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, 2000
[ ] 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 May 10, 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 - March 31, 2000 (unaudited) 1
and December 31, 1999
Consolidated Statements of Income - Three months 2
ended March 31, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows - Three months 3
months ended March 31, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements - March 31, 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 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES
Open Plan Systems, Inc.
Part I
Financial Information
Item 1: Financial Statements
Consolidated Balance Sheets
(amounts in thousands)
March 31 December 31
2000 1999
------------------------------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 79 $ 13
Accounts receivable, net 7,656 7,144
Inventories 8,138 7,862
Prepaids and other 649 638
Refundable income taxes 193 188
Deferred income taxes 400 385
------------------------------------
Total current assets 17,115 16,230
Property and equipment, net 2,203 2,272
Goodwill, net 3,840 3,898
Deferred income taxes 976 1,093
Other 187 126
------------------------------------
Total assets $24,321 $23,619
====================================
Liabilities and shareholders' equity
Current liabilities:
Revolving line of credi $3,245 $2,419
Trade accounts payable 3,302 3,464
Accrued compensation 118 238
Other accrued liabilities 861 813
Customer deposits 1,006 1,005
Current portion of long-term debt 60 62
------------------------------------
Total current liabilities 8,592 8,001
Long-term debt 149 163
------------------------------------
Total liabilities 8,741 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 comprehensive income 1 -
Accumulated deficit (3,209) (3,333)
------------------------------------
Total shareholders' equity 15,580 15,455
------------------------------------
Total liabilities and shareholders' equity $24,321 $23,619
====================================
See accompanying notes.
Open Plan Systems, Inc.
Consolidated Statements of Income (Unaudited)
(amounts in thousands, except per share)
Three Months ended
March 31
2000 1999
------------------------------------
Net sales $ 9,333 $ 7,509
Cost of sales 6,420 5,388
------------------------------------
Gross profit 2,913 2,121
Operating expenses:
Amortization of intangibles 68 53
Selling and marketing 1,927 1,525
General and administrative 594 480
------------------------------------
2,589 2,058
------------------------------------
Operating income 324 63
Other (income) expense:
Interest expense 98 45
Minority interest (4) -
Other, net 2 (8)
------------------------------------
96 37
------------------------------------
Income before income taxes 228 26
Income taxes 104 -
------------------------------------
Net income $ 124 $ 26
====================================
Basic and diluted income per common share $ .03 $ .01
====================================
Diluted weighted average common shares outstanding 4,405 4,673
====================================
See accompanying notes.
Open Plan Systems, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(amounts in thousands)
Three Months ended
March 31
2000 1999
----------------------------------
Operating activities
Net income $ 124 $ 26
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Provision for losses on receivables 29 9
Depreciation and amortization 301 243
Loss on sale of property - 3
Deferred income taxes 102 -
Changes in operating assets and liabilities:
Accounts receivable (541) 596
Inventories (276) (194)
Prepaids and other (88) (267)
Trade accounts payable (162) 62
Customer deposits 1 (252)
Accrued and other liabilities (71) (178)
----------------------------------
Net cash (used in) provided by operating activities (581) 48
Investing activities
Purchases of property and equipment (163) (84)
----------------------------------
Net cash used in investing activities (163) (84)
Financing activities
Net borrowings on revolving line of credit 826 71
Principal payments on long-term debt and capital
lease obligations (16) (3)
----------------------------------
Net cash provided by financing activities 810 68
----------------------------------
Increase in cash and cash equivalents 66 32
Cash and cash equivalents at beginning of period 13 2
----------------------------------
Cash and cash equivalents at end of period $ 79 $ 34
==================================
Supplemental disclosures
Interest paid $ 87 $ 45
==================================
Income taxes paid $ 42 $ -
==================================
See accompanying notes.
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 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 month period ending
March 31, 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):
March 31 December 31
2000 1999
-------------------------------------
(Unaudited)
Components and fabric $5,566 $5,243
Jobs in process and finished goods 2,572 2,619
-------------------------------------
$8,138 $7,862
=====================================
4. Income Taxes
The Company reported an effective tax rate of 45.6% for the first quarter of
2000. The difference between the Company's effective tax rate and the statutory
income tax rate for the first quarter of 2000 is due to permanent differences
related to amortization of non-deductible intangible assets. Utilization of net
operating loss carryforwards resulted in no income tax expense for the first
quarter of 1999. Related deferred income tax assets were offset by a valuation
allowance in the first quarter of 1999.
5. Indebtedness
At March 31, 2000, the Company had outstanding borrowings of $3,245,000 on its
$5,000,000 line of credit.
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. At the same time, the Company
entered into a commitment with the bank to provide a letter of credit for $2.5
million of Industrial Revenue Bonds that may be issued by the Michigan Strategic
Fund. The Company expects those bonds to be issued in the second quarter of 2000
the proceeds of which will be used for building a new construction facility in
Michigan. The letter of credit and the line of credit will be
cross-collateralized.
6. Comprehensive Income
Comprehensive income for the quarter ended March 31, 2000 was $125,000. The
difference between net income and comprehensive income is due to foreign
currency translation gains.
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
plans to purchase a 5 acre building site and 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 construction 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
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH 1999
Results of Operations
Sales. Sales for the three months ended March 31, 2000 were $9,333,000, an
increase of approximately $1,824,000 or 24.3% versus the same period in 1999.
The Company's sales offices and the National Accounts Group contributed to the
sales increases in the first quarter. Sales benefited from the Company's quality
management process and the Company's new marketing initiatives instituted in
1999.
The Company also increased its sales order volume during the first quarter
of 2000. It received orders of $10.1 million in the first quarter of 2000 up
31.2% from the $7.7 million in orders booked during the first quarter of 1999.
Additionally, the Company's order backlog at the end of March 2000 of $5.6
million was almost double the backlog at the end of the first quarter of 1999.
The Company believes that its marketing initiatives, including revised
training and compensation programs, have improved the professionalism and
performance of the sales force. These have resulted in productivity gains in the
various sales offices. The National Accounts business has been strengthened by
repeat business from several Fortune 500 companies. The Company expects to see
improved productivity in its existing offices and sales increases from new sales
offices and new product offerings during the remainder of 2000.
Cost of Sales. The Company's cost of sales includes costs of raw materials,
labor, supplies, freight, installation, and other manufacturing related
expenses. Cost of sales increased by $1,032,000 in the first quarter of 2000 to
$6,420,000 from the $5,388,000 reported in the first quarter of 1999. The
increase in cost of sales is attributable to increased sales volume offset in
part by reduced production costs.
The gross margin increased to 31.2% in the first quarter of 2000 from 28.2%
reported in the first quarter of 1999. The Company's gross margin during the
first quarter of 2000 benefited from efforts to reduce material and production
costs. Importantly, the Company's installation and other services increased in
profitability in the first quarter of 2000 as compared to 1999. The Company
continues to pursue avenues to streamline its production and purchasing
activities to reduce product costs and its overhead structure. The Company
anticipates further margin improvements as sales volume increases during the
year and once the Company completes construction on its new building in Lansing
Michigan in the fourth quarter of 2000.
Operating Expenses. The Company's most significant operating expense is
selling and marketing expense. These costs are primarily related to salesperson
compensation, advertising and other marketing expenses. The Company compensates
its salespeople through a combination of salaries and commissions. While most of
these expenses are directly related to the current year's sales, certain other
marketing expenses are incurred to build brand recognition and generate sales
leads that may contribute to sales in later periods.
The Company's selling and marketing expenses increased by $402,000 to
$1,927,000 from the $1,525,000 reported in the first quarter of 1999. The
increase was driven by higher levels of spending associated with the Company's
new marketing brochures and programs introduced during the second quarter of
1999, along with investments in two new sales offices, trade shows and other
sales growth initiatives. The bulk of the transitional portions of these
programs and changes were completed during the first quarter of 2000. The
Company believes that selling expenses as a percentage of sales will decrease
during the remainder of 2000.
General and administrative expenses increased to $594,000 in the first
quarter of 2000 from the $480,000 reported in the first quarter of 1999. This is
still well below the approximately $744,000 in expenses reported in the first
quarter of 1998. The primary reasons for the increase were additional costs
required to support the larger network of sales offices as well as certain
expenses incurred to reduce costs in future periods. The level of general and
administrative expenses equaled budgeted amounts and is expected to decrease as
a percentage of sales during 2000.
Other Non-Operating Income and Expense. Total other expense increased to
$96,000 for the first quarter of 2000 versus $37,000 for the first quarter of
1999. The primary reason for 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 expects that these expenses would decrease over the next several
quarters until the Lansing facility is completed, at which time these expenses
would increase.
Income Taxes. In the first quarter of 2000, the Company recorded tax
expense 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
quarter of 1999. In 1999, related deferred income tax assets were offset by a
valuation allowance.
Liquidity and Capital Resources
Cash Flows from Operating Activities. Net cash (used in) provided by
operating activities was ($581,000) for the three months ended March 31, 2000 as
compared to $48,000 for the three months ended March 31, 1999. The decrease in
cash provided by operating activities for the first quarter of 2000 was
primarily due to increases in accounts receivable and inventories. The Company's
accounts receivable increased primarily due to increased volume as well as an
increase in days sales outstanding due from governmental customers. The
Company's inventory increased at the end of the first quarter of 2000 due to the
shipment of a large order being delayed until the second quarter of the year.
The Company continues to focus on decreasing the number of days sales
outstanding and streamlining inventory management processes.
Cash Flows from Investing Activities. Net cash used in investing activities
was $163,000 for the three months ended March 31, 2000 as compared to $84,000
for the three months ended March 31, 1999. The Company continues to invest in
additional equipment to improve the productivity of its remanufacturing
activities. These purchases are consistent with the Company's focus on producing
high-quality, affordable office systems. During the remainder of 2000, the
Company anticipates commencing construction of a new production facility in
Lansing, Michigan market to replace the Company's rented facility. The Company
anticipates borrowing under Industrial Revenue Bonds issued by the State of
Michigan in order to facilitate construction of this facility. The source of
funds for other anticipated capital spending will be funds from operations as
well as borrowings on the Company's line of credit. At March 31, 2000, the
Company had borrowings of approximately $3,200,000 under its line of credit.
Cash Flows from Financing Activities. Net cash provided by financing
activities was $810,000 during the first quarter of 2000 as compared to $68,000
in the first quarter of 1999. This increase in cash flows provided by financing
activities for the first quarter of 2000 was principally due to the Company's
higher accounts receivable and inventory.
Expected Future Cash Flows. The Company expects that cash flows from
operating activities will increase over the next several quarters as the Company
continues to improve its financial performance and that such cash flow, together
with borrowings under its line of credit, will be sufficient to meet the
Company's short- and long-term financing needs.
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 May 12, 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 three
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
The Company continues to be party to certain arbitration matters
related to the finalization of the purchase price for Total
Facilities Management ("TFM"). The Company believes that it has
established adequate provision in it's financial statements for
any amounts which might become due to the former shareholders of
TFM as a result of the finalization of these proceedings. The
Company expects these proceedings and findings to be completed in
the second quarter of 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
Not Applicable
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 Open Plan Systems, Inc. 1996 Stock Incentive Plan, as
amended on May 12, 2000
10.2 Open Plan Systems, Inc. 2000 Stock Option Plan for
Non-Employee Directors, as amended on May 12, 2000
10.3 Note and Security Agreement by and between Wachovia Bank,
N.A. and the Registrant dated April 17, 2000
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K
None
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: May 15, 2000 /s/ John L. Hobey
---------------------------
John L. Hobey
Chief Executive Officer
Date: May 15, 2000 /s/ William F. Crabtree
---------------------------
William F. Crabtree
Chief Financial Officer
Date: May 15, 2000 /s/ Neil F. Suffa
--------------------------
Neil F. Suffa
Corporate Controller
OPEN PLAN SYSTEMS, INC.
EXHIBIT INDEX
Exhibit No. Description
------------------- ------------------------------------------------------------------------
10.1 Open Plan Systems, Inc. 1996 Stock Incentive Plan, as amended on May
12, 2000
10.2 Open Plan Systems, Inc. 2000 Stock Option Plan for Non-Employee
Directors, as amended on May 12, 2000
10.3 Note and Security Agreement by and between Wachovia Bank, N.A. and the
Registrant, dated April 17, 2000
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule (filed electronically only)