1
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 March 31, 1996, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ---- to ----.
Commission File No. 0-13805
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-0983610
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
171 Monroe Avenue, NW, Suite 600, Grand Rapids, Michigan, 49503
(Address of principal executive offices, zip code)
(616) 336-9400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
The number of shares outstanding of registrant's common stock, par value
$1.00 per share, at March 31, 1996 was 4,188,406 shares.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Accounts receivable, less allowances $19,630,900 $17,446,300
Inventories:
Raw material 6,356,900 5,849,900
Work in process 2,910,400 3,629,100
Finished goods 6,980,800 7,944,200
----------- ----------
16,248,100 17,423,200
Prepaid expenses and other current assets 2,331,900 2,149,500
----------- -----------
Total current assets 38,210,900 37,019,000
PROPERTY AND EQUIPMENT:
Land 231,900 231,900
Buildings and improvements 13,744,200 13,691,200
Machinery and equipment 29,275,300 29,172,000
Construction in progress 496,400 305,300
----------- -----------
43,747,800 43,400,400
Less accumulated depreciation (20,871,200) (20,233,000)
----------- -----------
22,876,600 23,167,400
OTHER ASSETS 172,600 178,700
----------- -----------
$61,260,100 $60,365,100
=========== ===========
3
March 31, December 31,
1996 1995
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank $ 2,250,000 $2,000,000
Accounts payable 5,390,800 4,527,700
Accrued liabilities-
Payroll and related benefits 2,614,900 3,262,800
Accrued advertising 3,285,900 2,621,700
Other current liabilities 2,905,500 3,260,100
----------- -----------
Total current liabilities 16,447,100 15,672,300
LONG-TERM DEBT 5,000,000 5,000,000
OTHER LONG-TERM LIABILITIES 2,536,000 2,482,200
SHAREHOLDERS' EQUITY:
Common Stock 4,188,400 4,188,400
Additional paid-in capital 20,622,300 20,622,300
Retained earnings 12,466,300 12,399,900
----------- -----------
37,277,000 37,210,600
----------- -----------
$61,260,100 $60,365,100
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
Three Months Ended
March 31,
1996 1995
----------- -----------
Net sales $26,280,300 $25,763,800
Cost of sales 22,509,900 21,781,800
----------- -----------
Gross profit 3,770,400 3,982,000
Selling, general and
administrative expenses 3,609,300 3,810,700
----------- -----------
Operating income 161,100 171,300
Other expense (income):
Interest expense 76,100 90,200
Interest income (1,100) (3,500)
Other, net 3,100 21,100
----------- -----------
78,100 107,800
----------- -----------
Income before
income taxes 83,000 63,500
Income taxes 16,600 19,500
----------- ----------
NET INCOME $ 66,400 $ 44,000
=========== ==========
Average number of common
and common equivalent
shares outstanding 4,197,700 4,219,500
========= =========
Earnings per
common and common
equivalent share $ .02 $.01
===== =====
See accompanying notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
Three Months Ended
March 31,
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES $ 675,100 $ 255,400
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (575,400) (828,800)
Other 0 4,000
---------- ----------
Net cash used in investing activities (575,400) (824,800)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable to bank 250,000 700,000
Repurchase of common stock (349,700) (130,600)
---------- ----------
Net cash provided by (used in)
financing activities (99,700) 569,400
---------- ----------
NET INCREASE IN CASH AND EQUIVALENTS 0 0
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 0 0
---------- ----------
CASH AND EQUIVALENTS AT END OF QUARTER $ 0 $ 0
========== ==========
Supplemental disclosures:
Cash transactions-
Interest paid, net of
amounts capitalized $ 84,800 $ 116,500
Income taxes paid (refunded) (107,200) 1,073,200
Non-cash financing transaction-
Common stock issued for employee
stock ownership plan contribution 349,700 130,600
See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Ameriwood Industries International Corporation ("Ameriwood" or
the "Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in Ameriwood's
1995 annual report on Form 10-K.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of March 31, 1996
and the results of its operations and its cash flows for the three month
periods ended March 31, 1996 and 1995. All such adjustments are of a
normal and recurring nature.
NOTE 2--CONTINGENCY
During 1989, the Company discovered environmental contamination at its
facility in Dowagiac, Michigan. The Company voluntarily reported the matter
to the Michigan Department of Environmental Quality ("MDEQ")and began
remediation procedures. Ameriwood identified Chrysler Corporation and the
United States Department of Defense ("DOD") as prior owners or operators of
this site. Chrysler has admitted successorship to a prior owner of the
site, but has not admitted liability. A suit has been filed against
Chrysler seeking recovery of costs for environmental investigation and
remediation at the site. Although the Company believes it has sufficient
basis to prevail, there is no assurance of recovery and no recognition has
been given in the financial statements for potential recoveries from other
parties.
In March 1996, the Company received a Remedial Investigation and
Feasibility Study from an independent engineering firm, acceptable to
Chrysler. A request for approval of the Company's feasibility study has
been filed with the MDEQ. If the study is approved, a Remedial Action Plan
will be submitted for approval. It is the Company's policy to accrue
environmental cleanup costs if it is probable that a liability has been
incurred and an amount is reasonably estimable.
The Company recorded a reserve at December 31, 1995 of $2,030,500 to cover
costs including ongoing monitoring for up to 30 years and future
anticipated legal costs. The current portion, $830,500, is included in
Other Current Liabilities and the remainder is included in Other Long-Term
Liabilities. No significant amounts were paid out in the quarter ended
March 31, 1996. Based on the opinion of the independent engineering firm
and legal counsel, the Company believes it will receive a favorable ruling,
and management believes any additional costs beyond the amounts recorded
will not be material to the Company's financial position or results of
operations.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected Ameriwood's earnings during the
period included in the accompanying condensed consolidated statements of
operations. A summary of the changes in the principal items included in the
condensed consolidated statements of operations is shown below:
Comparisons for the Three Months Ended March 31 1996, and 1995:
1996 1995 Change Percent
----------- ----------- ---------- -------
Net sales $26,280,300 $25,763,800 $ 516,500 2.0%
Cost of sales 22,509,900 21,781,800 728,100 3.3%
----------- ----------- ----------
Gross profit 3,770,400 3,982,000 (211,600) (5.3)%
Selling, general and
administrative expenses 3,609,300 3,810,700 (201,400) (5.3)%
----------- ----------- ----------
Operating income (loss) 161,100 171,300 (10,200) (6.0)%
Other expense (income):
Interest expense 76,100 90,200 (14,100) (15.6)%
Interest income (1,100) (3,500) 2,400 68.6%
Other, net 3,100 21,100 (18,000) (85.3)%
----------- ----------- ----------
78,100 107,800 (29,700) (27.6)%
----------- ----------- ----------
Income before income taxes 83,000 63,500 19,500 30.1%
Income taxes 16,600 19,500 (2,900) (14.9)%
----------- ----------- ----------
NET INCOME (LOSS) $ 66,400 $ 44,000 $ 22,400 50.9%
=========== =========== ==========
Net sales for the three months ended March 31, 1996 were up 2% from the
same period in 1995. Furniture sales were up 11%. Strong orders in
February and March were due in part to a correction of retailers inventory
levels after a below average fourth quarter of 1995. The increase was also
a result of a focus on new product lines and improved design capabilities.
The continued focus on products with higher price points resulted in sales
increases in channels such as office superstores, warehouse clubs, and
consumer electronics stores. Offsetting the gains in furniture revenues
were sales declines in the original equipment manufacturer stereo speaker
cabinet business and BIC branded stereo speaker business, which have not
yet fully recovered from the weak retail environment experienced in the
fourth quarter of 1995.
The cost of sales represented 85.7% of net sales in the first quarter of
1995 as compared to 84.5% in the same quarter last year. Gross margin of
14.3% was down slightly from the prior year quarter, but up from the fourth
quarter of 1995. The decrease in gross margin year over year was due to
unfavorable overhead absorption and the continued competitive pricing
pressures experienced in the last half of 1995.
8
Selling, general, and administrative ("SG&A") expenses decreased 5.3%
compared to the same period in 1995. SG&A as a percentage of net sales was
13.7%, compared to 14.8% in the first quarter of 1995. The decrease is a
result of the management reorganization plan the Company began earlier this
year to reduce redundant staffing in order to lower fixed costs.
Interest expense was down 15.6% in the first quarter of 1996. Outstanding
borrowings on the Company's revolving credit facility were down from $3
million at March 31, 1995, to $2.3 million at March 31, 1996.
The Company recorded net income of $66,400, or $.02 per share, for the
three months ended March 31, 1996, as compared to $44,000, or $.01 per
share, for the same period in 1995. The increase was due to higher net
sales and lower SG&A expenses as described above.
CAPITAL RESOURCES AND LIQUIDITY
Accounts receivable of $19.6 million were up from year end levels of $17.4
million and inventories of $16.2 million were down from $17.4 million.
Both were due to stronger Furniture sales, particularly in February and
March.
Credit facility borrowings were up $250,000 from year end to $2,250,000.
This was due to the purchase of almost $350,000 of Ameriwood stock, at
prices ranging from $5.50 to $5.75, to fund the ESOP portion of the
Company's ESOP/401(k) plan.
Capital expenditures of $575,000 in the first quarter consisted mainly of
expenditures for machinery and equipment related to improving manufacturing
efficiency and design capabilities. Ameriwood currently anticipates
capital expenditures for the remainder of the year to be between $3 million
and $3.5 million, and will consist of similar machinery and equipment
purchases at the Company's Ohio and Michigan manufacturing facilities.
Management believes the Company's present liquidity, combined with cash
flow from future operations and the Company's revolving credit facility,
will be adequate to fund operations and capital expenditures for the
remainder of 1996 and 1997. In the event more funds are required,
additional long-term borrowings are an alternative for meeting liquidity
and capital resource needs
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Item 3 of registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, for information related to the Arthur Andersen
Litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. Reference is made to the Exhibit Index on Page 10 of this
Form 10-Q.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed by the
Registrant during the three months ended March 31, 1996.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION
May 13, 1996 /s/ Charles R. Foley
----------------------
Charles R. Foley
Interim President and Chief
Executive Officer
(Principal Executive Officer)
May 13, 1996 /s/ Craig G. Wassenaar
----------------------
Craig G. Wassenaar
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
10
EXHIBIT INDEX
- --------------------------------------------------------------------------------
3(a) Restated Articles of Incorporation, as amended June 24,1993 (filed as
exhibit to Form 10-K for the year ended December 31, 1993 (Commission
File No. 0-13805) and incorporated herein by reference)
3(b) Bylaws, as amended through January 28, 1996 (filed as exhibit to
Form 10-K for the year ended December 31, 1995 (Commission File No.
0-13805) and incorporated herein by reference)
4(a) Indenture of Trust relating to $5,000,000 Michigan Strategic Fund
Industrial Development Revenue Bonds due in 2006, and related Loan
Agreement, Letter of Credit Agreement, Mortgage and Security Agreement
and Irrevocable Transferable Letter of Credit (filed as exhibits to Form
10-K for the year ended December 31, 1989 (Commission File No. 0-13805)
and incorporated herein by reference)
4(b) Second Amendment, dated June 19, 1992, to Letter of Credit with Harris
Trust and Savings Bank, dated November 1, 1986, relating to Letter of
Credit identified in Exhibit 4(a) (filed as exhibit to Form 10-Q for the
quarter ended June 30, 1992 (Commission File No. 0-13805) and
incorporated herein by reference)
4(c) Third Amendment, dated January 13, 1995, to Letter of Credit with Harris
Trust and Savings Bank, dated November 1, 1986, relating to Letter of
Credit identified in Exhibit 4(a)(filed as exhibit to Form 10-K for the
year ended December 31, 1994 (Commission File No. 0-13805) and
incorporated herein by reference)
4(d) Letter of Credit Agreement Waiver with Harris Trust and Savings Bank,
dated February 27, 1996, relating to the Letter of Credit and applicable
amendments in Exhibits 4(a), 4(b), and 4(c) (filed as exhibit to Form
10-K for the year ended December 31, 1995 (Commission File No. 0-13805)
and incorporated herein by reference)
4(e) Credit Agreement with Harris Trust and Savings Bank, dated June 19, 1992
(filed as exhibit to Form 10-Q for the quarter ended June 30, 1992
(Commission File No. 0-13805) and incorporated herein by reference)
4(f) Waiver to Credit Agreement with Harris Trust and Savings Bank, dated
December 30, 1994, relating to Credit Agreement identified in
Exhibit 4(e) and Letter of Credit identified in Exhibit 4(a) (filed as
exhibit to Form 10-K for the year ended December 31, 1994 (Commission
File No. 0-13805) and incorporated herein by reference)
4(g) Credit Agreement with Harris Trust and Savings Bank and The First
National Bank of Chicago, dated January 13, 1995 (filed as exhibit to
Form 10-K for the year ended December 31, 1994 (Commission File No.
0-13805) and incorporated herein by reference)
4(h) First Amendment to Credit Agreement and Waiver with Harris Trust and
Savings Bank, dated February 27, 1996, relating to Credit Agreement
identified in Exhibit 4(g) (filed as exhibit to Form 10-K for the year
ended December 31, 1995 (Commission File No. 0-13805) and incorporated
herein by reference)
11
EXHIBIT INDEX
- --------------------------------------------------------------------------------
4(i) Ameriwood Industries International Corporation common stock certificate
specimen (filed as exhibit to Form 10-Q for the quarter ended March 31,
1993 (Commission File No. 0-13805) and incorporated herein by reference)
4(j) Rights Agreement, as amended and restated as of March 15, 1995, between
Ameriwood Industries International Corporation and Harris Trust and
Savings Bank, as Rights Agent (filed as exhibit to Form 10-K for the
year ended December 31, 1994 (Commission File No. 0-13805) and
incorporated herein by reference)
The following material contracts identified with "*" preceding the exhibit
number are agreements or compensation plans with or relating to executive
officers, directors or related parties.
*10(a) 1984 Incentive Stock Option Plan, as amended (filed as exhibit to
Form 10-K for the year ended December 31, 1990 (Commission File No.
0-13805) and incorporated herein by reference)
*10(b) Ameriwood Industries 1992 Non-Employee Directors' Stock Option
Plan (filed as Exhibit A to the definitive proxy statement dated
June 26, 1992 relating to the Company's 1992 annual meeting
(Commission File No. 0-13805) and incorporated herein by reference)
*10(c) Ameriwood Industries 1995 Non-Employee Directors' Stock Option Plan
(filed as Exhibit A to the definitive proxy statement dated April 12,
1995 relating to the Company's 1995 annual meeting (Commission File No.
0-13805) and incorporated herein by reference)
*10(d) Ameriwood Industries 1993 Stock Incentive Plan (filed as Exhibit A to
the definitive proxy statement dated May 10, 1993 relating to the
Company's 1993 annual meeting (Commission File No. 0-13805) incorporated
herein by reference)
*10(e) Form of Stock Option Agreement dated February 14, 1991 with Neil L.
Diver (filed as exhibit to Form 10-K for the year ended December 31,
1990 (Commission File No. 0-13805) and incorporated herein by reference)
*10(f) Rospatch Corporation Annual Incentive Plan (filed as exhibit to Form
10-K for the year ended December 31, 1990 (Commission File No .0-13805)
and incorporated herein by reference)
*10(g) Description of non-employee directors consultation fee arrangements
(filed as exhibit to Form 10-K for the year ended December 31, 1992
(Commission File No. 0-13805) and incorporated herein by reference)
*10(h) Rospatch Corporation Irrevocable Indemnity Trust Agreement dated August
13, 1990 (filed as exhibit to Form 10-Q for the quarter ended June 30,
1990 (Commission File No. 0-13805) and incorporated herein by reference)
*10(i) First Amendment to Rospatch Corporation Irrevocable Indemnity Trust
Agreement (filed as exhibit to Form 10-K for the year ended December 31,
1991 (Commission File No. 0-13805) and incorporated herein by reference)
12
EXHIBIT INDEX
- --------------------------------------------------------------------------------
*10(j) Form of Indemnity Agreement entered into between the registrant and
certain persons, together with a list of such persons (filed as exhibit
to Form 10-K for the year ended December 31, 1994 (Commission File No.
0-13805) and incorporated herein by reference)
*10(k) Employment Agreement dated April 20, 1990 with Joseph J. Miglore
(filed as exhibit to Form 10-K for the year ended December 31, 1990
(Commission File No. 0-13805) and incorporated herein by reference)
*10(l) Addendum To Employment Agreement between registrant and Joseph J.
Miglore (filed as exhibit to Form 10-K for the year ended December 31,
1992 (Commission File No. 0-13805) and incorporated herein by reference)
*10(m) Management Retention Agreement dated as of November 20, 1992 between the
registrant and Joseph J. Miglore (filed as exhibit to Form 10-K for the
year ended December 31, 1992 (Commission File No. 0-13805) and
incorporated herein by reference)
*10(n) Mutual Termination and Benefits Agreement dated as of January 18, 1996
between the registrant and Joseph J. Miglore (filed as exhibit to
Form 10-K for the year ended December 31, 1995 (Commission File No.
0-13805) and incorporated herein by reference)
*10(o) Form of Management Retention Agreement dated November 20, 1992 between
the registrant and certain persons, together with a list of such persons
(filed as exhibit to Form 10-K for the year ended December 31, 1992
(Commission File No. 0-13805) and incorporated herein by reference)
*10(p) Management Retention Agreement dated June 7, 1993 between the registrant
and Charles R. Foley (filed as exhibit to Form 10-K for the year ended
December 31, 1993 (Commission File No. 0-13805) and incorporated herein
by reference)
*10(q) Letter agreement regarding duties as Interim President and CEO
dated February 22, 1996 between the registrant and Charles R. Foley
(filed as exhibit to Form 10-K for the year ended December 31, 1995
(Commission File No. 0-13805) and incorporated herein by reference)
*10(r) Variable Life Policies (Sections 1 - 3) for Joseph J. Miglore, James R.
Meier, Gerald A. Hickman, Charles R. Foley, and David N. Kraker, dated
January 21,1994 (filed as exhibits to Form 10-K for the year ended
December 31, 1993 (Commission File No. 0-13805) and incorporated herein
by reference)
*10(s) Form of Variable Life Policy (Sections 4 - 19, Rider and Endorsement)
for executive officers of the registrant, together with a list of such
officers (filed as exhibit to Form 10-K for the year ended December 31,
1993 (Commission File No. 0-13805) and incorporated herein by reference)
*10(t) Form of Split-Dollar Life Insurance Agreement dated January 21, 1994
between the registrant and certain persons, together with a list of such
persons (filed as exhibit to Form 10-K for the year ended December 31,
1993 (Commission File No. 0-13805) and incorporated herein by reference)
13
EXHIBIT INDEX
- --------------------------------------------------------------------------------
*10(u) Form of Collateral Assignment Agreement dated January 21, 1994 between
the registrant and certain persons, together with a list of such persons
(filed as exhibit to Form 10-K for the year ended December 31, 1993
(Commission File No. 0-13805) and incorporated herein by reference)
*10(v) Form of Severance Compensation Agreement dated January 21, 1994 between
the registrant and certain persons, together with a list of such persons
(filed as exhibit to Form 10-K for the year ended December 31, 1993
(Commission File No. 0-13805) and incorporated herein by reference)
*10(w) Form of License Agreement between registrant and Europe Craft Imports,
Inc. (filed as exhibit to Form 10-K for the year ended December 31, 1991
(Commission File No. 0-13805) and incorporated herein by reference)
10(x) $4,500,000 Flightline Electronics, Inc. Junior Subordinated Note, dated
December 5, 1991; Endorsement of Note; Agreement between Ameriwood
Industries International Corporation and Flightline Electronics, Inc.;
and Assignment of Junior Subordinated Note (filed as exhibit to Form
10-K for the year ended December 31, 1994 (Commission File No.
0-13805) and incorporated herein by reference)
27 Financial Data Schedule