United States of America
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 June 30, 2000
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 0-20743
OPEN PLAN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1515256
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4299 Carolina Avenue, 23222
Building C, Richmond, Virginia (Zip Code)
(Address of principal executive offices)
(804) 228-5600
(Telephone number of registrant)
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 __.
As of the close of business on August 11, 2000, Open Plan Systems, Inc. had
4,402,891 shares of Common Stock, no par value, outstanding.
Open Plan Systems, inc.
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 (unaudited) 1
and December 31, 1999
Consolidated Statements of Operations - Three and six months 2
ended June 30, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows - Six 3
months ended June 30, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements - June 30, 2000 (unaudited) 4
Item 2. Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of 10
Security Holders
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES
Open Plan Systems, Inc.
Part I
Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets
(amounts in thousands)
June 30 December 31
2000 1999
-------------------------------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 102 $ 13
Accounts receivable, net 7,122 7,144
Inventories 8,183 7,862
Prepaids and other 793 638
Refundable income taxes 64 188
Deferred income taxes 417 385
-------------------------------------
Total current assets 16,681 16,230
Property and equipment, net 2,425 2,272
Goodwill, net 3,781 3,898
Deferred income taxes 1,137 1,093
Cash and cash equivalents externally restricted under bond
indenture agreement 2,450 -
Other 2,614 126
-------------------------------------
Total assets $26,597 $23,619
=====================================
Liabilities and shareholders' equity
Current liabilities:
Revolving line of credit $ 3,814 $ 2,419
Trade accounts payable 2,636 3,464
Accrued compensation 347 238
Other accrued liabilities 898 813
Customer deposits 943 1,005
Current portion of long-term debt 57 62
-------------------------------------
Total current liabilities 8,695 8,001
Long-term debt 2,633 163
-------------------------------------
Total liabilities 11,328 8,164
Shareholders' equity:
Preferred stock, no par value:
Authorized shares - 5,000
Issued and outstanding shares - none
- -
Common stock, no par value:
Authorized shares - 50,000
Issued and outstanding shares - 4,403 18,651 18,651
Additional capital 137 137
Accumulated other comprehensive loss (2) -
Accumulated deficit (3,476) (3,333)
-------------------------------------
Total shareholders' equity 15,310 15,455
-------------------------------------
Total liabilities and shareholders' equity $26,638 $23,619
=====================================
See accompanying notes.
Open Plan Systems, Inc.
Consolidated Statements of Operations (Unaudited)
(amounts in thousands, except per share)
Three Months ended Six Months ended
June 30 June 30
2000 1999 2000 1999
---------------------------------------------------------------------
Net sales $ 10,459 $ 8,878 $ 19,792 $ 16,387
Cost of sales 7,688 6,029 14,108 11,417
---------------------------------------------------------------------
Gross profit 2,771 2,849 5,684 4,970
Operating expenses:
Amortization of intangibles 69 54 137 107
Selling and marketing 2,015 1,894 3,942 3,419
General and administrative 887 631 1,481 1,027
Arbitration costs 142 44 142 128
---------------------------------------------------------------------
3,113 2,623 5,702 4,681
---------------------------------------------------------------------
Operating (loss) income (342) 226 (18) 289
Other (income) expense:
Interest expense 140 44 238 89
Minority interest (8) - (12) -
Other, net (8) (3) (6) (11)
---------------------------------------------------------------------
124 41 220 78
---------------------------------------------------------------------
(Loss) income before income taxes (466) 185 (238) 211
Income tax benefit (199) - (95) -
---------------------------------------------------------------------
Net (loss) income $ (267) $ 185 $ (143) $ 211
=====================================================================
Basic and diluted (loss) income per common share $ (.06) $ .04 $ (.03) $ .05
=====================================================================
Basic and diluted weighted average common shares outstanding
4,403 4,675 4,403 4,674
=====================================================================
See accompanying notes.
Open Plan Systems, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(amounts in thousands)
Six Months ended
June 30
2000 1999
-----------------------------------
Operating activities
Net (loss) income $ (143) $ 211
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Provision for losses on receivables 159 18
Depreciation and amortization 604 487
Loss on sale of property - 3
Deferred income taxes (76) -
Changes in operating assets and liabilities:
Accounts receivable (137) (4)
Inventories (321) 235
Prepaids and other (89) (443)
Trade accounts payable (828) 43
Customer deposits (62) 5
Accrued and other liabilities 192 (44)
-----------------------------------
Net cash (used in) provided by operating activities (651) 511
Investing activities
Increase in cash and cash equivalents restricted
under bond indenture agreement (2,450) -
Purchases of property and equipment (620) (431)
-----------------------------------
Net cash used in investing activities (3,120) (431)
Financing activities
Net borrowings on revolving line of credit 1,395 (212)
Proceeds from borrowing on long-term debt 2,500 -
Notes payable issued - 165
Principal payments on long-term debt (35) (5)
-----------------------------------
Net cash provided by (used in) financing activities 3,860 (52)
-----------------------------------
Increase in cash and cash equivalents 89 28
Cash and cash equivalents at beginning of period 13 2
-----------------------------------
Cash and cash equivalents at end of period $ 102 $ 30
===================================
Supplemental disclosures
Interest paid $ 238 $ 89
===================================
Income taxes paid $ 42 $ -
===================================
See accompanying notes.
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2000
1. Principles of Presentation
The accompanying unaudited consolidated financial statements of Open Plan
Systems, Inc. and subsidiaries (the Company) have been prepared in accordance
with generally accepted accounting principles for interim financial information.
The interim financial statements included herein are unaudited. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. All
significant intercompany balances and transactions are eliminated in
consolidation. In the opinion of management, these financial statements reflect
all adjustments of a normal recurring nature which the Company considers
necessary for a fair presentation. The results for the three and six month
periods ending June 30, 2000 are not necessarily indicative of the results that
may be achieved for the entire year ending December 31, 2000 or for any other
interim period. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K for the
year ended December 31, 1999.
2. Mexican Subsidiaries
In January 2000, the Company entered into a Joint Venture Agreement to open a
new sales office in Mexico City, Mexico. The Company agreed to contribute
approximately 455,000 Pesos, or approximately $50,000, for an 80% interest in
the venture. The Joint Venture Agreement called for the creation of two new
companies, Open Plan Systems, S. de R.L. de C.V. and Open Plan Servicios, S. de
R.L. de C.V., each of which is 80% owned by the Company. The Company has
reported minority interest related to the earnings and the equity of the
minority partner in the accompanying financial statements.
3. Inventories
Inventories are in two main stages of completion and consisted of the following
(amounts in thousands):
June 30 December 31
2000 1999
-------------------------------------
(Unaudited)
Components and fabric $5,375 $5,243
Jobs in process and finished goods 2,808 2,619
-------------------------------------
$8,183 $7,862
=====================================
4. Income Taxes
The Company reported an effective tax rate of 39.9% for the first half of 2000.
The difference between the Company's effective tax rate and the statutory income
tax rate for the second quarter and first half of 2000 is due to permanent
differences related to amortization of non-deductible intangible assets and
state taxes. Utilization of net operating loss carryforwards resulted in no
income tax expense for the second quarter and first half of 1999. Related
deferred income tax assets were offset by a valuation allowance in the second
quarter and first half of 1999.
5. Indebtedness
At June 30, 2000, the Company had outstanding borrowings of $3,814,000 on its
$5,000,000 line of credit. The Company's availability on its line of credit was
$1,186,000.
In April 2000, the Company entered into an agreement with a bank for a new line
of credit to replace its former line of credit. This line of credit closed on
May 1, 2000 and is secured by substantially all assets of the Company. It
provides for availability of up to 80% of eligible accounts receivable along
with up to $2 million in eligible inventory and maximum borrowings of $5
million. Borrowings will bear interest at a floating rate, which is linked to
either LIBOR or prime, at the Company's request. On August 1, 2000, the Company
and the bank amended the agreement to increase the line of credit to $5,250,000.
On June 15, 2000, the Company sold $2.5 million Michigan Strategic Fund
Industrial Revenue Bonds in order to construct a new production facility in
Lansing, Michigan. The proceeds were placed into an escrow account with the
trustee until such time as they are used for building the facility. At the same
time, the Company entered into a letter of credit facility with a bank to secure
the financing on the facility. The letter of credit and the line of credit are
cross-collateralized.
6. Comprehensive Loss
Comprehensive loss for the quarter ended June 30, 2000 was $270,000.
Comprehensive loss for the first half of 2000 was $145,000. The difference
between net loss and comprehensive loss is due to foreign currency translation
gains and losses.
7. Commitments and Contingencies
On April 30, 2000, the Company signed a letter of intent with a contractor for
the construction of a new production facility in Lansing, Michigan. The Company
purchased a 5 acre building site and plans to construct an approximately 70,000
square-foot facility in Lansing, Michigan. This project is expected to be
completed in the fourth quarter of 2000. Total project costs are estimated to be
approximately $2.5 million.
OPEN PLAN SYSTEMS, INC.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
This commentary should be read in conjunction with the sections of the
Company's Form 10-K for a full understanding of Open Plan Systems financial
condition and results of operations for the year ended 1999.
Results of Operations
Net Sales. Sales for the three months ended June 30, 2000 were $10,459,000,
an increase of approximately $1,581,000 or 17.8% versus the same period in 1999.
Sales for the six months ended June 30, 2000 were up $3,405,000 or 20.8% higher
than the first six months of 1999. The Company's existing sales offices and
National Accounts group contributed the majority of the sales increases for the
three and six month periods. The Company's new offices in Mexico City and
Indianapolis and the Company's introduction of a remanufactured Steelcase
product line have not significantly impacted sales in 2000.
The Company also increased its sales order volume during the second quarter
of 2000. It received orders of $10.5 million in the second quarter of 2000 up
from the $9.4 million in orders booked during the second quarter of 1999.
Additionally, the Company's order backlog at the end of June 2000 of $5.2
million, was up $2 million from June 1999 levels.
For the remainder of the year, the Company anticipates improved
productivity and sales increases from its existing branch office network and its
new sales offices. The Company continues to selectively add sales people in key
markets while it continues to build market share. The National Accounts business
has been strengthened by repeat business from several Fortune 500 companies. The
Company expects modest increases in volume as the result of its addition of the
remanufactured Steelcase product line.
Gross Margin. The gross margin decreased to 26.5% in the second quarter of
2000 from 32.1% in the second quarter of 1999. For the first six months of 2000,
the Company's gross margin of 28.7% is less than the 30.3% for the comparable
period in 1999. The Company's gross margin during the second quarter of 2000 was
impacted negatively by capacity constraints at the Richmond production facility.
Additionally, the gross margin was impacted negatively by sales to a customer at
low pricing established several years ago to generate volume. The Company
continues to pursue avenues to improve its production and purchasing activities
to reduce product costs and overhead structure.
The Company anticipates that its margins will increase during the remainder
of the year as its capacity expansion efforts are completed. The Company also
believes the majority of the lower margin work has been completed and
renegotiation of contract terms with that customer will be underway in the third
and fourth quarters.
Operating Expenses. The Company's selling and marketing expenses increased
by $121,000 to $2,015,000 from the $1,894,000 reported in the second quarter of
1999. For the six months ended June 30, 2000, the Company increased selling and
marketing expenses by $523,000 to $3,942,000. While the Company's selling and
marketing expenses increased during the second quarter and six months ended June
30, 2000, as a percentage of sales these expenses decreased to 19.3% and 19.9%
of sales from the 21.3% and 20.9% reported in 1999. The Company believes that
these expenses as a percentage of total revenues will continue to decrease
somewhat as the Company's investments in new sales personnel and offices should
increase revenues at a faster rate than expenses.
General and administrative expenses increased to $887,000 in the second
quarter of 2000 from the $631,000 reported in the second quarter of 1999. The
Company reported a $454,000 increase in general and administrative expenses for
the first half of 2000. The increases for the second quarter are primarily
related to a $100,000 increase in the allowance for doubtful accounts related to
a dealer who went out of business. Additionally, the Company recorded severance
charges in the general and administrative area of approximately $100,000. The
Company expects that the level of general and administrative expenses will be
below budgeted amounts for the remainder of the year.
Other Non-Operating Income and Expense. Total other expense increased to
$124,000 for the second quarter of 2000 versus $41,000 for the second quarter of
1999. These expenses increased to $220,000 in the first six months of 2000 from
the $78,000 reported for the comparable period of 1999. The primary reason for
the increase in the second quarter is related to termination fees paid to the
Company's former bank in order to switch to a commercial banking relationship.
Additionally, the increase is related to the Company increasing its borrowings
on the line of credit facility during the fourth quarter of 1999 and early 2000
to pay for the stock repurchased from a former officer of the Company and
settlement of legal matters with former officers of the Company. The Company
anticipates that the termination fees will be recouped through lower interest
rates over the next year.
Income Taxes. In the second quarter and first half of 2000, the Company
recorded tax benefits at a rate equal to its expected tax rate for the year.
Utilization of net operating loss carryforwards resulted in no income tax
expense for the first half of 1999. In 1999, related deferred income tax assets
were offset by a valuation allowance.
Liquidity and Capital Resources
Inventories. Inventories at June 30, 2000 increased by $321,000 compared to
inventories at the end of 1999. This increase was due to additional inventories
needed to support the Company's new Mexican operations and inventory needed to
support higher sales volumes. The Company anticipates that these levels will
decrease somewhat over the remainder of the year.
Accounts Receivable. Accounts receivable increased by approximately
$100,000 at June 30, 2000 from December 31, 1999, excluding the additional bad
debt allowance booked in the second quarter. This increase is directly related
to the increase in sales. The Company's Days Sales Outstanding (DSO) continues
to improve. The Company anticipates that increases in accounts receivable due to
higher sales volumes will be moderated by improvements in DSO.
Other Assets. Other assets increased by approximately $2,500,000 as the
Company escrowed the proceeds of the Lansing facility Industrial Revenue Bonds.
Property & Equipment. The Company increased its property and equipment by
$153,000 during the first half of 2000. The majority of the increase was due to
the purchase of land for the new Lansing production facility. The Company
anticipates the Lansing facility costs to be approximately $2,500,000, or the
amount of the bond proceeds. The Company expects its other capital expenditures
will not exceed depreciation for the remainder of the year.
Long-term Debt and Revolving Line of Credit. The Company's long-term debt
increased by approximately $2,500,000 in the first half of 2000 due to issuance
of the Lansing facility Industrial Revenue Bonds. Additionally, the Company
increased the borrowings on its line of credit due primarily to reductions in
accounts payable from yearend. The Company anticipates that its line of credit
balance will decrease over the remainder of the year.
Stock Repurchase Program. During the first quarter of 2000, the Company
announced a stock repurchase program for up to 100,000 shares of the Company's
stock. As of August 11, 2000, the Company had not acquired any shares under this
program.
Seasonality and Impact of Inflation
The Company has no discernable pattern of seasonality. Because the Company
recognizes revenues upon shipment and typically ships Work Stations within two
to four weeks of an order, a substantial portion of the Company's revenues in
each quarter results from orders placed by customers during that quarter. As a
result, the Company's sales may vary from quarter to quarter.
Inflation has not had a material impact on the Company's net sales or
income to date. However, there can be no assurances that the Company's business
will not be affected by inflation in the future.
Forward-Looking Statements
The foregoing discussion contains certain forward-looking statements, which
may be identified by phrases such as "the Company expects" or words of similar
effect. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. The Company has identified certain
important factors that in some cases have affected, and in the future could
affect, the Company's actual results and could cause the Company's actual
results for fiscal 2000 and any interim period to differ materially from those
expressed or implied in any forward-looking statements made by, or on behalf of,
the Company. These factors are set forth under the caption "Forward-Looking
Statements" in Item 7 of the Company's Form 10-K for the fiscal year ended
December 31, 1999, a copy of which is on file with the Securities and Exchange
Commission. The Company assumes no duty to update any of the forward-looking
statements of this report.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
The Company believes that its exposure to market risk associated with
transactions involving derivative and other financial instruments is not
material.
OPEN PLAN SYSTEMS, INC.
Item 1. Legal Proceedings
In June 2000, the Company received the final results of certain
arbitration matters related to the finalization of the purchase
price for Total Facilities Management ("TFM"). The final
arbitration award required the Company to pay $564,000 in fees
and expenses to the former shareholders of TFM and the
arbitrators. As a result, the Company took additional expense of
$142,000 in the second quarter of 2000 to record the final
results of these proceedings in the financial statements. The
Company paid out all amounts to these parties in July 2000.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On May 12, 2000, the Company held its annual meeting of
shareholders (the "Meeting"). Two persons were elected to the
Board of Directors at the meeting. Set forth below are the names
of the persons elected at the Meeting as directors, the class to
which they were elected, and the vote totals for each such
director:
Votes For Votes Withheld
Terms Expire 2003
Troy A. Peery, Jr. 3,619,578 136,802
Robert F. Mizell 3,619,578 136,802
Item 4 (continued)
The second matter considered at the Meeting was the approval of
the Stock Option Plan for Non-Employee Directors. The vote total
for approval of this matter is set forth below:
Number
of Votes
For 3,228,978
Against 132,102
Abstain 395,300
The only other matter considered at the Meeting was the
ratification of the appointment of the firm of Ernst & Young LLP
as independent auditors for the Company for the fiscal year
ending December 31, 2000. The vote total for approval of this
matter is set forth below:
Number
of Votes
For 3,753,180
Against 500
Abstain 2,700
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The registrant has included the following exhibits pursuant to Item 601 of Regulation S-K.
Exhibit No. Description
------------------ --------------------------------------------------------------
10.1 Form of Amendment to the Open Plan Systems, Inc.
Non-Qualified Stock Option Agreement
10.2 $5,250,000 Note and Security Agreement by and between the
Registrant and Wachovia Bank
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K
On July 17, 2000, the Company filed a Current Report on Form 8-K
that incorporated by reference under Item 5 a press release that
announced the departure of Mr. William F. Crabtree as Chief
Financial Officer and the appointment of Mr. Neil F. Suffa to
that position.
On July 27, 2000, the Company filed a Current Report on Form 8-K
that incorporated by reference under Item 5 that the Company and
Great Lakes Capital had amended and restated the Voting and
Standstill agreement and the Registration Rights agreement to
allow an increase in ownership of Great Lakes Capital to 25% of
the outstanding stock.
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.
OPEN PLAN SYSTEMS, INC.
--------------------------
(Registrant)
Date: August 14, 2000 /s/ John L. Hobey
-----------------------------------
John L. Hobey
Chief Executive Officer
Date: August 14, 2000 /s/ Neil F. Suffa
-----------------------------------
Neil F. Suffa
Chief Financial & Accounting Officer
OPEN PLAN SYSTEMS, INC.
EXHIBIT INDEX
Exhibit No. Description
------------------- ------------------------------------------------------------------------
10.1 Form of Amendment to the Open Plan Systems, Inc. Non-Qualified Stock
Option Agreement
10.2 $5,250,000 Note and Security Agreement by and between the Registrant
and Wachovia Bank
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule (filed electronically only)