<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 2, 1995
[ ] 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
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Commission file number 0-4173
DMI FURNITURE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 41-0678467
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(State of incorporation) (IRS employer ID number)
One Oxmoor Place, 101 Bullitt Lane, Louisville, Kentucky 40222
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(Address of principal executive offices)
Registrant's telephone number with area code: (502) 426-4351
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE
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(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
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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 amendments to
this Form 10-K. [X]
(Cover page 1 of 2 pages)
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $2,940,573 as of September 2, 1995.
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the last practicable date.
Class Outstanding at September 2, 1995
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Common Stock, Par Value $.10 per Share 2,970,026
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on February 21, 1996 are incorporated by reference into Part III.
<PAGE>
Part I.
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
The operations of the Company during the past three years consisted of the
manufacture, import, and sale of low and medium-priced bedroom furniture, accent
furniture, home and office desk furniture, conference tables, and chairs. The
Company completed an expansion of its manufacturing and distribution facilities
in Indiana during fiscal 1994 to support its continued growth. See Item 2.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company's continuing operations as shown in its Selected Financial Data
(See Item 6) for the five years ended September 2, 1995, consist of one
industry segment -- the manufacture, import, and sale of furniture.
(c) NARRATIVE DESCRIPTION OF THE BUSINESS.
The Company manufactures, imports, and sells low and medium-priced bedroom
furniture, accent furniture, home and office desk furniture, conference tables,
and chairs.
The Company's furniture products are marketed throughout the United States,
Puerto Rico, Canada, Mexico and Saudi Arabia, principally to furniture
retailers. Export sales totaled approximately 5% of the Company's sales in
fiscal 1995. Approximately 13% of the Company's sales are accounted for by sale
to wholesale distributors. The Company's sales are made principally through
independent, commissioned sales representatives, as well as sales and marketing
personnel employed by the Company. The Company maintains a showroom for
furniture markets in High Point, North Carolina. The Company also attends the
annual trade show of the Business Products Industry Association.
The raw materials which are essential to the manufacture of furniture are
wood, board products, fabric, finishing materials, hardware and glass. There are
a number of sources of supply for wood, board products and fabric. Approximately
62% of these materials are purchased from independent suppliers, and the balance
of these materials are obtained by the Company by cutting and hauling wood from
purchased stands of timber and further processing it in the Company's saw mill
and dimension plant, by cutting various types of board and drawer body parts,
and manufacturing high pressure laminated tops for its office furniture. If, for
any reason, the Company's existing sources of supply for any of its raw
materials became unable to service the Company, the Company's furniture
manufacturing operations would not be adversely affected because there are
adequate alternate sources of supply. Loss of any one or several sources of
supply would not have a material adverse effect on the Company as ample
alternative sources exist.
<PAGE>
The Company owns or uses the following trademarks in connection with its
furniture products, which trademarks are due to expire on the dates indicated
below:
Expiration
Trademark Product Date
--------- ---------------- ----------
TOP GUARD All DMI products 2002
Carolina Desk Company All DMI products 2008
DMI All DMI products 2009
DMI Furniture, Inc. All DMI products 2009
Wood Classics
Furniture Company Office Furniture Pending
It is not common in the furniture industry to obtain a patent for a
furniture design. If a particular design of a furniture manufacturer is well
accepted in the marketplace, it is common for other manufacturers to imitate the
same design without recourse by the furniture manufacturer who initially
introduced the design. The Company often engages independent designers to work
in conjunction with its own personnel in designing furniture products.
The Company's sales have historically not been subject to material seasonal
fluctuations. However, as the Company's seasonal promotions of imported
furniture increase, the sales will be more subject to quarterly fluctuations.
See Note 10 to the consolidated financial statements.
It is the furniture industry's and the Company's practice to grant extended
payment terms from time to time to promote sales of products. From time to time,
the Company extends payment terms by 30 to 60 days in an attempt to stimulate
sales of its products. The frequency of the special payment terms depends upon
general business conditions, but generally extended terms are offered only once
or twice per year and then only on certain products. These special payment terms
have not had, nor are they expected to have in the future, any material impact
on the Company's liquidity.
The Company's four largest customers accounted for approximately 34% of the
Company's total sales in fiscal 1995. The Company's largest customer, Sam's
Club, represented approximately 13% of the Company's total sales in fiscal 1995.
The loss of more than one of these customers at the same time or one of the
largest four could have a materially adverse effect on the business of the
Company. As of September 2, 1995, one customer accounted for approximately 29%
of total accounts receivable. The Company's customers include large furniture
chain store retailers, wholesale clubs, catalog retailers, and independent
distributors, as well as numerous smaller retailers.
The Company's backlog of orders at September 30, 1995 and September 27,
1994 was $7,898,000 and $13,441,000, respectively. The decrease in the backlog
from 1994 is primarily due to soft demand in the bedroom product category and a
seasonal program for a major customer shipping earlier in 1995 than 1994. The
entire backlog of orders at September 30, 1995 is expected to be filled by
December 31, 1995.
The furniture industry is extremely competitive. The Company competes in
the national market for low and medium-priced furniture. Due to the fragmented
nature of the furniture manufacturing industry and the unavailability of
complete financial reports for all its competitors, the Company is unable to
accurately state its rank in the industry. There are, however, a large number of
furniture manufacturers with substantially greater sales and greater economic
resources than the Company, a number of which are subsidiaries or divisions of
large national companies. The principal methods of competition in the furniture
industry are design, pricing, sales force, customer service, and manufacturing
location.
<PAGE>
The Company believes it is the largest manufacturer of assembled home desks
in the United States and is a leading producer of low-priced, "promotional"
bedroom furniture and budget priced wood office furniture.
The Company employs approximately 515 employees, of whom approximately 234
are covered by collective bargaining contracts. Contracts covering 155 employees
will expire during Fiscal 1996. The Company presently does not anticipate a
strike or work stoppage at any of its facilities. However, it cannot be assumed
that labor difficulties will not be encountered in the future.
Item 2. PROPERTIES.
The Company's principal offices are located in 10,336 square feet of leased
office space in Louisville, Kentucky.
The Company owns four operating furniture manufacturing plants located in:
Huntingburg, Indiana (78,910 square feet, and 100,000 square feet); Ferdinand,
Indiana (117,823 square feet); and Gettysburg, Pennsylvania (71,924 square
feet); a saw mill and a dimension parts plant located in Ferdinand, Indiana; and
a fabrication plant in Huntingburg, Indiana (98,000 square feet).
In addition, the Company leases one warehouse and owns a 235,000 square
foot warehouse located in Huntingburg, Indiana. The Company leases one warehouse
and owns an 84,554 square foot warehouse located in Gettysburg, Pennsylvania.
The Company also leases one warehouse in Ferdinand, Indiana.
Subsequent to the end of the fiscal 1995, the Company announced its
intention to close its Gettysburg, Pennsylvania manufacturing plant in December,
1995 and close its Gettysburg warehouse during 1996. See Note 12 to the
financial statements for additional information.
All of the furniture manufacturing plants presently operated by the
Company other than one four years old are over ten years old and in fair
condition. The Company considers its operating plants to be adequate for its
current operations.
All of the Company's properties are encumbered by mortgages held by its
bank. See Note 2 to the consolidated financial statements.
<PAGE>
The productive capacity and extent of utilization of each of the Company's
manufacturing facilities for the fiscal year ended September 2, 1995 are set
forth in the table below. "Productive capacity" is defined for this purpose as
gross sales dollars produced both for outside sales and internal integration,
working fifty hours per week on a single shift with the existing number of
employees and no material investments in machinery and equipment or change in
product mix.
<TABLE>
<CAPTION>
Fiscal 1995
Facility Capacity Production %Utilized
-------- -------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Ferdinand, Ind. Plant $13,154 $11,137 85%
Huntingburg, Ind. 5th St. Plant 19,179 14,956 78%
Gettysburg, Pa. Plant 14,048 12,219 87%
Huntingburg, Ind. Chestnut
Street Plant 18,713 14,902 80%
Huntingburg, Ind. Fabricator 7,926 5,988(1) 76%
Ferdinand, Ind. Sawmill/
Dimension Plant 6,568 6,225 95%
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$79,588 $65,427 82%
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</TABLE>
(1) Eleven months.
Item 3. LEGAL PROCEEDINGS.
The Company has been identified as a potentially responsible party ("PRP")
by the Environmental Protection Agency ("EPA") or other parties in six
government investigations and actions relating to waste disposal facilities
which may be subject to remedial action under Superfund or similar state
statutes, including the action described in the following paragraph. These
proceedings are based on allegations that the Company had hazardous waste
substances disposed of at these sites. At each site, many other parties have
been named as PRPs or identified as potentially responsible for remediation, and
the group of PRPs undertaking remediation includes many companies, including
"Fortune 500" companies, believed to have substantial financial resources. The
Company has not determined to what extent, if any, any potential environmental
liabilities may be covered by insurance. The Company has paid a portion of the
costs of preliminary investigation and remediation at three sites, and has
agreed to settle claims against it made by PRPs at two sites. With respect to
these sites, the total amount paid by the Company to date or subject to possible
settlement is less than $39,000. The Company has recorded a reserve of
approximately $150,000 against potential environmental liabilities, including
potential liabilities in connection with the site described below. See Note 4 to
the consolidated financial statements.
In 1988 the Company was named out of over one thousand customers at the
Keystone Sanitation Company landfill (the "Keystone Site") in Union Township,
Pennsylvania, as one of 31 PRPs potentially responsible for remediation of this
site. After the Company provided the EPA with information concerning the nature
of the substances allegedly contributed by the Company, which the Company
believes did not include the principal hazardous substances of concern at the
site identified in the remedial investigation, the EPA did not name the Company
in an Administrative Order issued on June 28, 1991, requiring twelve other PRPs
to undertake remedial action at the Keystone Site. On September 27, 1993, the
United States filed a lawsuit in federal court for the Middle District of
Pennsylvania against eleven PRPs, who are challenging the EPA's proposal for
remedial action at the Keystone Site. On August 11, 1994, the Company was named,
along with over 250 PRPs, as a
<PAGE>
third-party defendant by the original PRP defendants. Based on a court-directed
production of information, the Company was assessed a preliminary allocation of
liability of approximately 1.35% by a consultant. The EPA estimated the cost of
on-site remediation at the Keystone Site to be approximately $10 million, and an
environmental consultant hired by the original group of PRPs estimated the cost
at between $12 and $16 million. The EPA is also conducting studies to determine
whether the site may also require additional remediation for off-site
contamination. The Company is participating with other third-party defendants in
settlement negotiations and in filing a fourth-party complaint joining 589
additional parties in the litigation. The Company believes it has a reasonable
basis upon which to dispute, and has disputed, both the volume of material
attributed to it, and the allegation that material contributed by the Company
requires any remediation.
The Company is a defendant in various lawsuits arising in the normal course
of business including the environmental matters noted above, and which in
management's opinion, are not material to the results of operations or financial
position of the Company, or are adequately covered by insurance.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year
which required a vote of security holders.
<PAGE>
Part II.
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
(a) Price Range of Common Stock
The Company's Common Stock is traded in the over-the-counter market and is
quoted on NASDAQ under the trading symbol DMIF. The following table sets forth
the high and low bid quotations, as reported by NASDAQ for the Company's Common
Stock, for each fiscal quarter indicated. The quotations represent prices
between dealers, do not include commissions, mark-ups or mark-downs and may not
represent actual transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
Price Price Price
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<S> <C> <C>
1st Quarter of 1994 $ 2.88 $ 2.00
2nd Quarter of 1994 $ 3.50 $ 2.50
3rd Quarter of 1994 $ 3.75 $ 2.00
4th Quarter of 1994 $ 2.25 $ 1.88
1st Quarter of 1995 $ 2.06 $ 1.50
2nd Quarter of 1995 $ 1.88 $ 1.50
3rd Quarter of 1995 $ 1.88 $ 1.50
4th Quarter of 1995 $ 1.56 $ 1.13
</TABLE>
(b) Approximate Number of Equity Security Holders
Title of Class- Common Stock, $.10 Par Value
Approximate Number of Stockholders as of August 31, 1995 - 1,700
(c) Dividend History
No dividends have been paid on the Registrant's Common Stock since its
issuance on November 11, 1977.
(d) Dividend Policy
Payment of dividends will be within the discretion of the Company's Board
of Directors and will depend, among other factors, on earnings, capital
requirements and the operating and financial condition of the Company. At the
present time, the Company's anticipated capital requirements are such that it
intends to follow a policy of retaining earnings in order to finance the
development of its business and the retirement of its debt. The Company's Series
C Preferred Stock agreement restricts payment of cash dividends on the common
stock to 10% of the Company's net income for the immediately preceding fiscal
year, after deduction of dividends paid in that year on the Series C Preferred
Stock. In addition, the Company's present financing agreement with Bank One,
Indianapolis, N.A. prohibits the payment of dividends on common stock without
the written consent of the bank. See Notes 2 and 5 to the consolidated financial
statements.
<PAGE>
ITEM 6.
DMI FURNITURE, INC.
SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended
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September 2, August 27, August 28, August 29, August 31,
1995 1994 1993 1992 1991
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(Amounts in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $67,773 $60,932 $50,719 $48,018 $44,813
Net income from continuing operations 804 (3) 1,101 1,627 917 429
Earnings per common share $.14 $.19 $.29 $.16 $.07
------- ------- ------- ------- -------
Total assets $38,512 $40,041 $29,443 $26,679 $26,358
Long-term debt and capital
lease obligations 21,037 20,352 14,395 13,097 13,228
</TABLE>
Notes to selected financial data:
Note 1 - This summary should be read in conjunction with the related financial
statements and notes.
Note 2 - Earnings per common share are based on the weighted average number of
common and common equivalent shares outstanding during the period.
Note 3 - Does not include $1,795,000 credit or $.31 for change in accounting
principle, and, $(50,000) or $(.01) charge for extraordinary item.
II-2
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has a $20,300,000 credit agreement with Bank One, Indianapolis,
N.A. comprised of a $4,000,000 five-year term loan (balance $2,933,337 as of
September 2, 1995) and a maximum revolving master note loan commitment of
$16,300,000. On September 2, 1995, the Company had $1,349,000 additional
borrowings available under the formula for calculating its available borrowings.
See Note 2 to the consolidated financial statements.
Demands for funds relate to payments for raw materials and other operating
costs, resale merchandise, debt obligations, preferred stock dividends, and
capital expenditures. The Company's ability to generate cash adequate to meet
short and long-term needs results from the collection of accounts receivable and
from its ability to borrow funds. The Company's days of sales outstanding of
accounts receivable averaged 53 days for fiscal 1995, which is a decrease from
the 55 days for fiscal 1994. The Company believes it will be able to generate
enough cash in fiscal 1996 from operations to make scheduled payments on its
long term debt.
Key elements of the Consolidated Statement of Cash Flows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
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<S> <C> <C> <C>
Net cash provided (used) by operating activities $207 $(1,002) $(394)
Cash used in investing activities (642) (4,200) (677)
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Net cash flows from operating and investing activities (435) (5,202) (1,071)
Cash provided by financing activities 302 5,362 995
----- ------- -----
Net change in cash and cash equivalents $(133) $160 $(76)
----- ------- -----
----- ------- -----
</TABLE>
During fiscal 1995, the Company provided cash flows from operating
activities of $207,000 compared to cash flows used of $(1,002,000) the previous
year. This improvement is due primarily to a smaller increase in accounts
receivable from improved collections and a decrease in inventory as a result of
an inventory reduction plan offset somewhat by decreased accounts payable due to
increased payments for imported goods which require earlier payment than for
manufacturing costs. Investing activities required $642,000 in fiscal 1995
compared to $4,200,000 the previous year. The fiscal 1995 expenditures were
primarily for ongoing plant modernization and in fiscal 1994 expenditures were
primarily on its new warehouse/distribution facility and the purchase and
equipping of the new fabrication plant. Financing activities in fiscal 1994
provided $5,362,000 in cash primarily from the Company's $3.4 million Economic
Development Revenue Bond used for the expansion mentioned above as well as
increased use of the revolving line of credit to finance the increased levels of
accounts receivable and inventory mentioned above.
During the third quarter of fiscal 1994, the Company called its 1989
Economic Development Revenue Bond for redemption and refinancing into lower
interest rate bonds. This refunding was completed in June, 1994 and resulted in
substantial interest savings for the Company since that date.
The Company does not believe any events are probable which would materially
change its present liquidity position, which is adequate to satisfy known
demands for funds for operations and to pay bank and other debt.
<PAGE>
The Company's fiscal 1996 budget for capital expenditures is approximately
$352,000. These proposed expenditures are principally to upgrade and modernize
the Company's manufacturing facilities. The Company anticipates that its 1996
internal cash flow and additional borrowings available under its credit
agreement will be sufficient to pay for these expenditures. Inventory turnover
was 4.0 in fiscal 1995 and 3.8 in fiscal 1994. This increase was the result of
an inventory reduction plan and higher sales of drop shipped goods.
The Company has been identified by the EPA or other parties as a
potentially responsible party ("PRP") in six government investigations and
actions relating to waste disposal facilities that may be subject to remedial
action under Superfund or similar state statutes. These proceedings are based
on allegations that hazardous substances from the Company's plants were disposed
of at these sites. At each site, many other parties have been named as PRPs or
identified as potentially responsible for remediation, and the group of PRPs
undertaking remediation includes many companies, including "Fortune 500"
companies, believed to have substantial financial resources. The Company has
not determined to what extent, if any, any potential environmental liabilities
may be covered by insurance. The Company has paid a portion of the costs of
preliminary investigation and remediation at three sites. With respect to these
six sites, the total amount paid by the Company to date or subject to possible
settlement is less than $39,000. See "Item 3. Legal Proceedings."
The Company has recorded a reserve of approximately $150,000 as of
September 2, 1995 against potential liabilities at all six sites. Management
does not believe there is a reasonable likelihood that the potential liabilities
the Company may incur in connection with these environmental proceedings will
have a material effect on the Company's financial condition or results of
operations. See Note 4 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
Net sales for fiscal 1995 increased by $6,841,000 or 11% over those of
fiscal 1994. This increase is primarily unit sales increases as follows: office
furniture sales increased by 4%; residential desks and accent furniture sales
increased by 53%; and bedroom furniture sales decreased by 9%. Sales of lumber
and wood parts to outside trade customers by the Company's Sawmill/Dimension
Plant increased 13% over fiscal 1994. The increase in 1995 is the result of the
Company's continued growth with multi-market furniture chains, wholesale clubs,
distributors, catalogers, and the success of the Company's residential desk and
accent furniture import program.
Net sales for fiscal 1994 increased by $10,213,000 or 20% over those of
fiscal 1993. This increase is primarily unit sales increases in all of the
Company's furniture product lines. Office furniture sales increased by 23%;
residential desks and accent furniture sales increased by 32%; and bedroom
furniture sales increased by 13%. The increase in 1994 is the result of the
Company's continued growth with multi-market furniture chains, wholesale clubs,
distributors, catalogers, and the success of the Company's residential desk and
accent furniture import program.
As a percentage of sales, cost of sales was 82.6% of sales for fiscal 1995.
As a percentage of sales, cost of sales was 81.4% of sales for fiscal 1994 and
79.7% for fiscal 1993. The increase in cost of sales as a percentage of sales in
fiscal 1995 was the result of higher lumber and other wood material costs
partially offset by selling price increases established in the fourth quarter of
fiscal 1994 and the second quarter of fiscal 1995, and a lower margin product
and customer sales mix. The increase in cost of sales as a percentage of sales
in fiscal 1994 was the result of higher lumber and other wood material costs
partially offset by selling price increases established in the fourth quarter of
fiscal 1994, and a lower margin product and customer sales mix. In particular, a
worldwide shortage of wood
<PAGE>
fiberboard products caused wholesale prices to increase steadily beginning in
mid-1993 and continue through early fiscal 1995 when prices began to stabilize.
(See Effects Of Inflation below.)
As a percentage of sales, selling, general and administrative expenses were
12.6% of sales for fiscal 1995, 13.7% of sales for fiscal 1994, and 15.3% of
sales for fiscal 1993. The substantial decreases in fiscal 1995 and fiscal 1994
were primarily the result of sales growth materially exceeding the rate at which
these expenses are increasing, most of which are of a semi-fixed nature.
Interest expense increased in fiscal 1995 to $1,913,231 from $1,298,790 in
fiscal 1994 due to higher prime interest rate as well as higher average loan
balances for working capital to support the growth of the Company. Interest
expense increased in fiscal 1994 to $1,298,790 from $1,047,429 in fiscal 1993
due to higher prime interest rate as well as higher loan and bond balances to
support the expansion of the Company's facilities and working capital to support
the increased growth of the Company.
Provision For Income Taxes - The Company's effective book tax rate
increased from approximately 8% in fiscal 1993 to 37% in fiscal 1994 and to 38%
in fiscal 1995. This increase in the effective book tax rate is primarily due to
the adoption of SFAS 109 in the first quarter of fiscal 1994. The Company
realized a $1,795,000 credit in the first quarter of fiscal 1994 as a result of
this change in accounting principle. See Note 8 to the consolidated financial
statements for more information.
Extraordinary Item - During the third quarter of fiscal 1994, the Company
called $2,940,000 of its 1989 Economic Development Revenue Bonds for redemption
and refinancing into lower interest rate bonds. The actual redemption and
refinancing took place on June 15, 1994. The Company wrote off the call premium
and unamortized costs on the 1989 bonds totaling approximately $72,000 ($50,000
net of related tax benefits) during the third fiscal quarter. The loss has been
reflected as an extraordinary item in the consolidated statements of income for
fiscal 1994. The new bonds provided an initial interest rate approximately three
hundred basis points lower than the 1989 issue.
Gain On Disposal Of Property, Plant and Equipment - During fiscal 1993, the
Company sold an idle plant in Huntingburg, Indiana that had been used as a chair
assembly facility and recorded an approximate $160,000 gain on the sale.
On September 29, 1995 the Company announced its plan to permanently close
its Gettysburg, Pennsylvania manufacturing plant and consolidate the production
of that plant into its Huntingburg, Indiana facilities by December 31, 1995. The
Company also announced that during fiscal 1996 it planned to close its
Gettysburg warehouse and distribution facility and consolidate those operations
into its Huntingburg, Indiana facilities. The Company believes that it will
record a charge of approximately $1 million in its fiscal 1996 first quarter to
recognize the costs of this closing.
EFFECTS OF INFLATION
Inflation affects the Company's business principally in the form of cost
increases for material and wages. Management has attempted to cover increased
costs by increasing sales prices to the extent permitted by competition. During
fiscal 1995, 1994, and 1993 there were substantial increases in the prices of
lumber and other wood materials and this adversely affected the Company's
results in fiscal 1995 and 1994 and to a lesser extent in fiscal 1993. The
Company increased its selling prices during this period to partially offset
these increased costs. Historically, the Company has not been able to raise
sales prices enough so as to offset all increased costs during all past years.
The Company believes that
<PAGE>
its competitors also have not been able to raise their prices so as to offset
all increased costs and therefore does not feel that the Company has incurred
any material adverse effect on its competitive position. The Company believes
that it has been able to minimize the effects of general inflation in the past
by improving its manufacturing and purchasing efficiency and increasing its
employee productivity. There can be no assurance that inflation will not have a
material effect on the Company's business in the future.
During fiscal 1994 the Company opened a fabrication facility to supply
certain high volume materials and components to its plants that had previously
been purchased from outside suppliers. This facility has lowered the cost of
those materials from prices paid to outside suppliers thus helping to offset
some of the inflation it has experienced during recent years.
<PAGE>
DMI FURNITURE, INC.
FORM 10-K
ITEMS 8, 14(a) 1 AND 2 AND 14(d)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of the registrant required to be
included in Item 8 are listed below:
Page
----
Consolidated Financial Statements:
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of September 2, 1995 and
August 27, 1994 F-2, F-3
Consolidated Statements of Income for the years ended
September 2, 1995, August 27, 1994 and August 28, 1993 F-4
Consolidated Statements of Stockholders' Equity for
the years ended September 2, 1995, August 27, 1994
and August 28, 1993 F-5
Consolidated Statements of Cash Flows for the years
ended September 2, 1995, August 27, 1994 and
August 28, 1993 F-6, F-7
Notes to Consolidated Financial Statements F-8--F-18
The following financial statement schedule of the registrant is included in
Item 14(d):
Page
----
II----Valuation and Qualifying Accounts S-1
Schedules other than those mentioned above are omitted because the conditions
requiring their filing do not exist or because the required information is
presented in the consolidated financial statements, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To DMI Furniture, Inc.:
We have audited the accompanying consolidated balance sheets of DMI Furniture,
Inc. (a Delaware corporation) and subsidiary as of September 2, 1995 and August
27, 1994, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended September
2, 1995. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and schedule
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall 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 DMI Furniture, Inc.
and subsidiary as of September 2, 1995 and August 27, 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended September 2, 1995 in conformity with generally accepted accounting
principles.
As explained in Note 1 to the financial statements, effective August 29, 1993,
the Company changed its method of accounting for income taxes.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index To
Financial Statements and Schedules is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
October 6, 1995
Louisville, Kentucky
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
as of
September 2, 1995 and August 27, 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ---- ----
(Note 2)
<S> <C> <C>
Current assets:
Cash $68,703 $201,772
Restricted cash for debt payments 225,707 244,000
Accounts receivable, less allowance for
doubtful accounts of $132,000 in 1995
and $101,000 in 1994 10,748,438 9,873,582
Inventories (Note 9) 13,264,543 14,592,217
Other current assets 338,332 300,045
Current portion of deferred income taxes (Note 8) 925,000 1,310,000
----------- -----------
Total current assets 25,570,723 26,521,616
Notes receivable 0 106,933
Property, plant and equipment, at cost:
Land 811,936 796,012
Buildings and improvements 8,632,172 8,411,733
Machinery and equipment 11,475,888 11,166,007
Leasehold improvements 610,006 548,802
Construction in progress 43,667 -
----------- -----------
21,573,669 20,922,554
Less accumulated depreciation 9,552,954 8,552,881
----------- -----------
Net property, plant and equipment 12,020,715 12,369,673
Other assets:
Intangible pension asset 558,095 531,875
Other 362,466 510,948
----------- -----------
Total other assets 920,561 1,042,823
----------- -----------
Total assets $38,511,999 $40,041,045
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
as of
September 2, 1995 and August 27, 1994
(continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Trade accounts payable $3,134,625 $5,393,597
Accrued liabilities (Note 9) 1,882,915 2,205,711
Accrued dividends on preferred stock (Note 5) 389,416 505,000
Long-term debt due within one year (Note 2) 1,006,755 958,750
----------- -----------
Total current liabilities 6,413,711 9,063,058
Long-term liabilities:
Long-term debt (Note 2) 20,030,649 19,392,903
Accrued pension costs (Note 7) 905,332 994,048
Deferred compensation (Note 7) 434,203 533,909
Deferred income tax (Note 8) 71,000 40,000
----------- -----------
Total long-term liabilities 21,441,184 20,960,860
Commitments and contingencies (Notes 3 & 4)
Stockholders' equity: (Notes 5 & 6)
Series C convertible preferred stock, $2 par
value, 2,020,000 shares authorized and outstanding, 4,040,000 4,040,000
(liquidation preference of $2 per share
plus unpaid dividends)
Common stock, $.10 par value, 9,600,000 shares
authorized, 2,970,026 shares outstanding
(2,962,426 in 1994) 297,003 296,242
Additional paid-in capital 15,106,984 15,006,335
Retained deficit (8,762,883) (9,278,944)
Minimum pension liability (24,000) (46,506)
----------- -----------
Total stockholders' equity 10,657,104 10,017,127
----------- -----------
Total liabilities and stockholders' equity $38,511,999 $40,041,045
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------
September 2, August 27, August 28,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales (Note 11) $67,773,444 $60,932,235 $50,719,026
Cost of sales 56,013,705 49,615,124 40,412,036
----------- ----------- -----------
11,759,739 11,317,111 10,306,990
Selling, general and
administrative expenses 8,571,849 8,330,929 7,784,017
Other income (expense):
Interest expense (1,913,231) (1,298,790) (1,047,429)
Interest income 16,878 18,632 16,111
Gain on disposal of property,
plant and equipment 2,040 16,922 162,033
Other (3,720) 20,411 107,755
----------- ----------- -----------
(1,898,033) (1,242,825) (761,530)
----------- ----------- -----------
Income before provision for income
taxes, cumulative effect of a change in
accounting principle and extraordinary item 1,289,857 1,743,357 1,761,443
Provision for income taxes (Note 8) (485,380) (642,313) (134,500)
----------- ----------- -----------
Income before cumulative effect of a change
in accounting principle and extraordinary item 804,477 1,101,044 1,626,943
Cumulative effect of a change in
accounting for income taxes (Note 8) - 1,795,000 -
----------- ----------- -----------
Income before extraordinary item 804,477 2,896,044 1,626,943
Extraordinary item--extinguishment of debt
net of $22,000 tax benefit (Note 2) - (50,000) -
----------- ----------- -----------
Net income $804,477 $2,846,044 $1,626,943
----------- ----------- -----------
----------- ----------- -----------
Income per share before cumulative
effect of a change in accounting
principle and extraordinary item $.14 $.19 $ .29
Cumulative effect per share of a
change in accounting for income taxes - .31 -
Extraordinary item - (.01) -
----------- ----------- -----------
Earnings per common share (Note 1) $ .14 $ .49 $ .29
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three years ended September 2, 1995
<TABLE>
<CAPTION>
Series C Number of
Convertible Series C Number of Additional Retained Minimum
Preferred Shares Common Common Shares Paid-In Earnings Pension
Stock Outstanding Stock Outstanding Capital (Deficit) Liability Total
----------- ----------- ------- ------------ ----------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT AUGUST 29, 1992 $4,040,000 2,020,000 $292,800 2,928,000 $14,855,040 ($12,943,931) - $6,243,909
Net income - - - - - 1,626,943 - 1,626,943
Dividends on preferred stock - - - - - (404,000) - (404,000)
Issuance of common stock - - 426 4,264 5,970 - - 6,396
---------- --------- -------- --------- ----------- ----------- -------- -----------
BALANCES AT AUGUST 28, 1993 $4,040,000 2,020,000 $293,226 2,932,264 $14,861,010 ($11,720,988) - $7,473,248
Net income - - - - - 2,846,044 - 2,846,044
Dividends on preferred stock - - - - - (404,000) - (404,000)
Minimum pension liability - - - - - - ($46,506) (46,506)
Stock options - - - - 95,416 - - 95,416
Issuance of common stock - - 3,016 30,162 49,909 - - 52,925
---------- --------- -------- --------- ----------- ----------- -------- -----------
BALANCES AT AUGUST 27, 1994 $4,040,000 2,020,000 $296,242 2,962,426 $15,006,335 ($9,278,944) ($46,506) $10,017,127
Net income - - - - - 804,477 - 804,477
Dividends on preferred stock - - - - - (288,416) - (288,416)
Minimum pension liability - - - - - - $22,506 22,506
Stock options - - - - 87,760 - - 87,760
Issuance of common stock - - 761 7,600 12,889 - - 13,650
---------- --------- -------- --------- ----------- ----------- -------- -----------
BALANCES AT September 2, 1995 $4,040,000 2,020,000 $297,003 2,970,026 $15,106,984 ($8,762,883) ($24,000) $10,657,104
---------- --------- -------- --------- ----------- ----------- -------- -----------
</TABLE>
See accompanying notes.
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
------------------------------------------
September 2, August 27, August 28,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $804,477 $2,846,044 $1,626,943
Adjustments to reconcile net income to
net cash provided (used) by
operating activities:
Depreciation and amortization 1,003,802 812,319 759,418
Amortization of loan closing costs 43,690 34,399 36,813
Gain on disposal of property,
plant and equipment (2,040) (16,922) (162,033)
Deferred income tax 416,000 (1,270,000) -
Pension costs (66,305) 8,244 (36,283)
Deferred compensation (99,706) (79,963) (17,558)
Changes in assets and liabilities:
Accounts receivable (767,923) (2,407,439) (480,072)
Inventories 1,327,674 (2,837,556) (2,079,362)
Other assets 29,672 (152,583) (251,254)
Trade accounts payable (2,258,972) 2,072,284 (280,521)
Accrued liabilities (223,036) (10,875) 489,798
---------- ---------- ----------
Total adjustments (597,144) (3,848,092) (2,021,054)
---------- ---------- ----------
Net cash provided (used) by
operating activities 207,333 (1,002,048) (394,111)
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (655,304) (4,233,651) (892,962)
Payments received on notes receivable 10,708 16,777 15,394
Proceeds from the disposal of property,
plant and equipment 2,500 17,125 200,777
---------- ---------- ----------
Net cash used by investing activities (642,096) (4,199,749) (676,791)
---------- ---------- ----------
</TABLE>
See accompanying notes.
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years Ended
------------------------------------------
September 2, August 27, August 28,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net borrowings under line-of-credit
agreement 1,572,000 3,200,000 191,149
Additions to long-term debt 72,497 6,360,000 4,000,000
Payment of bonds from new issue (485,000) (2,940,000) -
Payments of long-term debt (473,746) (663,337) (2,893,010)
Restricted cash for debt payments 18,293 (244,000) -
Cash dividends on preferred stock (404,000) (404,000) (303,000)
Proceeds from stock options exercised 1,650 52,925 -
---------- ---------- ----------
Net cash provided by financing
activities 301,694 5,361,588 995,139
---------- ---------- ----------
Increase (decrease) in cash (133,069) 159,791 (75,763)
Cash, beginning of year 201,772 41,981 117,744
---------- ---------- ----------
Cash, end of year $68,703 $201,772 $41,981
---------- ---------- ----------
Cash paid for:
Interest $1,865,102 $1,334,961 $1,043,347
---------- ---------- ----------
Income taxes $76,432 $145,596 $116,290
---------- ---------- ----------
</TABLE>
See accompanying notes.
<PAGE>
DMI FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY - The consolidated financial statements include DMI Furniture,
Inc. and its wholly owned subsidiary, DMI Management, Inc. (DMI or Company).
All significant inter-company accounts and transactions have been eliminated.
DMI Furniture, Inc. operates in one industry - the Company manufactures and
sells low to medium priced furniture, principally to furniture retailers.
INVENTORIES - Inventories are valued at the lower of cost (first-in,
first-out method) or market.
DEPRECIATION - Depreciation is provided on the basis of estimated useful
lives of the property, plant and equipment, using the straight-line method.
INCOME TAXES - Effective August 29, 1993, the Company adopted Statement of
Financial Accounting Standard No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS 109").
SFAS 109 requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. In
accordance with this statement, the Company recognized deferred tax assets
reflecting the benefit expected to be realized from the utilization of net
operating loss carryforwards ("NOLs"), alternative minimum tax credits
carryforwards, and deductible temporary differences. (See Note 8 for additional
information). Prior years have not been restated and accordingly reflect the
procedures required by Statement of Financial Accounting Standards (SFAS 96),
"Accounting for Income Taxes".
EARNINGS PER COMMON SHARE - Earnings per common share are based on the
weighted average number of common and common equivalent shares outstanding
during the period (1995- 5,707,832; 1994 - 5,791,235; 1993 - 5,700,660), and
assumes the conversion of the Series C Preferred Stock into common stock.
CONSOLIDATED STATEMENTS OF CASH FLOWS - For purposes of the Consolidated
Statements of Cash Flows the Company considers all highly liquid debt
instruments with an initial maturity of three months or less at the date of
purchase to be cash equivalents.
2. LONG-TERM DEBT
The Company's notes consist of a $4,000,000 term loan ($2,933,337 as of
September 2, 1995), and a maximum master note revolving loan commitment of
$16,300,000, the availability of which is based on eligible accounts receivable
and inventory. On September 2, 1995 the Company had $1,349,000 additional
borrowings available under the formula for calculating its available borrowings.
<PAGE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Economic Development Revenue
Bonds; payable in annual increasing
maturities ($290,000 in 1996)
and a final maturity on
October 1, 2003 of
$415,000; weekly adjustable coupon
interest rate (3.8% on 9/2/95) and
payable monthly. $3,140,000 $3,420,000
Economic Development Revenue
Bonds; payable in annual increasing
maturities ($220,000 in 1996)
and a final maturity on
June 1, 2004 of $405,000;
weekly adjustable coupon
interest rate (3.8% on 9/2/95) and
payable monthly. 2,735,000 2,940,000
Term note payable to bank; due
in monthly principal installments of
$33,333 and one final installment
of $2,133,334 in November, 1997;
interest at prime plus 1-1/2%.
(10.50% at September 2, 1995) 2,933,337 3,333,333
Revolving master note payable to bank;
interest at prime plus 1%.
(10% at September 2, 1995) 12,021,619 10,449,619
Capital leases on equipment; payable
quarterly through December, 1997;
interest at various rates. 207,448 208,701
----------- -----------
21,037,404 20,351,653
Less portion due within one year 1,006,755 958,750
----------- -----------
$20,030,649 $19,392,903
----------- -----------
----------- -----------
</TABLE>
Substantially all assets are pledged to collateralize long-term debt.
The revolving master note payable to bank in the above table is comprised
of two promissory notes; $13,500,000 note expires in November, 1996, and
$2,800,000 note expires in December, 1995. There are no borrowings outstanding
under the $2,800,000 note as of September 2, 1995.
During fiscal 1994, the Company called $2,940,000 of its 1989 Economic
Development Revenue Bonds for redemption and refinancing into lower interest
rate bonds and charged to expense the call premium and unamortized costs
totaling approximately $72,000 ($50,000 net of related tax benefits). The loss
has been reflected as an extraordinary item in the consolidated statements of
income. The new bonds provided an initial interest rate approximately 3% lower
than the 1989 issue.
With respect to the Economic Development Revenue Bonds (Bonds), the Company
has the option to establish the Bonds' interest rate form (variable or fixed
interest rate). When the Bonds are in the variable rate form or at the end of a
fixed interest rate period the Bondholders reserve the right to demand payment
on the Bonds. In the event that any of the Bondholders exercise their rights, a
<PAGE>
remarketing agent is responsible for remarketing the Bonds on a best efforts
basis for not less than the outstanding principal and accrued interest. In the
event the Bonds are not able to be remarketed the lender is committed to
providing financing for up to 372 days. The letters of credit expire in 1999
unless earlier extended by the bank. As a result of these bank commitments, the
Bonds are classified as long-term debt in the accompanying balance sheet.
The aggregate maturities of long-term debt and capital leases for the next
five fiscal years and thereafter are as follows:
<TABLE>
<S> <C>
1996 $1,006,755
1997 13,032,627
1998 2,726,319
1999 621,930
2000 649,773
Thereafter 3,000,000
----------
$21,037,404
----------
----------
</TABLE>
The Company's bank financing agreement contains restrictive covenants that
require the Company, among other things, to maintain a certain current ratio,
fixed charge ratio, tangible net worth, and ratio of total debt to tangible net
worth all as defined in the bank financing agreement. The financing agreement
further restricts the Company from, among other things, without prior written
consent, redeeming or purchasing any of its outstanding capital stock;
acquiring, merging or consolidating with any other business; paying dividends
(except for dividends on preferred stock); and, acquiring capital assets in
excess of a specific amount. The Company failed to comply with the tangible net
worth covenant as of September 2, 1995 and the bank has waived its
non-compliance remedies and reset the covenant for future periods.
3. LEASE COMMITMENTS
The Company leases certain of its facilities and equipment under operating
leases. The leases generally require the Company to pay taxes, insurance,
maintenance and utilities. Some of the leases contain renewal options.
Future minimum lease payments at September 2, 1995 under these leases are as
follows:
<TABLE>
<S> <C>
1996 $ 602,730
1997 461,640
1998 353,187
1999 278,568
2000 117,674
----------
Total minimum payments $1,813,799
----------
----------
</TABLE>
Rent expense under operating leases charged to operations during fiscal
years 1995, 1994 and 1993 was $815,273, $760,794 and $814,182, respectively.
4. COMMITMENTS AND CONTINGENCIES
The Company has been identified as a potentially responsible party in six
government investigations and actions relating to waste disposal facilities
which may be subject to remedial action under Superfund. These proceedings are
based on allegations that the Company had hazardous waste
<PAGE>
substances disposed of at the state permitted facilities in question. These
proceedings under Superfund involve many waste generators in addition to the
Company and seek to allocate or recover costs associated with site investigation
and cleanup, which costs could be substantial. As of September 2, 1995 the
Company accrued approximately $150,000 for these potential environmental
liabilities. See Management's Discussion and Analysis of Financial Condition
and Results of Operations beginning on page II-3.
The Company is a defendant in various lawsuits arising in the normal course
of business and which, in management's opinion along with environmental matters
listed above will not have a material effect on the Company's financial position
or results of operations.
The Company has entered into individual employment agreements with certain
of its officers which expire at various times through December 31, 1995.
Certain of these agreements provide for lump sum payments in the event
employment is terminated as a result of a change in ownership of the Company.
The Company had letters of credit outstanding totaling $1,408,000 at
September 2, 1995, and $1,764,000 at August 27, 1994. These letters of credit
were issued for the purchase of inventory from foreign sources.
5. CONVERTIBLE PREFERRED STOCK
Annual dividends on each share of Series C will be the lower of (i) twenty
cents or (ii) the Company's net income in excess of $500,000 for the previous
fiscal year divided by the number of shares of Series C outstanding on the last
day of the previous fiscal year. The liquidation value of the Series C is the
sum of $2.00 per share plus any unpaid dividends on such share. The Company is
not required to redeem the Series C. If it is redeemed, however, the
redemption price is $3.00 per share. The Company has the right to negotiate a
redemption price other than the prices stated above with willing Series C
stockholders. For any future conversion of the Series C into the Company's
common stock, the purchase price to be paid for the common stock is fixed at
$1.63 per share of common stock for approximately 87% of the outstanding Series
C, and $1.00 per share of common stock for the remaining shares.
Holders of Series C will have the right, upon request by holders of ten
percent of the Series C, to elect a majority of the Board of Directors upon the
accumulation of dividends in arrears of at least $269,500 or if the Company
fails to earn annual net income of at least $769,500, or the occurrence of an
event of noncompliance. A majority of the Series C stockholders must be present
at the special meeting to constitute a quorum.
The Company's Certificate of Incorporation restricts payment of cash
dividends on the common stock to 10% of the Company's net income for the
immediately preceding fiscal year, after deduction of dividends paid in that
year on the Series C preferred stock.
In liquidation, the Series C shares are entitled to receive their
liquidation value before a distribution to common stockholders.
<PAGE>
6. STOCK OPTIONS
Stock options granted prior to February 22, 1994 were granted pursuant to
the Amended Employee Incentive Stock Option Plan approved by stockholders
February, 1989. In February, 1994 the stockholders approved the 1993 Long Term
Incentive Stock Plan For Employees under which the Company is authorized to
issue options to selected key employees to acquire a maximum of 600,000 shares
of its common stock in addition to option shares outstanding at the time of its
adoption. The option price cannot be less than 100% of the fair market value of
the stock at date of grant for Incentive Stock Options (or 110% for a 10%
beneficial owner), and not less than 50% of the fair market value at date of
grant for Non-Qualified Stock Options. Options vest at the cumulative rate of
33%, 67%, and 100% on the first three anniversaries of the date of grant and
expire ten years from date of grant. A summary of the option transactions
during the three years ended September 2, 1995 follows:
<TABLE>
<CAPTION>
Option Price
------------
Shares Per Share Total
-------- ----------- -------
<S> <C> <C> <C>
Options outstanding
at August 29, 1992 247,125 $1.13-$8.75 $628,411
Granted in 1993 262,560 1.375-$2.625 472,270
Expired and
canceled in 1993 (242,125) $1.13-$8.75 (620,286)
Granted in 1994 170,377 $1.69 287,937
Exercised in 1994 (17,162) $.375-$2.625 ( 24,550)
Granted in 1995 186,724 $1.405 262,347
Exercised in 1995 (1,200) $1.375 (1,650)
------- ----------
Options outstanding
at September 2, 1995 606,299 $1.375-$2.625 $1,004,479
------- ----------
------- ----------
Options exercisable
at August 29, 1992 233,925 $1.13-$8.75 $605,657
Became exercisable
in 1993 175,210 $1.375-$1.625 241,327
Expired and
canceled in 1993 (230,575) $1.13-$8.75 (600,214)
Became exercisable
in 1994 29,370 $2.625 77,096
Exercised in 1994 (17,162) $1.375-$2.625 (24,550)
Became exercisable
in 1995 30,260 $2.625 79,433
Exercised in 1995 (1,200) $1.375 (1,650)
------- ----------
Options exercisable
at September 2, 1995 219,828 $1.375-$2.625 $377,099
------- ----------
------- ----------
</TABLE>
In addition to the above, the Company has granted non-qualified options for
180,000 shares of common stock for $1.38 to $2.50 per share to certain
employees/directors which have a total option price of approximately
$390,000.00. The options are immediately exercisable for up to ten years after
the date of grant.
<PAGE>
The Company has a stock option plan under which the Company is authorized
to issue options to non-employee directors to acquire a maximum of 160,000
shares of its common stock. The option price is the closing bid price for
shares on NASDAQ on the date of grant. Options vest at the cumulative rate of
50% and 100% on the first two anniversaries of the date of grant and expire ten
years from date of grant. A summary of the option transactions during the three
years ended September 2, 1995 follows:
<TABLE>
<CAPTION>
Option Price
------------
Shares Per Share Total
-------- ----------- -------
<S> <C> <C> <C>
Options outstanding at
August 29, 1992 88,000 $1.19-$2.625 $185,385
Options granted in 1993 4,000 $2.875 11,500
Options granted in 1994 4,000 $3.50 14,000
Exercised in 1994 (13,000) $1.50-$2.625 (28,375)
Granted in 1995 4,000 $1.625 6,500
------- ----------
Options outstanding at
September 2, 1995 87,000 $1.19-$3.50 $189,010
------- ----------
------- ----------
Options exercisable
at August 29, 1992 82,000 $1.19-$2.625 $177,505
Became exercisable
in 1993 4,000 $1.19-$1.375 5,130
Became exercisable
in 1994 4,000 $1.375-$2.875 8,500
Exercised in 1994 (13,000) $1.50-$2.625 (28,375)
Became exercisable in 1995 4,000 $2.875-$3.50 12,750
------- ----------
Options exercisable
at September 2, 1995 81,000 $1.19-$3.50 $175,510
------- ----------
------- ----------
</TABLE>
7. PENSION PLANS
The Company has a defined benefit pension plan which covers substantially
all hourly employees. Pension costs charged to operations were approximately
$180,000 in fiscal 1995, $170,000 in fiscal 1994, and $150,000 in fiscal 1993.
Retirement benefits are based on years of credited service multiplied by a
dollar amount negotiated under collective bargaining agreements. The Company's
policy is to fund normal costs and amortization of prior service costs at a
level which is equal to or greater than the minimum required under ERISA.
<PAGE>
Net pension costs for the defined benefit plan in fiscal 1995, fiscal 1994
and fiscal 1993 was computed as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits
earned $71,090 $67,106 $ 58,388
Interest cost on projected
benefit obligation 180,937 170,178 151,506
Actual return on plan assets (105,366) (31,487) (87,195)
Amortization of transition
obligation 13,686 13,686 13,686
Amortization of unrecognized
prior service cost 19,327 16,505 9,842
Net deferred asset gain(loss) 0 (65,601) 3,891
-------- -------- --------
Net pension expense $179,674 $170,387 $150,118
-------- -------- --------
-------- -------- --------
</TABLE>
The funded status of the defined benefit plan at September 2, 1995 and
August 27, 1994 is shown below:
<TABLE>
<CAPTION>
Actuarial present value of
accumulated plan benefits:
1995 1994
---- ----
<S> <C> <C>
Vested $(2,323,918) $(2,160,052)
Non-vested (58,710) (77,648)
----------- -----------
Accumulated benefit
obligation (2,382,628) (2,237,700)
Effect of projection of
future compensation levels 0 0
----------- -----------
Projected benefit obligation (2,382,628) (2,237,700)
Plan assets at fair market
value 1,477,296 1,243,652
----------- -----------
Projected benefit obligation
in excess of plan assets (905,332) (994,048)
Unrecognized transition
liability 205,285 218,971
Unrecognized net (gain)/loss 37,976 73,819
Unrecognized prior service cost 352,834 312,904
Adjustment required to
recognize minimum liability (596,095) (605,694)
----------- -----------
Accrued pension liability $(905,332) $(994,048)
----------- -----------
----------- -----------
</TABLE>
The projected benefit obligation for service rendered was determined using
an assumed discount rate of 8.25% and an assumed rate of return on plan assets
of 8.25%. The assets of the plan are invested in equity and fixed income
securities.
The Company has a defined contribution 401(k) type retirement plan which
covers substantially all salaried employees. Costs charged to operations in
fiscal 1995, fiscal 1994 and fiscal 1993 were $65,400, $63,700 and $62,100,
respectively.
<PAGE>
The Company had a non-qualified deferred compensation plan that was
terminated for all non-retired executive participants during fiscal 1989. The
present value of future payments under the plan accrued at September 2, 1995 and
August 27, 1994 is $434,203 and $533,909, respectively. Plan costs charged to
operations were approximately $27,000 in fiscal 1995, $37,000 in fiscal 1994,
and approximately $66,000 in fiscal 1993.
8. INCOME TAXES
In adopting SFAS No. 109, as of August 29, 1993, the Company recorded
approximately $1,931,000 of deferred tax assets and $136,000 of deferred tax
liabilities, resulting in a net deferred tax asset of $1,795,000. Such amount
has been reflected in the Consolidated Statements of Income as the cumulative
effect of an accounting change.
The tax effect of each temporary timing difference and carryforward that
gives rise to significant deferred tax assets and deferred tax liabilities as of
September 2, 1995 and August 27, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net operating loss carryforwards $143 $351
Alternative minimum tax credit carryforward 187 180
Accumulated tax depreciation of property and equipment
in excess of accumulated book depreciation and other
related items (359) (221)
Various accruals and reserves 716 774
Inventory 142 158
Other 25 28
------ ------
Net deferred tax asset $854 $1,270
------ ------
------ ------
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. No valuation allowance
pursuant to SFAS 109 was required as of September 2, 1995 and August 27, 1994.
Income tax expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
Twelve Months Ended
Sept. 2, Aug. 27, Aug. 28,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Currently payable $55 $68 $135
Deferred 430 574 -
---- ---- ----
Total $485 $642 $135
---- ---- ----
---- ---- ----
</TABLE>
The deferred tax provision for the twelve months ended September 2, 1995
and August 27, 1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Utilization of net operating loss carryforwards $209 $441
Excess tax over book depreciation 138 85
Other 83 48
---- ----
$430 $574
---- ----
---- ----
</TABLE>
<PAGE>
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows (in thousands):
<TABLE>
<CAPTION>
Twelve Months Ended
Sep.2, Aug. 27, Aug. 28,
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Tax at 34% statutory
rate $438 $593 $599
State income taxes,
net of federal
benefit 47 49 95
Tax benefit of net
operating loss
carryforwards
limited to 90%
of alternative
minimum taxable
income - - (559)
----- ----- -----
Income Taxes $485 $642 $135
----- ----- -----
----- ----- -----
</TABLE>
The increase in the effective tax rate in fiscal 1995 and 1994 as compared
to fiscal 1993 is primarily due to the adoption of SFAS 109.
At September 2, 1995, the Company had the following NOLs available for
income tax purposes (in thousands):
<TABLE>
<CAPTION>
Expiration
Date Amount
---------- ------
<S> <C>
2002 $289
2004 10
2006 120
---
$419
----
----
</TABLE>
The Company has alternative minimum tax credit carryforwards at September
2, 1995 of approximately $180,000 which have an unlimited carryforward period.
9. OTHER INFORMATION
Inventories - Inventories are summarized below:
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Finished product $7,115,000 $7,846,000
Work in process 785,000 950,000
Raw material 5,365,000 5,796,000
----------- ---------
$13,265,000 $14,592,000
----------- -----------
----------- -----------
</TABLE>
<PAGE>
Accrued liabilities - Accrued liabilities are summarized below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Property, payroll and
other taxes $457,936 $440,358
Payroll, bonuses and
commissions 958,265 1,240,565
Accrued rent - 50,846
Interest 128,886 97,635
Other 337,828 376,307
---------- ----------
$1,882,915 $2,205,711
---------- ----------
---------- ----------
</TABLE>
10. QUARTERLY FINANCIAL DATA
Quarterly financial data (unaudited - in thousands of dollars except per
share amounts)
<TABLE>
<CAPTION>
Fiscal 1995
- -----------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $18,723 $17,451 $14,775 $16,824 $67,773
Gross profit 3,566 2,942 2,529 2,723 11,760
Net income 538 153 19 94 804
Income per common
share (1) $.09 $.03 - $.02 $.14
Fiscal 1994
- -----------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
Net sales $16,603 $14,576 $14,398 $15,355 $60,932
Gross profit 3,385 2,556 2,429 2,947 11,317
Income before cumulative
effect of a change in
accounting principle
and extraordinary item 580 166 106 249 1,101
Net income(2) 2,375 166 56 249 2,846
Income per common
share (1)(3) $.10 $.03 $.02 $.04 $.19
(1) Income per common share was calculated by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during the period. (See Note 1).
<PAGE>
(2) Includes $1,795,000 credit in first quarter for change in accounting
principle (See Note 8), and $50,000 charge in third quarter for an extraordinary
item (See Note 2).
(3) Does not include $.31 credit in first quarter for change in accounting
principle (See Note 8), and $(.01) charge in third quarter for extraordinary
item (See Note 2).
</TABLE>
11. MAJOR CUSTOMERS
Four customers accounted for 34% of sales for the year ended September 2,
1995, one of which accounted for approximately 13% of sales. During fiscal
1994, five customers accounted for 31% of sales one of which accounted for
approximately 12% of sales. The loss of more than one of these customers at the
same time or one of the largest four could have a materially adverse effect on
the business of the Company. As of September 2, 1995, one customer accounted
for approximately 29% of total accounts receivable. The Company's customers
include large furniture chain store retailers, wholesale clubs, department
stores, and independent distributors, as well as numerous smaller retailers.
12. SUBSEQUENT EVENT
On September 29, 1995 the Company announced its plan to permanently close
its Gettysburg, Pennsylvania manufacturing plant and consolidate the production
of that plant into its Huntingburg, Indiana facilities by December 31, 1995, and
close its Gettysburg warehouse during 1996. The Company estimates that a
pre-tax charge of approximately $1 million will be recognized in its fiscal 1996
first quarter related to this closing. The company anticipates that the charge
will include book provisions of approximately $725,000 for asset impairment
and $145,000 for future pension costs, and $125,000 for severance pay.
<PAGE>
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
<PAGE>
Part III.
Items 10, 11, 12 and 13.
The information called for by this part (Items 10, 11, 12 and 13) is
incorporated by reference from the Company's definitive proxy statement to be
filed with the Securities and Exchange Commission not later than December 27,
1995.
<PAGE>
Part IV.
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K.
The financial statements required by Sections 14(a) 1 and 2 and
14(d) are included under Item 8.
The exhibits required by Item 14(a) 3 are listed on the index to
Exhibits.
Schedules required by Item 14(d) follow the signature pages.
Item 14(b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of
fiscal 1995.
OTHER MATTERS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the forgoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or a controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling persons in connection with the securities
being registered, the registrant will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
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, hereunto duly authorized.
DATED: October 20, 1995 DMI FURNITURE, INC.
By:/S/Donald D. Dreher
--------------------------------
President, Chairman of the Board and
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Vice President, Finance,
Chief Financial Officer
and Principal Accounting
/S/Joseph G. Hill Officer and Director October 20, 1995
- --------------------------
Joseph G. Hill
/S/Thomas M. Levine Director October 20, 1995
- --------------------------
Thomas M. Levine
/S/Alexander N. Rubin, Jr. Director October 20, 1995
- --------------------------
Alexander N. Rubin, Jr.
/S/William L. Schubert Director October 20, 1995
- --------------------------
William L. Schubert
President, Chief
Executive Officer, Chairman
/S/Donald D. Dreher of the Board and Director October 20, 1995
- --------------------------
Donald D. Dreher
<PAGE>
DMI FURNITURE, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged Balance
Beginning to Costs at End
Description of period and Expenses Deductions(A) of Period
----------- --------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended August 28, 1993 $126,212 $78,004 $62,807 $141,409
-------- -------- -------- --------
Year ended August 27, 1994 $141,409 $24,409 $64,649 $101,169
-------- -------- -------- --------
Year ended September 2, 1995 $101,169 $237,004 $205,996 $132,177
-------- -------- -------- --------
(A)Charge-offs net of recoveries.
</TABLE>
<PAGE>
Item 14(a)3. EXHIBITS
10-K
No. Page No.
--------- --------
*** (3)(a) Restated Certificate of Incorporation
* (b) Bylaws
*** (4)(a) Restated Certificate of Incorporation
* (b) Bylaws
******* (10)(a) 1988 Stock Option Plan for Employees
********* (b) Nonemployee Director Stock Option
Program
********** (c) Form of Indemnification Agreement
********** (d) Amendment of Employment Agreement and
Officer Severance Agreement dated as of
May 19, 1988 between Joseph G. Hill and
DMI Furniture, Inc.
* (e) First Amendment To Amended And Restated Credit
Agreement between Bank One, Indianapolis, N.A.
and DMI Furniture, Inc. dated October, 1994.
***** (f) Employment Agreement dated as of September 1,
1991 with James W. McCallister
****** (g) Credit Agreement with Bank One, Indianapolis, N.A.
dated December 4, 1993.
********** (h) Amendment of Employment Agreement and Officer
Severance Agreement dated as of May 19, 1988
between Donald D. Dreher and DMI Furniture, Inc.
******** (i) Amended and Restated Credit Agreement between Bank
One, Indianapolis, National Association, and DMI
Furniture, Inc. dated June 9, 1994.
******** (l) Loan Agreement between City of Huntingburg, Indiana
and DMI Furniture, Inc. dated June 1, 1994.
********* (j) 1993 Long Term Incentive Stock Plan for Employees
********* (k) Stock Compensation and Deferral Plan for Outside
Directors.
********* (l) Loan Agreement between City of Huntingburg, Indiana
and DMI Furniture, Inc. dated as of October 1, 1993.
********* (m) First Amendment To Employment Agreement Between James
McCallister and DMI Furniture, Inc. dates as of
September 1, 1993.
(n) Second Amendment To Amended And Restated Credit E1-E5
Agreement between Bank One, Indianapolis, N.A.
and DMI Furniture, Inc. dated January, 1995.
(o) Third Amendment To Amended And Restated Credit E6-E8
Agreement between Bank One, Indianapolis, N.A.
and DMI Furniture, Inc. dated March, 1995.
<PAGE>
(p) Fourth Amendment To Amended And Restated Credit E9-E10
Agreement between Bank One, Indianapolis, N.A.
and DMI Furniture, Inc. dated September, 1995.
(11) Statement re: Computations of earnings
per share E-11
(21) List of subsidiaries E-12
(23) Consent of Arthur Andersen LLP to incorporation E-13
of audit report into S-8 registration.
- -------------------------------------------------------------------------------
* Incorporated by reference to annual report on Form 10-K
for the fiscal year ended August 27, 1994
*** Incorporated by reference to annual report on Form 10-Q
for the fiscal quarter ended March 4, 1995
**** Incorporated by reference to annual report on Form 10-K
for the fiscal year ended August 31, 1991
***** Incorporated by reference to annual report on Form 10-K
for the fiscal year ended August 29, 1992
****** Incorporated by reference to Exhibit 10 to report on Form 10-Q
for the second quarter of fiscal year ended August 28, 1993.
******* Incorporated by reference to Registration Number 33-64188
******** Incorporated by reference to Form 10-Q for the fiscal quarter
ended May 28, 1994.
********* Incorporated by reference to Form 10-Q for the fiscal quarter
ended February 26, 1994.
********** Incorporated by reference to Form 10-K for
the fiscal year ended August 28, 1993.
<PAGE>
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
DMI FURNITURE, INC., a Delaware corporation (the "Company"), and BANK ONE,
INDIANAPOLIS, NATIONAL ASSOCIATION, a national banking association (the "Bank"),
parties to an Amended and Restated Credit Agreement dated June 9, 1994, as
amended by a First Amendment to Amended and Restated Credit Agreement dated
October 11, 1994 (collectively, as amended, the "Original Agreement"), agree to
amend the Original Agreement by this Second Amendment to Amended and Restated
Credit Agreement (this "Second Amendment") as follows:
1. DEFINITIONS. Sections 2.y, 2.mm, and 2.pp of the Original Agreement
are amended in their entireties, and new Sections 2.wwww, 2,xxxx, 2.yyyy,
2.zzzz, 2.aaaaa and 2.bbbbb are added to the Original Agreement, all to read as
follows:
y. CREDIT DOCUMENT. "Credit Document" means, as the context requires,
any of this Agreement, any of the Notes, any of the Letters of
Credit, any of the Mortgages, the Assignment, the Security
Agreement, the Guaranty Agreement, any of the Reimbursement
Agreements and any other instrument or document which evidences or
secures the Letters of Credit, the Loans, or any of them or which
expresses an agreement as to terms applicable to the Letters of
Credit, the Loans, or any of them, and when used in the plural form
means any two or more of the Credit Documents, as the context
requires.
mm. LOAN. "Loan" means the Revolving Loan, the Overline Loan, the Term
Loan, any Remarketing Reimbursement Loan-1993 Bonds, or any
Remarketing Reimbursement Loan-1994 Refunding Bonds, as the context
requires, and when used in the plural form refers to all of the
Loans or any combination of them, as the context requires.
pp. NOTE. "Note" means the Revolving Note, the Overline Note, the Term
Note, any Remarketing Reimbursement Note-1993 Bonds, or any
Remarketing Reimbursement Note-1994 Refunding Bonds, as the context
requires, and when used in the plural form refers to all of the
Notes or any combination of them, as the context requires.
wwww. REMARKETING REIMBURSEMENT LOAN-1993 BONDS. "Remarketing
Reimbursement Loan-1993 Bonds" is used as defined in Section
4.a(iv).
xxxx. REMARKETING REIMBURSEMENT LOAN-1994 REFUNDING BONDS. "Remarketing
Reimbursement Loan-1994 Refunding Bonds" is used as defined in
Section 4.b(iv).
yyyy. REMARKETING REIMBURSEMENT NOTE-1993 BONDS. "Remarketing
Reimbursement Note-1993 Bonds" is used as defined in Section
4.a(iv).
zzzz. REMARKETING REIMBURSEMENT NOTE-1994 REFUNDING BONDS. "Remarketing
Reimbursement Note-1994 Refunding Bonds" is used as defined in
Section 4.b(iv).
aaaaa. REMARKETING AGENT. "Remarketing Agent" is used as defined in the
corresponding Trust Indenture, as the context requires.
<PAGE>
bbbbb. SECOND AMENDMENT. "Second Amendment" means that agreement entitled
"Second Amendment to Amended and Restated Credit Agreement" between
the Company and the Bank dated January 10, 1995.
All other terms defined in the Original Agreement and used in this Second
Amendment shall have their respective meanings stated in the Agreement.
2. CREDIT ENHANCEMENT LETTERS OF CREDIT. New Sections 4.a(iv) and
4.b(iv) are added to the Original Agreement to read as follows:
a. (iv) REMARKETING REIMBURSEMENT LOAN-1993 BONDS. At
the option of the Company exercised by written notice to the
Bank given not less than ten (10) days prior to the
expiration of a period of ninety (90) days following a
Remarketing Drawing on the 1993 Direct-Pay Letter of Credit
(which expiration date is hereafter referred to in this
subsection as the "reimbursement due date"), the Bank will
make a loan (a "Remarketing Reimbursement Loan-1993 Bonds")
to the Company on the reimbursement due date, provided that
the 1993 Direct-Pay Letter of Credit as it may have been
extended from time to time shall not then have expired or
been terminated, and provided further that no Event of
Default or Unmatured Event of Default shall have occurred and
is then continuing. Each Remarketing Reimbursement Loan-1993
Bonds shall be in an amount not in excess of the amount due
to the Bank from the Company on the related reimbursement due
date on account of the portion of the Remarketing Drawing
representing the Principal Amount. The term "Principal
Amount" is used in the preceding sentence as that term is
defined in the 1993 Direct-Pay Letter of Credit. Proceeds of
the Remarketing Reimbursement Loan-1993 Bonds shall be used
solely to reimburse the Bank for all or a portion of the
Principal Amount of the related Remarketing Drawing for the
1993 Bonds which have not been sold by the Remarketing Agent
subsequent to the Remarketing Drawing. Each Remarketing
Reimbursement Loan-1993 Bonds shall be represented by the
promissory note of the Company (a "Remarketing Reimbursement
Note-1993 Bonds"), delivered to the Bank contemporaneously
with the making of the Loan, with each such Note
substantially in the form of the Term Note, with the
following exceptions:
(A) no Remarketing Reimbursement Loan-1993 Bonds will be
made after the earlier of the expiration or
termination of the 1993 Direct-Pay Letter of Credit;
(B) the final maturity of each Remarketing Reimbursement
Note-1993 Bonds shall be a date which is the earlier
of (1) 288 days after the date the Loan evidenced by
such Note was made, or (2) the date that the 1993
Direct-Pay Letter of Credit (as it may have been
extended from time to time in the Bank's sole
discretion) expires or is terminated;
(C) each Remarketing Reimbursement Note-1993 Bonds shall
bear interest prior to maturity at a per annum rate
equal to the
-2-
<PAGE>
Prime Rate plus one and one-half percent (1-1/2%) and
after maturity at a per annum rate equal to the Prime
Rate plus three and one-half percent (3-1/2%) per
annum;
(D) all accrued interest on the outstanding principal
balance of the Remarketing Reimbursement Loan-1993
Bonds is due and payable prior to maturity on the last
Banking Day of each calendar month, and after
maturity, all interest is due and payable as accrued
and without demand; and
(E) the principal of each Remarketing Reimbursement
Note-1993 Bonds shall be payable prior to maturity on
the same dates as the scheduled principal payments
under the 1993 Bonds purchased with the related
Remarketing Drawing would have become due and payable,
and the principal amount payable on each such date
shall be equal to the principal payments scheduled to
have been paid on the same date on the 1993 Bonds
redeemed with the related Remarketing Drawing.
b. (iv) REMARKETING REIMBURSEMENT LOAN-1994 REFUNDING Bonds. At the
option of the Company exercised by written notice to the Bank
given not less than ten (10) days prior to the expiration of
a period of ninety (90) days following a Remarketing Drawing
on the 1994 Refunding Direct-Pay Letter of Credit (which
expiration date is hereafter referred to in this subsection
as the "reimbursement due date"), the Bank will make a loan
(a "Remarketing Reimbursement Loan-1994 Refunding Bonds") to
the Company on the reimbursement due date, provided that the
1994 Refunding Direct-Pay Letter of Credit as it may have
been extended from time to time shall not then have expired
or been terminated, and provided further that no Event of
Default or Unmatured Event of Default shall have occurred and
is then continuing. Each Remarketing Reimbursement Loan-1994
Refunding Bonds shall be in an amount not in excess of the
amount due to the Bank from the Company on the related
reimbursement due date on account of the portion of the
Remarketing Drawing representing the Principal Amount. The
term "Principal Amount" is used in the preceding sentence as
that term is defined in the 1994 Refunding Direct-Pay Letter
of Credit. Proceeds of the Remarketing Reimbursement
Loan-1994 Refunding Bonds shall be used solely to reimburse
the Bank for all or a portion of the Principal Amount of the
related Remarketing Drawing for the 1994 Refunding Bonds
which have not been sold by the Remarketing Agent subsequent
to the Remarketing Drawing. Each Remarketing Reimbursement
Loan-1994 Refunding Bonds shall be represented by the
promissory note of the Company (a "Remarketing Reimbursement
Note-1994 Refunding Bonds"), delivered to the Bank
contemporaneously with the making of the Loan, with each such
Note substantially in the form of the Term Note, with the
following exceptions:
-3-
<PAGE>
(A) no Remarketing Reimbursement Loan-1994 Refunding Bonds
will be made after the earlier of the expiration or
termination of the 1994 Refunding Direct-Pay Letter of
Credit;
(B) the final maturity of each Remarketing Reimbursement
Note-1994 Refunding Bonds is a date which is the
earlier of (1) 288 days after the date the Loan
evidenced by such Note was made, or (2) the date that
the 1994 Refunding Direct-Pay Letter of Credit (as it
may have been extended from time to time in the Bank's
sole discretion) expired or is terminated;
(C) each Remarketing Reimbursement Note-1994 Refunding
Bonds shall bear interest prior to maturity at a per
annum rate equal to the Prime Rate plus one and
one-half percent (1-1/2%) and after maturity at a per
annum rate equal to the Prime Rate plus three and
one-half percent (3-1/2%) per annum;
(D) all accrued interest on the outstanding principal
balance of the Remarketing Reimbursement Loan-1994
Refunding Bonds is due and payable prior to maturity
on the last Banking Day of each calendar month, and
after maturity, all interest is due and payable as
accrued and without demand; and
(E) the principal of each Remarketing Reimbursement
Note-1994 Refunding Bonds shall be payable prior to
maturity on the same dates as the scheduled principal
payments under the 1994 Refunding Bonds purchased with
the related Remarketing Drawing would have become due
and payable, and the principal amount payable on each
such date shall be equal to the principal payments
scheduled to have been paid on the same date on the
1994 Refunding Bonds redeemed with the related
Remarketing Drawing.
3. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into
this Second Amendment, the Company affirms that the representations and
warranties contained in the Original Agreement are correct as of the date of
this Second Amendment, except that (i) they shall be deemed also to refer to
this Second Amendment, as well as all documents named herein, and (ii) Section
5.d shall be deemed also to refer to the most recent audited and unaudited
financial statements of the Company furnished to the Bank.
4. EVENTS OF DEFAULT. The Company certifies that no Event of Default
or Unmatured Event of Default under the Original Agreement, as amended by this
Second Amendment, has occurred and is continuing as of the date of this Second
Amendment.
5. CLOSING DOCUMENTS. As conditions precedent to the effectiveness of
this Second Amendment, the Bank shall first receive the following
contemporaneously with the execution and delivery of this Second Amendment, each
duly executed, dated and in form and substance satisfactory to the Bank:
-4-
<PAGE>
A. A certified copy of the resolutions of the Board of Directors of the
Company, authorizing the execution, performance and delivery of this
Second Amendment; and
B. Such other documents as are reasonably required by the Bank.
6. EFFECT OF SECOND AMENDMENT. Except as amended in this Second
Amendment, all of the terms and conditions of the Original Agreement shall
continue unchanged and in full force and effect together with this Second
Amendment.
IN WITNESS WHEREOF, the Company and the Bank, by their respective duly
authorized officers, have executed and delivered in Indiana this Second
Amendment to Amended and Restated Credit Agreement on this 10th day of
January, 1995.
DMI FURNITURE, INC.
By: /s/ Joseph G. Hill
--------------------------------
Joseph G. Hill, Chief Financial
Officer
BANK ONE, INDIANAPOLIS, NA
Attest:
/s/ William D. Verbor By: /s/ Steven J. Leibold
- --------------------------------- --------------------------------
Vice President Steven J. Leibold, Vice President
- ---------------------------------
(printed name and title)
-5-
<PAGE>
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
DMI FURNITURE, INC., a Delaware corporation (the "Company"), and BANK ONE,
INDIANAPOLIS, NATIONAL ASSOCIATION, a national banking association (the "Bank"),
parties to an Amended and Restated Credit Agreement dated June 9, 1994, as
amended by a First Amendment to Amended and Restated Credit Agreement dated
October 11, 1994, and as amended by a Second Amendment to Amended and Restated
Credit Agreement dated January 10, 1995 (collectively, as amended, the "Original
Agreement"), agree to amend the Original Agreement by this Third Amendment to
Amended and Restated Credit Agreement (this "Third Amendment") as follows:
1. DEFINITIONS. Sections 2.p, 2.q, 2.vv and 2.kkk of the Original
Agreement are amended in their entireties and a new Section 2.ccccc is added to
the Original Agreement, all to read as follows:
p. BORROWING BASE. "Borrowing Base" means an amount equal to the sum
of (i) eighty percent (80%) of the adjusted book value of the
Company's accounts receivable, plus (ii) fifty percent (50%) of the
book value of the Company's finished goods inventories, plus (iii)
for the period from June 1 through July 31 of each year and from
December 1 of each year through February 28 or February 29 of the
following year, $500,000.00, plus (iv) twenty-five percent (25%) of
the book value of the Company's raw materials inventory, plus (v)
the Borrowing Base Adjustment. For purposes of the preceding
sentence, the phrase "adjusted book value of the Company's accounts
receivable" means the book value of the Company's accounts
receivable less any accounts which are sixty (60) days or more past
due, or which are due from an account debtor known to the Company to
be the subject of a bankruptcy or other insolvency proceeding or
known to the Company to have ceased doing business, and less all
accounts due from any account debtor if ten percent (10%) or more of
the aggregate amount of the accounts receivable from such debtor are
sixty (60) days or more past due, and provided that any account
receivable otherwise includable in the Borrowing Base shall be
reduced, but not below zero, by the amount
of any accounts payable to the account debtor from which such
account is due.
q. BORROWING BASE ADJUSTMENT. "Borrowing Base Adjustment" means the
amounts shown in the following table during the periods indicated:
PERIOD AMOUNT
------ ------
At March 15, 1995, and
until August 15, 1995 $2,000,000
At August 15, 1995, and
until September 15, 1995 $1,000,000
At September 15, 1995, and
until October 15, 1995 $ 500,000
At October 15, 1995, and
at all times thereafter Zero
vv. OVERLINE LOAN MATURITY DATE. "Overline Loan Maturity Date" means
December 31, 1995, and any subsequent date to which the Overline
Loan Commitment may be extended by the Bank pursuant to the terms of
Section 3.c(iv).
<PAGE>
kkk. REVOLVING LOAN MATURITY DATE. "Revolving Loan Maturity Date" means
November 30, 1996, and any subsequent date to which the Revolving
Loan Commitment may be extended by the Bank pursuant to the terms of
Section 3.a(iv).
ccccc. THIRD AMENDMENT. "Third Amendment" means that agreement entitled
"Third Amendment to Amended and Restated Credit Agreement" between
the Company and the Bank dated , 1995.
All other terms defined in the Original Agreement and used in this Third
Amendment shall have their respective meanings stated in the Agreement.
2. THE LOANS. The first sentence of Section 3.a(ii), the entire
Section 3.c(i), and the first sentence of Section 3.c(ii) of the
Original Agreement are amended in their entireties to read as
follows:
a. (ii) METHOD OF BORROWING. The obligation of the Company to repay
the Revolving Loan shall be evidenced by a promissory note
(the "Revolving Note") of the Company in the form of EXHIBIT
"A" attached to the Third Amendment.
c. (i) THE OVERLINE LOAN COMMITMENT -- USE OF PROCEEDS. From the
date of the Third Amendment and until the Overline Loan
Maturity Date, the Bank agrees to make Advances
(collectively, the "Overline Loan") under a revolving line of
credit from time to time to the Company of amounts not
exceeding the lesser of Two Million Eight Hundred Thousand
and No/100 Dollars ($2,800,000.00) (the "Overline Loan
Commitment"), or the Overline Loan Availability Amount in the
aggregate at any time outstanding, provided that all of the
conditions of lending stated in Section 9 of this Agreement
have been fulfilled at the time of each Advance. Proceeds of
the Overline Loan may be used by the Company only to fund
working capital requirements resulting from the order the
Company received from Sam's Club a division of Walmart, Inc.
for desk furniture.
c. (ii) METHOD OF BORROWING. The obligation of the Company to repay
the Overline Loan shall be evidenced by a promissory note
(the "Overline Note") of the Company in the form of EXHIBIT
"B" attached to the Third Amendment.
3. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into
this Third Amendment, the Company affirms that the representations and
warranties contained in the Original Agreement are correct as of the date of
this Third Amendment, except that (i) they shall be deemed also to refer to this
Third Amendment, as well as all documents named herein, and (ii) Section 5.d
shall be deemed also to refer to the most recent audited and unaudited financial
statements of the Company furnished to the Bank.
4. AFFIRMATIVE COVENANTS. Section 7.g(ii) of the Original Agreement is
amended in its entirety to read as follows:
g. (ii) TANGIBLE NET WORTH. The Company shall maintain its Tangible
Net Worth at levels not less than those shown in the
following table during the periods indicated:
-2-
<PAGE>
PERIOD TANGIBLE NET WORTH
------ ------------------
at fiscal year end 1994 and
until fiscal year end 1995 $ 8,800,000
at fiscal year end 1995 and
until fiscal year end 1996 $ 9,500,000
at fiscal year end 1996 and
until fiscal year end 1997 $10,500,000
at fiscal year end 1997 and
all times thereafter $11,500,000
5. EVENTS OF DEFAULT. The Company certifies that no Event of Default
or Unmatured Event of Default under the Original Agreement, as amended by this
Third Amendment, has occurred and is continuing as of the date of this Third
Amendment.
6. CLOSING DOCUMENTS. As conditions precedent to the effectiveness of
this Third Amendment, the Bank shall first receive the following
contemporaneously with the execution and delivery of this Third Amendment, each
duly executed, dated and in form and substance satisfactory to the Bank:
A. The Revolving Note in the form attached as EXHIBIT "A" to this Third
Amendment;
B. The Overline Note in the form attached as EXHIBIT "B" to this Third
Amendment;
C. A certified copy of the resolutions of the Board of Directors of the
Company, authorizing the execution, performance and delivery of this
Third Amendment and the other documents named herein; and
D. Such other documents as are reasonably required by the Bank.
7. EFFECT OF THIRD AMENDMENT. Except as amended in this Third
Amendment, all of the terms and conditions of the Original Agreement shall
continue unchanged and in full force and effect together with this Third
Amendment.
IN WITNESS WHEREOF, the Company and the Bank, by their respective duly
authorized officers, have executed and delivered in Indiana this Third Amendment
to Amended and Restated Credit Agreement on this day of , 1995.
DMI FURNITURE, INC.
By: /s/ Joseph G. Hill
----------------------------------
Joseph G. Hill, Chief Financial
Officer
BANK ONE, INDIANAPOLIS, NA
By:
----------------------------------
Steven J. Leibold, Vice President
- 3 -
<PAGE>
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
DMI FURNITURE, INC., a Delaware corporation (the "Company"), and BANK ONE,
INDIANAPOLIS, NATIONAL ASSOCIATION, a national banking association (the "Bank"),
parties to an Amended and Restated Credit Agreement dated June 9, 1994, as
amended by a First Amendment to Amended and Restated Credit Agreement dated
October 11, 1994, by a Second Amendment to Amended and Restated Credit Agreement
dated January 10, 1995, and by a Third Amendment to Amended and Restated Credit
Agreement dated March 10, 1995 (collectively, as amended, the "Original
Agreement"), agree to amend the Original Agreement by this Fourth Amendment to
Amended and Restated Credit Agreement (this "Fourth Amendment") as follows:
1. DEFINITIONS. Sections 2.p and 2.q of the Original Agreement are
amended and restated in their entireties to read as follows:
p. BORROWING BASE. "Borrowing Base" means an amount equal to the sum of
(i) eighty percent (80%) of the adjusted book value of the Company's
accounts receivable, plus (ii) fifty percent (50%) of the book value
of the Company's finished goods inventories, plus (iii) for the period
from December 2, 1995, through March 2, 1996, and for the period from
June 1, 1996, through August 3, 1996, $500,000.00, plus (iv)
twenty-five percent (25%) of the book value of the Company's raw
materials inventory, plus (v) the Borrowing Base Adjustment. For
purposes of the preceding sentence, the phrase "adjusted book value of
the Company's accounts receivable" means the book value of the
Company's accounts receivable less any accounts which are sixty (60)
days or more past due, or which are due from an account debtor known
to the Company to be the subject of a bankruptcy or other insolvency
proceeding or known to the Company to have ceased doing business, and
less all accounts due from any account debtor if ten percent (10%) or
more of the aggregate amount of the accounts receivable from such
debtor are sixty (60) days or more past due, and provided that any
account receivable otherwise includable in the Borrowing Base shall be
reduced, but not below zero, by the amount of any accounts payable to
the account debtor from which such account is due.
q. BORROWING BASE ADJUSTMENT. "Borrowing Base Adjustment" means the
amounts shown in the following table during the periods indicated:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
At March 15, 1995, and
until November 4, 1995 $2,000,000
At November 4, 1995, and
until December 2, 1995 $1,500,000
At December 2, 1995, and
until December 30, 1995 $1,000,000
At December 30, 1995, and
at all times thereafter Zero
</TABLE>
All other terms defined in the Original Agreement and used in this Fourth
Amendment shall have their respective meanings stated in the Agreement.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this
Fourth Amendment, the Company affirms that the representations and warranties
contained in the Original Agreement are correct as of the date of this Fourth
Amendment, except that (i) they shall be deemed also to refer to this Fourth
Amendment, as well as all documents named herein, and (ii) Section 5.d shall be
deemed also to refer to the most recent audited and unaudited financial
statements of the Company furnished to the Bank.
3. EVENTS OF DEFAULT. The Company certifies that no Event of Default or
Unmatured Event of Default under the Original Agreement, as amended by this
Fourth Amendment, has occurred and is continuing as of the execution date of
this Fourth Amendment.
4. CLOSING DOCUMENTS. As conditions precedent to the effectiveness of
this Fourth Amendment, the Bank shall first receive the following
contemporaneously with the execution and delivery of this Fourth Amendment, each
duly executed, dated and in form and substance satisfactory to the Bank:
A. A certified copy of the resolutions of the Board of Directors of the
Company, authorizing the execution, performance and delivery of this
Fourth Amendment and the other documents named herein; and
B. Such other documents as are reasonably required by the Bank.
5. EFFECT OF FOURTH AMENDMENT. Except as amended in this Fourth
Amendment, all of the terms and conditions of the Original Agreement shall
continue unchanged and in full force and effect together with this Fourth
Amendment.
IN WITNESS WHEREOF, the Company and the Bank, by their respective duly
authorized officers, have executed and delivered in Indiana this Fourth
Amendment to Amended and Restated Credit Agreement on this 20th day of
September, 1995, but with effect as of August 15, 1995.
DMI FURNITURE, INC.
By:/s/Joseph G. Hill
-------------------------------------
Joseph G. Hill, Chief Financial
Officer
BANK ONE, INDIANAPOLIS, NA
By:/s/D. Kelly Quiesser
-------------------------------------
D. Kelly Quiesser, Vice President
<PAGE>
EXHIBIT 11.
DMI FURNITURE, INC.
CALCULATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
September 2, August 27, August 28,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Income before cumulative effect of a
change in accounting principle $804,477 $1,101,044 $1,626,943
Cumulative effect of a change in
accounting for income taxes - 1,795,000 -
Extraordinary charge - (50,000) -
----------- ----------- -----------
Net income
$804,477 $2,846,044 $1,626,943
Average shares of common stock
and common equivalents outstanding:
Average common shares outstanding 2,970,026 2,949,548 2,935,010
Common stock equivalents--
dilutive options and convertible
preferred stock 2,737,806 2,841,687 2,765,650
----------- ----------- -----------
Average shares of common
stock and common stock
equivalents outstanding 5,707,832 5,791,235 5,700,660
Income per share before cumulative
effect of a change in accounting
principle $.14 $.19 $.29
Cumulative effect per share of a
change in accounting for income taxes - .31 -
Extraordinary charge - (.01) -
---- ---- ----
Earnings per common share $.14 $.49 $.29
</TABLE>
<PAGE>
EXHIBIT 21. LIST OF SUBSIDIARIES
DMI Management, Inc., a Kentucky corporation.
<PAGE>
EXHIBIT 23.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Form S-8 Registration Statements No. 33-64188 and 33-85826.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
October 18, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-02-1995
<PERIOD-START> AUG-28-1994
<PERIOD-END> SEP-02-1995
<CASH> 68,703
<SECURITIES> 0
<RECEIVABLES> 10,880,438
<ALLOWANCES> 132,000
<INVENTORY> 13,264,543
<CURRENT-ASSETS> 25,570,723
<PP&E> 21,573,669
<DEPRECIATION> 9,552,954
<TOTAL-ASSETS> 38,511,999
<CURRENT-LIABILITIES> 6,413,711
<BONDS> 20,030,649
<COMMON> 297,003
0
4,040,000
<OTHER-SE> 6,320,101
<TOTAL-LIABILITY-AND-EQUITY> 38,511,999
<SALES> 66,896,861
<TOTAL-REVENUES> 67,773,444
<CGS> 55,214,955
<TOTAL-COSTS> 56,013,705
<OTHER-EXPENSES> 8,344,529
<LOSS-PROVISION> 229,000
<INTEREST-EXPENSE> 1,896,353
<INCOME-PRETAX> 1,289,857
<INCOME-TAX> 485,380
<INCOME-CONTINUING> 804,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 804,477
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
