UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____________________To ____________________
Commission File Number 2-18868
KNAPE & VOGT MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-0722920
(State of Incorporation) (IRS Employer Identification No.)
2700 Oak Industrial Drive, NE
Grand Rapids, Michigan 49505
(Address of principal executive offices) (Zip Code)
(616) 459-3311
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X__ NO ______
2,266,221 common shares were outstanding as of April 27, 2001.
2,351,620 Class B common shares were outstanding as of April 27, 2001.
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
--March 31, 2001 and July 1, 2000............................2
Condensed Consolidated Statements of Income
--Nine Months and Three Months Ended March 31, 2001
and April 1, 2000 .........................................3
Condensed Consolidated Statements of Cash Flows
--Nine Months Ended March 31, 2001 and April 1, 2000.........4
Notes to Condensed Consolidated Financial Statements.......5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................8-10
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................12
SIGNATURES....................................................................13
1
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
Mar. 31, 2001 July 1, 2000
--------------------- ------------------
Assets
Current assets
Cash and equivalents $ 2,308,539 $ 2,351,622
Accounts receivable - net 18,087,998 20,631,951
Inventories 16,466,499 15,092,393
Prepaid expenses and other 3,051,989 3,133,098
--------------------- ------------------
Total current assets 39,915,025 41,209,064
--------------------- ------------------
Property, plant and equipment 78,556,152 73,632,488
Less accumulated depreciation 37,431,939 35,270,625
--------------------- ------------------
Net property, plant and equipment 41,124,213 38,361,863
--------------------- ------------------
Goodwill 5,228,912 4,978,420
Other assets 2,956,252 3,738,305
--------------------- ------------------
$ 89,224,402 $ 88,287,652
===================== ==================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 11,128,945 $ 12,833,665
Other accrued liabilities 9,135,810 11,997,006
--------------------- ------------------
Total current liabilities 20,264,755 24,830,671
--------------------- ------------------
Long-term debt 24,280,000 20,050,000
Deferred income taxes and other long-term liabilities 8,446,035 8,700,351
--------------------- ------------------
Total liabilities 52,990,790 53,581,022
--------------------- ------------------
Stockholders' Equity
Common stock (Common - 2,265,721 and 2,222,852 shares issued, Class B common -
2,352,120 and 2,392,853 shares issued,
Preferred - unissued) 9,235,682 9,231,410
Additional paid-in capital 8,502,727 8,482,908
Unearned stock grant (94,500) (94,500)
Accumulated other comprehensive income:
Foreign currency translation adjustment (177,429) (39,172)
Derivative adjustment (541,067) -
Minimum supplemental executive retirement plan
liability adjustment (1,128,069) (1,130,405)
Retained earnings 20,436,268 18,256,389
--------------------- ------------------
Total stockholders' equity 36,233,612 34,706,630
--------------------- ------------------
$ 89,224,402 $ 88,287,652
===================== ==================
See accompanying notes.
2
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Nine Months Ended For the Three Months Ended
------------------------- --------------------------
Mar. 31, 2001 Apr. 1, 2000 Mar. 31, 2001 Apr. 1, 2000
---------------- ---------------- ---------------- ----------------
Net sales $ 106,229,784 $ 110,191,475 $ 33,569,582 $ 38,704,961
Cost of sales 77,627,826 80,365,025 25,143,424 28,195,678
---------------- ---------------- ---------------- ----------------
Gross profit 28,601,958 29,826,450 8,426,158 10,509,283
---------------- ---------------- ---------------- ----------------
Selling and administrative expenses 20,278,103 18,938,712 6,809,199 6,772,571
Impairment loss on assets held for sale 300,000 - 300,000 -
---------------- ---------------- ---------------- ----------------
Operating expenses 20,578,103 18,938,712 7,109,199 6,772,571
---------------- ---------------- ---------------- ----------------
Operating income 8,023,855 10,887,738 1,316,959 3,736,712
Other expenses 1,312,597 1,052,994 457,168 363,123
---------------- ---------------- ---------------- ----------------
Income before income taxes 6,711,258 9,834,744 859,791 3,373,589
Income taxes 2,352,000 3,483,000 297,000 1,197,000
---------------- ---------------- ---------------- ----------------
Net income $ 4,359,258 $ 6,351,744 $ 562,791 $ 2,176,589
================ ================ ================ ================
Basic earnings per share:
Net income per share $ 0.94 $ 1.35 $ 0.12 $ 0.47
================ ================ ================ ================
Weighted average shares outstanding 4,616,561 4,696,151 4,618,312 4,670,923
Diluted earnings per share:
Net income per share $ 0.94 $ 1.35 $ 0.12 $ 0.47
================ ================ ================ ================
Weighted average shares outstanding 4,618,331 4,700,076 4,618,507 4,673,734
Cash dividend - common stock $ .495 $ .45 $ .165 $ .15
Cash dividend - Class B common stock $ .45 $ .409 $ .15 $ .136
See accompanying notes.
3
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------
Mar. 31, 2001 Apr. 1, 2000
------------------- -------------------
Operating Activities:
Net income $ 4,359,258 $ 6,351,744
Non-cash items:
Depreciation and amortization 4,679,463 4,395,431
Deferred income taxes (177,000) (294,000)
Other long-term liabilities 163,331 (584,359)
Impairment loss on assets held for sale 300,000 -
Loss on disposal of fixed assets 177,630 17,446
Changes in operating assets and liabilities:
Accounts receivable 2,451,390 (922,290)
Inventories (1,374,106) (711,872)
Other current assets 15,901 89,534
Accounts payable and accrued expenses (5,088,922) 3,605,246
-------------------- -------------------
Net cash provided by operating activities 5,506,945 11,946,880
-------------------- -------------------
Investing Activities:
Additions to property, plant and equipment (6,993,220) (5,401,009)
Net cash paid for acquisition (505,745) (5,309,674)
Changes in other non-current assets (7,017) 190,966
-------------------- -------------------
Net cash used for investing activities (7,505,982) (10,519,717)
-------------------- -------------------
Financing Activities:
Cash dividends paid (2,179,379) (2,013,297)
Proceeds from issuance of common stock 15,922 188,483
Repurchase and retirement of common stock (20,537) (1,898,386)
Borrowings on long-term debt 4,230,000 2,300,000
-------------------- -------------------
Net cash provided by financing activities 2,046,006 (1,423,200)
-------------------- -------------------
Effect of Exchange Rate Changes on Cash (90,052) 11,242
-------------------- -------------------
Net Increase (Decrease) in Cash and Equivalents (43,083) 15,205
Cash and equivalents, beginning of year 2,351,622 1,621,002
-------------------- -------------------
Cash and equivalents, end of period $ 2,308,539 $ 1,636,207
==================== ===================
Cash Paid During the Period - interest $ 1,165,448 $ 1,032,216
- income taxes $ 3,653,830 $ 2,975,000
Non-Cash Activities:
Accrual of capital expenditures $ 441,599 $ 411,878
See accompanying notes.
4
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Financial Statement Preparation
The accompanying unaudited condensed consolidated financial statements and
related notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished reflects all
adjustments, which are, in the opinion of management, necessary for a fair
statement of the results of operations and consist of only normal recurring
adjustments. Interim results are not necessarily indicative of the results for
the year-end and are subject to year-end adjustments, and audit by independent
public accountants. The balance sheet at July 1, 2000, has been taken from the
audited financial statements at that date. The condensed consolidated financial
statements and notes should be read in conjunction with the Company's 2000
annual report.
Effective July 1, 1999, the Company adopted a 52- or 53-week fiscal year,
changing the year-end date from June 30 to the Saturday nearest the end of June.
Certain prior year information has been reclassified to conform to the current
year presentation.
Note 2 - Common Stock and Per Share Information
Common stock is $2 par - shares authorized 6,000,000 of common stock and
4,000,000 of Class B common stock.
The following table reconciles the numerators and denominators used in the
calculations of basic and diluted EPS for each of the periods presented:
For the nine months ended For the three months ended
------------------------- --------------------------
Mar. 31, 2001 Apr. 1, 2000 Mar. 31, 2001 Apr. 1, 2000
------------------- ------------------- ---------------------- ----------------------
Numerators:
Numerator for both basic and
diluted EPS, net income $4,359,258 $6,351,744 $562,791 $2,176,589
=================== =================== ====================== ======================
Denominators:
Denominator for basic EPS,
weighted-average common shares
outstanding 4,616,561 4,696,151 4,618,312 4,670,923
Potentially dilutive shares
resulting from stock option plans 1,770 3,925 195 2,811
------------------- ------------------- ---------------------- ----------------------
Denominator for diluted EPS 4,618,331 4,700,076 4,618,507 4,673,734
=================== =================== ====================== ======================
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.
Mar. 31, 2001 Apr. 1, 2000
----------------------- ----------------------
Exercise Price
$13.64 21,835 -
$14.09 21,450 -
$16.74 11,192 11,495
$18.18 10,450 11,000
5
Note 3 - Inventories
Inventories are valued at the lower of FIFO (first-in, first-out) cost or
market. Inventories are summarized as follows:
Mar. 31, 2001 July 1, 2000
------------- ------------
Finished products $10,864,752 $ 8,778,556
Work in process 2,121,722 2,339,958
Raw materials 3,480,025 3,973,879
------------ ------------
Total $16,466,499 $ 15,092,393
=========== ============
Note 4 - Adoption of New Accounting Standard
The Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," on July 2, 2000.
The Company uses an interest-rate swap to convert a portion of its variable-rate
revolver to a fixed rate. The resulting cost of funds is lower than it would
have been had fixed-rate borrowings been issued directly. The level of
fixed-rate debt, after the effects of interest-rate swaps have been considered,
is between 85 and 95 percent of the Company's total outstanding debt of
$24,280,000 at March 31, 2001 and $20,050,000 at July 1, 2000.
In accordance with the transition provisions of FAS 133, the Company recorded a
net-of-tax cumulative-effect-type adjustment in accumulated other comprehensive
income to recognize the fair value of the interest-rate swap designated as a
cash-flow hedging instrument. The derivative was also recognized as a liability
on the balance sheet at its fair value of $833,067.
The Company has formally documented the relationship between the interest-rate
swap and the revolver, as well as its risk-management objective and strategy for
undertaking the hedge transaction. This process includes linking the derivative
that has been designated as a cash-flow hedge to the specific liability on the
balance sheet. The Company also formally assesses, both at the hedge's inception
and on an ongoing basis, whether the derivative used in the hedging transaction
is highly effective in offsetting changes in the cash flows of the hedged item.
If it is determined that the derivative is not highly effective as a hedge or
that it has ceased to be a highly effective hedge, the Company will discontinue
hedge accounting prospectively.
Note 5 - Comprehensive Income
Comprehensive income is comprised of net income and all changes to stockholders'
equity, except those due to investments by owners and distributions to owners.
Comprehensive income and its components consist of the following:
For the Nine Months Ended For the Three Months Ended
------------------------- --------------------------
Mar. 31, 2001 Apr. 1, 2000 Mar. 31, 2001 Apr. 1, 2000
------------------- ------------------ ------------------- ------------------
Net income $4,359,258 $6,351,744 $562,791 $2,176,589
Other comprehensive income:
Foreign currency translation adjustment (138,257) 30,363 (111,615) (6,973)
Derivative adjustment (541,067) - (323,475) -
Minimum SERP liability adjustment 2,336 (620) 1,845 142
------------------- ------------------ ------------------- ------------------
Comprehensive income $3,682,270 $6,381,487 $129,546 $2,169,758
=================== ================== =================== ==================
6
Note 6 - Assets Held for Sale
During fiscal 2000, the Company offered its former powder coat facility for
sale. As a result of this decision, the related assets of $1,779,405 were
transferred to the category "Net Assets Held for Sale" and a loss of $105,000
was recorded in the fourth quarter of fiscal 2000 based upon the buy/sell
agreement. The purchaser was unable to close the transaction and the building
remains listed with a real estate broker. In addition, the Company has listed a
former facility in Muncie, Indiana for sale. Based upon new information obtained
during the third quarter of fiscal 2001 regarding the current fair market value
of the facilities held for sale, the Company recorded an additional impairment
loss of $300,000 pre-tax.
Note 7 - Acquisition
On October 1, 1999, the Company acquired substantially all of the assets of Idea
Industries, Inc. (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 the 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 is being
amortized on a straight-line basis over 15 years.
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. 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.
Note 8 - Restricted Stock and Performance-Option Plan
On February 1, 2000, William Dutmers, Chairman of the Board, President and Chief
Executive Officer of Knape & Vogt, 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.
Note 9 - Stock Repurchase
On September 1, 1998, the Company announced its intention to purchase up to
1,320,000 shares of the Company's common stock pursuant to a Dutch Auction
self-tender offer at a price range of $17.27 to $20 per share. The Board of
Directors also approved the purchase in the open market or in privately
negotiated transactions, following the completion of the Dutch Auction, of
shares of common stock in an amount which when added to the number of shares of
common stock purchased in the Dutch Auction would equal 1,485,000. The Dutch
Auction was concluded on October 7, 1998, with the purchase of 1,353,862 shares
at a price of $19.09 per share.
At each of the January 22, 1999, and the August 20, 1999, Board of Directors
meetings, the Board approved an a dditional 440,000 shares for the stock
repurchase program. Utilizing these Board authorizations, the Company has
purchased 635,150 shares through the third quarter of fiscal 2001 for
approximately $9.3 million with the price per share ranging from approximately
$12 to $17.
7
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed in this section include forward-looking statements
involving risks and uncertainties. When used in this document, the words
"believes," "expects," "anticipates," "goal," "think," "forecast," "project,"
"estimates," "likely," and similar expressions identify forward-looking
statements. Forward-looking statements include, but are not limited to,
statements concerning future revenue and net income growth. Such statements are
subject to certain risks and uncertainties, which would cause actual results to
differ materially from those expressed or implied by such forward-looking
statements. Readers are cautioned not to place undue reliance on those
forward-looking statements that speak only as of the date of this report.
RESULTS OF OPERATIONS
Net Sales
The following table indicates the Company's net sales (in millions) and
percentage of total sales by product category for the six-month and three-month
periods ended March 31, 2001 and April 1, 2000:
Nine Months Ended Three Months Ended
----------------- ------------------
Mar. 31, Apr. 1, Mar. 31, Apr. 1,
2001 % 2000 % 2001 % 2000 %
---------------------- ------------------------- ------------------------ -------------------------
Shelving systems $29.3 27.6% $37.9 34.4% $9.3 27.7% $13.3 34.4%
Drawer slides 49.2 46.4% 51.1 46.4% 15.4 45.8% 17.5 45.1%
Hardware/ Ergonomic 27.7 26.0% 21.2 19.2% 8.9 26.5% 7.9 20.5%
---------------------- ------------------------- ------------------------ -------------------------
Total $106.2 100.0% $110.2 100.0% $33.6 100.0% $38.7 100.0%
====================== ========================= ======================== =========================
Net sales for both the third quarter and the first nine months of fiscal 2001
were lower than the prior year. During the third quarter, only the ergonomic
product line showed growth over the prior year and of the Company's sales
channels only the dealer channel grew compared to the prior year. The majority
of the decline represented the overall downturn in economic conditions. This was
clearly reflected when BIFMA, the furniture manufacturing association, lowered
its estimated growth for the office furniture industry from 5.0% to just 2.8%
for calendar 2001.
The Company's sales were especially soft in the month of January and have
steadily increased through the end of the third quarter. The Company, however,
estimates that same product sales for the remainder of the fiscal year will most
likely remain relatively flat when compared to the prior year. The Company
anticipates being able to offset some of the slowdown in the market with
introduction of new products. During the first week of April 2001, the Company
launched an ergonomic lighting line, which will broaden its offering of
ergonomic products to the office furniture industry.
Gross Profit
Gross profit, as a percentage of net sales, was 25.1% for the third quarter and
26.9% for the first nine months of fiscal 2001 compared to 27.2% and 27.1%,
respectively, for the same periods in the prior year. The lower sales volumes
during the third quarter of fiscal 2001 made it difficult for the Company to
effectively leverage its fixed overhead costs. In addition, the decline in the
Canadian exchange rate continued to negatively impact the margins of the
Company's wholly owned Canadian subsidiary.
8
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating Expenses
Selling and administrative expenses, as a percentage of net sales, were 20.3%
for the third quarter and 19.1% for the first nine months of fiscal 2001
compared to 17.5% and 17.2%, respectively, for the same periods in the prior
year. The increase was primarily attributable to the fact that the ergonomic
product line has a higher level of selling costs associated with it than the
Company's other product lines. In addition, the Company incurred severance costs
of approximately $350,000 in the third quarter of fiscal 2001 associated with
the layoffs, which took place in January 2001.
During the third quarter of fiscal 2001, the Company recorded a pre-tax
impairment loss on the assets held for sale of $300,000 or $.04 per diluted
share. The loss reflected new information, which lowered the Company's estimate
of the fair market value of the properties listed for sale.
Other Expenses
Interest expense was $415,609 for the quarter and $1,204,536 for the nine months
ended March 31, 2001, compared with $362,932 and $1,051,793, respectively, for
the same periods in the prior year. The increase in interest expense was
attributable to the higher level of borrowings during fiscal 2001.
Income Taxes
The effective tax rates for the quarter and nine months ended March 31, 2001,
were 34.5% and 35.0% compared with the rates of 35.5% and 35.4%, respectively,
for the same periods in the prior year.
Net Income
For the quarter ended March 31, 2001, net income was $562,791 or $0.12 per
diluted share compared to $2,176,589 or $0.47 per diluted share for the third
quarter of last year. Net income of $4,359,258, or $0.94 per diluted share was
recorded for the first nine months of fiscal 2001 compared with $6,351,744, or
$1.35 per diluted share for the same period in the prior year.
Liquidity and Capital Resources
Net cash from operating activities for the first nine months of fiscal 2001
provided net cash of $5,506,945 compared with $11,946,880 for the first n ine
months of fiscal 2000. The decrease was attributable to lower net income of
approximately $2,000,000 combined with higher inventory levels of imported
product and a decrease in accounts payable and other accrued liabilities. The
decrease in accounts payable was due to lower purchasing levels. The decrease in
other accrued liabilities reflects the impact of incentive plans, which are
variable with the Company's performance, specifically the EVA bonuses.
Capital expenditures totaled $6,993,220 for the nine months ended March 31,
2001, compared to $5,401,009 for the nine months ended April 1, 2000. The
increased capital spending reflected investments in manufacturing technology,
the completion of the new facility at the Indiana subsidiary and tooling for new
products. There were no significant capital expenditure commitments at March 31,
2001. Quarterly capital expenditures during the fourth quarter of fiscal 2001
are anticipated to be approximately the same level as incurred during each of
the first three quarters of the fiscal year.
9
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
On October 1, 1999, the Company acquired substantially all of the assets of Idea
Industries, Inc. (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 the 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 is being
amortized on a straight-line basis over 15 years.
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. All
additional consideration paid was recorded as goodwill.
On September 1, 1998, the Company announced its intention to purchase up to
1,320,000 shares of the Company's common stock pursuant to a Dutch Auction
self-tender offer at a price range of $17.27 to $20 per share. The Board of
Directors also approved the purchase in the open market or in privately
negotiated transactions, following the completion of the Dutch Auction, of
shares of common stock in an amount which when added to the number of shares of
common stock purchased in the Dutch Auction would equal 1,485,000. The Dutch
Auction was concluded on October 7, 1998, with the purchase of 1,353,862 shares
at a price of $19.09 per share.
At each of the January 22, 1999, and the August 20, 1999, Board of Directors
meetings, the Board approved an additional 440,000 shares for the stock
repurchase program. Utilizing these Board authorizations, the Company has
purchased 635,150 shares through the second quarter of fiscal 2001 for
approximately $9.3 million with the price per share ranging from approximately
$12 to $17. Since the beginning of the stock repurchase program in fiscal 1999,
the Company has purchased 1,989,012 shares for approximately $35.7 million.
The long-term debt balance increased to $24,280,000 at March 31, 2001 compared
with $20,050,000 at July 1, 2000, and $20,000,000 at April 1, 2000. The increase
reflects funds utilized for capital expenditures.
Anticipated cash flows from operations and available balances on the revolving
credit line are expected to be adequate to fund working capital, capital
expenditures and dividend payments.
10
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in the foreign
currency exchange rate as measured against the U.S. dollar and changes in U.S.
interest rates. The Company holds a derivative instrument in the form of an
interest rate swap, which is viewed as a risk management tool and is not used
for trading or speculative purposes. The intent of the interest rate swap is to
effectively fix the interest rate on part of the borrowings under the Company's
variable rate revolving credit agreement.
Quantitative disclosures relating to financial instruments and debt are included
in the tables below.
The following table provides information on the Company's fixed maturity
investments as of March 31, 2001, that are sensitive to changes in interest
rates. The table also presents the corresponding interest rate swap on this
debt. Since the interest rate swap effectively fixes the interest rate on the
notional amount of debt, changes in interest rates have no current effect on the
interest expense recorded by the Company on the portion of the debt covered by
the interest rate swap.
Liability Amount Maturity Date
- --------- ------ -------------
Variable rate revolving credit
agreement $45 million November 1, 2004
First $20,000,000 at an interest rate
of 5.1038% plus weighted average
credit spread of .5%
Amounts in excess of $20,000,000 have
an interest rate of approximately 5.0%
Interest Rate Swap
Notional amount $20 million June 1, 2006
Pay fixed/Receive variable - 5.10375%
Pay fixed interest rate - 6.25%
The Company has a sales office located in Canada. Sales are typically
denominated in Canadian dollars, thereby creating exposures to changes in
exchange rates. The changes in the Canadian/U.S. exchange rate may positively or
negatively affect the Company's sales, gross margins and retained earnings. The
Company attempts to minimize currency exposure through working capital
management. The Company does not hedge its exposure to translation gains and
losses relating to foreign currency net asset exposures.
11
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
There were no exhibits for the three months ended March 31, 2001.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
March 31, 2001.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Knape & Vogt Manufacturing Company
(Registrant)
Date: May 4, 2001 /s/ William R. Dutmers
William R. Dutmers
Chairman, President and
Chief Executive Officer
/s/ Leslie J. Cummings
Leslie J. Cummings
Vice President of Finance and
Treasurer
13