<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of The Securities
Exchange Act of 1934
For the fiscal quarter ended December 2, 1995
---------------------------------------------
Commission File Number 0-4173
-----------------------------
DMI FURNITURE, INC.
-------------------
(Exact name of registrant as specified in its charter)
DELAWARE 41-0678467
-------- ----------
(State of incorporation) (IRS employer ID number)
One Oxmoor Place, 101 Bullitt Lane, Louisville, Kentucky 40222
--------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number with area code: (502) 426-4351
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the last practicable date.
Class - Common Stock, Par Value $.10 per Share
- -----
Outstanding at December 2, 1995 - 2,991,358
- -------------------------------
<PAGE>
DISCUSSION DRAFT 1/2/96
INDEX
Part I. Financial Information Page
Consolidated Balance Sheets - December 2, 1995
and September 2, 1995 3, 4
Consolidated Statements of Operations - Three Months
Ended December 2, 1995 and November 26, 1994 5
Consolidated Statements of Cash Flows - Three
Months Ended December 2, 1995 and
November 26, 1994 6, 7
Notes to Consolidated Financial Statements 8-10
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-13
Part II. Other Information 14
Index to Exhibits
11. Calculations of Earnings Per Share 15
27. Financial Data Schedule 16
<PAGE>
DISCUSSION DRAFT 1/2/96
PART I. FINANCIAL INFORMATION
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
Unaudited
-------
ASSETS Dec. 2, Sep. 2
------ 1995 1995
------- ------
<S> <C> <C>
Current assets:
Cash $252 $69
Restricted cash for debt payments 2 226
Accounts receivable - net 9,392 10,748
Inventories (Note 4) 11,536 13,265
Other current assets 434 338
Current portion of deferred income taxes (Note 2) 1,035 925
------ ------
Total current assets 22,651 25,571
Property, plant and equipment - at cost 21,628 21,574
Less accumulated depreciation 9,816 9,553
------ ------
Net property, plant and equipment 11,812 12,021
Other assets:
Intangible pension asset 558 558
Other 348 362
------ ------
906 920
------ ------
$35,369 $38,512
------- -------
------- -------
</TABLE>
See accompanying notes.
3
<PAGE>
DISCUSSION DRAFT 1/2/96
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
(Amounts in thousands)
<TABLE>
<CAPTION>
Unaudited
----------
Dec. 2, Sep. 2
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1995
- ------------------------------------ ------- ------
<S> <C> <C>
Current liabilities:
Trade accounts payable $3,667 $3,135
Accrued liabilities (Note 7) 3,088 1,883
Accrued dividends on preferred
stock (Note 6) 212 389
Long-term debt due within one year 1,026 1,007
------ ------
Total current liabilities 7,993 6,414
Long-term liabilities:
Long-term debt 15,493 20,031
Accrued pension costs 896 905
Deferred compensation 419 434
Deferred income taxes (Note 2) 71 71
------ ------
16,879 21,441
Stockholders' equity:
Series C convertible preferred stock,
$2 par value, 2,020,000 authorized
and outstanding 4,040 4,040
Common stock 299 297
Additional paid-in capital 15,129 15,107
Retained deficit (8,947) (8,763)
Minimum pension liability (24) (24)
------ ------
Total stockholders' equity 10,497 10,657
------ ------
$35,369 $38,512
------- -------
------- -------
</TABLE>
See accompanying notes.
4
<PAGE>
DISCUSSION DRAFT 1/2/96
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
Dec. 2, Nov. 26,
1995 1994
------ ------
<S> <C> <C>
Net sales $17,729 $18,723
Cost of sales 14,506 15,157
----- ------
Gross profit 3,223 3,566
Selling, general and
administrative expenses 2,073 2,262
Plant closing reserve (Note 7) 995 -
------ ------
Operating profit 155 1,304
Interest expense (net) (420) (468)
------ ------
Income (loss) before provision for income taxes (265) 836
Benefit (provision) for income taxes (Note 2) 81 (298)
------ ------
Net income (loss) (Note 7) ($184) $538
------ ------
------ ------
Earnings (loss) per common share (Notes 3 and 7) $(.06) $.09
------ ------
------ ------
</TABLE>
See accompanying notes.
5
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
Dec. 2, Nov. 26,
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net Income (Note 7) ($184) $538
Adjustments to reconcile net income to
net cash provided (used) by
operating activities:
Depreciation and amortization 263 252
Deferred income taxes (Note 2) (110) 274
Pension costs (9) (15)
Deferred compensation (15) (15)
Changes in assets and liabilities:
Accounts receivable 1,356 (2,160)
Inventories 1,729 (317)
Other assets (58) (47)
Trade accounts payable 532 704
Accrued liabilities (Note 7) 1,205 238
------- -------
Total adjustments 4,893 (1,086)
------- -------
Net cash provided (used) by
operating activities 4,709 (548)
------- -------
Cash flows provided (used) by
investing activities:
Capital expenditures (54) (153)
Payments received on notes receivable - 4
------- -------
Cash used by investing
activities (54) (149)
------- -------
</TABLE>
See accompanying notes.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
Dec. 2, Nov. 26,
1995 1994
-------- --------
<S> <C> <C>
Cash flows provided (used) by
financing activities:
Net borrowings (payments) under
line-of-credit agreement ($4,100) 1,150
Payments on long term debt (419) (398)
Cash dividends on preferred stock (177) (101)
Proceeds from stock options exercised - 2
------- -------
Cash provided (used) by
financing activities (4,696) 653
------- -------
Decrease in cash (41) (44)
Cash- beginning of period 295 446
------- -------
Cash- end of period $254 $402
------- -------
------- -------
Cash paid for:
Interest $461 $429
------- -------
------- -------
Income taxes $0 $20
------- -------
------- -------
</TABLE>
See accompanying notes
7
<PAGE>
DISCUSSION DRAFT 1/2/96
DMI FURNITURE, INC.
Notes to Consolidated Financial Statements
(1) FINANCIAL STATEMENTS AND ORGANIZATION
The consolidated financial statements include DMI Furniture, Inc. and its
wholly owned subsidiary, DMI Management, Inc. ("Company"). The financial
statements included herein at December 2, 1995 and for the three months ended
December 2, 1995 and November 26, 1994 are unaudited but include all adjustments
which are, in the opinion of management, necessary to a fair presentation of the
results of operations and financial position for the periods covered herein.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's latest annual report on
Form 10-K.
The results of operations for the interim periods are not necessarily an
indication of the results to be expected for the full 1996 fiscal year.
(2) INCOME TAXES
During the first quarter of fiscal 1994, the Company adopted Statement of
Financial Accounting Standard No. 109, ACCOUNTING FOR INCOME TAXES ("SFAS No.
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.
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 during the first quarter of fiscal 1994 in the Consolidated
Statements of Income as the cumulative effect of an accounting change.
Income tax expense consisted of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
Dec. 2, Nov. 26,
<S> <C> <C>
1995 1994
---- ----
Current $29 $24
Deferred (110) 274
---- ----
Total $(81) $298
---- ----
---- ----
</TABLE>
8
<PAGE>
DISCUSSION DRAFT 1/2/96
The deferred tax provision relates mainly to the utilization of the
Company's NOLs.
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
Dec. 2, Nov. 26,
<S> <C> <C>
1995 1994
---- ----
Tax at 34% statutory
rate $(90) $284
State income taxes 9 14
- ---
Income Taxes $(81) $298
---- ----
---- ----
</TABLE>
(3) 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, and assumes
the conversion of the Series C Preferred Stock into common stock. For the first
quarter of fiscal 1996, since the effect of the assumption of the conversion of
the Series C Preferred Stock into common stock would be anti-dilutive, those
common equivalent shares were not included in the calculation of earnings per
common share.
(4) INVENTORIES
Inventories were comprised of the following at December 2, 1995 and
November 26, 1994:
<TABLE>
<CAPTION>
December 2, 1995 September 2,1995
<S> <C> <C>
Finished Products $6,288,000 $7,115,000
Work in Process 785,000 785,000
Raw Materials 4,463,000 5,365,000
--------- ---------
$11,536,000 $13,265,000
----------- -----------
----------- -----------
</TABLE>
(5) OTHER MATTERS
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 substances disposed of
at the state permitted facilities in question. These
9
<PAGE>
DISCUSSION DRAFT 1/2/96
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 December 2, 1995 the
Company accrued approximately $148,000 for these potential environmental
liabilities.
(6) DIVIDENDS
The dividends on Series C Preferred Stock accrued in a fiscal year are not
payable until the following fiscal year.
(7) PLANT CLOSING
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 recorded a pre-tax
charge of approximately $995,000 in the first quarter of fiscal 1996 related to
this closing. The charge includes book provisions of approximately $725,000 for
asset impairment and $145,000 for future pension costs, and $125,000 for
severance pay.
In the absence of this special book charge; Operating Profit would have
been $1,150,000 compared to $1,304,000 for the first quarter of fiscal 1995; Net
Income would have been $460,000 for the first quarter of fiscal 1996 compared to
$538,000 for the first quarter of fiscal 1995; and Earnings Per Common Share
would have been $.08 for the first quarter of fiscal 1996 compared to $.09 for
the first quarter of fiscal 1995.
10
<PAGE>
DISCUSSION DRAFT 1/2/96
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue - Net sales for the first quarter of fiscal 1996 decreased $994,000 or
5% from the first quarter of fiscal 1995. This decrease was the result of
decreased sales of bedroom furniture in a weak furniture retail environment
partially offset by increased sales of residential desks, computer desks, home
office furniture, and chairs, as well as increased sales to outside trade
customers of lumber and fabricated wood parts by the Company's sawmill/dimension
parts plant.
Gross Margin - The Company's gross margin in the first quarter of fiscal 1996
was 18.2% compared to 19.0% in the first quarter of fiscal 1995, and compared to
16.2%, 17.1%, and 16.9% in the fourth, third, and second quarters respectively
of fiscal 1995. This decrease in gross margin from the first quarter of fiscal
1995 was primarily the result of decreased profit at the Gettysburg facility as
it proceeded towards its closing. (See Note 7.)
Selling, General and Administrative (S,G&A) Expense - For the first quarter of
fiscal 1996, S,G&A expense amounted to $2,073,000 or 11.7% of sales compared to
$2,262,000 or 12.1% of sales for the first quarter of fiscal 1995. This decrease
was the result of lower commission and design royalty expense, as well as
general administrative expenses.
Interest Expense - For the first quarter of fiscal 1996, net interest was
$420,000 compared to $468,000 for the first quarter of fiscal 1995. This
decrease was primarily the result of lower bank debt balances than in the
previous year as a result of cash flow from the inventory reduction program and
improved accounts receivable collection cycle.
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 recorded a pre-tax
charge of approximately $995,000 in the first quarter of fiscal 1996 related to
this closing. The charge includes book provisions of approximately $725,000 for
asset impairment and $145,000 for future pension costs, and $125,000 for
severance pay.
In the absence of this special book charge; Operating Profit would have
been $1,150,000 compared to $1,304,000 for the first quarter of fiscal 1995; Net
Income would have been $460,000 for the first quarter of fiscal 1996 compared to
$538,000 for the first quarter of fiscal 1995; and Earnings Per Common Share
would have been $.08 for the first quarter of fiscal 1996 compared to $.09 for
the first quarter of fiscal 1995.
Liquidity and Capital Resources - Demands for funds relate to payments for raw
materials and other operating costs, debt obligations, accrued preferred stock
dividends and capital expenditures. The Company's ability to generate cash
adequate to meet short and long term needs is dependent on the collection of
accounts receivable and from its ability to borrow funds.
11
<PAGE>
The Company's days of sales outstanding of accounts receivable averaged 48 days
for the first quarter of fiscal 1996 compared to 55 days for the first quarter
of fiscal 1995. This improvement in the collection period is primarily the
result of increased business with and more timely payments by a major customer.
The Company's average days of inventory on hand averaged 72 days for the first
quarter of fiscal 1996 compared to 91 days for the first quarter of fiscal 1995.
This decrease is due to the success of the inventory reduction program initiated
in the fourth quarter of fiscal 1995. The Company's order backlog at December 2,
1995 was approximately $6,816,000, a 9% decrease from approximately $7,470,000
at the same time last year.
<TABLE>
<CAPTION>
Key elements of the Consolidated Statements of Cash Flows:
Three Months
1996 1995
---- ----
<S> <C> <C>
Net cash provided (used) by operating activities $4,709,000 $(548,000)
Cash used for investing activities (54,000) (149,000)
----------- ----------
Net cash flows from operating and investing
activities 4,655,000 (697,000)
Cash provided (used) by financing activities (4,696,000) 653,000
----------- ----------
Net change in cash and cash equivalents $(41,000) $(44,000)
----------- ----------
----------- ----------
</TABLE>
During the first quarter of fiscal 1996 , the Company provided cash flows
from operating activities of $4,709,000 compared to cash flows used of $548,000
the previous year primarily due to the success of the Company's inventory
reduction program and improved accounts receivable collection cycle. Investing
activities required $54,000 during the first quarter of fiscal 1996 and $149,000
during the first quarter of fiscal 1995 primarily for capital expenditures.
Financing activities used $4,696,000 during the first quarter of fiscal 1996
primarily in reduction of debt compared to provided $653,000 the same quarter
previous year which were primarily borrowings under the Company's line-of-credit
agreement to finance inventories and accounts receivable.
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. 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 $148,000 against potential environmental liabilities. For further
information regarding the Company's involvement in environmental proceedings,
see Item 3 to the Company's Annual Report on Form 10-K for the fiscal year ended
September 2, 1995.
12
<PAGE>
DISCUSSION DRAFT 1\2\96
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.
13
<PAGE>
DISCUSSION DRAFT 1/2/96
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in six environmental proceedings at this time. Due
to the limited nature of the Company's involvement in these proceedings, the
availability of certain defenses, and the involvement of other parties with
substantial financial resources in the proceedings, the Company does not believe
there is a reasonable likelihood that the potential liabilities the Company may
incur in connection with these proceedings will have a material adverse effect
on the Company's future financial condition or results of operations. For
further information regarding the Company's involvement in environmental
proceedings, see Item 3 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 2, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
11. Calculations of earnings per share.
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DMI FURNITURE, INC.
(Registrant)
Date: January 16, 1996 /s/Joseph G. Hill
-----------------
Joseph G. Hill
Vice President-Finance,
Chief Financial Officer,
Secretary & Treasurer
14
<PAGE>
DISCUSSION DRAFT 1/2/96
EXHIBIT 11.
DMI FURNITURE, INC.
CALCULATIONS OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
Dec. 2, Nov. 26,
1995 1994
-------- --------
<S> <C> <C>
Net income (Note 7) ($184,000) $538,000
---------- --------
---------- --------
Average shares of common stock
and common equivalents
outstanding:
Average common shares
outstanding 2,977,137 2,976,426
Common stock equivalents--
dilutive options and convertible
preferred stock 0 2,791,083
---------- --------
Average shares of common
stock and common stock
equivalents outstanding 2,977,137 5,767,509
---------- --------
---------- --------
Earnings (loss) per common share
(Notes 3 and 7) $(.06) $.09
----- -----
----- -----
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-03-1995
<PERIOD-END> DEC-02-1995
<CASH> 254
<SECURITIES> 0
<RECEIVABLES> 9,557
<ALLOWANCES> 165
<INVENTORY> 11,536
<CURRENT-ASSETS> 22,651
<PP&E> 21,628
<DEPRECIATION> 9,816
<TOTAL-ASSETS> 35,369
<CURRENT-LIABILITIES> 7,993
<BONDS> 15,493
0
4,040
<COMMON> 299
<OTHER-SE> 6,158
<TOTAL-LIABILITY-AND-EQUITY> 35,369
<SALES> 17,525
<TOTAL-REVENUES> 17,729
<CGS> 14,324
<TOTAL-COSTS> 14,506
<OTHER-EXPENSES> 3,043
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 420
<INCOME-PRETAX> (265)
<INCOME-TAX> (81)
<INCOME-CONTINUING> (184)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (184)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
