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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended June 30, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] 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 or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2700 Oak Industrial Drive, N.E., Grand Rapids, MI 49505
(Address of principal executive offices) (Zip Code)
(616) 459-3311
(Registrant's telephone number, including area code)
Securities registered pursuant to 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.00 per share
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $82,803,515 as of September 8, 1995.
Number of shares outstanding of each class of common stock as of
September 8, 1995: 3,299,918 shares of Common Stock, par value $2.00
per share, and 2,581,151 shares of Class B Common Stock, par value $2.00
per share.
Documents incorporated by reference. Certain portions of the Registrant's
Proxy Statement for the Annual Meeting of Shareholders to be held on
October 20, 1995, are incorporated by reference into Part III of this
Report.
PART I
ITEM 1--BUSINESS
Item 1(a)--General Development of Business
The Company is engaged primarily in the design, manufacture, and
marketing of storage products, which serve the consumer, contract builder,
hardware, and original equipment manufacturer markets. The Company was
incorporated in Michigan in 1906, reorganized in Delaware in 1961, and
reorganized in Michigan in 1985. The Company's main plant and corporate
offices are located at 2700 Oak Industrial Drive, N.E., Grand Rapids,
Michigan 49505, and its telephone number is (616) 459-3311. Unless otherwise
noted or indicated by the context, the term "Company" includes Knape & Vogt
Manufacturing Company, its predecessors and its subsidiaries.
Item 1(b)--Financial Information About Industry Segments
The Company believes that a dominant portion of the Company's operations
(more than 95%) is in a single industry segment--the design, manufacture, and
marketing of storage products. Accordingly, no separate industry segment
information is presented.
Item 1(c)--Narrative Description of Business
Products, Services, Markets, and Methods of Distribution. The Company's
storage products include a complete line of decorative and utility wall
shelving systems (adjustable steel and aluminum standards, brackets, shelf
supports, and wood shelves), drawer slides, closet rods, kitchen storage aids,
and general hardware items. These products are manufactured by the parent
company (except for wood shelving) and a Canadian-based division, Knape &
Vogt Canada. A wholly-owned subsidiary, Modar, Inc., supplies wood products
to the parent Company, The Hirsh Company and Knape & Vogt Canada, and also
manufactures furniture components on a contractual basis. The Hirsh Company,
a wholly-owned subsidiary, manufactures free-standing steel shelving systems,
workshop items, closet storage systems, and other storage products. Roll-it,
a Canadian-based division, manufactures a complete line of store fixture
hardware and display equipment. Feeny Manufacturing Company, another
wholly-owned subsidiary, manufactures a complete line of kitchen storage
products.
The Company's products are sold throughout the United States and Canada,
as well as in 50 other countries. During the past fiscal year, the Company
estimates that approximately 46% of the Company's sales were to major co-op
wholesalers, contract hardware jobbers, users of retail display fixtures,
display and fixture jobbers, specialty wholesalers and other independent
hardware distributors. Approximately 53% of sales were to export outlets,
various government agencies, original equipment manufacturers, national
mass merchants, large home centers, and building supply outlets. The
remaining 1% were miscellaneous sales not elsewhere classified.
While the Company does not maintain precise sales records by product
category, management believes that the approximate sales of the Company's
major product groups during the last three fiscal years were as follows:
Year Ended June 30
Class of Products 1995 1994 1993
(dollars in millions)
Sales Sales Sales
Shelving Systems $ 80.9 $ 65.4 $ 46.4
Drawer Slides 52.0 50.9 44.5
Storage Fixture/Hardware* 44.6 37.1 25.3
Furniture Components 5.5 6.5 7.2
Total $183.0 $159.9 $123.4
*Store fixture/hardware includes closet systems, kitchen storage products,
workshop items, various fixtures, gondolas, racks, and showcases.
New Product or Industry Segment Information. The Company has not made
any public announcement of, or otherwise made public information about, a
new product or industry segment which would require the investment of a
material amount of the Company's assets or which would otherwise be material.
Sources and Availability of Raw Materials. Most of the Company's storage
products are produced primarily from steel or wood. During the past fiscal
year, the Company experienced no difficulty in obtaining these raw materials.
The Company's results of operations have been affected by significant
increases in steel, particle board, plastics and packaging prices. The
Company estimates that material price increases impacted fiscal year 1995
net income by $2,215,000.
Patents, Licenses, Etc. Patents, trademarks, licenses, franchises, or
concessions do not play an important part in the Company's business.
Seasonal Nature of Business. The business of the Company is not seasonal.
Working Capital Practices. The Company does not believe that it, or the
industry in general, has any special practices or special conditions
affecting working capital items that are significant for an understanding
of the Company's business.
Importance of Limited Number of Customers. The Company estimates that at
present it has over 5,000 active customers with approximately 35,000 outlets,
of which the five largest customers account for less than 14% of sales and
no one of which accounts for more than 4% of sales. The Company does not
believe that its business is dependent upon any single or small number of
customers, the loss of which would have a materially adverse effect upon
the Company.
Backlog of Orders. The Company does not believe that information
concerning backlog is material to an understanding of its business.
Government Contracts. The Company does not believe that any portion of
its business is subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the government.
Competition. All aspects of the business in which the Company is engaged
are highly competitive. In the various markets served by the Company, it
competes with a number of manufacturers that have significantly greater
resources and sales, including several conglomerate corporations, and with
numerous smaller companies. While no reliable statistics are available to
enable the Company accurately to determine its relative position in the
industry, either overall or with respect to any particular product or market,
the Company believes that it is one of the three leading manufacturers of
its type of shelving systems and that it is one of the four leading
manufacturers of drawer slides. The Company's products are widely regarded
in the hardware trade as being of the finest available quality and are
generally sold at prices higher than competing lines.
Research, Design and Development. Approximately $1,508,000 was spent
during the last fiscal year in the development of new products and in the
improvement of existing products; approximately $1,577,000 was spent in
fiscal year 1994 and $1,644,000 in fiscal year 1993 for the same purposes.
The amount of research and development expenditures are determined by
specific identification of the costs, which are expensed as incurred.
Environmental Matters. The Company does not believe that existing
environmental regulations will have any material effect upon the capital
expenditures, earnings, and competitive position of the Company.
Employees. An average of 1,274 persons were employed by the Company
during the fiscal year ended June 30, 1995. There were 1,338 persons
employed by the Company in July 1994, and 1,336 in June 1995. None
of the Company's employees are represented by collective bargaining agents
except the hourly employees at Roll-it, who are represented by the United
Steelworkers of America, and the hourly employees at The Hirsh Company,
who are represented by the International Association of Bridge, Structural
and Ornamental Iron Workers.
Item 1(d)--Information About Foreign Operations
The Company's Canadian operations accounted for approximately 19% of
consolidated sales and 14% of consolidated net income during fiscal year
1995. Approximately 3.5% of consolidated net sales and 3.5% of consolidated
net income were derived from export shipments from the Company's United States
operations to customers in other foreign countries. The Company does not know
of any particular risks attendant thereto, except that fluctuating exchange
rates between the United States and Canadian currencies and other factors
beyond the control of the Company, such as tariff and foreign economic
policies, may affect future results of such business. Reference is made to
Note 14 of the Notes to the Company's Consolidated Financial Statements
contained herein for the fiscal year ended June 30, 1995, for a presentation
of additional information concerning the Company's foreign operations.
ITEM 2--PROPERTIES
The Company's principal executive office and manufacturing facilities are
located at 2700 Oak Industrial Drive, N.E., Grand Rapids, Michigan, on a
tract of approximately 35 acres. This facility was constructed in 1966 of
masonry block and steel, with partial brick veneering, and now contains
approximately 46,000 square feet of office space and 356,000 square feet of
manufacturing and warehouse space. In 1989, new construction was completed
adding 100,000 square feet to the manufacturing facility and 17,000 square
feet of new office space. In fiscal year 1993, the Company acquired a
manufacturing facility of approximately 41,500 square feet on a six acre
tract adjacent to the Company's principal manufacturing facility.
The Company also has a warehouse located in Sparks, Nevada. That
facility, which is leased pursuant to a lease expiring January 31, 2000, is
located on a four acre tract and consists of a 76,000 square foot building
constructed in 1981, of steel and concrete.
The Hirsh Company has its office and plant in Skokie, Illinois. The
facility, which is leased pursuant to a lease expiring August 31, 2000, is
approximately a 298,000 square foot manufacturing and distribution facility.
The facility, constructed of steel, was built in the early 1950s.
Modar, Inc. has its office and plant in Benton Harbor, Michigan. This
facility is located on a 17 acre tract and contains approximately 131,900
square feet of space. The original building was constructed in 1957; and
since 1970, approximately 108,400 square feet of additions have been
constructed. In 1991, new construction was completed adding 38,000 square
feet of manufacturing and storage space. This facility is used primarily
for the manufacture of wood shelves and furniture components on a contractual
basis.
Knape & Vogt Canada owns an office and plant in Etobicoke (near Toronto),
Ontario, Canada. This manufacturing and distribution facility is located on
a three acre tract and consists of approximately 78,000 square feet. The
original plant was built in 1966, and since 1972, 56,000 square feet of
additions have been constructed, the most recent of which was a 19,000 square
foot addition completed in June 1985. A separate warehousing and
distribution facility is being leased pursuant to a five year lease that
started August 1, 1994. The facility, constructed of brick and steel, was
built in the early 1970s and is 36,734 square feet.
Roll-it, a division of Knape & Vogt Canada, has an office and plant in
Lachine (near Montreal), Quebec, Canada. These facilities, which are leased
pursuant to a lease expiring February 28, 2003, are located on a nine acre
tract and consist of approximately 138,000 square feet in a building
constructed in 1968, and 13,000 square feet in an adjacent building
constructed in 1976.
Feeny Manufacturing Company owns an office and plant in Muncie, Indiana.
One facility is located on an eleven acre tract and consists of three
buildings: an 8,000 square foot office building of steel construction built
in 1955; a 43,140 square foot manufacturing and distribution facility of
metal and block construction built in 1964; and a 19,120 square foot
manufacturing and warehousing facility of steel construction built in 1964.
In 1994, a 7,200 square foot addition, constructed of steel, was added to
this facility for warehousing and shipping. A separate 20,430 square foot
manufacturing facility is located on a one acre tract of land. This
facility, constructed of steel, was originally built in 1964, with portions
rebuilt in 1987 after a fire destroyed part of the original
structure. A warehousing and shipping facility located near Toronto, Ontario
is being leased pursuant to a lease expiring in November 1995. The facility,
constructed of steel, was built in the early 1970s and is approximately
11,200 square feet.
Except for the leased facilities in Canada, Illinois, and Nevada, all of
the Company's facilities are owned in fee and are subject to no material
encumbrances. The Company believes that its manufacturing facilities are
among the most modern and efficient in the industry, are sufficient for its
present requirements, and that substantially all of its equipment is well
maintained and in excellent operating condition. The Company believes it is
in compliance with all applicable state and federal air and water pollution
control laws. During the five years ended June 30, 1995, the Company spent
approximately $34,371,000 for expansion, modernization, and improvement of
its plants, manufacturing equipment, and tooling.
ITEM 3--LEGAL PROCEEDINGS
As of the date hereof, the Company has no material pending legal
proceedings.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security-holders during the fourth
quarter of the fiscal year ended June 30, 1995.
ADDITIONAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company were, at June 30, 1995, as follows:
Year First Elected
Name Age Positions and Offices Held an Executive Officer
Raymond E. Knape 63 Director, Chairman and Chief 1963
Executive Officer
Allan E. Perry 55 Director, President and Chief 1978
Operating Officer
Richard C. Simkins 52 Director, Vice President--Finance, 1985
Secretary and Treasurer
Michael G. Van Rooy 42 Vice President--Manufacturing 1994
Vice President and Chief Operating
Officer of The Hirsh Company
Tim L. Kuzma 42 President of Feeny 1987
Gary Cichon 42 Vice President--General Manager 1993
of Modar
Anthony R. Taylor 52 President of Knape & Vogt Canada 1978
Carman D. Hepburn 47 Vice President--Sales and Marketing 1985
of Knape & Vogt Canada
Yves J. Carmel 43 Vice President--General Manager 1993
of Roll-it Division of Knape & Vogt
Canada
All persons named have been officers of the Company for more than five
years, except Mr. Van Rooy, Mr. Cichon, and Mr. Carmel. Mr. Van Rooy was
named Vice President--Manufacturing on December 14, 1993, and Vice President
and Chief Operating Officer of The Hirsh Company on January 19, 1995, after
serving as Director of Manufacturing Operations for three years, and as
Director of Manufacturing Engineering previous to that. Mr. Cichon was named
the General Manager at Modar on July 1, 1993, after serving as the Company's
Purchasing Director for nine years. Mr. Carmel was named the General
Manager at Roll-it on April 26, 1993. Prior to his employment at Roll-it,
Mr. Carmel was employed by R & M Metal, Inc. in Montreal since 1988, as
President for 2-1/2 years and as Plant Manager previous to that.
PART II
ITEM 5--MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
Market Price. The Company's Common Stock is traded on the national
over-the-counter market (NASDAQ National Market) under the ticker symbol
KNAP. Stock price quotations can be found in major daily newspapers
(listed KnapeV) and in the Wall Street Journal (listed KnapeVogt). As of
September 8, 1995, there were approximately 2,447 shareholders of the
Company's Common Stock and Class B Common Stock.
1995 Bid Price* 1994 Bid Price*
Quarter High Low High Low
First $20.25 $16.82 $15.23 $13.86
Second $20.50 $18.25 $20.45 $14.55
Third $19.75 $15.00 $18.86 $16.82
Fourth $17.00 $14.75 $17.73 $14.55
*Figures reflect 10 percent stock dividend paid in September of 1994.
Dividends. The Company paid per share dividends on its shares of Common
Stock and Class B Common Stock in the following amounts during the last two
fiscal years.
Per Share Dividends
Year Ended June 30, 1995 Common Stock Class B Common Stock
First Quarter $.165 $.15
Second Quarter $.165 $.15
Third Quarter $.165 $.15
Fourth Quarter $.165 $.15
Per Share Dividends*
Year Ended June 30, 1994 Common Stock Class B Common Stock
First Quarter $.15 $.136
Second Quarter $.15 $.136
Third Quarter $.15 $.137
Fourth Quarter $.15 $.136
*Figures reflect 10% stock dividend paid in September 1994.
The Company expects to continue to pay dividends quarterly during the
fiscal year ending June 30, 1996. The Board of Directors has declared a
$.165 per share dividend on shares of the Company's Common Stock and $.15
per share dividend on shares of its Class B Common Stock, payable
September 8, 1995, to shareholders of record on August 31, 1995.
ITEM 6--SELECTED FINANCIAL DATA
For the
Year Ended 1995 1994 1993 1992 1991
_______________________________________________________________________________
Net Sales 183,042,266 159,875,487 123,406,511 124,850,694 114,361,543
Cost of Sales 138,135,046 117,648,118 88,764,419 89,745,016 82,193,129
Operating
Expenses
(excluding
interest) 30,021,908 26,434,620 25,398,538 24,338,786 23,090,595
Interest income
(expense) net (2,417,174) (1,403,551) (690,422) (528,959) (741,571)
Income before
taxes 12,468,138 12,648,276 8,553,132* 10,237,933 8,336,248
Income taxes 4,223,000 4,492,000 3,035,000* 3,603,000 2,857,000
Net income 8,245,138 8,156,276 5,518,132* 6,634,933 5,479,248
Earnings per
share (A) 1.40 1.39 .95* 1.15 .96
Dividends paid 3,722,814 3,373,493 3,360,108 2,988,661 2,664,356
Dividend payout,
percent 45% 41% 61% 45% 49%
Dividends per
share common(A) .66 .60 .60 .545 .496
Dividends per
share class B
common (A) .60 .545 .545 .487 .443
Percentage of
pretax profit
to sales 6.8% 7.9% 6.9% 8.2% 7.3%
Capital
expenditures 4,709,920 4,331,554 12,515,093 8,381,278 4,433,286
Depreciation $6,366,989 $5,722,200 $4,350,764 $3,941,018 3,753,479
_______________________________________________________________________________
At Year End
Working capital 45,796,753 39,572,003 33,264,343 28,414,322 33,757,189
Ratio of current
assets to current
liabilities 4.4 3.0 4.3 3.1 4.6
Net property and
equipment 52,075,403 53,713,437 48,832,244 41,098,142 36,291,024
Total assets 135,297,557 137,018,246 96,946,968 88,332,940 83,790,283
Total debt 35,800,000 40,000,000 12,750,000 6,000,000 9,950,000
Debt to
capitalization,
percent 49% 59% 20% 10% 17%
Stockholders'
equity $72,713,836 67,973,890 63,875,962 62,067,298 57,171,031
Restated
weighted
average
shares
outstanding(A) 5,890,931 5,877,959 5,856,952 5,779,543 5,675,116
Stockholders'
equity per
share(A) $12.34 $11.56 $10.91 $10.74 $10.07
Number of
stockholders 2,447 2,306 2,142 1,911 1,850
Number of
employees 1,274 1,299 1,102 1,083 1,060
(A) All per share data and weighted average shares outstanding have been
adjusted to reflect 10 percent stock dividends paid in September 1994,
September 1992, September 1991 and September 1990.
* 1993 figures include the expense of restructuring the Roll-it
operation of $1,529,000, income taxes of $566,000 and the after-tax
effect of $963,000, or $.16 per share.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company achieved record sales and operating earnings in 1995. A
full year of sales following the acquisition of The Hirsh Company helped to
increase net sales to a record high of $183,042,266, an increase of 14.5
percent over last year. Operating income increased 5.1 percent to $15,122,231
and net income of $8,245,138 was up 1.1 percent over the prior year. The
Company's balance sheet remained strong with working capital increasing 15.7
percent to $45,796,753 and book value per share increasing 6.7 percent to
$12.34. Management believes that the Company is well positioned to achieve
its future business goals and objectives.
RESULTS OF OPERATIONS
Net Sales
Net sales in 1995 increased $23,166,779 to a record $183,042,266, or
14.5 percent, over 1994 sales of $159,875,487. The full year of sales from
Hirsh contributed $14.8 million to the increase in sales. Shelving system
sales increased $15.5 million or 23.7 percent, due to $12.8 million of Hirsh
shelving sales in this product line. Store fixture/hardware sales increased
$7.5 million or 20.2 percent, with $3.1 million of the increase due to KV
Canada's contract painting and hardware products business and $2.0 million
of the increase due to Hirsh sales. Drawer slide sales increased $1.1 million,
or 2.2 percent, primarily due to the continuing demand for precision drawer
slides since the Company introduced the 8400 line of precision drawer slides
in fiscal 1994. Furniture component sales decreased $1.0 million or 15.4
percent. During the year the Company consolidated its wood lamination
operations at Modar, and the subsidiary concentrated its efforts on
intercompany production of wood products to Hirsh and shelves to Knape &
Vogt and Knape & Vogt Canada, which resulted in lower sales volumes with
furniture component customers. Based on the increasing demand for drawer
slides and shelving, as well as the introduction of new products in these
categories, management believes that sales volume increases in drawer slides
and shelving will continue in fiscal 1996. Store fixture/hardware sales in
1996 are expected to increase at Roll-it, Feeny and KV Canada. Modar is
continuing to produce more intercompany products and sales of furniture
components are expected to decrease slightly.
Net sales in 1994 increased $36,468,976 to a record $159,875,487, or
29.6 percent, over 1993 sales of $123,406,511. The acquisition of The Hirsh
Company on November 30, 1993, contributed $23.1 million to the increase in
sales. Shelving system sales increased $19.0 million or 40.9 percent, due to
adding $19.3 million of Hirsh shelving sales to this product line. Store
fixture/hardware sales increased $11.8 million or 46.6 percent, with $3.8
million of the increase due to Hirsh sales, with the balance of the increase
mainly due to strong sales to a major customer of Roll-it. Drawer slide sales
increased $6.4 million, or 14.4 percent, primarily due to sales of 8400
precision drawer slides and other precision drawer slides. The Company was
able to increase its share of the drawer slide market by the successful
introduction of the 8400 precision drawer slide which increased sales of other
precision drawer slides. Furniture component sales decreased $.7 million or
9.7 percent, as the Modar subsidiary concentrated its efforts on intercompany
production of shelves and had lower sales volumes with furniture component
customers.
Cost and Expenses
Cost of sales as a percentage of sales was 75.5 percent in 1995
compared to 73.6 percent in 1994 and 71.9 percent in 1993. Price increases
in steel, particleboard, plastic and packaging added 1.9 percent and 1.1
percent to the cost of sales in 1995 and 1994, respectively. Sales price
decreases to obtain new business and maintain existing relationships also
contributed to the decrease in margins in 1995. The impact of the Hirsh
acquisition increased cost of sales in 1995 and 1994, as these products
have lower margins. Production improvement savings in 1995 and 1994 at the
Grand Rapids location helped offset some of these increases to cost of sales.
Selling expenses in 1995 decreased to 12.1 percent of sales from
13.2 percent in 1994 and 13.8 percent in 1993. Hirsh contributed to the
decrease in selling expense as a percentage of sales in 1995 and 1994 due to
the combining of sales forces after the acquisition. In 1995 all locations
showed a decrease in selling expense as a percentage of sales. In 1994
decreases in selling expense as a percentage of sales were due to Roll-it
maintaining selling expenses at the same level as 1993 while experiencing
an increase in sales.
Administrative expenses as a percentage of sales were 4.1 percent of
sales in 1995, down from 4.2 percent in 1994 and 5.3 percent in 1993.
Administrative expense in 1995 and 1994 decreased due to Hirsh having
lower administrative expense as a percentage of sales. The decrease in 1995
and 1994 is also due to the continued reduction in bad debt expense as
collections of accounts receivable have improved.
Restructuring Expense
During the third quarter of 1993 the Company instituted a
restructuring program designed to reduce costs and improve operating
efficiencies at the Roll-it operation. The program included closing the
Vancouver, British Columbia, warehouse, a write down of inventory, severance
payments that were part of the downsizing and costs incurred in hiring a new
general manager, sales manager and controller. The restructuring program
totaled $1,529,000 and resulted in an after tax charge of $963,000, or
$0.16 per share.
Other Income (Expense)
The acquisition of Hirsh increased the Company's long term debt in
November 1994 and was the main factor in the higher interest expense in 1995
and 1994 compared to 1993. An increase in interest rates in 1995 offset the
lower debt levels that were maintained in the second half of fiscal 1995.
Income Taxes
The effective tax rate was 33.9 percent in 1995 compared to 35.5
percent in 1994 and 1993. The reduction in the effective tax rate in 1995
is due to the use of research and development and foreign tax credits. The
effective tax rate is composed of federal, foreign, state and local tax
rates.
Net Income
Net income in 1995 was $8,245,138 or 4.5 percent of sales, compared
to $8,156,276 or 5.1 percent of sales in 1994. Net income in 1993 of
$5,518,132 was reduced by $963,000 due to the restructuring the Roll-it
operation. Net income excluding the restructuring charge was $6,481,132 or
5.3 percent of sales.
FINANCIAL POSITION
Liquidity and Capital Resources
The Company's financial position at June 30, 1995, continues to be
strong. Corporate liquidity as measured by the current ratio remains solid at
4.4 to 1 compared to 3.0 to 1 at June 30, 1994, the difference mainly being a
decrease in the current portion of long term debt. Financial resources,
including borrowing capacity and anticipated funds from operations, are
adequate to satisfy all short-term obligations and the internal growth
objectives of the Company.
CASH FLOW
Operating Activities
Operating activities generated $13,381,587 in 1995, compared to
$10,228,962 in 1994. Depreciation and amortization increased mainly due to
the increase in capital expenditures and the amortization of goodwill
related to the Hirsh acquisition. Accounts receivable decreased due to
improved collections on past due accounts. Inventories decreased during the
year mainly in the finished goods area after rising in 1994 due to new
product introductions. Prepaid expense increased mainly due to the Company
implementing improved internal control
procedures relating to tooling and repair supplies, which resulted in a
prepaid supplies asset of $697,000. Certain sales expenditures relating to
future periods also increased prepaid expenses. Decreases in accounts payable
and accrued expenses were primarily caused by the timing of when payments for
the liabilities were due. Reduction of certain accrued selling expenses in
association with the combining of sales forces also reduced accrued expenses
by $637,000.
Investing Activities
Investing activities used $5,603,294 in 1995 compared to $34,301,408
in 1994 when the Hirsh Company was purchased for $29,270,859. In 1995 capital
expenditures were $4,709,920 which is comparable to the $4,331,554 in 1994,
and expenditures during 1996 are expected to remain at lower levels than in
1993 when the Company completed many large projects and purchased a facility
for powder coat painting.
Financing Activities
Financing activities used $7,817,582 in 1995, compared to generating
$24,119,054 in 1994, when the Company increased long term debt by $27,250,000
to help finance the acquisition of Hirsh. The Company reduced debt by
$4,200,000 in 1995, causing the total debt to ending equity ratio to be
49 percent compared to 59 percent last year. The Company received $115,780
from the issuance of common stock to employees exercising options issued
under the Company's stock option plan, compared to $242,547 in 1994. Cash
dividend payments totaled $0.66 per share on Common Stock and $0.60 on
Class B Common Stock. At June 30, 1995 the Company had $35,800,000
outstanding on the $47,500,000 long-term revolving credit agreement. The
Company will use long-term debt to the point where financial flexibility
is preserved and undue financial risk is not incurred.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Immediately following are the consolidated balance sheets of the
Company and its subsidiaries as of June 30, 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1995, the notes thereto,
summary of accounting policies, and the independent auditors' report.
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
_____________________________________________________________________________
Year Ended June 30, 1995 1994
_____________________________________________________________________________
Assets:
Current Assets:
Cash and equivalents $ 604,106 $ 620,224
Accounts receivable, less
allowances of $586,000
and $842,000, respectively 27,045,057 27,156,643
Inventories (Note 3) 28,347,023 29,812,594
Prepaid expenses 3,210,231 1,595,047
_____________________________________________________________________________
Total Current Assets 59,206,417 59,184,508
_____________________________________________________________________________
Property and Equipment:
Land and improvements 1,980,621 1,978,242
Buildings 18,066,497 17,598,164
Machinery and equipment 65,682,720 62,829,646
_____________________________________________________________________________
85,729,838 82,406,052
Less accumulated depreciation 33,654,435 28,692,615
_____________________________________________________________________________
Net Property and Equipment 52,075,403 53,713,437
_____________________________________________________________________________
Goodwill, net 19,422,953 19,935,890
_____________________________________________________________________________
Other Assets 4,592,784 4,184,411
_____________________________________________________________________________
$135,297,557 $137,018,246
See accompanying notes to consolidated financial statements
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
_______________________________________________________________________________
Year Ended June 30, 1995 1994
_______________________________________________________________________________
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable $ 7,552,129 $ 8,599,798
Accruals:
Income and other taxes 1,337,920 1,643,960
Compensation 2,234,668 2,579,402
Retirement plan contributions 605,399 770,948
Miscellaneous 1,679,548 3,018,397
Current portion of long-term
debt (Note 4) - 3,000,000
_______________________________________________________________________________
Total Current Liabilities 13,409,664 19,612,505
Supplemental Retirement Benefits
(Notes 6 and 7) 1,439,167 1,326,727
Long-Term Debt, less current portion
(Note 4) 35,800,000 37,000,000
Deferred Lease Costs 2,885,090 3,394,324
Deferred Income Taxes (Note 9) 9,049,800 7,710,800
_______________________________________________________________________________
Total Liabilities 62,583,721 69,044,356
_______________________________________________________________________________
Commitments (Notes 6, 7 and 8)
Stockholders' Equity (Notes 4, 10 and 11)
Stock:
Common, $2 par - 6,000,000 shares
authorized; 3,295,496 and
2,976,027 issued 6,590,992 5,952,054
Class B common, $2 par -
4,000,000 shares authorized;
2,584,418 and 2,362,300 issued 5,168,836 4,724,600
Preferred, 2,000,000 shares
authorized and unissued - -
Additional paid-in capital 33,065,773 23,899,422
Retained earnings 29,205,000 34,826,969
Cumulative foreign currency
translation adjustment (1,316,765) (1,429,155)
_______________________________________________________________________________
Total Stockholders' Equity 72,713,836 67,973,890
_______________________________________________________________________________
$135,297,557 $137,018,246
See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Income
______________________________________________________________________________
Year ended June 30, 1995 1994 1993
______________________________________________________________________________
Net Sales $183,042,266 $159,875,487 $123,406,511
Cost of Sales 138,135,046 117,648,118 88,764,419
______________________________________________________________________________
Gross profit 44,907,220 42,227,369 34,642,092
______________________________________________________________________________
Expenses:
Selling and shipping 22,296,087 21,095,652 17,070,261
Administrative and general 7,488,902 6,742,519 6,574,659
Restructuring expense
(Note 5) - - 1,529,000
______________________________________________________________________________
Total expenses 29,784,989 27,838,171 25,173,920
______________________________________________________________________________
Operating income 15,122,231 14,389,198 9,468,172
______________________________________________________________________________
Other Expenses:
Interest 2,478,941 1,444,230 779,294
Other, net 175,152 296,692 135,746
______________________________________________________________________________
Total other expenses 2,654,093 1,740,922 915,040
______________________________________________________________________________
Income before income taxes 12,468,138 12,648,276 8,553,132
Income Taxes (Note 9) 4,223,000 4,492,000 3,035,000
______________________________________________________________________________
Net Income $8,245,138 $8,156,276 $5,518,132
______________________________________________________________________________
Net Income Per Share
(Notes 5 and 11) $ 1.40 $ 1.39 $ .94
______________________________________________________________________________
Weighted Average Shares
Outstanding (Note 11) 5,890,931 5,877,959 5,856,952
______________________________________________________________________________
Dividends Per Share (Note 11)
Common stock $.66 $.60 $.60
Class B common stock .60 .545 .545
______________________________________________________________________________
See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
______________________________________________________________________________
Cumulative
foreign
Additional currency
Common paid-in Retained translation
stock capital earnings adjustment
______________________________________________________________________________
Balance, July 1, 1992 $ 9,605,596 $15,568,272 $36,545,656 $347,774
Net income for 1993 - - 5,518,132 -
Cash dividends - - (3,360,108) -
10% stock dividend
(Note 11) 961,396 7,691,168 (8,659,494) -
Stock issued under
stock option plan
(Note 10) 76,998 430,099 - -
Foreign currency
translation adjustment - - - (849,527)
_______________________________________________________________________________
Balance, June 30, 1993 10,643,990 23,689,539 30,044,186 (501,753)
Net income for 1994 - - 8,156,276 -
Cash dividends - - (3,373,493) -
Stock issued under
stock option plan
(Note 10) 32,664 209,883 - -
Foreign currency
translation adjustment - - - (927,402)
________________________________________________________________________________
Balance, June 30, 1994 10,676,654 23,899,422 34,826,969 (1,429,155)
Net income for 1995 - - 8,245,138 -
Cash dividends - - (3,722,814) -
10% stock dividend
(Note 11) 1,066,710 9,067,035 (10,144,293) -
Stock issued under
stock option
plan (Note 10) 16,464 99,316 - -
Foreign currency
translation adjustment - - - 112,390
________________________________________________________________________________
Balance, June 30, 1995 $11,759,828 $33,065,773 $29,205,000 $(1,316,765)
________________________________________________________________________________
See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Cash Flows
______________________________________________________________________________
Year ended June 30, 1995 1994 1993
______________________________________________________________________________
Operating Activities
Net income $8,245,138 $8,156,276 $5,518,132
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation 6,366,989 5,722,200 4,350,764
Amortization 1,022,047 836,048 669,731
Deferred income taxes 1,339,000 765,000 522,000
Supplemental retirement
benefits 112,089 (23,717) 116,942
Deferred lease costs (509,234) (289,814) -
Changes in operating assets
and liabilities, excluding
the effect of acquisition:
Accounts receivable and
other receivables 150,600 (3,192,023) (2,271,821)
Inventories 1,514,489 (1,184,019) (1,629,062)
Prepaid expenses (1,612,824) 222,198 39,844
Accounts payable (1,071,114) (1,446,237) (285,154)
Accruals (2,175,593) 663,050 (104,930)
_______________________________________________________________________________
Net cash from operating activities 13,381,587 10,228,962 6,926,446
_______________________________________________________________________________
Investing Activities
Additions to property and
equipment (4,709,920) (4,331,554) (12,515,093)
Sales of property and equipment 20,388 39,849 112,109
Payments for purchase of
subsidiary - (29,270,859) -
Payments for other assets (913,762) (738,844) (285,804)
_______________________________________________________________________________
Net cash for investing activities (5,603,294) (34,301,408) (12,688,788)
_______________________________________________________________________________
Financing Activities
Additions to long-term debt - 27,250,000 6,750,000
Payments on long-term debt (4,200,000) - -
Proceeds from issuance of
common stock 115,780 242,547 507,097
Purchase of common stock (10,548) - (6,930)
Cash dividends paid (3,722,814) (3,373,493) (3,360,108)
_______________________________________________________________________________
Net cash from (for) financing
activities (7,817,582) 24,119,054 3,890,059
_______________________________________________________________________________
Effect of Exchange Rate Changes
on Cash 23,171 (57,065) (103,684)
_______________________________________________________________________________
Net Decrease in Cash and Equivalents (16,118) (10,457) (1,975,967)
Cash and Equivalents, beginning
of year 620,224 630,681 2,606,648
_______________________________________________________________________________
Cash and Equivalents, end of year $604,106 $620,224 $630,681
_______________________________________________________________________________
See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Knape & Vogt
Manufacturing Company and its wholly-owned subsidiaries (Company). All
material intercompany balances, transactions and stockholdings have been
eliminated in consolidation.
Foreign Currency Translation
The accounts of the foreign subsidiary are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52. Assets
and liabilities are translated at year-end exchange rates. Income and
expense accounts are translated at average exchange rates in effect during
the year. Adjustments relating to the translation process are accumulated
and reported in the stockholders' equity section as a Cumulative Foreign
Currency Translation Adjustment.
Cash Equivalents
All highly liquid debt instruments with a maturity of three months or less
when purchased are classified as cash equivalents.
Inventories
Inventories are stated at the lower of FIFO (first-in, first-out) cost or
market for 87% of the inventories at June 30, 1995 and 1994. The Company
has one subsidiary on LIFO (last-in, first-out) cost, the inventory value
of which was approximately $418,000 and $417,000 lower than it would have
been under FIFO at June 30, 1995 and 1994, respectively.
Property, Equipment, Depreciation and Amortization
Property and equipment are stated at cost after elimination of fully
depreciated items. For financial reporting purposes, depreciation is computed
over the estimated useful lives of the assets by the straight-line method.
For income tax purposes, accelerated depreciation methods and shorter useful
lives are used.
Goodwill
Goodwill represents the amount by which the cost of businesses purchased
exceeds the fair value of the net assets acquired. Goodwill is amortized
over a period of 40 years using the straight-line method. Accumulated
amortization of goodwill was $840,765 and $327,828 at June 30, 1995 and 1994,
respectively. The Company periodically reviews goodwill for impairment based
upon undiscounted net income over the remaining life of the goodwill.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Deferred Lease Costs
Deferred lease costs arising from an acquisition represent the excess of
actual rent payments on an operating lease over the current market rental
rate. The deferred lease cost is amortized over 69 months, the remaining
life of the lease.
Employee Retirement Plans
The Company has pension and profit-sharing plans covering substantially
all employees. The Company's policy is to fund pension costs for the plan
in amounts which equal or exceed the ERISA minimum requirements.
The Company has a supplemental retirement program for officers. The cost of
the supplemental program is actuarially determined and is accrued but not
funded.
Income Taxes
Deferred income taxes result from temporary differences between the basis
of assets and liabilities for tax and financial reporting purposes and are
recorded based on enacted tax rates in effect when the temporary differences
are expected to reverse.
Earnings Per Share
Earnings per share are computed on the weighted average number of the combined
common and Class B common shares outstanding during each year. Earnings per
share is computed using the treasury stock method, under which the number of
shares outstanding reflects the assumed repurchase of shares of the Company's
common stock with the proceeds from the assumed exercise of outstanding stock
options.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
2. Acquisition
On November 30, 1993, the Company acquired all of the issued and outstanding
capital stock of The Hirsh Company (Hirsh). Located in Skokie, Illinois,
Hirsh is a manufacturer of steel shelving products, home workshop items,
closet storage systems and other storage products. Hirsh is being operated
as a subsidiary of the Company. The stock of Hirsh was purchased with cash,
and in connection with the acquisition, the Company contributed to the
capital of Hirsh to repay all of its outstanding in-debtedness. The
Company's aggregate acquisition cost was $29,270,859, and the funds required
for the acquisition were borrowed under the Company's $47,500,000 line of
credit with a local bank. The transaction was accounted for as a purchase;
therefore, the results of the operations for Hirsh since the acquisition date
are included in the accompanying consolidated financial statements.
Unaudited pro forma results for 12 months of operations, as if the acquisition
had occurred July 1, 1992, are as follows:
June 30, 1994 1993
______________________________________________________________________________
Net sales $180,443,714 $167,227,665
Net income 8,339,434 5,096,004
Net income per share 1.42 .87
______________________________________________________________________________
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
3. Inventories
Inventories are summarized as follows:
June 30, 1995 1994
______________________________________________________________________________
Finished products $16,187,481 $17,567,512
Work in process 3,538,217 3,855,509
Raw materials and supplies 8,621,325 8,389,573
______________________________________________________________________________
$28,347,023 $29,812,594
4. Long-Term Debt
June 30, 1995 1994
______________________________________________________________________________
Note payable to insurance company $ - $3,000,000
Bank revolving credit agreement 35,800,000 37,000,000
______________________________________________________________________________
35,800,000 40,000,000
Less current portion - 3,000,000
______________________________________________________________________________
Long-term debt, less current portion $35,800,000 $37,000,000
______________________________________________________________________________
The Company has an unsecured revolving credit agreement which provides for
loans up to $47,500,000 with interest at 55 basis points above the federal
funds rate (effectively 6.5% at June 30, 1995). There was a $35,800,000
balance on the revolving credit at June 30, 1995. The agreement contains,
among other things, covenants requiring the Company to maintain working
capital of at least $20,000,000, tangible net worth of not less than
$40,000,000 and a ratio of total liabilities to net worth that is not more
than 1.25 to 1. The revolving credit is required to be repaid by
November 1, 1996. Annually, the Company may request that the maturity of
the revolving credit be extended by another year.
5. Restructuring Expense
Operating expenses in the year ended June 30, 1993, include a charge of
$1,529,000 for a restructuring program designed to reduce cost and improve
operating efficiencies at Roll-it. The program included closing the
Vancouver, British Columbia warehouse, a writedown of inventory, severance
payments that are part of the downsizing and costs incurred in hiring a new
general manager, sales manager and controller. The restructuring charge
reduced 1993 net income by $963,000 or $.16 per share.
6. Retirement Plans
The Company has several noncontributory defined benefit pension plans and
defined contribution plans covering substantially all of its employees. The
defined benefit plans provide benefits based on the participants' years of
service. The Company's funding policy for defined benefit plans is to make
annual contributions which equal or exceed regulatory requirements. The
Company's board of directors annually approves contributions to defined
contribution plans.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Financial Statements
The Company also has a supplemental retirement program for designated officers
of the Company which also includes death and disability benefits.
The cost of retirement benefits is as follows:
June 30, 1995 1994 1993
_______________________________________________________________________________
Discretionary profit-sharing $ 576,558 $ 741,187 $ 717,076
Pension 301,349 257,597 259,714
Supplemental retirement 158,442 132,200 129,672
_______________________________________________________________________________
$1,036,349 $1,130,984 $1,106,462
Net periodic cost for the pension plans included the following
components:
June 30, 1995 1994 1993
_______________________________________________________________________________
Service cost - benefits earned
during the period $ 251,503 $ 204,733 $ 223,062
Interest cost on projected benefit
obligation 726,789 711,826 657,689
Actual return on plan assets (930,192) (25,277) (644,142)
Net deferral and amortization of
unrecognized amounts 253,249 (633,685) 23,105
_______________________________________________________________________________
Net periodic pension cost $ 301,349 $ 257,597 $ 259,714
_______________________________________________________________________________
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation of the pension plans was 8.5% at
June 30, 1995 and 1994 and 9.0% at June 30, 1993. The expected long-term
rate of return on plan assets was 8.5%. The funded status of the pension plans
is as follows:
June 30, 1995 1994
______________________________________________________________________________
Actuarial present value of benefit
obligations:
Accumulated and projected benefit
obligation, vested benefits of
$8,790,594 and $8,246,326 $8,890,564 $8,319,626
Plan assets at fair value, primarily equity
securities and fixed income funds 9,169,454 8,348,590
______________________________________________________________________________
Plan assets in excess of projected benefit
obligations 278,890 28,964
______________________________________________________________________________
Unrecognized net obligations:
Unrecognized net loss 853,808 749,409
Unrecognized prior service cost 981,820 1,241,254
Unrecognized transition net asset, being
recognized over 15.4 years (456,900) (511,300)
_______________________________________________________________________________
Unrecognized net obligations 1,378,728 1,479,363
______________________________________________________________________________
Prepaid pension cost included in other
assets $1,657,618 $1,508,327
______________________________________________________________________________
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
7. Postretirement Health Care Benefits
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. Although it applies to all forms of
postretirement benefits except pensions, the statement focuses principally
on postretirement health care benefits. This statement changed the prevalent
practice of cash basis accounting for postretirement benefits by requiring
the accrual, during the employee's years of service, of the expected cost of
providing benefits to an employee and the employee's beneficiaries and
covered dependents. On July 1, 1992, the Company adopted SFAS No. 106 on a
prospective basis. The transition obligation represents the difference
between the Company's July 1, 1992, accrued postretirement benefit costs
prior to the adoption of SFAS No. 106 and the Plan's unfunded liability as
of that date. The transition liability at July 1, 1992, was $1,877,207 and
will be amortized over 20 years. During fiscal year 1994, the Company
revised the eligibility definition for benefits. This reduced the liability
as of July 1, 1993 by $916,457. This decrease in the liability is being
amortized over 15 years, the average remaining service period of the active
employees. The components of net periodic postretirement benefit cost are
as follows:
Year ended June 30, 1995 1994 1993
______________________________________________________________________________
Service cost - benefits earned during
the year $107,493 $114,233 $ 71,792
Interest cost on projected benefit
obligation 144,266 134,645 153,370
Amortization of transition liability
over 20 years 93,861 93,861 93,861
Amortization of prior service costs
over 15 years (57,279) (25,561) -
Amortization of unrecognized net
loss 37,162 - -
______________________________________________________________________________
Net postretirement health care cost $325,503 $317,178 $319,023
______________________________________________________________________________
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
A reconciliation of the accumulated postretirement benefit obligation to
the liability recognized in the consolidated balance sheets are as follows:
June 30, 1995 1994
______________________________________________________________________________
Accumulated postretirement benefit obligation:
Active participants $1,010,493 $ 968,795
Retirees 731,874 793,155
______________________________________________________________________________
1,742,367 1,761,950
Unrecognized transition obligation (1,595,624) (1,689,485)
______________________________________________________________________________
146,743 72,465
Unrecognized net loss (682,130) (811,643)
Unrecognized prior service cost 801,899 859,178
______________________________________________________________________________
Postretirement health care liability $ 266,512 $ 120,000
______________________________________________________________________________
The actuarial calculation assumes a health care inflation assumption of
10.9% in 1994 and grades down uniformly to 6.5% in 2002 and remains level
thereafter. The health care cost trend rate has an effect on the amounts
reported. Increasing the health care inflation rate by 1% would increase
the June 30, 1995, accumulated postretirement benefit obligation by $111,077,
and the 1995 net postretirement health care cost by $24,245. The discount
rate used in determining the accumulated postretirement benefit obligation
was 8.5%. The Company's postretirement health care plans are not funded.
Prior to 1993, the cost of providing postretirement benefits was expensed
as incurred.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
8. Lease Commitments
The Company is leasing certain real property under the terms of five to
fifteen year leases.
Future minimum payments are as follows:
Year ending June 30,
______________________________________________________________________________
1996 $1,967,838
1997 2,002,446
1998 2,093,101
1999 2,221,968
2000 2,082,176
Thereafter 1,977,422
______________________________________________________________________________
$12,344,951
Rent expense under all operating leases was approximately $2,665,000,
$2,023,000 and $1,208,000 in 1995, 1994 and 1993, respectively.
9. Income Taxes
The components of consolidated income tax expense are as follows:
Year ended June 30, 1995 1994 1993
______________________________________________________________________________
Current:
United States $2,298,000 $2,942,000 $2,877,000
Foreign 503,000 682,000 (455,000)
State and local 83,000 103,000 91,000
______________________________________________________________________________
Total current 2,884,000 3,727,000 2,513,000
______________________________________________________________________________
Deferred:
United States 1,208,000 609,000 468,000
Foreign 121,000 15,000 24,000
State and local 10,000 141,000 30,000
______________________________________________________________________________
Total deferred 1,339,000 765,000 522,000
______________________________________________________________________________
Income tax expense $ 4,223,000 $ 4,492,000 $ 3,035,000
______________________________________________________________________________
The difference between the effective tax rates of 34%, 36% and 35% in 1995,
1994 and 1993, respectively, and the federal statutory rate of 34% is due to
foreign, state and local income taxes.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
The reduction of consolidated income tax expense in 1995 is due to the use of
research and development and foreign tax credits. The Company has not
provided for United States income taxes on undistributed earnings of foreign
subsidiaries. Earnings are being reinvested, the remittance of which has
been indefinitely postponed. In the event these earnings were remitted to
the Company, foreign tax credits would be used to offset a substantial
portion of the United States income taxes.
The sources of the net deferred income tax liability are as follows:
June 30, 1995 1994
______________________________________________________________________________
Depreciation of property and
equipment $9,713,000 $9,610,000
Inventory valuation reserves 427,000 532,000
Net operating loss carryforward expiring
through 2008 (1,179,000) (1,910,000)
Other 88,800 (521,200)
______________________________________________________________________________
$9,049,800 $7,710,800
______________________________________________________________________________
10. Stock Option Plan
The 1987 Stock Option Plan grants key employees of the Company options to
purchase shares of common stock. Options were granted at or above the market
price of the Company's common stock on the date of the grant, are exercisable
from that date and terminate ten years from the grant date. The plan, as
amended in October 1994 and in October 1991, authorized a total of 300,000
shares to be available for issuance under the plan.
Transactions are as follows:
1995 1994 1993
______________________________________________________________________________
Options outstanding,
beginning of year 103,411 85,070 85,130
Granted 32,250 36,000 31,500
Exercised (8,232) (16,332) (38,499)
Forfeited (7,430) (1,327) (750)
10% stock dividend 9,946 - 7,689
______________________________________________________________________________
Options outstanding and
exercisable, end of year 129,945 103,411 85,070
______________________________________________________________________________
Options price range, end
of year (adjusted for
10% stock dividend) $9.58-20.00 $9.58-18.41 $9.58-15.00
Options available for
grant, end of year 90,917 14,018 48,691
______________________________________________________________________________
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
11. Stockholders' Equity
On August 19, 1994 and August 19, 1992, the board of directors declared 10%
stock dividends of the Company's common stock and Class B common stock.
Earnings per share, dividends per share and weighted average shares
outstanding have been restated to reflect the 10% stock dividend.
The Company has three classes of stock, common stock, Class B common stock
and unissued preferred stock. Each share of common stock entitles the holder
thereof to one vote on all matters submitted to the shareholders. Each share
of Class B common stock entitles the holder to ten votes on all such matters,
except that the holders of common stock are entitled to elect, voting
separately as a class, at least one quarter of the Company's directors to
be elected at each meeting held for the election of directors. In all other
instances, holders of common stock and Class B common stock vote together,
except for matters affecting the powers, preferences or rights of the
respective classes or as otherwise required under the Michigan Corporation
Act. With respect to dividend rights, each share of common stock is entitled
to cash dividends at least ten percent (10%) higher than those payable on
each share of Class B common stock. Class B common stock is subject to
certain restrictions on transfer, but is convertible into common stock on
a share-for-share basis at anytime.
12. Supplemental Cash Flows Information
Total interest paid during the years ended June 30, 1995, 1994 and 1993, was
$2,452,649, $1,319,657 and $769,600, respectively.
Total income taxes paid during the years ended June 30, 1995, 1994 and 1993,
were $3,375,972, $2,739,174 and $3,993,716, respectively.
13. Concentration of Credit and Significant Customers
The Company operates principally in one industry: the design, manufacture and
distribution of storage products including decorative and utility shelving
systems, drawer slides, home workshop items, kitchen and closet storage
products, cabinet hardware and store fixtures. The Company primarily sells
its products to customers in the retail hardware and cabinet manufacturing
industries. No single customer accounts for more than 10% of consolidated
sales. The Company performs ongoing credit evaluations and maintains
reserves for potential credit losses.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
14. Foreign Operations
The Company has operations in the United States and Canada:
Year ended June 30, 1995 1994 1993
_______________________________________________________________________________
Net sales:
United States $149,027,126 $132,348,494 $103,715,926
Canada 34,015,140 27,526,993 19,690,585
_______________________________________________________________________________
$183,042,266 $159,875,487 $123,406,511
_______________________________________________________________________________
Operating income:
United States $13,412,124 $12,440,250 $10,857,504
Canada 1,710,107 1,948,948 (1,389,332)
_______________________________________________________________________________
$15,122,231 $14,389,198 $9,468,172
_______________________________________________________________________________
Total assets:
United States $115,120,879 $117,567,637 $81,135,046
Canada 20,176,678 19,450,609 15,811,922
_______________________________________________________________________________
$135,297,557 $137,018,246 $96,946,968
_______________________________________________________________________________
Independent Auditors' Report
Board of Directors
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Knape & Vogt
Manufacturing Company and subsidiaries as of June 30, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Knape &
Vogt Manufacturing Company and subsidiaries at June 30, 1995 and 1994, and
the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
Grand Rapids, Michigan
July 31, 1995
ITEM 9--DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No changes in, or disagreements with, the Company's accountants occurred,
requiring disclosure under Item 304 of Regulation S-K.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of Registrant. Information relating to directors and director
nominees of the Company, contained in the Company's definitive Proxy Statement
for its Annual Meeting of Shareholders to be held October 20, 1995, and filed
pursuant to Regulation 14A, is incorporated herein by reference.
Executive Officers of Registrant. Information relating to the executive
officers of the Company is included in Part I of this Form 10-K.
ITEM 11--EXECUTIVE COMPENSATION
The information under the captions "Summary Compensation Table," "Option
Grants in Last Fiscal Year," and "Aggregated Stock Option Exercises in Fiscal
1995 and Year End Option Values," is incorporated herein by reference from the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held October 20, 1995, filed pursuant to Regulation 14A.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Voting Securities and Principal
Shareholders" and "Directors and Nominees" is incorporated herein by reference
from the Company's definitive Proxy Statement for the Company's Annual Meeting
of Shareholders to be held October 20, 1995, filed pursuant to Regulation 14A.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Directors and Nominees" is incorporated
herein by reference from the Company's definitive Proxy Statement for the
Company's Annual Meeting of Shareholders to be held October 20, 1995, filed
pursuant to Regulation 14A.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements and schedules, all of which are
set forth in Item 8, are filed as part of this report.
Page Number in
10-K Report
Consolidated Balance Sheets . . . . . . . . . . . . . . . 12
Consolidated Statements of Income . . . . . . . . . . . . 14
Consolidated Statements of Stockholders' Equity . . . . . 15
Consolidated Statements of Cash Flows . . . . . . . . . . 16
Summary of Accounting Policies. . . . . . . . . . . . . . 17
Notes to Consolidated Financial Statements. . . . . . . . 19
Independent Auditors' Report. . . . . . . . . . . . . . . 29
(2) Financial Statement Schedule
The following financial statement schedule and related Independent
Auditors' Report on such schedule are included in this Form 10-K on the pages
noted.
Page Number in
10-K Report
Independent Auditors' Report on such schedule . . . . . . . . . . . 32
Schedule II -- Valuation and Qualifying Accounts and Reserves . . . 33
Consent of Independent Certified Public Accountants . . . . . . . . 35
All other schedules are not submitted because they are not applicable or
not required, or because the required information is included in the financial
statements or notes thereto.
(3) Exhibits
Reference is made to the Exhibit Index which is found on page 37 of
this Form 10-K Annual Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended June 30, 1995.
Independent Auditors' Report on Schedule
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan
The audits referred to in our report dated July 31, 1995, relating to the
consolidated financial statements of Knape & Vogt Manufacturing Company which
is contained in Item 8 of this Form 10-K, included the audit of the financial
statement schedule listed in the accompanying table of contents. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based upon our audits.
In our opinion, the financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Grand Rapids, Michigan
July 31, 1995
Knape & Vogt Manufacturing Company and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
______________________________________________________________________________
Column A Column B Column C additions Column D Column E
______________________________________________________________________________
Balance, Charged to Charged to Balance
beginning costs and other Deductions end of
Description of period expenses(1) accounts (1) Period
______________________________________________________________________________
Year ended June 30, 1995:
Allowances deducted
from assets:
Accounts receivable for:
Doubtful accounts $625,886 $184,408 $ - $440,749 $369,545
Cash discounts 216,000 - $ - - 216,000
________________________________________________________________________________
$841,886 $184,408 $ - $440,749 $585,545
________________________________________________________________________________
(1) Write-off of doubtful accounts and collections on accounts previously
written off, including overall reduction in allowance balance.
Knape & Vogt Manufacturing Company and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
______________________________________________________________________________
Column A Column B Column C additions Column D Column E
______________________________________________________________________________
Balance Charged to Charged to Balance,
beginning costs and other Deductions end of
Description of period expenses(1) accounts(2) (1) period
______________________________________________________________________________
Year ended June 30, 1994:
Allowances deducted from
assets:
Accounts receivable for:
Doubtful accounts $286,730 $66,744 $306,847 $34,435 $625,886
Cash discounts 190,000 26,000 - - 216,000
________________________________________________________________________________
$476,730 $ 92,744 $306,847 $ 34,435 $841,886
________________________________________________________________________________
Year ended June 30, 1993:
Allowances deducted from
assets:
Accounts receivable for:
Doubtful accounts $285,560 $495,263 - $494,093 $286,730
Cash discounts 167,000 $23,000 - - 190,000
________________________________________________________________________________
$452,560 $518,263 $ - $494,093 $476,730
________________________________________________________________________________
(1) Write-off of doubtful accounts and collections on accounts
previously written off.
(2) Allowances related to acquisition in fiscal year 1994.
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference of our reports dated
July 31, 1995 relating to the consolidated financial statements and schedule
of Knape and Vogt Manufacturing Company, appearing in that Corporation's
annual report on Form 10-K for the year ended June 30, 1995, in that
corporation's previously filed Form S-8 Registration Statements (file
numbers 33-20227, 33-43704, 33-88206 and 33-88212).
BDO Seidman, LLP
Grand Rapids, Michigan
September 15, 1995
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/Raymond E. Knape
Raymond E. Knape, Chairman and Chief
Executive Officer
Date: September 15, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on September 15, 1994, by the following
persons on behalf of the registrant in the capacities indicated. Each
director or officer of the registrant, whose signature appear below, hereby
appoints Raymond E. Knape and Richard C. Simkins, and each of them severally,
as his attorney-in-fact, to sign in his name and on his behalf, as a director
or officer of the registrant, and to file with the Commission any and all
amendments to this Report on Form 10-K.
/s/ Raymond E. Knape /s/ Richard C. Simkins
Raymond E. Knape, Chief Executive Richard C. Simkins, Principal Financial
Officer and Director and Accounting Officer and Director
/s/ Allan E. Perry /s/ Richard S. Knape
Allan E. Perry, Director Richard S. Knape, Director
/s/ John E. Fallon
Mary Rita Cuddohy, Director John E. Fallon, Director
/s/ Herbert F. Knape /s/ Robert T. Kroon
Herbert F. Knape, Director Robert T. Kroon, Director
KNAPE & VOGT MANUFACTURING COMPANY
ANNUAL REPORT - FORM 10-K
EXHIBIT INDEX
Page
3(a) Certificate of Amendment to the Articles of Incorporation,
and the Restated Articles of Incorporation of the Company,
which was filed as Exhibit 3(a) of the Registrant's Form
10-K Annual Report for the fiscal year ended June 30, 1987,
is incorporated by reference.
3(b) Bylaws, filed as Exhibit 3(b) of the Registrant's Form 10-K
Annual Report for the fiscal year ended June 30, 1987, is
incorporated by reference.
10(a) Supplemental Executive Retirement Plan, which was filed as
Exhibit 10 of the Registrant's Form 10-K Annual Report for
the fiscal year ended June 30, 1981, is incorporated by
reference.
10(b) Knape & Vogt Manufacturing Company 1987 Stock Option Plan,
effective October 16, 1987, which was filed as Exhibit I
to Registrant's definitive Proxy Statement dated September 23,
1987, is incorporated by reference.
10(c) Knape & Vogt Manufacturing Company Employees' Retirement
Savings Plan (July 1, 1989 Restatement), as amended, which
was filed as Exhibit 99 to Registrant's Registration
Statement on Form S-8 (Reg. No. 33-88212), is incorporated
by reference.
18 Letter Regarding Change in Accounting Principles.
21 Subsidiaries of Registrant.
24 Power of Attorney (Included on page 36).
27 Financial Data Schedule
Mr. Richard C. Simkins July 28, 1995
Vice President, Finance,
Secretary and Treasurer
Knape & Vogt Manufacturing Company
2700 Oak Industrial Drive, N.E.
Grand Rapids, Michigan 49505-6081
Dear Mr. Simkins:
As stated in the annual report of Knape & Vogt Manufacturing Company
(Company) the year ended June 30, 1995, for the Company changed its method
of accounting for repair parts from an expense when purchased method to an
expense when used method because such method results in a better matching
of revenues and expenses. The Company believes that the impact of this
change is not material to its 1995 financial statements. However, pursuant
to paragraph 29 of Accounting Principles Board Opinion No. 28, the Company
will disclose in its 1995 annual report the impact of this change on its
result of operations for the quarter ended June 30, 1995.
In connection with our audit of the financial statements, included in the
above mentioned annual report, we have evaluated the circumstances and the
business judgment and planning which formulated your basis to make the
change in accounting principle.
It should be understood that criteria have not been established by the
Financial Accounting Standards Board for selecting from among the alternative
accounting principles that exist in this area. Further, the American
Institute of Certified Public Accountants has not established the standard
by which an auditor can evaluate the preferability of one accounting
principle among a series of alternatives. However, for purposes of the
Company's compliance with the requirements of the Securities and Exchange
Commission, we are furnishing this letter.
Based on our audit, we concur in management's judgment that the newly adopted
accounting principle described in the annual report of the Company is
preferable in the circumstances. In formulating this position, we are
relying on management's business planning and judgment, which we do not find
to be unreasonable.
Very truly yours,
BDO Seidman, LLP
EXHIBIT 18
SCHEDULE OF SUBSIDIARIES OF KNAPE & VOGT MANUFACTURING COMPANY
Knape & Vogt Canada, Inc. (organized under the laws of Ontario, Canada)
Modar, Inc. (organized under the laws of Michigan)
Feeny Manufacturing Company (organized under the laws of Michigan)
The Hirsh Company (organized under the laws of Illinois)
EXHIBIT 21