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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
[ ] 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 small business issuer 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 office)
(804) 228-5600
(Issuer's telephone number)
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(Former name,former address and former fiscal year,if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 __.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, no par value - 4,472,433 shares as of May 1, 1997.
OPEN PLAN SYSTEMS, INC.
Contents
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997 (unaudited) 1
and December 31, 1996
Consolidated Statements of Income - Three months ended 2
March 31, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - Three months ended 3
March 31, 1997 and 1996 (unaudited)
Notes to Consolidated Financial Statements - March 31, 1997 5
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES
OPEN PLAN SYSTEMS, INC.
PART I
FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets
(amounts in thousands)
March 31 December 31
1997 1996
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,609 $ 3,066
Trade accounts receivable, net 5,378 5,252
Inventories 7,722 6,807
Prepaids and other 452 431
Refundable income taxes 705 385
Deferred income taxes 71 52
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Total current assets 15,937 15,993
Property and equipment, net 2,826 2,698
Goodwill, net 4,603 4,621
Other 437 398
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Total assets $ 23,803 $ 23,710
=====================================
Liabilities and stockholders' equity Current liabilities:
Trade accounts payable $ $ 1,457
1,704
Accrued compensation 172 247
Other accrued liabilities 312 150
Customer deposits 763 655
Current portion of long-term debt and capital lease
obligations 192 212
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Total current liabilities 3,143 2,721
Deferred income taxes 117 106
Long-term debt and capital lease obligations, less current
portion 67 92
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Total liabilities 3,327 2,919
Stockholders' equity:
Common stock, no par value:
Authorized shares - 50,000
Issued and outstanding shares - 4,472 20,088 20,088
Additional capital 137 137
Retained earnings 251 566
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Total stockholders' equity 20,476 20,791
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Total liabilities and stockholders' equity $ 23,803 $ 23,710
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See accompanying notes.
OPEN PLAN SYSTEMS, INC.
Consolidated Statements of Income (Unaudited)
(amounts in thousands, except per share)
Three Months ended March 31
1997 1996
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Net sales $ 6,437 $ 5,580
Cost of sales 4,976 3,595
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Gross profit 1,461 1,985
Operating expenses:
Amortization of intangibles 69 -
Selling and marketing 1,250 681
General and administrative 728 342
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2,047 1,023
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Operating (loss) income (586) 962
Other (income) expense:
Interest expense 8 63
Interest income (35) (7)
Other, net (10) (8)
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(37) 48
-----------------------------------
(Loss) income before income tax (benefit) expense (549) 914
Income tax benefit (234) --
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Net income $ (315) $ 914
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Loss per common share $ (.07)
==================
Weighted average common shares outstanding 4,472
==================
Pro forma income data:
Pro forma income before income taxes $ 914
Pro forma provision for income taxes 356
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Pro forma net income $ 558
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Pro forma earnings per common share $ .21
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Weighted average common shares outstanding 2,700
=================
See accompanying notes.
OPEN PLAN SYSTEMS, INC.
Consolidated Statements of Cash Flows (Unaudited)
(amounts in thousands)
Three Months ended March 31
1997 1996
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Operating activities
Net income $ (315) $ 914
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on receivables 29 23
Depreciation and amortization 282 50
Deferred income taxes (8) --
Changes in operating assets and liabilities:
Accounts receivable (155) (924)
Inventories (915) (293)
Prepaids and other (390) --
Trade accounts payable 247 66
Customer deposits 108 (89)
Accrued and other liabilities 49 (163)
---------------------------------
Net cash provided by operating activities (1,070) (416)
Investing activities
Purchases of property and equipment (341) (205)
Other -- (6)
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Net cash used in investing activities (341) (211)
OPEN PLAN SYSTEMS, INC.
Consolidated Statements of Cash Flows (Unaudited) (continued)
(amounts in thousands)
Three Months ended March 31
1997 1996
Financing activities
Advances to stockholders $ -- $ (120)
Repayment of advances to stockholders -- 62
Net borrowings on revolving line of credit -- 1,293
Principal payments on long-term debt, and capital lease
obligations (46) (52)
Distributions to stockholders -- (723)
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Net cash used in financing activities (46) 460
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Decrease in cash and cash equivalents (1,457) (167)
Cash and cash equivalents at beginning of period 3,066 242
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Cash and cash equivalents at end of period $ 1,609 $ 75
==================================
Supplemental disclosures
Interest paid $ 8 $ 63
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Income taxes paid $ 17 $ --
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Summary of non-cash transactions
Distributions offset against advances to Stockholders $ -- $ 408
==================================
See accompanying notes.
OPEN PLAN SYSTEMS, INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1997
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. 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. Historically, the Company's business has been
significantly affected by seasonal factors. The Company typically has greater
sales revenue during the first and fourth quarters. The results for the three
month period ended March 31, 1997 are not necessarily indicative of the results
that may be achieved for the entire year ending December 31, 1997 or for any
other interim period.
2. Inventories
Inventories are in two main stages of completion and consisted of the following
(amounts in thousands):
March 31 December 31
1997 1996
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(Unaudited)
Components and fabric $3,552 $3,355
Jobs in process and finished goods 4,170 3,452
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$7,722 $6,807
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3. Income Taxes
Prior to the Company's initial public offering of common stock in June 1996, the
Company had elected by consent of its stockholders to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under these provisions,
the Company did not pay federal and state income taxes on its corporate income.
Instead the Company's income was included in the income of its stockholders for
federal and state income tax purposes. The Company revoked its S-Corporation
election effective May 31, 1996.
4. Pro Forma Information
The accompanying pro forma income data reflects a provision for income taxes as
if the Company's earnings had been subject to federal and state income taxes as
a regular corporation for all periods presented.
Pro forma earnings per common share are based on the weighted average common
shares outstanding for 1996 increased for the average number of shares of common
stock deemed to be outstanding, which represents the approximate number of
common shares deemed sold by the Company at the initial public offering of $10
per share to fund the declared S-Corporation distribution of $2,695,000 which
was paid from the proceeds of the offering.
OPEN PLAN SYSTEMS, INC.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Since its inception in 1989, the Company has generated the majority of
revenues from the sale of remanufactured Work Stations and to a lesser extent
from the sale of "as-is" Work Stations and rentals. The Company's sales are
highly dependent upon its network of Company-owned sales offices and sales
personnel because the Company sells approximately 80% of its Work Stations
directly to end-users. Sales from these offices have increased each year as the
Company has added sales personnel, as these personnel have gained experience and
as the Company has achieved greater consumer awareness and name recognition.
Generally, branch sales offices do not generate significant sales in their first
nine months to one year of operation.
The Company sells approximately 20% of its Work Stations through its
dealer network. While the Company prefers to sell directly to the end-user
through its own sales offices, it will continue to use dealers in non-exclusive
relationships, in markets that are too small to support a sales office or in
markets where it does not expect to be able to open a sales office in the near
future. Selling through Company-owned sales offices rather than through dealers
increases the Company's selling costs due to increased overhead and salesperson
compensation expenses. However, the Company believes that these increased costs
are more than offset by the portion of the dealer gross profit margin captured
by the Company. The Company believes that the fifty largest metropolitan areas
in the United States are of sufficient size to support a Company sales office. A
core component of the Company's growth strategy is to increase sales by opening
new sales offices and adding additional sales personnel. The Company acquired
the expertise to manufacture new office furniture and Haworth office furniture
through separate acquisitions in 1996.
Historically, the Company's sales volume has been lower in the spring
and summer months and higher in the fall and winter months. The Company believes
that this seasonal increase in sales volume, which generally coincides with the
first and fourth quarters of the Company's fiscal year, is due to the tendency
of customers to expend funds budgeted for office furniture either early in the
calendar year or after the summer vacation season. 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 revenue in each
quarter results from orders placed by customers during that quarter. As a
result, the Company's revenues and profits are difficult to predict and may
fluctuate from quarter to quarter. The Company typically does not have any
significant backlog of customer orders because it generally ships products
within three weeks of receipt of an order. The Company uses temporary employees
and other measures to increase production capacity during periods of higher
sales while keeping its baseline operating expenses to a minimum during periods
of lower sales.
Results of Operations
The following table sets forth the relationship of costs and expenses
as a percentage of the Company's sales for the periods indicated:
Three Months Ended
March 31,
1997 1996
Net sales .................................... 100.0% 100.0%
Cost of sales ................................ 77.3 64.4
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Gross profit ................................. 22.7 35.6
Amortization of intangibles .................. 1.1 0.0
Selling and marketing expenses ............... 19.4 12.2
General and administrative expenses .......... 11.3 6.1
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Operating (loss)income ....................... (9.1) 17.3
Other (income) expense........................ (0.6) 0.9
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Net income before income taxes................ (8.5) 16.4
Provision for income taxes ................... (3.6) 0.0
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Net income ................................... (4.9)% 16.4%
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Comparison of Three Months Ended March 31, 1997 and March 31, 1996
Sales. Sales in the three months ended March 31, 1997 were $6,437,000,
an increase of $857,000 or 15.3% over the same period in 1996. The increase was
primarily due to the acquisition of TFM Remanufactured Furniture in the fourth
quarter of 1996. Sales for the Company's sales offices which were open in both
the first quarters of 1996 and 1997 actually decreased from prior year levels.
The Company believes the decrease was primarily the result of a change in
advertising strategies implemented during the second half of 1996. The Company's
newer sales offices generally did not meet expectations in the quarter while the
more mature sales offices (open in excess of 2 years) continued to show revenue
and volume increases. Additionally, the Company opened sales offices in Detroit
and Philadelphia during the quarter.
The Company also believes that based on initial customer response, its
new direct mail advertising programs put in place during the first quarter of
1997 will prove to be more effective than the telemarketing programs they have
replaced. Additionally, the Company has begun to add additional salesmen to some
branch offices to help increase the visibility and marketing efforts in certain
markets. The Company believes that these changes will allow underperforming
sales offices to meet their potential.
Cost of Sales. The Company's cost of sales includes cost of raw
materials (new and used workstation components, new fabric, laminate, paint, and
other materials), labor, supplies, freight, utilities, and other manufacturing
related expenses. As discussed in previous quarters, during the third quarter of
1996, the Company expanded its strategy of manufacturing component parts that
had previously been purchased from third parties. In September 1996, the Company
placed in service equipment purchased during the second quarter of 1996 from
Birum Corporation and commenced operations. This asset purchase allowed the
Company to manufacture all the metal and wood component parts used in the
remanufacturing process and in the Company's line of new furniture.
Cost of sales increased from $3,595,000 in the first quarter of 1996 to
$4,976,000 for the first quarter of 1997, or $1,381,000, primarily as a result
of the increased sales volume. The gross profit margin decreased during the
quarter to 22.7% from 35.6% in the same period last year. This decrease was
primarily the result of manufacturing inefficiencies that occurred in the fourth
quarter of 1996 and early in 1997. When the Company purchased the equipment from
Birum, the Company immediately began producing a wide array of component parts
for use in the remanufacuring business, and all the parts necessary to build the
Company's line of new workstations. As a result of the rapid implementation,
expected manufacuring efficiencies were not achieved, and product costs
increased. Additionally, the Company experienced quality problems and training
issues related to the large product mix that was being manufactured on the plant
floor.
The Company has initiated several new programs during the first quarter
to address these issues. Among the actions undertaken by the Company are
strategic sourcing initiatives to determine whether the Company should make or
buy certain products. The Company has determined that there are certain products
that it can manufacture efficiently and others that it should purchase from part
suppliers or in the used furniture market. Accordingly, the Company has reduced
unit costs by limiting manufacturing processes and outsourcing the production of
other component parts. The Company believes that these actions will result in
improvements to the gross margin over the next several quarters until it returns
to historical percentages.
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 and rents. The Company
compensates its salespeople through a combination of salaries, commissions and
bonuses. 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.
Selling expenses for the first quarter of 1997 increased to $1,250,000
from $681,000 in the first quarter of 1996, or $569,000. This increase was
related to the acquisition of TFM as well as the opening of five new sales
offices during the past year. Selling expenses for TFM totaled approximately
$285,000 in the quarter, or half of the increase. The remaining increase is
attributable to the fact that it typically takes several years for new sales
offices to generate enough sales to provide targeted returns. This increases the
percentage of selling expenses to sales since the higher initial costs of these
sales offices have not yet been offset with the increased sales volume expected
from these offices.
Additionally during the first quarter of 1997, the Company revised its
marketing strategy from its previous telemarketing efforts to direct mail
advertising targeted to prospective companies in certain of its markets. These
targeted companies are of the size that the Company has been most successful in
its marketing efforts in the past. The Company is encouraged by the early
responses in markets where the Company's previous advertising efforts have not
succeeded. The telemarketing group was disbanded due in large part to the
difficulty of reaching potential purchasers through traditional telemarketing
techniques. The Company believes that the new method will be a more effective
manner of advertising in certain markets than previous methods.
General and administrative expenses increased to $728,000 from
$342,000, or $386,000. The increase in the first quarter was related primarily
to investments made in the Company's infrastructure to handle current and future
capacity as well as certain non-recurring costs. The non-recurring costs,
totaling approximately $150,000, related to professional expenses in connection
with the evaluation of several potential acquisition candidates. Ultimately, the
Company determined that these acquisitions were not in the best interests of the
Company. These expenses also increased during the first quarter due to legal and
professional fees required as a public company. The Company believes that
general and administrative expenses will trend lower as a percentage of sales as
the year progresses, subject to costs which may be incurred in evaluating
potential acquisition candidates.
Other Non-Operating Income and Expense. Total other income and expense
changed from an expense of $48,000 for the first quarter of 1996 to income of
$37,000 for the first quarter of 1997. The primary reason for the increase is
due to cash raised at the Company's initial public offering. During 1996, the
Company paid off its line of credit debt and invested excess cash proceeds of
the offering to maximize returns.
Income Taxes. The income tax benefit of $234,000 was caused by the
Company's pretax loss for the quarter. In the prior year the Company was treated
as an S-Corporation for federal and state income tax purposes. The higher
marginal tax rate between pro-forma taxes and actual 1997 taxes is due to the
non-deductibility of certain intangible assets and life insurance policies of
certain executives.
Liquidity and Capital Resources
Cash Flows from Operating Activities. Net cash used in operating
activities of $1,070,000 for the first quarter of 1997, as compared to $416,000
in the first quarter of 1996, was primarily used to fund increased working
capital. This increase was primarily the result of the Company reinstituting a
product stocking program comparable to what was maintained in prior years. The
Company had in stock approximately one month's volume of panels and worksurfaces
at March 31, 1997 to enable to the Company to respond quickly to customer
orders. Trade accounts receivable increased by $126,000 due to sales volumes at
the end of the quarter and lengthening of terms on certain customers. The
Company believes that future receivable growth from increased sales volume will
be tempered with decreases in the number of days sales outstanding.
Cash Flows from Investing Activities. Net cash used in investing
activities was $341,000 for the first quarter of 1997 versus $211,000 in the
first quarter of 1996. This increase is due to the growth of the Company over
the past year and expenditures on its new information system. The Company
anticipates that capital spending for 1997 will range between $1.5 million and
$2 million during 1997. The source of funds for anticipated capital spending
will be funds from operations as well as borrowings on the line of credit.
Cash Flows from Financing Activities. Net cash used in financing
activities was $46,000 in the first quarter of 1997. This represented principal
payments on outstanding long-term debt and capital leases. Net cash provided by
financing activities of $460,000 for the first quarter of 1996 primarily
consisted of distributions to shareholders to pay tax obligations offset by
additional borrowings needed to fund those distributions and increases in
working capital.
Expected Future Cash Flows. Cash provided by operating activities
should increase as profitability growth should exceed the growth in receivables
and inventory. The Company anticipates that current cash balances plus cash
flows from operating activities and borrowings under its credit line will be
adequate to fund its capital expenditures and business acquisition strategy.
The Company plans to continue evaluating future strategic business
combinations to complement the existing business and expand the geographic range
of the business.
Seasonality and Impact of Inflation
Historically, the Company has experienced lower net sales levels in the
second and third quarters of the year and increased levels in the first and
fourth quarters. The Company believes that this seasonal increase in sales
volume is due to the tendency of customers to expend funds budgeted for office
furniture either early in the calendar year or after the summer vacation season.
The Company believes that its new product offerings will enable it to be
somewhat more competitive on a year-round basis. Because the Company recognizes
revenues upon shipment and typically ships workstations 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
results 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 in the future by inflation.
Impact of New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted on
December 31, 1997. At that time the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. Had Statement 128 been
applied to the period presented herein, there would have been no change in
earnings per share, since the Company's presently outstanding options are
anti-dilutive.
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 1997 and any interim period to differ materially from those
expressed 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 6 of the Company's Form 10-KSB for the fiscal year ended
December 31, 1996, a copy of which is on file with the Securities and Exchange
Commission. The Company assumes no duty to update any of the statements of this
report.
OPEN PLAN SYSTEMS, INC.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None.
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-B.
Exhibit No. Description
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11 Schedule Re: Computation of Per Share Earnings
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K
None
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OPEN PLAN SYSTEMS, INC.
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(Registrant)
Date: May 14, 1997 /s/ Stan A. Fischer
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Stan A. Fischer
President
Date: May 14, 1997 /s/ Gary M. Farrell
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Gary M. Farrell
Chief Financial Officer
Date: May 14, 1997 /s/ Neil F. Suffa
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Neil F. Suffa
Corporate Controller
OPEN PLAN SYSTEMS, INC.
EXHIBIT INDEX
Exhibit No. Description
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11 Schedule Re: Computation of Per Share Earnings
27 Financial Data Schedule (filed electronically only)