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, 1997, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from ---- to ----.
Commission File No. 0-13805
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Michigan (State of incorporation)
38-0983610 (IRS Employer Identification Number)
171 Monroe Ave. N.W., Suite 600, Grand Rapids, MI, 49503, (616) 336-9400
(Address of principal executive offices, zip code, telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at April 30, 1997 was 4,259,406 shares.
PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
March 31, December 31,
1997 1996
----------- -----------
(Unaudited)
CURRENT ASSETS:
Accounts receivable, less allowances $15,374,200 $20,721,800
Inventories: Raw Materials 6,700,100 6,841,400
Work in Process 3,145,000 3,380,900
Finished Goods 11,210,300 10,389,900
----------- -----------
21,055,400 20,612,200
Prepaid expenses and other current assets 8,771,200 1,459,400
----------- -----------
Total current assets 45,200,800 42,793,400
PROPERTY AND EQUIPMENT:
Land 265,300 265,300
Buildings and improvements 13,754,100 13,715,300
Machinery and equipment 32,763,000 32,375,700
Construction in progress 675,500 760,200
----------- -----------
47,457,900 47,116,500
Less accumulated depreciation (24,487,400) (23,558,900)
----------- -----------
22,970,500 23,557,600
OTHER ASSETS 148,500 154,500
----------- -----------
$68,319,800 $66,505,500
=========== ===========
CURRENT LIABILITIES:
Accounts payable $ 4,810,700 $ 6,144,500
Payroll and related benefits 2,936,900 2,203,500
Accrued advertising 2,724,600 2,733,100
Other 4,385,500 3,271,900
Current portion of long term debt 500,000 500,000
----------- -----------
Total current liabilities 15,357,700 14,853,000
LONG-TERM DEBT 8,000,000 11,100,000
OTHER LONG-TERM LIABILITIES 2,564,400 2,584,000
SHAREHOLDERS' EQUITY:
Common Stock 4,259,400 4,246,400
Additional paid-in capital 20,893,500 20,842,300
Retained earnings 17,244,800 12,879,800
----------- -----------
42,397,700 37,968,500
----------- -----------
$68,319,800 $66,505,500
=========== ===========
See accompanying notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
Three Months Ended
March 31,
1997 1996
----------- -----------
Net sales $24,980,800 $27,913,000
Cost of sales 20,188,700 22,509,800
----------- -----------
Gross profit 4,792,100 5,403,200
Selling, general and
administrative expenses 5,270,400 5,242,100
----------- -----------
Operating income (loss) (478,300) 161,100
Other expense (income):
Litigation settlement income, net (3,930,700)
Interest expense 166,700 76,100
Other, net (63,400) 2,000
----------- -----------
(3,827,400) 78,100
----------- -----------
Pretax income 3,349,100 83,000
Income taxes (credit) (1,015,800) 16,600
----------- ----------
NET INCOME $ 4,364,900 $ 66,400
=========== ==========
Average number of common
and common equivalent
shares outstanding 4,297,600 4,197,700
========= =========
Earnings per share $1.02 $.02
===== =====
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
AMERIWOOD INDUSTRIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
Three Months Ended
March 31,
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES $3,377,200 $ 325,400
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment (341,400) (575,400)
---------- ----------
Net cash used in investing activities (341,400) (575,400)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from revolving credit agreement 3,300,000 250,000
Payments on revolving credit agreement (6,400,000)
Issuance of common stock 64,200
---------- ----------
Net cash provided by (used in)
financing activities (3,035,800) 250,000
---------- ----------
NET INCREASE IN CASH AND EQUIVALENTS 0 0
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 0 0
---------- ----------
CASH AND EQUIVALENTS AT END OF QUARTER $ 0 $ 0
========== ==========
See accompanying notes to condensed consolidated financial statements.
4
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 1996 annual report on Form 10-K.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share". The Statement
simplifies the standards for computing earnings per share, replacing the
presentation of primary earnings per share with a presentation of basic earnings
per share. SFAS No. 128 requires dual presentation of basic and diluted earnings
per share on the face of the income statement for all entities with complex
capital structures. Basic earnings per share is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding. Diluted earnings per share is computed similarly to fully diluted
earnings per share pursuant to APB Opinion No. 15, Earnings per Share, which is
superseded by this Statement. This Statement is effective for financial
statements issued for periods ending after December 15, 1997, with early
application being prohibited. The Company has not yet determined the impact of
this Statement on its consolidated financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company as of March 31, 1997 and 1996 and the results
of its operations and its cash flows for the three month periods ended March 31,
1997 and 1996. All such adjustments are of a normal and recurring nature.
Operating results for the three months ended March 31, 1997 are not necessarily
indicative of the results of operations for the year ending December 31, 1997.
NOTE 2--SHAREHOLDER LITIGATION AND SETTLEMENTS
In April 1997, the Company reached a settlement related to its long-standing
litigation against its former auditors. The litigation related to services
provided to the Company from 1986 to 1990. Under the terms of the settlement,
which was reached in U.S. District Court for the Western District of Michigan,
in Grand Rapids, Mich., Ameriwood received $6.25 million, before related
expenses, in April 1997. Additionally, a counterclaim against the Company was
dropped. The settlement resulted in a one-time after-tax gain of $4.7 million,
or $1.10 per share for the first quarter ended March 31, 1997. The recovery is
considered a return of capital and therefore, is not subject to income taxes.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Consolidated net sales for the quarter ended March 31, 1997 were $24.9 million,
compared to $27.9 million in the prior year period. Furniture sales decreased
14.7% to $19.3 million from the year ago quarter. Customer decisions to delay
product shipments until second quarter for introduction of certain new items, as
well as product changeovers among key customers in warehouse clubs and office
superstores contributed to the sales decline in the first quarter.
Custom Solutions posted a slight increase in sales to $4.4 million. Orders in
Custom Solutions are up 68% for the quarter, reflecting progress in the
Company's strategy of diversifying its contract manufacturing to take advantage
of its design and lamination capabilities. Sales of BIC America, the Company's
branded stereo speaker business, were $1.3 million compared to $1.0 million in
the same period last year.
Gross margin as a percentage of sales remained stable at 19.2%, compared to
19.4% for the first quarter of 1996, reflecting improved material costs and
efficiency, offset by the negative impact of lower volume on fixed overhead
absorption. Selling, general, and administrative expenses (SG&A) were up
slightly to $5.3 million compared to $5.2 million in the prior year quarter.
Included in income is a one-time after-tax gain of $4.7 million, net of related
expenses for a settlement related to litigation against the Company's former
auditors. Please see Note 3-Shareholder Litigation and Settlements in the
accompanying financial statements. Excluding the effect of the one-time gain,
results of operations would have been a loss of $377,600, or $0.09 per share.
For the three months ended March 31, 1997, Ameriwood reported net earnings of
$4,364,900, or $1.02 per share, compared with net earnings of $66,400, or $0.02
per share, in the first quarter of 1997.
CAPITAL RESOURCES AND LIQUIDITY
Accounts receivable of $15.4 million were down $5.3 million from a year end
level of $20.7 million. The decrease is the result of lower sales volume in the
first quarter of 1997 as compared to the fourth quarter of 1996. Inventories
were up slightly to $21.0 million from $20.6 million at year end due to the
postponement of anticipated orders from a new national customer.
Credit facility borrowings were down $3.1 million from year end levels to $3.5
million as cash generated from operations and the collection of accounts
receivable was used to pay down borrowings.
Capital expenditures of $341,400 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 $4 million and $4.5
million, and will consist of similar machinery and equipment purchases at the
Company's Ohio and Michigan manufacturing facilities.
6
Management believes the Company's present liquidity, combined with cash flow
from litigation settlement proceeds and future operations and the Company's
revolving credit facility, will be adequate to fund operations and capital
expenditures for the remainder of 1997 and 1998. In the event more funds are
required, additional long-term borrowings are an alternative for meeting
liquidity and capital resource needs
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In April 1997, the Company reached a settlement related to its long-standing
litigation against its former auditors. The litigation related to services
provided to the Company from 1986 to 1990. Under the terms of the settlement,
which was reached in U.S. District Court for the Western District of Michigan,
in Grand Rapids, Mich., Ameriwood received $6.25 million before related expenses
in April 1997. Additionally, a counterclaim against the Company was dropped.
The settlement resulted in a one-time after-tax gain of $4.7 million, or $1.10
per share for the first quarter ended March 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. Reference is made to the index on page 9 of this Form 10-Q.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed by the
Registrant during the three months ended March 31, 1997.
7
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 15, 1997 /s/ Charles R. Foley
---------------------
Charles R. Foley
President and Chief Executive Officer
(Principal Executive Officer)
May 15, 1997 /s/ Craig G. Wassenaar
----------------------
Craig G. Wassenaar
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
8
EXHIBIT INDEX
- -------------------------------------------------------------------------------
3(a) Restated Articles of Incorporation, as amended June 24, 1993 (filed as
exhibit to Form 10-K for the year ended December 31, 1993 and incorporated by
reference)
3(b) Bylaws, as amended through January 28, 1996 (filed as exhibit to Form 10-K
for the year ended December 31, 1995 and incorporated by reference)
4(a) Indenture of Trust relating to $5,000,000 Michigan Strategic Fund
Industrial Development Revenue Bonds due in 2006, and related Loan Agreement,
Letter of Credit Agreement, Mortgage and Security Agreement and Irrevocable
Transferable Letter of Credit (filed as exhibits to Form 10-K for the year ended
December 31, 1989 and incorporated by reference)
4(b) Second Amendment, dated June 19, 1992, to Letter of Credit with Harris
Trust and Savings Bank, dated November 1, 1986 (filed as exhibit to Form 10-Q
for the quarter ended June 30, 1992 and incorporated by reference)
4(c) Third Amendment, dated January 13, 1995, to Letter of Credit with Harris
Trust and Savings Bank, dated November 1, 1986 (filed as exhibit to Form 10-K
for the year ended December 31, 1994 and incorporated by reference)
4(d) Letter of Credit Agreement Waiver with Harris Trust and Savings Bank,
dated February 27, 1996 (filed as exhibit to Form 10-K for the year ended
December 31, 1995 and incorporated by reference)
4(e) Fourth Amendment, dated August 2, 1996, to Letter of Credit with Harris
Trust and Savings Bank, dated November 1, 1986 (filed as exhibit to Form 10-Q
for the quarter ended June 30, 1996 and incorporated by reference)
4(f) Credit Agreement with Harris Trust and Savings Bank and The First National
Bank of Chicago, dated January 13, 1995 (filed as exhibit to Form 10-K for the
year ended December 31, 1994 and incorporated by reference)
4(g) First Amendment to Credit Agreement and Waiver with Harris Trust and
Savings Bank, dated February 27, 1996 (filed as exhibit to Form 10-K for the
year ended December 31, 1995 and incorporated by reference)
4(h) Second Amendment to Credit Agreement with Harris Trust and Savings Bank,
dated August 2, 1996 (filed as exhibit to Form 10-Q for the quarter ended June
30, 1996 and incorporated by reference)
4(i) Ameriwood Industries International Corporation common stock certificate
specimen (filed as exhibit to Form 10-Q for the quarter ended March 31, 1993 and
incorporated by reference)
4(j) Rights Agreement, dated April 4, 1996, between Ameriwood Industries
International Corporation and Harris Trust and Savings Bank, as Rights Agent
(filed as exhibit to Form 10-Q for the quarter ended June 30, 1996 and
incorporated by reference)
The following contracts identified with "*" are agreements or compensation plans
relating to executive officers, directors or related parties.
*10(a) 1984 Incentive Stock Option Plan, as amended (filed as exhibit to Form
10-K for the year ended December 31, 1990 and incorporated by reference)
9
*10(b) Ameriwood Industries 1993 Stock Incentive Plan (filed as Exhibit A to
the definitive proxy statement dated May 10, 1993 relating to the Company's 1993
annual meeting incorporated by reference)
*10(c) Ameriwood Industries 1992 Non-Employee Directors' Stock Option Plan
(filed as Exhibit A to the definitive proxy statement dated June 26, 1992
relating to the Company's 1992 annual meeting and incorporated by reference)
*10(d) Ameriwood Industries 1995 Non-Employee Directors' Stock Option Plan
(filed as Exhibit A to the definitive proxy statement dated April 12, 1995
relating to the Company's 1995 annual meeting and incorporated by reference)
*10(e) Form of Stock Option Agreement dated February 14, 1991 with Neil L.
Diver (filed as exhibit to Form 10-K for the year ended December 31, 1990 and
incorporated by reference)
*10(f) Rospatch Corporation Annual Incentive Plan (filed as exhibit to Form 10-
K for the year ended December 31, 1990 and incorporated by reference)
*10(g) Description of non-employee directors consultation fee arrangements
(filed as exhibit to Form 10-K for the year ended December 31, 1992 and
incorporated by reference)
*10(h) Form of Indemnity Agreement entered into between the registrant and
certain executive officers and directors (filed as exhibit to Form 10-K for the
year ended December 31, 1994 and incorporated by reference)
*10(i) Form of Management Retention Agreement entered into between the
registrant and certain executive officers (filed as exhibit to Form 10-K for the
year ended December 31, 1992 and incorporated by reference)
*10(j) Form of Variable Life Policy for certain executive officers of the
registrant (filed as exhibit to Form 10-K for the year ended December 31, 1993
and incorporated by reference)
*10(k) Form of Split-Dollar Life Insurance Agreement entered into between the
registrant and certain executive officers (filed as exhibit to Form 10-K for the
year ended December 31, 1993 and incorporated by reference)
*10(l) Form of Collateral Assignment Agreement entered into between the
registrant and certain executive officers (filed as exhibit to Form 10-K for the
year ended December 31, 1993 and incorporated by reference)
*10(m) Form of Severance Compensation Agreement entered into between the
registrant and certain executive officers (filed as exhibit to Form 10-K for the
year ended December 31, 1993 and incorporated by reference)
*10(r) Letter agreement regarding duties as Interim President and CEO dated
February 22, 1996 between the registrant and Charles R. Foley (filed as exhibit
to Form 10-K for the year ended December 31, 1995 and incorporated by reference)
27 Financial Data Schedule
10