In September 1998 when the Company sold The Hirsh Company, the purchaser assumed the lease for the facility located in Skokie, Illinois. The Company guaranteed all of the lease obligations to the landlord through the expiration of the lease in August 2000. During fiscal 2000, the purchaser defaulted on the lease agreement. In May 2000, the landlord filed suit in the Cook County, Illinois Circuit Court against the purchaser and the Company as the guarantor. The claim is for unpaid rent, unpaid property taxes, building repairs and legal costs.
The Company was sued in the Kent County, Michigan Circuit Court in 1997 by a former employee seeking additional benefits under an executive retirement plan. The Circuit Court ruled in favor of the plaintiff, but in June 2002, the Circuit Court was reversed on the Company’s appeal to the Michigan Court of Appeals. The plaintiff has filed a delayed request for leave to appeal to the Michigan Supreme Court. In August 2002, the plaintiff filed a lawsuit seeking these retirement benefits in the Federal District Court for the Western District of Michigan.
Canada Customs and Revenue Agency (“CCRA”) has performed an audit of the Company’s sales to its wholly owned subsidiary, Knape & Vogt Canada. Results from a joint review by the Company and its customs broker indicate that the Company may be liable for the underpayment of duties in a range estimated from $150,000 to $350,000 on certain customs transactions. The Company has made an accrual within the range of the estimated liability. The Company has also received a determination from CCRA that Knape & Vogt Canada is not the importer of record. The Company is appealing the determination letter and believes that based on the information available at this time, any additional liability pertaining to this issue will not have a material adverse effect on the Company’s earnings.
The Company is also subject to other legal proceedings and claims, which arise in the ordinary course of its business.
In the opinion of management, based on the information presently known and taking into account established accruals of approximately $1,285,000 at June 29, 2002, the ultimate liability for these matters would not have a material adverse effect on the Company’s financial position or the results of its operations.
As more fully described in Notes to the Consolidated Financial Statements, the Company is obligated to make future payments under certain debt and lease agreements, and is a party to other commitments. The following table summarizes these obligations as of June 29, 2002.
In addition, the Company is party to certain other agreements that contractually and unconditionally commit the Company to pay certain amounts in the future. While the Company believes it is probable that amounts will be spent in the future under such contracts, the amount and/or the timing of such future payments will vary depending on certain provisions of the applicable contract. The agreements to which the Company is a party that fall into this category include certain royalty agreements under which the Company pays a royalty based on the sales volume of certain products that it manufactures and sells.
Inflation has not had a significant effect on the Company over the past three years, nor is it expected to have a significant effect in the foreseeable future. The Company continuously attempts to minimize the effect of inflation through cost reductions and improved productivity.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") finalized Statement of Financial Accounting Standard No. 141, Business Combinations (SFAS 141). 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 initiated after June 30, 2001. 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.
The Company’s previous business combinations were accounted for using the purchase method.
In June 2001, the FASB issued SFAS No. 142,Goodwill and Other Intangible Assets, effective for the Company in fiscal 2003. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to impairment tests at least annually. Other intangible assets will continue to be amortized over their contractual lives.
The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal 2003. Application of the nonamortization provisions of SFAS No. 142 is expected to result in an increase in net earnings of approximately $365,000 ($0.08 per diluted share) per year. The Company has performed the first of the required impairment tests of goodwill as of the first day of fiscal 2003 and has determined that the effect of these tests on the earnings and financial position of the Company will not be significant in 2003.
Forward-Looking Statements
This report contains certain forward-looking statements, which involve risks and uncertainties. When used in this report, the words “believe,” “anticipate,” “think,” “intend,” “goal,” “forecast,” “expect” and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning new product introductions, future revenue growth and gross margin improvement. Such statements are subject to certain risks and uncertainties, which could 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, which speak only as of the date of this report.
Risk Factors include, but are not limited to, uncertainties relating to changes in demand for the Company’s products; the cost and availability of inventories; changes in trading policies or import and export regulations; changes in duties, tariffs, quotas or applicable assessments; the ability to secure and protect patents and other intellectual property; foreign competition; loss of significant customers; and a continued slowdown in the U.S. economy. These matters are representative of the Risk Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.
13
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in foreign currency exchange rates 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 on the Company’s variable rate revolving credit agreement.
A discussion of the Company’s accounting policies for derivative financial instruments is included in the Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. Additional information relating to financial instruments and debt is included in Note 6 - Long-Term Debt and Note 7 Derivative Financial Instruments. 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 June 29, 2002 and June 30, 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.
Fiscal 2002:
- ------------
Liability Amount Maturity Date
- --------- --------- -------------
Variable rate revolving credit
agreement $20,000,000 November 1, 2004
First $20,000,000 at an interest rate of 1.9050%
plus weighted average credit spread of .625%
Amounts in excess of $20,000,000 had an interest rate
ranging from 2.295% to 2.655%
Interest Rate Swaps
- -------------------
Notional amount $20,000,000 June 1, 2006
Pay fixed/Receive variable - 1.8975%
Pay fixed interest rate - 6.25%
Fiscal 2001:
- ------------
Liability
- ---------
Variable rate revolving credit
agreement $23,750,000 November 1, 2004
First $20,000,000 at an interest rate of 4.00%
plus weighted average credit spread of .625%
Amounts in excess of $20,000,000 had an interest rate
ranging from 4.455% to 7.68%
Interest Rate Swaps
- -------------------
Notional amount $20,000,000 June 1, 2006
Pay fixed/Receive variable - 4.00%
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 profits and retained earnings. The Company attempts to minimize currency exposure risk through working capital management. The Company does not hedge its exposure to translation gains and losses relating to foreign currency net asset exposures.
14
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Immediately following are the consolidated balance sheets of the Company and its subsidiaries as of June 29, 2002 and June 30, 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended June 29, 2002, the notes thereto, and the independent auditors’ report.
15
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Operations
========================================================================================================================
Year Ended June 29, 2002 June 30, 2001 July 1, 2000
------------------------------------------------------------------------------------------------------------------------
Net Sales $ 131,868,842 $ 143,912,863 $ 152,905,868
Cost of Sales 101,799,505 110,350,007 116,145,055
------------------------------------------------------------------------------------------------------------------------
Gross Profit 30,069,337 33,562,856 36,760,813
------------------------------------------------------------------------------------------------------------------------
Expenses
Selling 17,121,333 17,681,717 16,637,045
Administrative and general 4,650,657 5,453,784 5,590,980
Restructuring and impairment of assets 935,000 300,000 105,000
------------------------------------------------------------------------------------------------------------------------
Total Expenses 22,706,990 23,435,501 22,333,025
------------------------------------------------------------------------------------------------------------------------
Operating Income 7,362,347 10,127,355 14,427,788
------------------------------------------------------------------------------------------------------------------------
Other Expenses (Income)
Interest 1,484,868 1,611,942 1,407,239
Other, net (34,567) (66,652) (26,181)
------------------------------------------------------------------------------------------------------------------------
Total Other Expenses 1,450,301 1,545,290 1,381,058
------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 5,912,046 8,582,065 13,046,730
Income Taxes 2,123,000 2,967,000 4,623,000
------------------------------------------------------------------------------------------------------------------------
Net Income $ 3,789,046 $ 5,615,065 $ 8,423,730
========================================================================================================================
Basic Earnings Per Share $ 0.83 $ 1.22 $ 1.80
========================================================================================================================
Basic Weighted-Average Shares Outstanding 4,569,942 4,616,881 4,679,918
------------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $ 0.83 $ 1.22 $ 1.80
========================================================================================================================
Diluted Weighted-Average Shares Outstanding 4,569,942 4,618,250 4,684,125
------------------------------------------------------------------------------------------------------------------------
Dividends Per Share
Common stock $ .660 $ .660 $ .615
Class B common stock $ .600 $ .600 $ .559
------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
16
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
====================================================================================================================
June 29, 2002 June 30, 2001
- --------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash $ 5,430,543 $ 2,113,940
Accounts receivable, less allowances of $755,000 and $561,000,
respectively 17,025,929 17,822,214
Refundable income taxes - 136,832
Inventories 13,162,145 14,290,096
Prepaid expenses 1,530,967 1,436,107
Net assets held for sale - 1,698,521
- --------------------------------------------------------------------------------------------------------------------
Total Current Assets 37,149,584 37,497,710
- --------------------------------------------------------------------------------------------------------------------
Property and Equipment
Land and improvements 1,175,615 1,175,115
Buildings 16,095,973 16,041,892
Machinery and equipment 62,930,700 60,288,479
Construction in progress 537,677 2,044,247
- --------------------------------------------------------------------------------------------------------------------
80,739,965 79,549,733
Less accumulated depreciation 43,479,535 38,524,582
- --------------------------------------------------------------------------------------------------------------------
Net Property and Equipment 37,260,430 41,025,151
- --------------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $1,099,000 and
$735,000, respectively 4,772,837 5,137,697
- --------------------------------------------------------------------------------------------------------------------
Prepaid Pension Cost 8,416,900 5,896,250
- --------------------------------------------------------------------------------------------------------------------
Other Assets 291,667 246,585
- --------------------------------------------------------------------------------------------------------------------
$ 87,891,418 $ 89,803,393
====================================================================================================================
See accompanying notes to consolidated financial statements.
17
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
============================================================================================================================
June 29, 2002 June 30, 2001
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 9,849,513 $ 10,366,596
Accruals:
Income taxes 28,401 -
Accrued compensation 2,057,635 2,063,900
Accrued customer rebates and cooperative advertising 2,764,828 1,730,905
Other 5,263,396 4,870,706
- ----------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 19,963,773 19,032,107
Other Retirement Benefits 4,539,268 4,560,288
Long-Term Debt 20,000,000 23,750,000
Deferred Income Taxes 5,573,000 4,785,000
Interest Rate Swap Agreement 1,602,158 543,301
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 51,678,199 52,670,696
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Stock:
Common, $2 par - 6,000,000 shares authorized; 2,272,754 and 2,277,921 issued 4,545,508 4,555,842
Class B common, $2 par - 4,000,000 shares authorized; 2,244,398 and 2,339,920
issued 4,488,796 4,679,840
Preferred - 2,000,000 shares authorized and unissued - -
Additional paid-in capital 7,550,062 8,502,727
Unearned stock grant (94,500) (94,500)
Accumulated other comprehensive loss (2,154,460) (1,476,092)
Retained earnings 21,877,813 20,964,880
- ----------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 36,213,219 37,132,697
- ----------------------------------------------------------------------------------------------------------------------------
$ 87,891,418 $ 89,803,393
============================================================================================================================
See accompanying notes to consolidated financial statements.
18
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
=================================================================================================================================
Accumulated
Additional Restricted other
Common paid-in stock comprehensive Retained
stock capital grants income (loss) earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $ 8,622,750 $ 4,409,415 $ - $ (478,606) $ 19,205,226 $ 31,758,785
Comprehensive income:
Net income - - - - 8,423,730 8,423,730
Foreign currency translation
adjustment - - - (9,019) - -
Minimum SERP adjustment, net of
tax benefit of $353,000 - - - (681,952) - -
----------------
Other comprehensive loss - - - (690,971) - (690,971)
---------------- ---------------
Comprehensive income - - - - - 7,732,759
---------------
Cash dividends - - - - (2,741,146) (2,741,146)
10% stock dividend 841,308 5,783,992 (6,631,421) (6,121)
Stock issued under stock option plan 26,610 173,623 - - - 200,233
Tax benefit from exercise
of stock options - 8,671 - - - 8,671
Stock grants issued 12,000 82,500 (94,500) - - -
Repurchase and retirement of
shares of common stock (271,258) (1,975,293) - - - (2,246,551)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, July 1, 2000 9,231,410 8,482,908 (94,500) (1,169,577) 18,256,389 34,706,630
Comprehensive income:
Net income - - - - 5,615,065 5,615,065
Foreign currency translation
adjustment - - - (47,557) - -
Minimum SERP adjustment, net of
tax benefit of $53,000 - - - 94,343 - -
Loss on derivative instrument, net of
tax benefit of $190,000 - - - (353,301) - -
----------------
Other comprehensive loss - - - (306,515) - (306,515)
---------------- ---------------
Comprehensive income - - - - - 5,308,550
---------------
Cash dividends - - - - (2,906,574) (2,906,574)
Restricted stock issued 3,296 21,787 - - - 25,083
Stock issued under stock option plan 3,656 12,266 - - - 15,922
Tax benefit from exercise
of stock options - 3,623 - - - 3,623
Repurchase and retirement of
shares of common stock (2,680) (17,857) - - - (20,537)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2001 9,235,682 8,502,727 (94,500) (1,476,092) 20,964,880 37,132,697
Comprehensive income:
Net income - - - - 3,789,046 3,789,046
Foreign currency translation
adjustment - - - 930 - -
Minimum SERP adjustment, net of
tax benefit of $4,000 - - - 8,559 - -
Loss on derivative instrument, net of
tax benefit of $371,000 - - - (687,857) - -
----------------
Other comprehensive loss - - - (678,368) - (678,368)
---------------- ---------------
Comprehensive income - - - - - 3,110,678
---------------
Cash dividends - - - - (2,876,113) (2,876,113)
Restricted stock issued 1,634 8,979 - - - 10,613
Repurchase and retirement of
shares of common stock (203,012) (961,644) - - - (1,164,656)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 29, 2002 $ 9,034,304 $ 7,550,062 $ (94,500) $ (2,154,460) $ 21,877,813 $ 36,213,219
===================================================================================================================================
See accompanying notes to consolidated financial statements.
19
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Cash Flows
=========================================================================================================================
June 29, June 30, July 1,
Year Ended 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 3,789,046 $ 5,615,065 $ 8,423,730
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of fixed assets 6,260,983 5,758,085 5,027,282
Amortization of other assets 432,310 582,562 835,306
Increase (decrease) in deferred income taxes 1,153,000 700,000 (308,000)
Increase (decrease) in supplemental retirement benefits (8,311) 224,150 299,101
Increase in prepaid pensions (2,519,499) (2,629,211) (1,175,341)
Restructuring and impairment of assets 935,000 300,000 105,000
Loss on disposal of property and equipment 305,279 352,978 37,855
Changes in operating assets and liabilities (net of
acquisition):
Accounts receivable 1,030,341 2,773,260 (1,045,595)
Refundable income taxes 132,065 - -
Inventories 1,127,951 802,297 (1,692,041)
Other current assets 8,947 (222,605) 683,326
Accounts payable (495,865) (2,182,455) 2,515,619
Accruals 1,203,046 (3,285,887) 3,563,704
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,354,293 8,788,239 17,269,946
- -------------------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property and equipment (3,935,470) (9,282,239) (9,112,810)
Proceeds from sales of property and equipment 1,784,925 7,301 4,330
Net cash paid for acquisition - (505,745) (5,309,674)
Other, net (112,532) (11,228) 328,332
- -------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (2,263,077) (9,791,911) (14,089,822)
- -------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of common stock - 15,922 200,233
Repurchase and retirement of common stock (1,164,656) (20,537) (2,246,551)
Dividends paid (2,876,113) (2,906,574) (2,747,267)
Borrowings/(repayments) on long-term debt (3,750,000) 3,700,000 2,350,000
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (7,790,769) 788,811 (2,443,585)
- -------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 16,156 (22,821) (5,919)
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 3,316,603 (237,682) 730,620
Cash, beginning of year 2,113,940 2,351,622 1,621,002
- -------------------------------------------------------------------------------------------------------------------------
Cash, end of year $ 5,430,543 $ 2,113,940 $ 2,351,622
=========================================================================================================================
Supplemental Information:
Interest paid $ 1,512,746 $ 1,598,162 $ 1,383,957
Income taxes paid 2,015,000 3,757,130 4,345,000
=========================================================================================================================
See accompanying notes to consolidated financial statements.
20
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| 1. | Nature of Operations | Knape & Vogt Manufacturing Company and its wholly owned subsidiaries (the Company) design, manufacture and distribute kitchen and bath storage solutions and office products for original equipment manufacturers, specialty distributors, hardware chains and major home centers. During fiscal 2002, the Company aligned itself into two sales segments: Office Products and Home and Commercial Products. Products are sold worldwide through the Company’s own sales personnel and through independent sales representatives. The Company is headquartered in Grand Rapids, Michigan.
|
| 2. | Summary of Significant
Accounting
Policies | Principles of Consolidation
The consolidated financial statements include the accounts of Knape & Vogt Manufacturing Company and its wholly owned domestic and foreign subsidiaries. All material intercompany balances, transactions and stockholdings have been eliminated in consolidation.
The Company utilizes a 52- or 53-week fiscal year, which ends on the Saturday nearest the end of June. The fiscal years ended June 29, 2002, June 30, 2001 and July 1, 2000 each contained 52 weeks.
Revenue Recognition and Concentration of Credit Risk
The Company recognizes revenue upon shipment of products to customers. No single customer accounts for more than 10% of consolidated sales. The Company performs ongoing credit evaluations and maintains reserves for potential credit losses.
Shipping and Handling Costs
Shipping and handling costs that are charged to and reimbursed by the customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of sales in the consolidated statements of operations.
Foreign Currency Translation
The accounts of the foreign subsidiary are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards (SFAS) No. 52. Assets and liabilities are translated at year-end exchange rates. Income and expense accounts are translated at average exchange rates in effect during the year. Translation adjustments resulting from fluctuations in the exchange rates are recorded in accumulated other comprehensive income, a separate component of stockholders’ equity. Foreign exchange gains were $30,335 in fiscal 2002, $40,291 in fiscal 2001 and $51,643 in fiscal 2000.
Financial Instruments
The carrying amounts of the Company’s financial instruments, which consist of cash, receivables, bank revolving credit agreement and accounts payable, approximate their fair values.
Derivative Financial Instruments
During fiscal 2001, the Company adopted SFAS No. 133,Accounting for DerivativeInstruments and Hedging Activities,as amended by SFAS Nos. 137 and 138. These statements establish accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as an asset or liability measured at its current fair value and that changes in a derivative’s fair value be recognized currently in the determination of net income unless specific hedge accounting criteria are met. Adoption of these statements is described in detail in Note 7. |
21
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| | | 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 $1,602,158 at June 29, 2002 and $543,301 at June 30, 2001.
Inventories
Inventories are stated at the lower of FIFO (first-in, first-out) cost or market.
Property, Equipment and Depreciation
Property and equipment are stated at cost and depreciated, for financial reporting purposes, using the straight-line method over the estimated useful lives of the assets. For income tax purposes, accelerated depreciation methods and shorter useful lives are used. Management estimates that the cost to complete the items classified in construction in progress at June 29, 2002 was approximately $467,000. Estimated depreciable lives are as follows: land and improvements, 3 to 20 years; buildings, 3 to 40 years; machinery and equipment, 3 to 20 years.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued SFAS No. 144,Accounting for the Impairment orDisposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets,and the accounting and reporting provisions of APB Opinion No. 30,Reporting theResults of Operations, for the disposal of a segment of a business. The Company adopted SFAS No. 144 in the current fiscal year. The cumulative effect of adoption did not have a material effect on the operations of the Company.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses and is amortized using the straight-line method over periods ranging from 15 to 40 years. Other intangibles consist primarily of trademarks, brand names and patents that are being amortized using the straight-line method over periods up to 15 years.
Self-Insurance
The Company is partially self-insured for workers’ compensation and certain employee health benefits. The Company is self-insured for environmental issues. The Company purchases stop-loss coverage in order to limit its exposure to any significant levels of workers’ compensation or employee health benefit claims. Self-insured losses are accrued based upon estimates of the aggregate liability for uninsured claims incurred using certain actuarial assumptions followed in the insurance industry and the Company’s own historical experience. |
22
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| | | Income Taxes
The Company accounts for certain income and expense items in different periods for financial reporting and income tax purposes. The Company utilizes the liability method to account for deferred income taxes by applying statutory tax rates in effect at the balance sheet date to differences between the financial reporting and tax basis of assets and liabilities. The resulting deferred tax liabilities or assets are adjusted to reflect changes in tax laws or rates by means of charges or credits to income tax expense.
Advertising and Customer Rebates
In 2001, the Emerging Issues Task Force (EITF) released its consensus on Issue No. 00-22,Accounting for Certain “Points” and Other Time-Based SalesIncentive Offers, and Offers for Free Products or Services to be Delivered inthe Future and Issue No. 00-25,Vendor Income Statement Characterization ofConsideration Paid to a Reseller of the Vendor’s Products. These consensuses provided guidance on the classification of expenses related to customer rebate, cooperative advertising and buydown programs. Adoption of these consensuses by the Company resulted in reclassifying the expenses for these programs to a component of net sales. Costs incurred for advertising, including costs incurred under cooperative advertising programs with customers, are expensed as incurred. Cooperative advertising costs are recorded as a reduction of gross sales. Advertising expense was $1,889,000 in 2002, $684,000 in 2001, and $1,038,000 in 2000.
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding in each year. Diluted EPS is computed by dividing net income by the weighted-average number of common shares outstanding, plus all shares that would have been outstanding if every potentially dilutive common share had been issued. The following table reconciles the numerators and denominators used in the calculations of basic and diluted EPS for each of the last three years: |
2002 2001 2000
---------------------------------- ---------------- --------------- --------------
Numerators:
Numerator for both basic and
diluted EPS, net income $3,789,046 $5,615,065 $8,423,730
---------------------------------- ---------------- --------------- --------------
Denominators:
Denominator for basic EPS,
weighted-average common
shares outstanding 4,569,942 4,616,881 4,679,918
Potentially dilutive shares
resulting from stock option
plans - 1,369 4,207
---------------------------------- ---------------- --------------- --------------
Denominator for diluted EPS 4,569,942 4,618,250 4,684,125
================================== ================ =============== ==============
23
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| | | 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. |
2002 2001 2000
---------------------------------- ---------------- --------------- --------------
Exercise Price
$13.64 19,254 20,410 -
$14.09 19,800 20,350 -
$16.74 9,988 10,594 11,192
$18.18 9,075 9,625 10,725
$26.54 61,413 - -
| | | Comprehensive Income
Comprehensive income represents net income and other revenues, expenses, gains and losses that are excluded from net income and recognized directly as a component of stockholders’ equity.
New Accounting Standards
In June 2001, the FASB finalized SFAS No. 141,Business Combinations (SFAS 141). 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 initiated after June 30, 2001. 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.
The Company’s previous business combinations were accounted for using the purchase method.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,Goodwill and Other Intangible Assets, effective for the Company in fiscal 2003. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to impairment tests at least annually in accordance with SFAS 142. Other intangible assets will continue to be amortized over their contractual lives.
The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of fiscal 2003. Application of the nonamortization provisions of SFAS No. 142 is expected to result in an increase in net earnings of approximately $237,000 ($0.05 per diluted share) per year. The Company has performed the first of the required impairment tests of goodwill as of the first day of fiscal 2003 and has determined that the effect of these tests on the earnings and financial position of the Company will not be significant in 2003.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in accordance with accounting principles generally accepted in the United States 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. |
24
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| | | Reclassifications
Certain prior year information has been reclassified to conform to the current year presentation. |
| 3. | Restructuring and
Impairment of Assets | During fiscal 2000, the Company offered a powder coat facility for sale. As a result of this decision, the related assets of $1,698,521 were transferred to the category “Net Assets Held for Sale” and a loss of $.1 million was recorded based upon a buy/sell agreement. In addition, the Company listed a facility in Muncie, Indiana for sale. Both of these facilities were offered for sale following the Company’s decision to consolidate its manufacturing facilities. 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 sale of the facilities.
During the fourth quarter of fiscal 2002, the Company recorded an impairment charge of $690,000 in accordance with SFAS 144 for certain precision drawer slide tooling. While the Company will continue to produce the drawer slides, the estimated future cash flows associated with sales of this particular product line were less than the cost of the tooling recorded.
During the fourth quarter of fiscal 2002, the Company also decided to reduce its workforce in its Grand Rapids, Michigan facility. Those reductions were committed to by top management prior to the fiscal year end and occurred during the month of July 2002. The Company recorded $245,000 in severance costs at June 29, 2002. |
| 4. | Acquisition | On October 1, 1999, the Company acquired substantially all of the assets of Idea. Idea designed, manufactured and marketed ergonomic products, including adjustable keyboard mechanisms, keyboard and computer mouse platforms, wrist rests and CPU holders. The acquisition was recorded using the purchase method of accounting. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed, based on their estimated fair values at the date of the acquisition. The cost of the acquisition in excess of net identifiable assets acquired has been recorded as goodwill and has been amortized using the straight-line method based on a 15-year life. The Company will discontinue the amortization of goodwill in fiscal 2003, upon adoption of the provisions of SFAS No. 142 (see the discussion in Note 2).
The terms of the Idea acquisition agreement provided for additional consideration to be paid if Idea’s sales exceeded certain targeted levels. The maximum amount of contingent consideration was $550,000 payable through 2001. In calendar year 1999, the additional consideration payment was $44,255 and in calendar year 2000, the remaining contingent consideration was earned and paid. All additional consideration paid was recorded as goodwill.
The results of the acquisition were not material to the Company’s consolidated operating results, therefore pro forma financial statements have not been prepared. |
| 5. | Inventories | Inventories are summarized as follows: |
June 29,2002 June 30, 2001
--------------------------------------------------------------------------------
Finished products $ 8,767,282 $ 9,916,080
Work in process 1,728,418 1,608,544
Raw materials 2,666,445 2,765,472
--------------------------------------------------------------------------------
$ 13,162,145 $ 14,290,096
================================================================================
25
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| 6. | Long-Term Debt | The Company has a revolving credit agreement that provides for up to $45,000,000 in borrowings through November 1, 2004. At June 29, 2002, there was a $20,000,000 balance outstanding under this agreement. The interest rate on the outstanding balance was 6.875%, which was the fixed rate under the interest rate swap agreement plus an additional 62.5 basis points credit spread. The interest rate is adjusted to market rates at the end of each interest period and is based on the LIBOR rate or, at the Company’s option, several other common indices. The agreement requires the Company to pay a non-use fee on amounts not outstanding under the credit facility. At June 29, 2002, the non-use fee was .150%. Both the interest rate and the non-use fees on this agreement fluctuate according to the ratio of the Company’s funded debt to EBITDA (earnings before interest, income taxes, depreciation and amortization). Compensating balances are not required by this agreement. The Company is required under this agreement, as amended, to maintain certain financial ratios and, at June 29, 2002, was in compliance with these covenants. |
| 7. | Derivative Financial
Instruments | The Company has entered into an interest rate swap agreement designated as a partial hedge of the Company's variable rate revolving credit agreement. The purpose of this swap is to fix the interest rate on the variable rate debt and reduce the exposure to interest rate fluctuations. At June 29, 2002, the Company had an interest rate swap with a notional amount of $20,000,000. Under this agreement, the Company will pay the counterparty interest at a fixed rate of 6.25%, and the counterparty will pay the Company interest at a variable rate equal to LIBOR. The LIBOR rate on this agreement was 1.8975% at June 29, 2002. The notional amount does not represent an amount exchanged by the parties, and thus is not a measure of exposure of the Company. The variable rate is subject to change over time as LIBOR fluctuates.
Neither the Company nor the counterparty, which is a major U.S. bank, is required to collateralize its obligation under the swap. The Company is exposed to loss if the counterparty should default. At June 29, 2002, the Company had no exposure to credit loss on the interest rate swap. The Company does not believe that any reasonably likely change in interest rates would have a material adverse effect on the financial position, results of operations or cash flows of the Company.
The Company has recognized an after-tax loss of $687,857 in fiscal 2002 and $353,301 in fiscal 2001 in other comprehensive income. The loss is made up of the following components: |
June 29, 2002 June 30, 2001
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 (344,273) (223,356) (1,311,839) (852,851)
Settlement to interest
expense (714,584) (464,501) (29,333) (19,066)
------------------------------ ------------- ------------- ------------- -------------
Other comprehensive income $(1,058,857) $ (687,857) $(543,301) $ (353,301)
------------------------------ ------------- ------------- ------------- -------------
26
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| 8. | Lease Commitments | The Company leases certain real property and equipment under operating lease agreements, which expire at various dates through fiscal 2007.
Annual minimum rental payments required under all noncancelable-operating leases are as follows: 2003-$441,000; 2004-$264,000; 2005-$72,000; 2006-$21,000; 2007-$3,000. Rent expense under all operating leases was approximately $868,000, $749,000 and $629,000 in fiscal 2002, 2001 and 2000, respectively. |
| 9. | Retirement Plans | The Company has several noncontributory defined benefit pension plans and defined contribution plans covering substantially all of its employees. The defined benefit plans provide benefits based on the participants’ years of service. The Company’s funding policy for defined benefit plans is to make annual contributions, which equal or exceed regulatory requirements. The assets of the defined benefit plans consist primarily of equity securities, debt securities and cash equivalents. The pension and profit-sharing plans at June 29, 2002 and June 30, 2001 held a combined total of 284,637 shares of the Company’s Class B common stock.
The postretirement health-care plan covers substantially all employees. The plan is unfunded and contributory. During fiscal 2002, the Company amended the plan to place a cap on the Company paid portion of health-care premiums for retirees. |
Postretirement
Pension Benefits Health-Care Benefits
------------------------------------------------------------------------------------
2002 2001 2002 2001
------------------------------------------------------------------------------------
Change in benefit obligations
Benefit obligations at
beginning of year $14,559,092 $13,569,998 $3,198,946 $2,893,226
Service cost 330,579 318,999 174,406 184,055
Interest cost 1,056,040 1,005,090 230,373 211,427
Actuarial losses 641,073 471,253 1,638,012 192,192
Benefits paid (798,263) (777,180) (477,035) (281,954)
Plan amendment - - (2,894,847) -
Other - (29,068) - -
------------------------------------------------------------------------------------
Benefit obligation at end of
year $15,788,521 $14,559,092 $1,869,855 $3,198,946
------------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets
at beginning of year $14,702,734 $14,199,763 $ - $ -
year
Actual return on plan assets (520,320) (1,341,126) - -
Employer contributions 2,665,670 2,867,811 477,035 281,954
Benefits paid (798,263) (777,180) (477,035) (281,954)
Other (104,482) (246,534) - -
------------------------------------------------------------------------------------
Fair value of plan assets at
end of year $15,945,339 $14,702,734 $ - $ -
------------------------------------------------------------------------------------
Funded status $154,414 $143,642 $(1,869,855) $(3,198,946)
Unrecognized transition amount (88,950) (144,977) 480,376 528,413
Unrecognized net actuarial
loss 7,536,151 4,946,945 2,787,251 1,279,527
Unrecognized prior service 815,285 954,049 (2,783,857) -
cost
------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $8,416,900 $5,899,659 $(1,386,085) $(1,391,006)
------------------------------------------------------------------------------------
Weighted -average assumptions
Discount rate 7.25% 7.5% 7.25% 7.5%
Expected return on plan assets 8.5% 8.5% N/A N/A
------------------------------------------------------------------------------------
27
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| | | The net periodic benefit cost related to the defined benefit pension plans is made up of the following components: |
Postretirement
Pension Benefits Health-Care Benefits
-----------------------------------------------------------------------------------------------
2002 2001 2000 2002 2001 2000
-----------------------------------------------------------------------------------------------
Service cost $330,579 $318,999 $298,385 $174,406 $184,055 $127,919
Interest cost 1,056,040 1,005,090 908,750 230,373 211,427 189,623
Expected return on plan
assets (1,389,192) (1,193,512) (1,080,874) - - -
Net amortization 152,033 104,630 189,155 67,335 107,331 102,610
-----------------------------------------------------------------------------------------------
Net periodic pension cost $149,460 $235,207 $315,416 $472,114 $502,813 $420,152
===============================================================================================
| | | The health care cost trend rate used to determine the postretirement health-care benefit obligation was 5.25% for 2002 and will remain at this level going forward. The trend rate is a significant factor in determining the amounts reported. A one-percentage-point change in these assumed health-care cost trend rates would have the following effect: |
One-Percentage Point Increase Decrease
-------------------------------------------------------------------------------
Effect on total of service and interest
cost components $ 52,112 $ (42,810)
Effect on postretirement health-care
benefit obligation 456,891 (361,969)
| | | The Company also has a nonqualified supplemental retirement program for designated officers of the Company, which includes death and disability benefits. The plan is funded from the general assets of the Company. The pension benefit obligation and pension expense under this plan are as follows: |
2002 2001 2000
----------------------------------- ------------- -------------- -------------
Pension benefit obligation $3,153,183 $3,167,304 $3,318,204
Pension expense 326,753 328,027 343,131
| | | The Company's Board of Directors annually approves contributions to the defined contribution plans. Expense for the discretionary profit-sharing plan amounted to $750,261, $768,590 and $673,344 in fiscal 2002, 2001 and 2000, respectively.
The Company also provides a 401(k) plan for all of its employees. Employees may contribute up to 15 percent of their pay. For all hourly employees, the Company will match 50 percent of the first 4 percent that an employee contributes. The amount expensed for the Company match provision of the plan was $246,229, $274,798 and $143,791 in fiscal 2002, 2001 and 2000, respectively. |
| 10. | Income Taxes | The components of income before income taxes consist of: |
June 29, June 30, July 1,
Year Ended 2002 2001 2000
--------------------------------------------------------------------------------
United States $ 5,722,943 $ 7,950,175 $ 12,056,990
Foreign 189,103 631,890 989,740
--------------------------------------------------------------------------------
Income before income taxes $ 5,912,046 $ 8,582,065 $ 13,046,730
================================================================================
28
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| | | Income tax expense (benefit) consists of: |
June 29, June 30, July 1,
Year Ended 2002 2001 2000
--------------------------------------------------------------------------------
Current:
United States $ 716,000 $ 2,208,000 $ 4,600,000
State and local 12,000 59,000 331,000
--------------------------------------------------------------------------------
Total current 728,000 2,267,000 4,931,000
--------------------------------------------------------------------------------
Deferred:
United States 1,266,000 403,000 (723,000)
Foreign 83,000 278,000 427,000
State and local 46,000 19,000 (12,000)
--------------------------------------------------------------------------------
Total deferred 1,395,000 700,000 (308,000)
--------------------------------------------------------------------------------
Income tax expense $ 2,123,000 $ 2,967,000 $ 4,623,000
================================================================================
| | | The difference between the federal statutory tax rate and the effective tax rate on continuing operations was as follows: |
June 29, June 30, July 1,
Year Ended 2002 2001 2000
----------------------------------------------------------------------------
Federal income taxes at the
statutory rate $ 2,010,000 $ 2,918,000 $ 4,436,000
Foreign earnings taxed at
foreign statutory rate 19,000 57,000 99,000
State and local income taxes 19,000 25,000 104,000
Other 75,000 (33,000) (16,000)
--------------------------------------------------------------------------------
Income tax expense $ 2,123,000 $ 2,967,000 $ 4,623,000
================================================================================
| | | The sources of the net deferred income tax liability were as follows: |
June 29, 2002 June 30, 2001
--------------------------------------------------------------------------------
Property and equipment $ 7,544,000 $ 6,971,000
Pension accrual 3,022,000 1,990,000
Net operating loss carryforward - (72,000)
Supplemental retirement plan (1,058,000) (999,000)
Benefit related accruals (983,000) (989,000)
Inventory reserves (883,000) (263,000)
Rebates, advertising and royalty accrual (704,000) (562,000)
Derivative instrument (561,000) (190,000)
Basis differences - (1,436,000)
Other (804,000) 335,000
--------------------------------------------------------------------------------
$ 5,573,000 $ 4,785,000
================================================================================
| | | For Canadian tax purposes, the Company has net operating losses expiring through 2005 totaling approximately $1,345,000, which has been fully reserved through a valuation allowance. |
29
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| 11. | Stock Option Plans | The 1987 Stock Option Plan provided for the grant to key employees of the Company options, which provided the ability to purchase shares of common stock. Options were granted at or above the market price of the Company’s common stock on the date of the grant, were exercisable from that date and terminated 10 years from the grant date. The plan, as amended in October 1991 and in October 1994, authorized a total of 300,000 shares to be available for issuance under the plan. Grants can no longer be made under the 1987 Stock Option Plan.
Under the Company’s 1997 Stock Incentive plan, up to 660,000 shares of the Company’s common stock are available for issuance. Issuance can be in the form of stock options or restricted stock; however, no more than 55,000 shares can be issued as restricted stock. Stock options can be granted as incentive stock options or nonqualified stock options. The number of shares of common stock subject to an option granted to a participant under this plan is determined based on the amount of the participant’s election under the EVA bonus plan. Each participant may elect to receive options by electing to forego a portion of the cash bonus that may be earned by the participant, with the option price determined in accordance with the plan. The exercise price per share of common stock purchasable under an option is a single fixed exercise price equal to 100% of the fair market value of the common stock at the award date increased by a fixed percentage (based on U.S. Treasury Securities plus 2% less a projected dividend yield) compounded annually over the term of the option. In general, the options vest three years after the date the option was granted and expire five years after the grant date. During fiscal 2002, no options were granted to participants. In fiscal 2001, 281,145 options were granted to participants at an exercise price of $18.48 per share. Included in the 198,206 options issued in 2000 are 27,500 options granted to William Dutmers, Chairman and CEO, which are not part of the 1997 Stock Incentive Plan (as explained below).
Transactions under the plans are as follows: |
Weighted- Weighted- Weighted-
Average Average Average
June 29, Exercise June 30, Exercise July 1, Exercise
Year Ended 2002 Price 2001 Price 2000 Price
- ----------------------------- ----------- ------------ ----------- ------------ ----------- ------------
Options outstanding,
beginning of year 563,214 $18.73 305,151 $18.64 176,931 $18.41
Granted - - 281,145 18.48 198,206 19.04
Exercised - - (1,828) 14.45 (14,637) 13.78
Forfeited (14,366) $16.34 (21,254) 18.92 (55,349) 20.32
- ----------------------------- ----------- ------------ ----------- ------------ ----------- ------------
Options outstanding at end
of year 548,848 $18.80 563,214 $18.73 305,151 $18.64
- ----------------------------- ----------- ------------ ----------- ------------ ----------- ------------
Options exercisable at end
of year 119,530 $20.94 65,974 $14.83 72,574 $14.73
Options available for
grant, end of year 175,262 169,570 214,639
- ----------------------------- ----------- ------------ ----------- ------------ ----------- ------------
Weighted-average fair
value of options
granted during the year - $1.96 $2.84
- ----------------------------- ----------- ----------- -----------
30
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| | | A summary of stock options outstanding at June 29, 2002 follows: |
Outstanding Exercisable
Weighted-
Average
Weighted- Remaining
Average Contractual Weighted-
Exercise Life Average
Price Ranges Shares Price (Years) Shares Exercise Price
------------------------ ------------- ------------ ------------ ------------ ---------------
$12.50 - $14.50 66,554 $14.10 2.1 39,054 $13.87
$16.50 - $18.50 420,881 $18.41 3.5 19,063 $17.42
$26.50 - $28.50 61,413 $26.54 1.0 61,413 $26.54
------------- ------------
548,848 $18.80 2.0 119,530 $20.94
============= ============
| | | The Company accounts for its stock option plans in accordance with APB Opinion 25,Accounting for Stock Issued to Employees. Since the exercise price of the Company’s employee stock options equals or exceeds the market price of the underlying stock on the date of the grant, no compensation cost is recognized under APB Opinion 25. In accordance with SFAS No. 123,Accounting forStock-Based Compensation, the Company is required to provide pro forma information regarding net income and earnings per share as if compensation costs for the Company’s stock option plan had been determined using a fair value based estimate. The Company uses the Black-Scholes option-pricing model to determine the fair value of each option at the grant date with the following weighted average assumptions: |
2001 2000
-----------------------------------------------------------------------------
Dividends per share $ 0.66 $ 0.615
Expected volatility 0.2707 0.3241
Risk-free interest rate 6.25% 5.81%
Expected lives 4.0 4.1
=============================================================================
| | | Under the accounting provisions of SFAS No. 123, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below: |
2002 2001 2000
-----------------------------------------------------------------------------------------
Net income:
As reported $ 3,789,046 $ 5,615,065 $ 8,423,730
Pro forma 3,789,046 5,064,021 7,670,547
Earnings per share:
As reported $ 0.83 $ 1.22 $ 1.80
Pro forma 0.83 1.10 1.64
=========================================================================================
| | | Of the 660,000 shares available for issuance under the 1997 Stock Incentive Plan, no more than 55,000 shares may be issued as restricted stock. The Executive Compensation Committee, subject to the approval of the Board of Directors, determines the eligible persons to whom restricted shares are granted and the price (if any) to be paid by the participant, the conditions under which the participants’ interest in the stock may be forfeited and the period of time during which the participant is not permitted to sell, transfer, pledge, or assign the shares of the restricted stock awarded under this Plan. Except as provided above, upon issuance of the restricted stock, the participant will have all the rights of a shareholder with respect to the shares, including the right to vote them and to receive all dividends and other related distributions. If termination of employment occurs within the restricted period, all shares of stock still subject to restriction will vest or be forfeited in accordance with the terms and conditions established by the Committee. |
31
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| | | On February 1, 2000, Mr. Dutmers was granted 6,600 shares of restricted common stock and the option to purchase an additional 27,500 shares of the Company’s common stock at a price of $14.43 per share. The grant and the options will vest if the Company achieves specific financial objectives within a five-year performance period. During the performance period, the grantee may vote and receive dividends on the restricted shares, but the shares are subject to transfer restrictions and are forfeited if the grantee terminates employment or the Company does not achieve its financial objectives.
|
| 12. | Stockholders’ Equity | The Company has three classes of stock: common stock, Class B common stock and unissued preferred stock. Each share of common stock entitles the holder thereof to one vote on all matters submitted to the shareholders. Each share of Class B common stock entitles the holder to 10 votes on all such matters, except that the holders of common stock are entitled to elect, voting separately as a class, at least one-quarter of the Company’s directors to be elected at each meeting held for the election of directors. In all other instances, holders of common stock and Class B common stock vote together, except for matters affecting the powers, preferences or rights of the respective classes or as otherwise required under the Michigan Business Corporation Act. With respect to dividend rights, each share of common stock is entitled to cash dividends at least 10% higher than those payable on each share of Class B common stock. Class B common stock is subject to certain restrictions on transfer, but is convertible into common stock on a share-for-share basis at any time.
On April 14, 2000, the Board of Directors declared a 10% stock dividend of the Company’s common stock and Class B common stock. On May 19, 2000, shareholders received one additional share of stock for each 10 shares held. All per share data and weighted average shares outstanding have been restated to reflect the 10% stock dividend.
The Company has a stock repurchase program under which it purchased 101,506 shares during fiscal 2002 with the price per share ranging from approximately $10 to $13. At June 29, 2002, the Company has remaining authorization to repurchase an additional 274,482 shares.
|
| 13. | Business Segments | During the third quarter of fiscal 2002, the Company announced its decision to realign its sales, marketing and new product development efforts around two business segments: Office Products and Home and Commercial Products. The Office Products segment develops, markets and distributes its hardware and idea@WORK™ brand of ergonomic products primarily to office furniture OEMs and office furniture dealers. The Home and Commercial Products segment develops, markets and distributes hardware, kitchen and storage solutions primarily to retailers, specialty distributors and kitchen OEM’s. These products include the Real Solutions for Real Life™ brand of storage products. The Company substantially completed this realignment of its structure during the fourth quarter of fiscal 2002.
The following segment information is a summary of the Company’s operations by operating segment for the past three fiscal years. Segment revenue has been provided on a comparative basis. Due to the reorganization of the Company, restatement of prior years’ remaining operating segment results is impracticable. The accounting policies of the business segments are the same as those described in the summary of significant accounting policies. |
32
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
| | | Consolidated Industry Segment Information: |
Home and
Office Commercial Corporate Consolidated
Products Products and Other Total
-------------- -------------- ------------- --------------
Year Ended June 29, 2002:
Gross sales to external
customers $39,875,143 $96,447,668 $ - $136,322,811
Total assets 6,749,662 24,963,471 56,178,285 87,891,418
Capital expenditures 56,295 164,466 3,714,709 3,935,470
Year ended June 30, 2001:
Gross sales to external
customers $48,101,846 $100,632,666 $ - $148,734,512
Year ended July 1, 2000:
Gross sales to external
customers $40,593,729 $117,142,545 $ - $157,736,274
| | | Geographic information related to net sales, based on location of our customers, and long-lived assets are summarized between domestic and foreign locations as follows: |
Year Ended June 29, 2002 June 30, 2001 July 1, 2000
------------------------------- ---------------- --------------- -----------------
Net sales:
United States 116,336,049 126,940,678 135,231,609
Canada 9,552,947 10,106,340 10,461,654
Other foreign 5,979,846 6,865,845 7,212,605
Fixed assets:
United States 37,260,430 41,025,151 38,361,863
Canada - - -
Other foreign - - -
| | | The Company does not believe that it is dependent upon any single customer, since none accounts for more than 10% of consolidated net sales or operating income.
|
| 14. | Quarterly Results
(Unaudited) | The table below sets forth summary unaudited information on a quarterly basis for the Company. |
Year Ended June 29, 2002 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-----------------------------------------------------------------------------------
Net sales $33,089,191 $31,153,768 $33,142,872 $34,483,011
Gross profit 7,126,055 6,767,196 7,056,248 9,119,838
Operating income 1,770,698 1,471,016 1,714,281 2,406,352
Net income 905,628 744,500 844,627 1,294,291
Earnings per share-basic $0.20 $0.16 $0.19 $0.29
Earnings per share-diluted $0.20 $0.16 $0.19 $0.29
Cash dividend-common stock $ 0.165 $ 0.165 $ 0.165 $ 0.165
Cash dividend-Class B
common stock $ 0.15 $ 0.15 $ 0.15 $ 0.15
-----------------------------------------------------------------------------------
33
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Year Ended June 30, 2001 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-----------------------------------------------------------------------------------
Net sales $37,766,995 $36,711,446 $34,496,063 $34,938,359
Gross profit 9,271,640 8,611,313 7,507,734 8,172,169
Operating income 3,714,363 2,882,376 1,256,483 2,274,133
Net income 2,180,895 1,615,572 562,791 1,255,807
Earnings per share-basic $ 0.47 $ 0.35 $ 0.12 $ 0.27
Earnings per share-diluted $ 0.47 $ 0.35 $ 0.12 $ 0.27
Cash dividend-common stock $ 0.165 $ 0.165 $ 0.165 $ 0.165
Cash dividend-Class B
common stock $ 0.15 $ 0.15 $ 0.15 $ 0.15
-----------------------------------------------------------------------------------
| 15. | Commitments and
Contingencies | In September 1998 when the Company sold The Hirsh Company, the purchaser assumed the lease for the facility located in Skokie, Illinois. The Company guaranteed all of the lease obligations to the landlord through the expiration of the lease in August 2000. During fiscal 2000, the purchaser defaulted on the lease agreement. In May 2000, the landlord filed suit in the Cook County, Illinois Circuit Court against the purchaser and the Company as the guarantor. The claim is for unpaid rent, unpaid property taxes, building repairs and legal costs.
The Company was sued in the Kent County, Michigan Circuit Court in 1997 by a former employee seeking additional benefits under an executive retirement plan. The Circuit Court ruled in favor of the plaintiff, but in June 2002, the Circuit Court was reversed on the Company’s appeal to the Michigan Court of Appeals. The plaintiff has filed a delayed request for leave to appeal to the Michigan Supreme Court. In August 2002, the plaintiff filed a lawsuit seeking these retirement benefits in the Federal District Court for the Western District of Michigan.
Canada Customs and Revenue Agency (“CCRA”) has performed an audit of the Company’s sales to its wholly owned subsidiary, Knape & Vogt Canada. Results from a joint review by the Company and its customs broker indicate that the Company may be liable for the underpayment of duties in a range estimated from $150,000 to $350,000 on certain customs transactions. The Company has made an accrual within the range of the estimated liability. The Company has also received a determination from CCRA that Knape & Vogt Canada is not the importer of record. The Company is appealing the determination letter and believes that based on the information available at this time, any additional liability pertaining to this issue will not have a material adverse effect on the Company’s earnings.
The Company is also subject to other legal proceedings and claims, which arise in the ordinary course of its business.
In the opinion of management, based on the information presently known and taking into account established accruals of approximately $1,285,000 at June 29, 2002, the ultimate liability for these matters would not have a material adverse effect on the Company’s financial position or the results of its operations. |
34
Independent Auditors’ Report
Board of Directors
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheet of Knape & Vogt Manufacturing Company and subsidiaries as of June 29, 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended June 29, 2002. Our audit also included the financial statement schedule listed in the Index at Item 14. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Knape & Vogt Manufacturing Company and subsidiaries at June 29, 2002 and the results of their operations and their cash flows for the year ended June 29, 2002 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche, LLP
Grand Rapids, Michigan
July 26, 2002
35
Independent Auditors’ Report
Board of Directors
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Knape & Vogt Manufacturing Company and subsidiaries as of June 30, 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended June 30, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Knape & Vogt Manufacturing Company and subsidiaries at June 30, 2001, and the results of their operations and their cash flows for each of the two years in the period ended June 30, 2001 in conformity with accounting principles generally accepted in the United States.
/s/ BDO Seidman, LLP
Grand Rapids, Michigan
July 26, 2001
36
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On March 8, 2002, the Company’s Board of Directors approved of a change in its independent accountant from BDO Seidman LLP (“BDO”) to Deloitte & Touche LLP (“Deloitte”) based upon the recommendation of the Audit Committee. BDO’s report on the Company’s financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. During 2000, 2001, and a portion of 2002, preceding the Board’s decision to change independent accountants, there were no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure, auditing scope or procedure, which disagreement(s), if not resolved, would have caused BDO to refer to the matter of the disagreement(s) in connection with its reports. During that same period of time, there were no reportable events as described in item 304(a)(1)(b) of the Securities and Exchange Commission’s Regulation S-K.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of Registrant. Information relating to directors and director nominees of the Company, contained in the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held October 11, 2002, and filed pursuant to Regulation 14A, is incorporated herein by reference.
Executive Officers of Registrant. Information relating to the executive officers of the Company is included in Part I of this Form 10-K.
ITEM 11--EXECUTIVE COMPENSATION
The information under the captions "Summary Compensation Table," "Option Grants in Last Fiscal Year," and "Aggregated Stock Option Exercises in Fiscal 2002 and Year End Option Values," is incorporated herein by reference from the Company's definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held October 11, 2002, filed pursuant to Regulation 14A.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Voting Securities and Principal Shareholders" and "Directors and Nominees" is incorporated herein by reference from the Company's definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held October 11, 2002, filed pursuant to Regulation 14A.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Directors and Nominees" is incorporated herein by reference from the Company's definitive Proxy Statement for the Company's Annual Meeting of Shareholders to be held October 11, 2002, filed pursuant to Regulation 14A.
37
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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 part of this report.
|
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Reports
| Page Number in
10-K Report
16
17-18
19
20
21-34
35-36
|
(2) Financial Statement Schedule
| |
The following financial statement schedule and related Independent Auditors’ Report on such schedule are included in this Form 10-K on the pages noted.
|
Schedule II -- Independent Auditors' Report
Valuation and Qualifying Accounts and Reserves
| Page Number in
10-K Report
39
40
|
All other schedules are not submitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto.
|
(3) Exhibits
| |
Reference is made to the Exhibit Index, which is found on page 42 of this Form 10-K Annual Report.
|
(b) Reports on Form 8-K
| |
No reports on Form 8-K were filed during the fourth quarter of the year ended June 29, 2002.
|
38
Independent Auditors’ Report on Schedule
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan
We have audited the financial statements of Knape & Vogt Manufacturing Company as of June 29, 2002 and for the year then ended, and have issued our report thereon dated July 26, 2002, which is contained in Item 8 of this Form 10-K. Our audit also included the financial statement schedule of Knape & Vogt Manufacturing Company listed in Item 14. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audit. In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche, LLP
Grand Rapids, Michigan
July 26, 2002
39
Knape & Vogt Manufacturing Company and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
Column A Column B Column C Column D Column E
- ----------------------------------- --------------- ---------------- ---------------- --------------
Balance Charged to Balance
beginning costs and end of
Description of period expenses(1) Deductions(1) period
- ----------------------------------- --------------- ---------------- ---------------- --------------
Year ended June 29, 2002:
Allowances deducted from
Assets:
Accounts receivable for:
Doubtful accounts $ 447,000 $ 489,000 $ 303,000 $ 633,000
Cash discounts 114,000 8,000 - 122,000
--------------- ---------------- ---------------- --------------
$ 561,000 $ 497,000 $ 303,000 $ 755,000
Inventory obsolescence $1,015,000 $ 949,000 $ 525,000 $1,439,000
Year ended June 30, 2001:
Allowances deducted from
Assets:
Accounts receivable for:
Doubtful accounts $ 409,000 $ 438,000 $ 400,000 $ 447,000
Cash discounts 147,000 - 33,000 114,000
--------------- ---------------- ----------------- -------------
$ 556,000 $ 438,000 $ 433,000 $ 561,000
Inventory obsolescence $ 910,000 $ 422,000 $ 317,000 $1,015,000
Year ended July 1, 2000:
Allowances deducted from
Assets:
Accounts receivable for:
Doubtful accounts $ 242,000 $ 187,000 $20,000 $ 409,000
Cash discounts 147,000 - - 147,000
- ----------------------------------- ---------------- -------------- --------------- ----------------
$ 389,000 $ 187,000 $20,000 $ 556,000
Inventory obsolescence $1,095,000 $ 168,000 $353,000 $ 910,000
40
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.
| | KNAPE & VOGT MANUFACTURING COMPANY
|
| | By | /s/ William R. Dutmers
William R. Dutmers, Chairman of the Board
and Chief Executive Officer
|
| | By | /s/ Leslie J. Cummings
Leslie J. Cummings, Vice President of Finance
and Treasurer
|
Date: August 28, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on August 28, 2002, by the following persons on behalf of the registrant in the capacities indicated.
/s/ William R. Dutmers
William R. Dutmers, Chairman of the Board and Chief Executive Officer
| | /s/ John E. Fallon
John E. Fallon, Director
|
/s/ Thomas A. Hilborn
Thomas A. Hilborn, Director
| | /s/ Michael J. Kregor
Michael J. Kregor, Director
|
/s/ Richard S. Knape
Richard S. Knape, Director
| | /s/ Robert J. Knape
Robert J. Knape, Director
|
/s/ Gregory Lambert
Gregory Lambert, Director
| | /s/ Christopher Norman
Christopher Norman, Director
|
41
KNAPE & VOGT MANUFACTURING COMPANY
ANNUAL REPORT - FORM 10-K
EXHIBIT INDEX
| 3(a) | Certificate of Amendment to the Articles of Incorporation, and the Restated Articles of Incorporation of the Company, which were filed as Exhibit 3(a) of the Registrant’s Form 10-K Annual Report for the fiscal year ended June 30, 1987, are incorporated by reference.
|
| 3(b) | Bylaws as amended April 23, 1999, filed as Exhibit 3.1 of the Registrant’s Form 10-Q Third Quarter Report for the fiscal year June 30, 1999, are incorporated by reference.
|
| 10(a) | Supplemental Executive Retirement Plan, which was filed as Exhibit 10 of the Registrant’s Form 10-K Annual Report for the fiscal year ended June 30, 1981, is incorporated by reference.
|
| 10(b) | Knape & Vogt Manufacturing Company 1987 Stock Option Plan, effective October 16, 1987, which was filed as Exhibit I to Registrant’s definitive Proxy Statement dated September 23, 1987, is incorporated by reference.
|
| 10(c) | Knape & Vogt Manufacturing Company Employees' Retirement Savings Plan (July 1, 1989 Restatement), as amended, which was filed as Exhibit 99 to Registrant's Registration Statement on Form S-8 (Reg. No. 33-88212), is incorporated by reference.
|
| 10(d) | Loan agreement with Old Kent Bank dated June 1, 1999, which was filed as Exhibit 10(d) of the Registrant’s Form 10-K Annual Report for the fiscal year ended June 30, 1999, is incorporated by reference.
|
| 10(e) | First amendment dated October 29, 1999, to Loan agreement with Old Kent Bank, filed as Exhibit 10.1 of the Registrant’s Form 10-Q Second Quarter Report for the fiscal year July 1, 2000, is incorporated by reference.
|
| 10(f) | Second amendment dated May 31, 2002, to Loan agreement with Fifth Third Bank, filed herewith.
|
| 10(g) | Interest swap agreement with Bank One dated June 1, 1999, which was filed as Exhibit 10(e) of the Registrant’s Form 10-K Annual Report for the fiscal year ended June 30, 1999, is incorporated by reference.
|
| 10(h) | Knape & Vogt Manufacturing Company 1997 Stock Incentive Plan, which was filed as Appendix A to the Registrant’s proxy statement dated September 17, 1997, is incorporated by reference.
|
| 10(i) | Restricted Share Grant Agreement dated February 1, 2000, between Knape & Vogt Manufacturing Company and William R. Dutmers, filed as Exhibit 10.1 of the Registrant’s Form 10-Q Third Quarter Report for the fiscal year July 1, 2000, is incorporated by reference.
|
| 10(j) | Stock Option Agreement for Nonqualified Stock Option dated February 1, 2000, between Knape & Vogt Manufacturing Company and William R. Dutmers, filed as Exhibit 10.2 of the Registrant’s Form 10-Q Third Quarter Report for the fiscal year July 1, 2000, is incorporated by reference.
|
42
| 21 | Subsidiaries of Registrant.
|
| 23(a) | Consent of Deloitte & Touche, LLP, independent public accountants.
|
| 23(b) | Consent of BDO Seidman LLP, independent public accountants.
|
| 99.1 | Certificate of the Chairman of the Board and Chief Executive Officer of Knape & Vogt Manufacturing Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| 99.2 | Certificate of the Vice President of Finance and Treasurer of Knape & Vogt Manufacturing Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
43
EXHIBIT 21
SCHEDULE OF SUBSIDIARIES OF KNAPE & VOGT MANUFACTURING COMPANY
Knape & Vogt Canada, Inc. (organized under the laws of Ontario, Canada)
Feeny Manufacturing Company (organized under the laws of Michigan)
EXHIBIT 23 (a)
INDEPENDENT AUDITORS’ CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 33-20227, 33-43794, 33-88206 and 33-88212 of Knape & Vogt Manufacturing Company on Form S-8 of our report dated July 26, 2002, appearing in this Annual Report on Form 10-K of Knape & Vogt Manufacturing Company for the year ended June 29, 2002.
/s/ Deloitte & Touche, LLP
Grand Rapids, Michigan
August 28, 2002
EXHIBIT 23 (b)
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in Registration Statement Nos. 33-20227, 33-43794, 33-88206 and 33-88212 of Knape & Vogt Manufacturing Company on Form S-8 of our report dated July 26, 2001, appearing in the Annual Report on Form 10-K of Knape & Vogt Manufacturing Company for the year ended June 30, 2001.
/s/ BDO Seidman, LLP
Grand Rapids, Michigan
August 28, 2002
Exhibit 10(f)
SECOND AMENDMENT TO LOAN AGREEMENT
THISSECOND AMENDMENT TO LOAN AGREEMENT (the “Amendment”), is made as of May 31, 2002, by andbetween KNAPE & VOGT MANUFACTURING COMPANY, as a Michigan corporation (the “Borrower”) andFIFTH THIRD BANK (formerly OLD KENT BANK), a Michigan banking corporation (the “Bank”).
RECITALS :
| A. | Borrower and Bank have signed a Loan Agreement, dated as of June 1, 1999 and amended October 29, 1999 (the "Loan Agreement"), providing for Bank to extend to Borrower a revolving bank credit of up to $45,000,000;
|
| B. | Borrower and Bank wish to amend the Loan Agreement on the terms and conditions set forth in this Agreement. |
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
| | 1. Restatement of Warranties and Representations. Borrower hereby confirms to Bank that the warranties and representations set forth in the Loan Agreement were true, accurate and complete when made and remain true, accurate and complete as of the date of this Amendment.
2. No Events of Default; Compliance with Covenants. Borrower hereby confirms and acknowledges to Bank that no event of default has occurred under the Loan Agreement as of the date of this Amendment, and that as of the date of this Amendment, Borrower has complied with all of the affirmative and negative covenants set forth in the Loan Agreement.
3. Covenants. |
| | (a) | Section 4.7 of the Loan Agreement is amended in its entirety to read as follows:
|
| | | | 4.7 | Maintain a ratio of Funded Debt to EBITDA of not more than 3.25 to 1.0
|
| | (b) | Section 4.9 of the Loan Agreement is amended in its entirety to read as follows:
|
| | | | 4.9 | Maintain consolidated Stockholders’ Equity of not less than $28,000,000 on and after June 30, 1999, increasing on each June 30 thereafter by 50% of Borrower’s consolidated net income, computed in accordance with GAAP for Borrower’s fiscal year ending on that June 30.
|
| | 4. Letters of Credit. Subject to the terms and conditions set forth below, Bank may, in its sole discretion, at any time and from time to time until the Termination Date provided in the Revolving Credit Note, at the request of Borrower, issue standby and documentary letters of credit (“Letters of Credit”) for the account of Borrower, provided that the aggregate outstanding amounts of the Revolving Credit Loans, outstanding Letters of Credit and the unreimbursed draws under Letters of Credit may not exceed the Revolving Credit Commitment. The issuance by Bank of Letters of Credit is subject to the following terms and conditions: |
| | (a) | each letter of credit shall expire not later than three (3) business days prior to the Termination Date;
|
| | (b) | for each letter of credit requested, Borrower shall sign and properly complete Bank’s standard Application for Irrevocable Standby Letter of Credit and Reimbursement and Security Agreement;
|
| | (c) | for each Letter of Credit, Borrower shall have paid Bank an issuance fee in an amount determined by Bank in its sole discretion; and
|
| | (d) | each outstanding Letter of Credit and all drawings under Letters of Credit for which Borrower has not reimbursed Bank shall be treated as Revolving Credit Loans under the Loan Agreement and all drawings under Letters of Credit for which Borrower has not reimbursed Bank shall bear interest at the Prime Rate provided for in the Revolving Credit Note.
|
| | 5. Other Provisions Not Effected. Except as hereby amended, no other provisions of the Loan Agreement shall be amended and all provisions of the Loan Agreement, as amended, shall hereafter remain in full and effect.
6. Undefined Terms. All capitalized terms that are not defined in this Amendment shall have the meanings provided in the Loan Agreement. |
IN WITNESS WHEREOF, the parties have signed and delivered this Amendment on the date set forth in the first paragraph of this Amendment.
| | KNAPE & VOGT MANUFACTURING COMPANY
By ________________________________________
Its ________________________________________
FIFTH THIRD BANK
By _______________________________________
George Bailey, Vice President |
EXHIBIT 99-1
I, William R. Dutmers, Chairman of the Board and Chief Executive Officer of Knape & Vogt Manufacturing Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| | (1) | the Annual Report on Form 10-K for the fiscal year ended June 29, 2002 which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
|
| | (2) | the information contained in the Annual Report on Form 10-K for the fiscal year ended June 29, 2002 fairly presents, in all material respects, the financial condition and results of operations of Knape & Vogt Manufacturing Company. |
Dated: August 28, 2002
| | /s/ William R. Dutmers
William R. Dutmers
Chairman of the Board and
Chief Executive Officer | |
EXHIBIT 99-2
I, Leslie J. Cummings, Vice President of Finance and Treasurer of Knape & Vogt Manufacturing Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| | (1) | the Annual Report on Form 10-K for the fiscal year ended June 29, 2002 which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
|
| | (2) | the information contained in the Annual Report on Form 10-K for the fiscal year ended June 29, 2002 fairly presents, in all material respects, the financial condition and results of operations of Knape & Vogt Manufacturing Company. |
Dated: August 28, 2002
| | /s/ Leslie J. Cummings
Leslie J. Cummings
Vice President of Finance and
Treasurer | |
