================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 9,061,915 $ 10,366,596
Other accrued liabilities 8,660,095 8,665,511
-------------------- -----------------
Total current liabilities 17,722,010 19,032,107
-------------------- -----------------
Long-term debt 20,000,000 23,750,000
Deferred income taxes and other long-term liabilities 10,229,203 9,888,589
-------------------- ----------------
Total liabilities 47,951,213 52,670,696
-------------------- ----------------
Stockholders' Equity
Common stock (Common - 2,294,410 and 2,277,921 shares issued,
Class B common - 2,277,848 and 2,339,920 shares issued,
Preferred - unissued) 9,144,516 9,235,682
Additional paid-in capital 8,102,122 8,502,727
Unearned stock grant (94,500) (94,500)
Accumulated other comprehensive income:
Foreign currency translation adjustment (198,658) (86,729)
Derivative adjustment (797,626) (353,301)
Minimum supplemental executive retirement plan
liability adjustment (1,034,825) (1,036,062)
Retained earnings 21,164,249 20,964,880
-------------------- ----------------
Total stockholders' equity 36,285,278 37,132,697
-------------------- ----------------
$ 84,236,491 $ 89,803,393
==================== ================
See accompanying notes.
2
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Six Months Ended For the Three Months Ended
------------------------ --------------------------
Dec. 29, 2001 Dec. 30, 2000 Dec. 29, 2001 Dec. 30, 2000
--------------- --------------- --------------- ---------------
Net sales $ 64,242,959 $ 74,478,441 $ 31,153,768 $ 36,708,989
Cost of sales 49,341,010 55,608,670 23,862,439 27,639,466
--------------- --------------- --------------- ---------------
Gross profit 14,901,949 18,869,771 7,291,329 9,069,523
Selling and administrative expenses 11,497,553 12,162,875 5,723,531 6,170,207
--------------- --------------- --------------- ---------------
Operating income 3,404,396 6,706,896 1,567,798 2,899,316
Other expenses 870,268 855,429 428,298 418,744
--------------- --------------- --------------- ---------------
Income before income taxes 2,534,128 5,851,467 1,139,500 2,480,572
Income taxes 884,000 2,055,000 395,000 865,000
--------------- --------------- --------------- ---------------
Net income $ 1,650,128 $ 3,796,467 $ 744,500 $ 1,615,572
=============== =============== =============== ===============
Basic earnings per share:
Net income per share $ 0.36 $ 0.82 $ 0.16 $ 0.35
=============== =============== =============== ===============
Weighted average shares outstanding 4,606,942 4,616,037 4,596,920 4,617,075
Diluted earnings per share:
Net income per share $ 0.36 $ 0.82 $ 0.16 $ 0.35
=============== =============== =============== ===============
Weighted average shares outstanding 4,606,942 4,618,595 4,596,920 4,618,174
Cash dividend - common stock $ .33 $ .33 $ .165 $ .165
Cash dividend - Class B common stock $ .30 $ .30 $ .15 $ .15
See accompanying notes.
3
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
----------------
Dec. 29, 2001 Dec. 30, 2000
------------------ ------------------
Operating Activities:
Net income $ 1,650,128 $ 3,796,467
Non-cash items:
Depreciation and amortization 3,744,658 3,077,111
Deferred income taxes (257,000) (168,000)
Other long-term liabilities 260,022 196,818
Loss on disposal of fixed assets 228,123 114,821
Changes in operating assets and liabilities:
Accounts receivable 2,327,558 1,222,982
Inventories 105,513 (971,011)
Other current assets 66,639 (29,532)
Accounts payable and accrued expenses (954,082) (5,122,829)
------------------- ------------------
Net cash provided by operating activities 7,171,559 2,116,827
------------------- ------------------
Investing Activities:
Additions to property, plant and equipment (2,411,167) (4,563,460)
Proceeds from sales of property, plant and equipment 1,458,158 -
Changes in other non-current assets (10,676) (19,414)
------------------- ------------------
Net cash used for investing activities (936,685) (4,582,874)
------------------- ------------------
Financing Activities:
Cash dividends paid (1,450,759) (1,452,203)
Proceeds from issuance of common stock - 15,922
Repurchase and retirement of common stock (502,384) (20,537)
Borrowings on (repayments of) long-term debt (3,750,000) 4,080,000
------------------- ------------------
Net cash provided by (used for) financing activities (5,703,143) 2,623,182
------------------- ------------------
Effect of Exchange Rate Changes on Cash (90,930) (12,731)
------------------- ------------------
Net Increase in Cash and Equivalents 440,801 144,404
Cash and equivalents, beginning of year 2,113,940 2,351,622
------------------- ------------------
Cash and equivalents, end of period $ 2,554,741 $ 2,496,026
=================== ==================
Cash Paid During the Period - interest $ 791,310 $ 749,970
- income taxes $ 1,390,000 $ 2,530,000
See accompanying notes.
4
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Financial Statement Preparation
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished reflects all adjustments, which are, in the opinion of management, necessary for a fair statement of the results of operations and consist of only normal recurring adjustments. Interim results are not necessarily indicative of the results for the year-end and are subject to year-end adjustments, and audit by independent public accountants. The balance sheet at June 30, 2001, has been taken from the audited financial statements at that date. The condensed consolidated financial statements and notes should be read in conjunction with the Company’s 2001 annual report.
The Company utilizes a 52- or 53-week fiscal year, which ends on the Saturday nearest the end of June. The fiscal years ending June 30, 2001 and June 29, 2002 each contain 52 weeks.
The Company uses an interest rate swap agreement to modify a portion of the variable rate revolving line of credit to a fixed rate obligation, thereby reducing the exposure to market rate fluctuations. The interest rate swap agreement is designated as a hedge, and effectiveness is determined by matching the principal balance and terms with that specific obligation. Amounts currently due to or from interest-rate-swap-counter parties are recorded in interest expense in the period in which they accrue. The derivative was recognized as a liability on the balance sheet at its fair value of $1,227,626 at December 29, 2001, $543,301 at June 30, 2001 and $334,592 at December 30, 2000.
In accordance with the Emerging Issues Task Force (“EITF”) No. 00-10, “Accounting for Shipping and Handling Fees and Costs,” certain shipping costs have been reclassified from sales to cost of goods sold. Certain handling costs as defined by the EITF are classified as operating expenses and amounted to $1,201,522 and $1,231,091 for the quarters ended December 29, 2001 and December 30, 2000, respectively. For the six months ended December 29, 2001 and December 30, 2000, the handling costs were $2,420,765 and $2,460,580, respectively.
In addition, EITF No. 00-22, “Accounting for Certain ‘Points’ and Other Time-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future,” resulted in certain rebate offers that are delivered subsequent to a single exchange transaction being recognized when incurred and reported as a reduction of revenue.
In May 2001, the EITF issued EITF No. 00-25, “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products.” EITF No. 00-25 requires that certain amounts paid to customers under cooperative advertising and buydown programs be recognized when incurred and reported as a reduction of revenue.
EITF Nos. 00-22 and 00-25 resulted in certain costs having been reclassified from operating expenses to net sales, however, they did not have any impact on operating or net income. Accordingly, certain prior year information has been reclassified to conform to the current year presentation.
Note 2 – New Accounting Standards
In June 2001, the Financial Accounting Standards Board (FASB) finalized Statements No. 141,Business Combinations (SFAS 141), and No. 142,Goodwill and Other Intangible Assets(SFAS 142). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interest method of accounting for business combinations. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141.
5
SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142.
The Company’s previous business combinations were accounted for using the purchase method. As of December 29, 2001, the net carrying amount of goodwill is $4,955,267. Currently, the Company is assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its financial position and results of operation.
In August 2001, the FASB issued SFAS No. 144,Accounting for Impairment of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes SFAS No. 121 and the accounting and reporting provisions of APB Opinion No. 30. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company does not expect to adopt SFAS 144 until fiscal 2003 and the effect of its adoption is not expected to be significant to the Company’s financial position and results of operations.
Note 3 - Common Stock and Per Share Information
Common stock is $2 par - shares authorized 6,000,000 of common stock and 4,000,000 of Class B common stock.
The following table reconciles the numerators and denominators used in the calculations of basic and diluted EPS for each of the periods presented:
For the six months ended For the three months ended
------------------------ --------------------------
Dec. 29, 2001 Dec. 30, 2000 Dec. 29, 2001 Dec. 30, 2000
----------------- ----------------- -------------------- --------------------
Numerators:
Numerator for both basic and
diluted EPS, net income $1,650,128 $3,796,467 $744,500 $1,615,572
================= ================= ==================== ====================
Denominators:
Denominator for basic EPS,
weighted-average common shares
outstanding 4,606,942 4,616,037 4,596,920 4,617,075
Potentially dilutive shares
resulting from stock option plans - 2,558 - 1,099
----------------- ----------------- -------------------- --------------------
Denominator for diluted EPS 4,606,942 4,618,595 4,596,920 4,618,174
================= ================= ==================== ====================
The following exercisable stock options were not included in the computation of diluted EPS because the option prices were greater than average quarterly market prices.
Dec. 29, 2001 Dec. 30, 2000
--------------------- -------------------
Exercise Price
$12.58 4,995 -
$13.64 20,410 -
$14.09 20,350 21,450
$16.74 10,594 11,192
$18.18 9,625 10,450
$26.54 62,432 -
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Note 4 - Inventories
Inventories are valued at the lower of FIFO (first-in, first-out) cost or market. Inventories are summarized as follows:
Dec. 29, 2001 June 30, 2001
------------- -------------
Finished products $9,623,434 $9,916,080
Work in process 1,697,214 1,608,544
Raw materials 2,863,935 2,765,472
--------- ---------
Total $ 14,184,583 $ 14,290,096
============= =============
Note 5 - Comprehensive Income
Comprehensive income is comprised of net income and all changes to stockholders’ equity, except those due to investments by owners and distributions to owners.
Comprehensive income and its components consist of the following:
For the Six Months Ended For the Three Months Ended
------------------------ --------------------------
Dec. 29, 2001 Dec. 30, 2000 Dec. 29, 2001 Dec. 30, 2000
----------------- ---------------- ----------------- ----------------
Net income $ 1,650,128 $ 3,796,467 $ 744,500 $ 1,615,572
Other comprehensive income:
Foreign currency translation adjustment (111,929) (26,642) (13,278) 6,645
Derivative adjustment (444,325) (217,592) 272,817 (461,611)
Minimum SERP liability adjustment 1,848 491 159 (266)
----------------- ---------------- ----------------- ----------------
Comprehensive income $ 1,095,722 $ 3,552,724 $ 1,004,198 $ 1,160,340
================= ================ ================= ================
Other comprehensive income (loss) related to the interest rate swap agreement consisted of the following components:
For the Six Months Ended For the Three Months Ended
------------------------ --------------------------
Dec. 29, 2001 Dec. 30, 2000 Dec. 29, 2001 Dec. 30, 2000
---------------------------------------------------------------------------------------------------------------
Pre-Tax After-Tax Pre-Tax After-Tax Pre-Tax After-Tax Pre-Tax After-Tax
---------------------------------------------------------------------------------------------------------------
Cumulative effect of a change in
accounting principle, as of
July 1, 2000 $ - $ - $ 797,871 $ 518,616 $ - $ - $ - $ -
Change in fair value of interest
rate swap (399,012) (258,872) (1,181,655) (768,861) 582,213 378,374 (732,048) (476,509)
Settlement to interest expense (285,313) (185,453) 49,192 32,653 (162,396) (105,557) 22,437 14,898
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) $(684,325) $(444,325) $(334,592) $(217,592) $419,817 $272,817 $(709,611) $(461,611)
===============================================================================================================
Note 6 – Assets Held for Sale
During fiscal 2000, the Company offered its former powder coat facility for sale. As a result of this decision, the related assets of $1,779,405 were transferred to the category “Net Assets Held for Sale” and a loss of $105,000 was recorded in the fourth quarter of fiscal 2000 based upon the buy/sell agreement. The purchaser was unable to close the transaction and the building remained listed with a real estate broker. In addition, the Company had listed a former facility in Muncie, Indiana for sale. Based upon new information obtained during the third quarter of fiscal 2001 regarding the current fair market value of the facilities held for sale, the Company recorded an additional impairment loss of $300,000 pre-tax. During the second quarter of fiscal 2002, both facilities were sold. No additional losses were recorded upon the ultimate sale of the facilities.
7
Note 7 – Stock Repurchase
At the August 20, 1999 Board of Directors meeting, the Board approved 440,000 shares for the stock repurchase program. Utilizing this Board authorization, the Company has purchased 46,400 shares during the first six months of fiscal 2002 for $502,384 with the price per share ranging from approximately $10 to $13. Since the beginning of the stock repurchase program in fiscal 1999, the Company has purchased 2,035,412 shares for approximately $36.2 million.
Note 8 – Legal Contingencies
Canada Customs and Revenue Agency (“CCRA”) has indicated it’s intent to perform an audit of the Company’s sales to its wholly-owned subsidiary, Knape & Vogt Canada. Preliminary results from a joint review by the Company and it’s customs broker indicate that the Company will be liable for certain custom transactions, however, the amount of any such potential liability is unknown at this time. The Company is defending its position that Knape & Vogt Canada is the importer of record for all Knape & Vogt goods shipped into Canada and management believes, that based on the information available at this time, any liability owed to the CCRA will not have a materially adverse effect on the Company’s earnings.
8
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed in this section include forward-looking statements involving risks and uncertainties. When used in this document, the words “believes,” “expects,” “anticipates,” “goal,” “think,” “forecast,” “project,” and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning future revenue and net income growth. Such statements are subject to certain risks and uncertainties, which would cause actual results to differ materially from those expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements that speak only as of the date of this report.
RESULTS OF OPERATIONS
As discussed in Note 1, certain reclassifications are reflected in the amounts discussed below.
Net Sales
Net sales for the second quarter of fiscal 2002 were $31.2 million, which represented a 15.1% decline compared to sales of $36.7 million in the same quarter of the prior year. Net sales for the first six months of fiscal 2002 were $64.2 million, compared to $74.5 million in the prior year. The primary reason for the decline in net sales was the overall decline in the office furniture industry, which represents approximately 40% of the Company’s sales. For the period from July to December 2001, BIFMA, the office furniture industry’s reporting organization, showed a decline in volume of 24.1%. The decline in the office furniture industry was partially offset by lower downturns in the other markets served by the Company, including retail, distribution and the kitchen and bath OEM’s. In addition, the Company began to realize sales from some of its newly introduced products, including the new waste and recycle products.
Gross Profit
Gross profit, as a percentage of net sales, was 23.4% for the second quarter and 23.2% for the first six months of fiscal 2002 compared to 24.7% and 25.3%, respectively, for the same periods in the prior year. The lower sales volumes during the second quarter of fiscal 2002 made it difficult for the Company to effectively leverage its fixed overhead costs. Also, the downturn in the office furniture industry resulted in pricing pressure from several of the major OEM customers.
Operating Expenses
Selling and administrative expenses, as a percentage of net sales, were 18.4% for the second quarter and 17.9% for the first six months of fiscal 2002 compared to 16.8% and 16.3%, respectively, for the same periods in the prior year. The increase in operating expenses was primarily attributable to two factors. First, the lower sales volumes made it more difficult to leverage those costs, which are more fixed in nature. Secondly, the Company’s sales mix in fiscal 2002 included a higher percentage of the ergonomic products, which have a higher level of selling costs associated with them than the Company’s other product lines.
Other Expenses
Interest expense was $377,115 for the quarter and $777,650 for the six months ended December 29, 2001, compared with $407,534 and $788,927, respectively, for the same periods in the prior year. The decrease in interest expense was attributable to a lower level of borrowings during fiscal 2002.
Other net miscellaneous expense was $51,183 for the second quarter and $92,618 for the first six months of fiscal 2002. This compares to $11,210 and $66,502, respectively, for fiscal 2001. The increase in other net expense reflects the write-off of costs associated with certain assets disposed of during fiscal 2002.
9
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Income Taxes
The effective tax rates for the quarter and six months ended December 29, 2001, were 34.7% and 34.9% compared with the rates of 34.9% and 35.1%, respectively, for the same periods in the prior year.
Net Income
For the quarter ended December 29, 2001, net income was $744,500 or $0.16 per diluted share compared to $1,615,572 or $0.35 per diluted share for the second quarter of last year. Net income of $1,650,128, or $0.36 per diluted share was recorded for the first six months of fiscal 2002 compared with $3,796,467, or $0.82 per diluted share for the same period in the prior year. As discussed above, the primary reason for the decline in net income was the lower sales volume.
Liquidity and Capital Resources
Net cash from operating activities for the first six months of fiscal 2002 provided $7,171,559 compared with $2,116,827 for the first six months of fiscal 2001. Improved working capital management generated the increase during fiscal 2002. Specifically, the Company has been successful in lowering outstanding customer receivables and reducing the inventory on hand.
Capital expenditures totaled $2,411,167 for the six months ended December 29, 2001, compared to $4,563,460 for the six months ended December 30, 2000. The current year capital spending primarily reflects investments in tooling for new products. There were no significant capital expenditure commitments at December 29, 2001. Quarterly capital expenditures during the second half of fiscal 2002 are anticipated to remain at approximately the same level as depreciation.
At the August 20, 1999 Board of Directors meeting, the Board approved 440,000 shares for the stock repurchase program. Utilizing this Board authorization, the Company has purchased 46,400 shares during the first six months of fiscal 2002 for $502,384 with the price per share ranging from approximately $10 to $13. Since the beginning of the stock repurchase program in fiscal 1999, the Company has purchased 2,035,412 shares for approximately $36.2 million.
The long-term debt balance decreased to $20,000,000 at December 29, 2001, compared to $23,750,000 at June 30, 2001 and $24,130,000 at December 30, 2000. The decrease from both periods reflects better working capital management along with lower capital expenditures.
Anticipated cash flows from operations and available balances on the revolving credit line are expected to be adequate to fund working capital, capital expenditures and dividend payments.
10
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in the foreign currency exchange rate as measured against the U.S. dollar and changes in U.S. interest rates. The Company holds a derivative instrument in the form of an interest rate swap, which is viewed as a risk management tool and is not used for trading or speculative purposes. The intent of the interest rate swap is to effectively fix the interest rate on part of the borrowings under the Company’s variable rate revolving credit agreement.
Quantitative disclosures relating to financial instruments and debt are included in the tables below.
The following table provides information on the Company’s fixed maturity investments as of December 29, 2001, that are sensitive to changes in interest rates. The table also presents the corresponding interest rate swap on this debt. Since the interest rate swap effectively fixes the interest rate on the notional amount of debt, changes in interest rates have no current effect on the interest expense recorded by the Company on the portion of the debt covered by the interest rate swap.
Liability Amount Maturity Date - ---------- ------- ------------- Variable rate revolving credit agreement $45 million November 1, 2004 First $20,000,000 at an interest rate of 2.6325% plus weighted average credit spread of .625% Amounts in excess of $20,000,000 have an interest rate of approximately 2.64% Interest Rate Swap - ------------------ Notional amount $20 million June 1, 2006 Pay fixed/Receive variable - 2.08125% Pay fixed interest rate - 6.25%
The Company has a sales office located in Canada. Sales are typically denominated in Canadian dollars, thereby creating exposures to changes in exchange rates. The changes in the Canadian/U.S. exchange rate may positively or negatively affect the Company's sales, gross margins and retained earnings. The Company attempts to minimize currency exposure through working capital management. The Company does not hedge its exposure to translation gains and losses relating to foreign currency net asset exposures.
11
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Knape & Vogt Manufacturing Company's Annual Meeting of Shareholders was held on October 12, 2001.
(b) Proxies were distributed by Knape & Vogt Manufacturing Company pursuant to Regulation 14A
under the Securities Exchange Act of 1934. There was no opposition to management's nominees
as listed in the proxy statement and all nominees were elected.
The vote on the nominees was:
For Withheld
--- --------
Thomas A. Hilborn (1) (2) 15,235,630 2,174,380
Robert J. Knape (1) (2) 16,289,667 1,123,343
Christopher Norman (1) (3) 2,031,077 15,193
(1) Term expires in 2004.
(2) Elected by vote of holders of Common stock and Class B Common
stock voting as a class.
(3) Elected by vote of holders of Common stock voting as a class.
Members of the Board of Directors whose terms have not yet expired are
William R. Dutmers, Richard S. Knape and Michael J. Kregor, terms
expiring in 2002 and John E. Fallon and Greg Lambert, terms expiring in 2003.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
There were no exhibits for the three months ended December 29, 2001.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended December 29, 2001.
12
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.
| Knape & Vogt Manufacturing Company | |
| (Registrant) |
| Date: February 4, 2002 | /s/ William R. Dutmers William R. Dutmers Chairman, President and Chief Executive Officer |
| /s/ Leslie J. Cummings �� Leslie J. Cummings Vice President of Finance and Treasurer |
13