-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TU4RYH3g953q4mYGqFVIzEPB7GA8J3GR2DAEdTa9Va4hlZ3Tm9qCbYEWtshWNsyt zOH67JyqfKKeYvgHZEPcBA== 0000926044-97-000062.txt : 19970506 0000926044-97-000062.hdr.sgml : 19970506 ACCESSION NUMBER: 0000926044-97-000062 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19970505 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNAPE & VOGT MANUFACTURING CO CENTRAL INDEX KEY: 0000056362 STANDARD INDUSTRIAL CLASSIFICATION: PARTITIONS, SHELVING, LOCKERS & OFFICE AND STORE FIXTURES [2540] IRS NUMBER: 380722920 STATE OF INCORPORATION: MI FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-01859 FILM NUMBER: 97595090 BUSINESS ADDRESS: STREET 1: 2700 OAK INDUSTRIAL DR NE CITY: GRAND RAPIDS STATE: MI ZIP: 49505 BUSINESS PHONE: 6164593311 MAIL ADDRESS: STREET 1: 2700 OAK INDUSTRIAL DRIVE, NE CITY: GRAND RAPIDS STATE: MI ZIP: 49505 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment No. 2 (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, 1996 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 $74,874,143 as of September 6, 1996. Number of shares outstanding of each class of common stock as of September 6, 1996: 3,332,750 shares of Common Stock, par value $2.00 per share, and 2,548,619 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 18, 1996, are incorporated by reference into Part III of this Report. ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Immediately following are the consolidated balance sheets of the Company and its subsidiaries as of June 30, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1996, 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, 1996 1995 - ----------------------------------------------------------------------------- Assets: Current Assets: Cash and equivalents $ 244,271 $ 534,280 Accounts receivable, less allowances of $563,000 and $554,000, respectively 22,763,645 23,269,196 Refundable income taxes 1,860,191 229,183 Inventories (Note 5) 23,016,541 23,721,668 Prepaid expenses 3,058,021 2,896,794 Net current assets of discontinued operation (Note 3) 1,790,740 4,691,453 - ----------------------------------------------------------------------------- Total Current Assets 52,733,409 55,342,574 - ----------------------------------------------------------------------------- Property and Equipment: Land and improvements 1,981,144 1,980,621 Buildings 18,194,668 18,066,497 Machinery and equipment 61,953,623 57,673,428 - ----------------------------------------------------------------------------- 82,129,435 77,720,546 Less accumulated depreciation 31,747,827 29,021,761 - ----------------------------------------------------------------------------- Net Property and Equipment 50,381,608 48,698,785 - ----------------------------------------------------------------------------- Net Property and Equipment of Discontinued Operation (Note 3) 1,775,225 3,376,618 - ----------------------------------------------------------------------------- Goodwill, net 18,916,360 19,422,953 - ----------------------------------------------------------------------------- Other Assets 5,418,557 4,592,784 - ----------------------------------------------------------------------------- $129,225,159 $131,433,714 ============================================================================= See accompanying notes to consolidated financial statements
Knape & Vogt Manufacturing Company and Subsidiaries Consolidated Balance Sheets Year Ended June 30, 1996 1995 - ----------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Current Liabilities: Accounts payable $ 4,825,372 $ 4,533,165 Accruals: Taxes other than income 1,381,324 1,567,103 Compensation 1,410,521 1,801,566 Retirement plan contributions 581,126 605,399 Restructuring Costs (Note 2) 3,440,184 - Miscellaneous 1,558,891 1,038,588 - ----------------------------------------------------------------------------- Total Current Liabilities 13,197,418 9,545,821 Supplemental Retirement Benefits (Notes 7 and 8) 1,504,067 1,439,167 Long-Term Debt (Note 6) 35,000,000 35,800,000 Deferred Lease Costs 2,360,124 2,885,090 Deferred Income Taxes (Note 10) 7,989,800 9,049,800 - ----------------------------------------------------------------------------- Total Liabilities 60,051,409 58,719,878 - ----------------------------------------------------------------------------- Commitments (Notes 7, 8 and 9) Stockholders' Equity (Notes 11 and 12) Stock: Common, $2 par - 6,000,000 shares authorized; 3,327,918 and 3,295,496 issued 6,655,836 6,590,992 Class B common, $2 par - 4,000,000 shares authorized; 2,553,151 and 2,584,418 issued 5,106,302 5,168,836 Preferred, 2,000,000 shares authorized and unissued - - Additional paid-in capital 33,080,087 33,065,773 Retained earnings 25,542,811 29,205,000 Cumulative foreign currency translation adjustment (1,211,286) (1,316,765) - ----------------------------------------------------------------------------- Total Stockholders' Equity 69,173,750 72,713,836 - ----------------------------------------------------------------------------- $129,225,159 $131,433,714 ============================================================================= See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries Consolidated Statements of Income Year ended June 30, 1996 1995 1994 Net Sales $163,012,030 $168,190,969 $145,504,536 Cost of Sales 124,408,648 127,296,470 107,701,337 - ------------------------------------------------------------------------------ Gross profit 38,603,382 40,894,499 37,803,199 - ------------------------------------------------------------------------------ Expenses: Selling and shipping 21,044,004 19,882,242 18,547,404 Administrative and general 6,394,013 6,922,412 6,188,530 Restructuring and impairment of assets (Note 2) 3,496,000 - - - ------------------------------------------------------------------------------ Total expenses 30,934,017 26,804,654 24,735,934 - ------------------------------------------------------------------------------ Operating income 7,669,365 14,089,845 13,067,265 - ------------------------------------------------------------------------------ Other Expenses: Interest 2,253,992 2,471,652 1,426,328 Other, net 277,315 178,488 307,217 - ------------------------------------------------------------------------------ Total other expenses 2,531,307 2,650,140 1,733,545 - ------------------------------------------------------------------------------ Income from continuing operations before income taxes 5,138,058 11,439,705 11,333,720 Income Taxes-Continuing Operations (Note 10) 2,035,000 3,849,000 4,020,000 - ------------------------------------------------------------------------------ Income from continuing operations 3,103,058 7,590,705 7,313,720 - ------------------------------------------------------------------------------ Discontinued Operation, Net of Income Taxes (Note 3) Income (loss) from operation (337,926) 654,433 842,556 Estimated loss on sale (2,700,000) - - - ------------------------------------------------------------------------------ Total discontinued operation, net of income taxes (3,037,926) 654,433 842,556 - ------------------------------------------------------------------------------ Net Income $ 65,132 $8,245,138 $8,156,276 ============================================================================== Net Income Per Share (Notes 2, 3 and 12) From continuing operations $ .53 $ 1.29 $ 1.24 From discontinued operation $ (.52) $ .11 $ .15 - ------------------------------------------------------------------------------ Total Net Income Per Share $ .01 $ 1.40 $ 1.39 ============================================================================== Dividends Per Share Common stock $ .66 $ .66 $ .60 Class B common stock $ .60 $ .60 $ .545 ============================================================================== Weighted Average Shares Outstanding (Note 12) 5,883,227 5,890,931 5,877,959 ============================================================================== 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, 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 11) 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 12) 1,066,710 9,067,035 (10,144,293) - Stock issued under stock option plan (Note 11) 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) Net income for 1996 - - 65,132 - Cash dividends - - (3,727,321) - Stock issued under stock option plan (Note 11) 2,310 14,314 - - Foreign currency translation adjustment - - - 105,479 - ------------------------------------------------------------------------------ Balance, June 30, 1996 $11,762,138 $33,080,087 $25,542,811 $(1,211,286) ============================================================================== See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries Consolidated Statements of Cash Flows Year ended June 30, 1996 1995 1994 Operating Activities Net income $ 65,132 $ 8,245,138 $ 8,156,276 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of fixed assets 6,190,031 5,876,391 5,250,453 Amortization of other assets 1,155,322 1,022,047 836,048 Increase (decrease) in deferred income taxes (1,060,000) 1,339,000 712,000 Increase (decrease) in supplemental retirement benefits 64,612 112,089 (23,717) Increase (decrease) in deferred lease costs (524,966) (509,234) (289,814) Loss on sale of the discontinued operation 3,866,000 - - Changes in operating assets and liabilities: Decrease (increase) in: Accounts receivable 515,079 (40,221) (1,007,096) Refundable income taxes (1,627,737) (502,295) 1,034,359 Inventories 720,025 1,909,457 (122,998) Net assets of discontinued operation 636,106 184,722 (1,702,032) Prepaid expenses (160,535) (1,410,260) 148,846 Increase (decrease) in: Accounts payable 289,679 (1,465,580) (2,895,957) Accrued restructuring costs 3,440,184 - - Accruals (83,555) (1,981,633) 64,043 - ------------------------------------------------------------------------------ Net cash provided by operating activities 13,485,377 12,779,621 10,160,411 - ------------------------------------------------------------------------------ Investing Activities Additions to property, plant and equipment (8,032,779) (4,181,472) (3,837,249) Sales of property, plant and equipment 175,651 20,015 32,595 Payments for purchase of subsidiaries - - (29,270,859) Payments for other assets (1,471,438) (913,762) (738,844) - ------------------------------------------------------------------------------ Net cash used for investing activities (9,328,566) (5,075,219) (33,814,357) - ------------------------------------------------------------------------------ Financing Activities Purchase of fractional shares - (10,548) - Cash dividends declared (3,727,321) (3,722,814) (3,373,493) Proceeds from issuance of common stock 16,624 115,780 242,547 Additions to long-term debt including current portion - - 27,250,000 Payments on long-term debt (800,000) (4,200,000) - - ------------------------------------------------------------------------------ Net cash provided by (used for) financing activities (4,510,697) (7,817,582) 24,119,054 - ------------------------------------------------------------------------------ Effect of Exchange Rate Changes on Cash 63,877 80,380 (488,117) - ------------------------------------------------------------------------------ Net Decrease in Cash and Equivalents (290,009) (32,800) (23,009) Cash and Equivalents, beginning of year 534,280 567,080 590,089 - ------------------------------------------------------------------------------ Cash and Equivalents, end of year $244,271 $534,280 $567,080 ============================================================================== See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements 1. Summary of Principles of Consolidation Significant Accounting The consolidated financial statements include the accounts Policies of Knape & Vogt Manufacturing Company and its wholly-owned subsidiaries (Company). All material intercompany balances, transactions and stockholdings have been eliminated in consolidation. Description of Business and Concentration of Credit Risk The Company designs, manufactures and distributes storage products including decorative and utility shelving systems, drawer slides, home workshop items, kitchen and closet storage products and cabinet hardware. The Company announced its decision to sell its store fixture operation and this portion of the business is shown as a discontinued operation. 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. 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. Fair Value of Financial Instruments The carrying amounts of the Company's financial instruments, which consist of cash, receivables, bank revolving credit agreement and accounts payable, approximate their fair values. Cash Equivalents All highly liquid debt instruments with a maturity of three months or less when purchased are classified as cash equivalents. Knape & Vogt Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements Inventories Inventories are stated at the lower of FIFO (first-in, first-out) cost or market for 100% and 87% of the inventories at June 30, 1996 and 1995, respectively. Until 1996, one subsidiary used the LIFO (last-in, first-out) method to determine cost, the inventory value of which was approximately $418,000, lower than it would have been under the FIFO method at June 30, 1995. During 1996, the subsidiary changed to the FIFO method. The change in accounting principle was made to provide a better matching of revenue and expenses. This accounting change was not material to the financial statements on an annual or quarterly basis, and accordingly, no retroactive restatement of prior years' financial statements was made. 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 $1,347,358 and $840,765 at June 30, 1996 and 1995, respectively. The Company periodically reviews goodwill for impairment based upon undiscounted operating income over the remaining life of the goodwill. 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 at the acquisition date. The deferred lease cost is amortized over 57 months, the remaining life of the lease. Knape & Vogt Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements 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 The Company accounts for certain income and expenses in different periods for financial reporting and income tax purposes. The Company utilizes the liability method to account for deferred income taxes by applying statutory tax rates in effect at the balance sheet date to differences between the financial reporting and tax bases of assets and liabilities. The resulting deferred tax liabilities or assets are adjusted to reflect changes in tax laws or rates by means of charges or credits to income tax expense. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting for the Impairment of Long-Lived Assets In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long- Lived Assets. The Company is required to adopt this statement by its fiscal year ending in 1997. The new statement requires the Company to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company does not expect the adoption of this statement to have a material impact on its financial position or results of operations. Knape & Vogt Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements Advertising The Company expenses the costs of advertising as incurred. Advertising expense was $553,000 in 1996, $622,000 in 1995, and $416,000 in 1994. 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. 2. Restructuring On June 24, 1996, the Board of Directors of the Company and Impairment approved a restructuring plan designed to improve operating of Assets efficiencies. The plan involves the shift of wood production from Modar to Hirsh and the subsequent sale or closure of the Modar facility, the transfer of redundant manufacturing operations performed at Knape & Vogt Canada to the corporate headquarters in Grand Rapids, and an early retirement program to salaried employees at the Grand Rapids location. The restructuring and impairment charge of $3,496,000 primarily relates to severance and employee benefit costs ($1,635,000), the write-down of assets to be disposed of to their fair market value ($1,509,000) and other costs ($352,000). As an additional part of the plan which is reported as part of costs of sales, the Board of Directors authorized the liquidation of $863,000 of slow moving inventories in order to create additional manufacturing and warehousing space. After an income tax benefit of $1,534,000, these actions reduced fiscal year 1996 earnings by $2,825,000 or $.48 per share. 3. Discontinued On August 20, 1996, the Company announced its decision to Operation sell the Roll-it division of Knape & Vogt Canada Inc. (Roll-it), the Company's store fixture operation. It is the Company's intent to sell the Roll-it division within the next fiscal year through an independent broker. Roll-it is reported as a discontinued operation, and the consolidated financial statements have been reclassified to segregate the net assets and operating results of the business. The estimated loss on the sale of Roll-it is $3.9 million, which includes a reduction in asset values of $3.6 million and a provision for anticipated closing costs and operating losses until disposal of $.3 million. The loss is reported net of an income tax benefit of $1.2 million, for an after-tax loss of $2.7 million. The amounts are based on estimates of the proceeds expected to be realized on the sale of the store fixture operation. The amounts the Company will ultimately realize could differ materially in the near term from the amounts assumed in arriving at the loss on disposal of the discontinued operation. Summary operating results of the discontinued operation (in thousands) are as follows: June 30, 1996 1995 1994 - -------------------------------------------------------------------------------------- Revenues $ 13,540 $ 14,851 $ 14,371 Costs and expenses 13,990 13,823 13,056 - -------------------------------------------------------------------------------------- Income (loss) before taxes (450) 1,028 1,315 Income tax expense (benefit) (112) 374 472 - -------------------------------------------------------------------------------------- Net income (loss) $ (338) $ 654 $ 843 ======================================================================================
Net assets of the discontinued operation at June 30, 1996, of approximately $3.6 million consisted of $1.8 million of current assets, deductions for an allowance for the estimated loss on disposal, estimated operating losses to the anticipated disposal date, current liabilities and $1.8 million of equipment. 4. 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 indebtedness. 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. Knape & Vogt Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements Unaudited pro forma 1994 results of operations, as if the acquisition had occurred July 1, 1993, are as follows: Net sales $166,072,763 Net income 7,496,878 Net income per share 1.28 ============================================
5. Inventories Inventories are summarized as follows: June 30, 1996 1995 Finished products $13,189,032 $13,791,986 Work in process 2,665,754 2,275,296 Raw materials and supplies 7,161,755 7,654,386 ------------------------------------------------------- $23,016,541 $23,721,668 =======================================================
6. Long-Term Debt At June 30, 1996 and 1995, long-term debt consisted of borrowings under an unsecured revolving credit agreement which provides for loans up to $47,500,000 with interest between 40 and 50 basis points above the federal funds rate depending on the Company's interest coverage ratio. At June 30, 1996 there was a $35,000,000 balance outstanding under the revolving credit agreement; with an effective interest rate of 5.45%. The agreement contains certain covenants which the Company is in compliance with at June 30, 1996. The revolving credit is required to be repaid by November 1, 1997. Annually, the Company may request that the maturity of the revolving credit be extended by another year. 7. Retirement The Company has several noncontributory defined benefit Plans 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. The Company also has a supplemental retirement program for designated officers of the Company which also includes death and disability benefits. Knape & Vogt Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements The cost of retirement benefits is as follows: Year ended June 30, 1996 1995 1994 ------------------------------------------------------- Discretionary profit-sharing $ 585,965 $ 576,558 $ 741,187 Pension 261,781 301,349 257,597 Supplemental retirement 193,960 158,442 132,200 ------------------------------------------------------- $1,041,706 $1,036,349 $1,130,984 =======================================================
Net periodic cost for the pension plans included the following components: Year ended June 30, 1996 1995 1994 Service cost - benefits earned during the period $ 280,075 $ 251,503 $ 204,733 Interest cost on projected benefit obligation 737,433 726,789 711,826 Actual return on plan assets (1,208,193) (930,192) (25,277) Net deferral and amortization of unrecognized amounts 452,466 253,249 (633,685) ------------------------------------------------------- Net periodic pension cost $ 261,781 $ 301,349 $ 257,597 =======================================================
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, 1996 and 1995. 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, 1996 1995 Actuarial present value of benefit obligations: Accumulated and projected benefit obligation, vested benefits of $9,149,228 and $8,790,594 $9,248,880 $8,890,564 Plan assets at fair value, primarily equity securities and fixed income funds 10,183,105 9,169,454 ------------------------------------------------------- Plan assets in excess of projected benefit obligations 934,225 278,890 ------------------------------------------------------- Unrecognized net obligations: Unrecognized net loss 292,637 853,808 Unrecognized prior service cost 910,955 981,820 Unrecognized transition net asset, being recognized over 14.4 years (402,500) (456,900) ------------------------------------------------------- Unrecognized net obligations 801,092 1,378,728 ------------------------------------------------------- Prepaid pension cost included in other assets $1,735,317 $1,657,618 =======================================================
Knape & Vogt Manufacturing Company and Subsidiaries Notes to Consolidate Financial Statements 8. Postretirement The Company maintains a defined benefit postretirement plan Health Care for substantially all employees which provides certain Benefits health care benefits. Eligibility and benefits are based on age and years of service. On July 1, 1992, the Company adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, 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 and is being 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 17 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, 1996 1995 1994 Service cost - benefits earned during the year $ 82,461 $107,493 $114,233 Interest cost on projected benefit obligation 126,329 144,266 134,645 Amortization of transition liability over 20 years 93,861 93,861 93,861 Amortization of prior service costs (57,279) (57,279) (25,561) Amortization of unrecognized net loss 18,415 37,162 - ------------------------------------------------------- Net postretirement health care cost $263,787 $325,503 $317,178 =======================================================
A reconciliation of the accumulated postretirement benefit obligation to the liability recognized in the consolidated balance sheets is as follows: June 30, 1996 1995 ------------------------------------------------------- Accumulated postretirement benefit obligation: Active participants $ 828,891 $ 1,010,493 Retirees 704,498 731,874 ------------------------------------------------------- 1,533,389 1,742,367 Unrecognized transition obligation (1,501,763) (1,595,624) ------------------------------------------------------- 31,626 146,743 Unrecognized net loss (443,795) (682,130) Unrecognized prior service cost 744,620 801,899 ------------------------------------------------------- Postretirement health care liability $ 332,451 $ 266,512 =======================================================
Knape & Vogt Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements The actuarial calculation assumes a health care inflation rate of 9.8% in 1996 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, 1996, accumulated postretirement benefit obligation by $118,378, and the 1996 net postretirement health care cost by $20,294. 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. 9. Lease Commitments The Company is leasing certain real property under the terms of two to five year leases. Future minimum payments are as follows: Year ending June 30, ------------------------------------------------------- 1997 $1,508,148 1998 1,543,804 1999 1,562,573 2000 1,422,191 2001 217,462 ------------------------------------------------------- $6,254,178 =======================================================
Rent expense under all operating leases was approximately $2,076,000, $2,070,000 and $1,461,000 in 1996, 1995 and 1994, respectively. 10. Income Taxes Income from continuing operations before income taxes consists of: Year ended June 30, 1996 1995 1994 ------------------------------------------------------- United States $5,603,192 $10,708,095 $10,686,317 Foreign (465,134) 731,610 647,403 ------------------------------------------------------- Income from continuing operations before income taxes $5,138,058 $11,439,705 $11,333,720 =======================================================
Income tax expense (benefit) from continuing operations consists of: Year ended June 30, 1996 1995 1994 ------------------------------------------------------- Current: United States $3,189,000 $2,298,000 $2,942,000 Foreign (152,000) 129,000 210,000 State and local 58,000 83,000 103,000 ------------------------------------------------------- Total current 3,095,000 2,510,000 3,255,000 ------------------------------------------------------- Deferred: United States (1,159,000) 1,208,000 609,000 Foreign 14,000 121,000 15,000 State and local 85,000 10,000 141,000 ------------------------------------------------------- Total deferred (1,060,000) 1,339,000 765,000 ------------------------------------------------------- Income tax expense $2,035,000 $3,849,000 $4,020,000 =======================================================
The difference between the effective tax rates of 40%, 34%, and 35% in 1996, 1995 and 1994, respectively, and the federal statutory rate of 34% is due to foreign, state and local income taxes. The increase in consolidated income tax expense in 1996 is due to the reduction of use by the Company of research and development credits compared to prior years. Tax laws in the United States which created research and development tax credits expired on June 30, 1995, and the Company was not able to use these credits to reduce 1996 income tax expense. The sources of the net deferred income tax liability are as follows: June 30, 1996 1995 ------------------------------------------------------- Different book/tax basis of property and equipment $ 9,742,000 $ 9,713,000 Inventory valuation reserves 478,000 427,000 Net operating loss carryforward expiring through 2008 (1,228,000) (1,179,000) Restructuring accrual (1,207,000) ---- Other 204,800 88,800 ------------------------------------------------------- $ 7,989,800 $ 9,049,800 =======================================================
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. 11. Stock Option The 1987 Stock Option Plan grants key employees of the Plan 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: 1996 1995 1994 Options outstanding, beginning of year 129,945 103,411 85,070 Granted 45,000 32,250 36,000 Exercised (1,155) (8,232) (16,332) Forfeited (1,050) (7,430) (1,327) 10% stock dividend - 9,946 - ------------------------------------------------------- Options outstanding and exercisable, end of year 172,740 129,945 103,411 ======================================================= Options price range, end of year $ 9.58- $ 9.58- $ 9.58- 20.00 20.00 28.41 Options available for grant, end of year 46,967 90,917 14,018 =======================================================
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 allows companies to continue to account for their stock-based compensation plans in accordance with APB Opinion 25, but encourages the adoption of the new accounting method to record compensation expense based on the estimated fair value of employee stock-based compensation. Companies electing not to follow the new fair value based method are required to provide expanded footnote disclosures, including pro forma net income and earnings per share, determined as if the company has adopted the new method. The Statement is required to be adopted for fiscal years beginning after December 15, 1995. Management intends to continue to account for its stock-based compensation plans in accordance with APB Opinion 25 and provide the supplemental disclosures as required by SFAS No. 123, beginning in 1997. 12. Stockholders' On August 19, 1994, the board of directors declared a 10% Equity stock dividend of the Company's common stock and Class B common stock. Applicable share and per share data 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 Business 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. 13. Supplemental Total interest paid during the years ended June 30, 1996, Cash Flows 1995 and 1994, was $2,245,136, $2,452,649 and $1,319,657, Information respectively. Total income taxes paid during the years ended June 30, 1996, 1995 and 1994, were $2,540,139, $3,375,972, and $2,739,174, respectively. 14. Foreign The Company has operations in the United States and Canada: Operations Year ended June 30, 1996 1995 1994 ------------------------------------------------------- Net sales: United States $147,691,899 $151,261,132 $132,348,494 Canada 15,320,131 16,929,837 13,156,042 ------------------------------------------------------- $163,012,030 $168,190,969 $145,504,536 ======================================================= Operating income: United States $ 8,178,485 $ 13,412,124 $ 12,440,250 Canada (509,120) 677,721 627,015 ------------------------------------------------------- $ 7,669,365 $ 14,089,945 $ 13,067,265 ======================================================= Total assets: United States $116,460,936 $115,120,879 $117,567,637 Canada 12,764,223 16,312,835 15,680,164 ------------------------------------------------------- $129,225,159 $131,433,714 $133,247,801 =======================================================
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, 1996 and 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, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. /s/ BDO Seidman, LLP BDO Seidman, LLP Grand Rapids, Michigan August 21, 1996 Consent of Independent Certified Public Accountants Knape & Vogt Manufacturing Company Grand Rapids, Michigan We hereby consent to the incorporation by reference of our report dated August 21, 1996, relating to the consolidated financial statements of Knape & Vogt Manufacturing Company, appearing in that Corporation's annual report on Form 10-K for the year ended June 30, 1996, in that Corporation's previously filed Form S-8 Registration Statements (file numbers 33-20227, 33-43704, 33-88206 and 33-88212). /s/ BDO Seidman, LLP Grand Rapids, Michigan April 30, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized. KNAPE & VOGT MANUFACTURING COMPANY By /s/ Richard C. Simkins Richard C. Simkins Executive Vice President, CFO, Secretary & Treasurer Date: May 1, 1997 -----END PRIVACY-ENHANCED MESSAGE-----