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 September 30, 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 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 ______
3,472,766 common shares were outstanding as of October 31, 1997.
2,437,180 Class B common shares were outstanding as of October 31, 1997.
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets (Unaudited)
- --September 30, 1997 and June 30, 1997.........................................2
Condensed Consolidated Statements of Income (Unaudited)
- --Three Months Ended September 30, 1997 and 1996...............................3
Condensed Consolidated Statements of Cash Flows (Unaudited)
- --Three Months Ended September 30, 1997 and 1996...............................4
Notes to Condensed Consolidated Financial Statements (Unaudited)...............5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................6-7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................8
SIGNATURES.....................................................................9
1
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 1997 June 30, 1997
Assets
Cash and equivalents ...................................... $ 445,081 $ 1,146,546
Accounts receivable - net ................................. 26,456,187 24,991,341
Refundable income taxes ................................... 1,531,013 1,578,681
Inventories ............................................... 19,260,206 18,629,454
Other current assets ...................................... 3,141,546 3,686,042
Net current assets of discontinued operation .............. 1,794,545 1,462,089
------------- -------------
Total current assets ............................. 52,628,578 51,494,153
------------- -------------
Property, plant and equipment ............................. 81,986,874 80,771,246
Less accumulated depreciation ............................. 33,730,760 32,184,444
------------- -------------
Net property, plant and equipment ................ 48,256,114 48,586,802
------------- -------------
Net property, plant and equipment of discontinued operation 1,410,676 1,440,740
Other assets .............................................. 23,091,215 24,220,003
------------- -------------
$ 125,386,583 $ 125,741,698
============= =============
Liabilities and Stockholders' Equity
Accounts payable .......................................... $ 9,967,730 $ 5,976,683
Other accrued liabilities ................................. 6,649,509 6,251,436
------------- -------------
Total current liabilities ........................ 16,617,239 12,228,119
------------- -------------
Long-term debt ............................................ 22,400,000 29,000,000
Deferred income taxes and other long-term liabilities ..... 11,134,892 11,053,081
------------- -------------
Total liabilities ................................ 50,152,131 52,281,200
------------- -------------
Stockholders' Equity
Common stock .............................................. 11,814,036 11,807,658
Additional paid-in capital ................................ 33,379,759 33,340,541
Foreign currency translation adjustment ................... (1,350,501) (1,345,978)
Retained earnings ......................................... 31,391,158 29,658,277
------------- -------------
Total stockholders' equity ....................... 75,234,452 73,460,498
------------- -------------
$ 125,386,583 $ 125,741,698
============= =============
See accompanying notes.
2
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
Sept. 30, 1997 Sept. 30, 1996
Net sales ................................. $44,658,302 $44,848,318
Cost of sales ............................. 33,154,397 33,366,959
----------- ------------
Gross profit .............................. 11,503,905 11,481,359
Selling and administrative expenses ....... 7,214,268 7,286,081
----------- ------------
Operating income .......................... 4,289,637 4,195,278
Other expenses ............................ 422,611 534,686
----------- ------------
Income from continuing operations
before income taxes .................... 3,867,026 3,660,592
Income taxes - continuing operations ...... 1,397,000 1,314,000
----------- ------------
Income from continuing operations ......... 2,470,026 2,346,592
Income from discontinued
operation, net of taxes ................ 200,886 0
----------- ------------
Net income ................................ $ 2,670,912 $ 2,346,592
=========== ============
Per common share:
Income from continuing operations ......... $ .42 $ .40
Income from discontinued operation ........ .03 .00
----------- ------------
Net income ................................ $ .45 $ .40
=========== ===========
Cash dividend - Common stock .............. $ .165 $ .165
Cash dividend - Class B common stock ...... $ .15 $ .15
Weighted average shares outstanding ....... 5,920,965 5,882,280
See accompanying notes.
3
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
Sept. 30, 1997 Sept. 30, 1996
Operating Activities:
Net income .................................... $ 2,670,912 $ 2,346,592
Non-cash items:
Depreciation and amortization ............. 1,876,628 1,850,377
Deferred income taxes ..................... 0 171,000
Other long-term liabilities ............... 81,845 (98,019)
Changes in operating assets & liabilities:
Accounts receivable .................. (1,418,076) (3,609,699)
Inventories .......................... (630,812) 642,811
Net assets of discontinued operation . (304,332) 100,095
Other current assets ................. 544,447 44,643
Accounts payable & accrued expenses .. 4,389,464 158,147
----------- -----------
Net cash provided by operating activities .......... 7,210,076 1,605,947
----------- -----------
Investing Activities:
Additions to property and equipment ........... (1,217,248) (1,538,118)
Sale of property and equipment ................ 0 0
Payments for other assets ..................... 798,787 (177,619)
----------- -----------
Net cash used for investing activities ............. (418,461) (1,715,737)
----------- -----------
Financing Activities:
Proceeds from issuance of common stock ........ 45,596 14,238
Additions to long-term debt ................... 0 1,000,000
Payments on long-term debt .................... (6,600,000) 0
Cash dividends paid ........................... (938,031) (932,200)
----------- -----------
Net cash provided by (used for) financing activities (7,492,435) 82,038
----------- -----------
Effect of Exchange Rate Changes on Cash ............ (645) (1,255)
----------- -----------
Net Decrease in Cash & Equivalents ................. (701,465) (29,007)
Cash and Equivalents:
Beginning of year ......................... 1,146,546 244,271
----------- -----------
End of period ............................. $ 445,081 $ 215,264
=========== ===========
Cash Paid During the Period - interest ............. $ 430,445 $ 497,329
- income taxes ......... $ 115,000 $ 1,721,642
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
Security and Exchange Commission. The information furnished reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of results of operations. Interim results are not necessarily
indicative of the results for the year end and are subject to year end
adjustments, and audit by independent public accountants. The balance sheet at
June 30, 1997, 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 1997 annual report.
Note 2 - Common Stock and Per Share Information
Income per share is determined based on weighted average number of shares
outstanding during each period.
Common stock is $2 par - shares authorized 6,000,000 of common stock and
4,000,000 of Class B common stock. Shares issued: 3,469,838 of common stock and
2,437,180 of Class B stock at September 30, 1997; and 3,465,664 of common stock
and 2,438,165 of Class B common stock at June 30, 1997.
Note 3 - Inventories
Inventories are valued at the lower of FIFO (first-in, first-out) cost or
market. Inventories are summarized as follows:
Sept. 30, 1997 June 30, 1997
-------------- -------------
Finished products $11,041,741 $11,219,379
Work in process . 3,032,904 1,950,391
Raw materials ... 5,185,561 5,459,684
Total ........... $19,260,206 $18,629,454
=========== ===========
Note 4 - New Accounting Standards Not Yet Adopted
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings Per Share. The statement simplifies the standards for
computing earnings per share (EPS), and makes them comparable to international
EPS standards. The statement requires the presentation of both "basic" and
"diluted" EPS on the face of the income statement with a supplementary
reconciliation of numerators and denominators used in the calculations. The
statement is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. Had the statement been required to be implemented for the period
presented, the effect would have been insignificant.
Effective for periods beginning after December 15, 1997, the Company must adopt
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" and No. 131, "Disclosures about Segments of an Enterprise and Related
Information." No. 130 will require the Company to report comprehensive income as
part of the consolidated financial statements. No. 131 will require the company
to report certain information about operating segments in the consolidated
financial statements. The Company is currently evaluating the provisions of
these statements to determine their impact.
5
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 including but not limited to economic,
competitive, governmental and technological factors affecting Knape & Vogt
Manufacturing Company's operations, markets, products, services and prices.
Readers are cautioned not to place undue reliance on those forward-looking
statements which speak only as of the date of this report.
RESULTS OF OPERATIONS
Net Sales
The following table indicates the Company's sales (in millions) and percentage
of total sales by product category for the three months ended September 30, 1997
and 1996:
Three Months ended September 30,
1997 1996
Shelving systems ... $ 21.7 48.6% $ 22.4 50.0%
Drawer slides ...... 15.7 35.1% 15.1 33.7%
Hardware ........... 7.3 16.3% 6.4 14.3%
Furniture components 0.0 0.0% 0.9 2.0%
Total .............. $ 44.7 100.0% $ 44.8 100.0%
======= ====== ======= ======
Net sales for the first quarter of fiscal 1998 decreased $0.1 million, or 0.4%,
over the comparable period of fiscal 1997. The product category of shelving
sales decreased by $0.7 million, or 3.1%, compared to the first quarter of
fiscal 1997 primarily due to a decline in sales of Hirsh free-standing shelving
products from a consolidation of two major home centers and a non-repeated sale
to a major warehouse club that occurred in the first quarter of fiscal 1997. The
Company expects the shelving system product group to rebound, due in part to
Hirsh's recent addition of two national retail customers for its free-standing
shelving products. Initial sales to these new accounts are scheduled to begin in
the second quarter with ramp-up continuing in the second half of fiscal 1998.
Drawer slide sales increased by $0.6 million, or 4.0%. The increase in drawer
slide sales was primarily due to continued market share gains by the Company's
precision and Euro-style drawer slides. Precision drawer slide sales are
expected to continue to increase as the Company has begun to manufacture its
first precision drawer slides for the metal office furniture market. The Company
expects continued production ramp-up throughout the remainder of fiscal 1998 to
address this new market. Hardware sales increased by $0.9 million, or 14.1%,
compared to the first quarter of fiscal 1997 due to strong sales of kitchen and
bath storage products manufactured by Feeny. Furniture component sales were
eliminated with the sale of Moda at the end of the third quarter of fiscal 1997.
Costs and Expenses
Cost of sales was 74.2% of sales for the quarter compared to 74.4% of sales for
the first quarter of fiscal 1997. The reduction of cost of sales reflects the
Company's continued efforts to consolidate redundant operations and improve
efficiencies.
Selling and administrative expenses remained constant at 16.2% of sales for the
quarters ended September 30, 1997 and 1996.
Other Expenses
Interest expense was $409,191 for the current quarter compared to $503,307 for
the quarter ended September 30, 1996. The Company has reduced its level of
borrowing to $22,400,000 at September 30, 1997 from $36,000,000 at September 30,
1996.
6
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Income Taxes
The effective tax rate for the quarter ended September 30, 1997, remained
relatively constant at 36.1% as compared to 35.9% for the quarter ended
September 30, 1996.
Income from Continuing Operations
Income from continuing operations of $2,470,026 for the first quarter of fiscal
1998 was a first quarter record. Earnings per share from continuing operations
increased 5.0% to $.42 compared to $.40 in the first quarter of last year.
Income from Discontinued Operation
Income from discontinued operation for the first quarter of 1998 was $200,886 or
$.03 per share. The quarter ended September 30, 1996, does not include any
income, or loss, recorded on the discontinued operation as the estimated loss on
discontinued operation recorded at June 30, 1996, included a provision for
fiscal 1997 anticipated operating losses. In accordance with Generally Accepted
Accounting Principles, income or loss attributable to the discontinued operation
subsequent to June 30, 1997, is reflected as incurred.
The Company has been seeking a buyer for Roll-it and has engaged the firm of
J.J.B. Hilliard, W.L. Lyons, Inc. to assist in the sale. Several interested
buyers have signed confidentiality agreements with the Company. Although it is
difficult to predict, the Company expects to sell Roll-it during fiscal 1998.
Net Income
Net income for the quarter of $2,670,912, was 6.0% of sales compared to
$2,346,592, for the first quarter of last year which was 5.2% of sales. Net
income per share increased by 12.5% to $0.45 compared to $0.40 for the first
quarter of fiscal 1997.
Liquidity and Capital Resources
Net cash from operating activities for the quarter provided $7,210,076 as
compared to $1,605,947 for the first quarter of fiscal 1997. Accounts payable &
accrued expenses increased by $4,389,464 in the first quarter of this year
compared to $158,147 in the first quarter of last year. Also, accounts
receivable increased only $1,418,076 in the first quarter of fiscal 1998
compared to $3,609,699 in the first quarter of fiscal 1997. These improvements
in liquidity are a direct result of the Company's focus on cash management.
Capital expenditures totaled $1,217,248 for the three months ended September 30,
1997, compared to $1,538,118 last year. Capital expenditures for the fiscal year
are expected to be at approximately the same levels as last year. Long-term debt
decreased $6,600,000 due to the cash provided from operating activities. In the
remainder of the year, the Company will continue to aggressively attempt to
generate cash using the newly adopted Economic Value Added, or EVA, philosophy.
Anticipated cash flow from operations will substantially fund working capital,
capital expenditures and dividend payments.
7
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
September 30, 1997.
8
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: November 12, 1997 /s/ Allan E. Perry
Allan E. Perry
President and
Chief Executive Officer
Date: November 12, 1997 /s/ Richard C. Simkins
Richard C. Simkins
Executive Vice President, CFO,
Secretary and Treasurer
9