<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
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 August 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____ to ____
Commission file number 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
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
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
Total pages - 45
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The aggregate market value of the voting stock held by
non-affiliates of the Registrant was $7,295,272 as of August
30, 1997.
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 August 30, 1997
----- -------------------------------
Common Stock, Par Value $.10 per Share 3,152,483
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual
Meeting of Stockholders on February 18, 1998 are incorporated by
reference into Part III.
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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.
(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 August 30,
1997, 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, Caribbean, and
Saudi Arabia, principally to furniture retailers. Export sales
totaled approximately 4% of the Company's sales in fiscal 1997.
Approximately 15% 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 NeoCon commercial office furniture
tradeshow.
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 40% 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.
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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
Wood Classics
Furniture Company Office Furniture 2006
Carolina Desk Company All DMI products 2008
DMI All DMI products 2009
DMI Furniture, Inc. All DMI products 2009
DMI Trading Company All DMI products Pending
Cyber City Furniture Warehouse All DMI products Pending
Wynwood All DMI and Wynwood products 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 may 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 six largest customers accounted for approximately 42% of
the Company's total sales in fiscal 1997. The loss of more than one of these
customers at the same time or one of the largest six could have a materially
adverse effect on the business of the Company. As of August 30, 1997, one
customer accounted for approximately 24% 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 August 30, 1997 and August 31, 1996
was $6,815,000 and $12,635,000, respectively. The decrease in the backlog
from 1996 is primarily due to lower demand for the Company's bedroom
furniture and increased sales to office furniture customers who provide very
short lead times. The entire backlog of orders at August 30, 1997 is
expected to be filled by November 30, 1997.
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
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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.
The Company believes it is the largest manufacturer and marketer of
assembled home desks in the United States and is a leading producer of
popular priced, "promotional" bedroom furniture and popular priced wood
office furniture.
The Company employs approximately 449 employees, of whom approximately
154 are covered by collective bargaining contracts. 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 three operating furniture manufacturing plants located
in: Huntingburg, Indiana (78,910 square feet, and 100,000 square feet); and
Ferdinand, Indiana (117,823 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 owns a 235,000 square foot warehouse
located in Huntingburg, Indiana.
The Company began construction during the fourth quarter of a 100,000
square foot warehouse in Huntingburg, Indiana on its existing property.
Construction is expected to be completed during the fiscal 1998 second
quarter.
The Company closed its Gettysburg, Pennsylvania manufacturing plant and
warehouse during fiscal 1996. See Note 12 to the financial statements for
additional information.
All of the Company's properties are encumbered by mortgages held by its
bank. See Note 2 to the consolidated financial statements.
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The productive capacity and extent of utilization of each of the
Company's manufacturing facilities for the fiscal year ended August 30, 1997
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. The Company has on occasion operated more than one
shift at one of its plants and may add shifts to other plants in the future
to increase capacity.
Fiscal 1997
Facility Capacity Production %Utilized
-------- -------- ---------- ---------
(dollars in thousands)
Ferdinand, Ind. Plant $16,451 $11,542 70%
Huntingburg, Ind. 5th St. Plant 20,763 17,132 83%
Huntingburg, Ind. Chestnut
Street Plant 21,965 18,272 83%
Huntingburg, Ind. Fabricator 9,698 8,779 91%
Ferdinand, Ind. Sawmill/
Dimension Plant 7,300 6,529 89%
------- ------- ----
$76,177 $62,254 82%
======= ======= ==
Item 3. LEGAL PROCEEDINGS.
In August 1994, the Company was named, along with over 250 potentially
responsible parties ("PRPs"), as a third-party defendant in a lawsuit in
federal court for the Middle District of Pennsylvania related to the Keystone
Sanitation Company landfill (the "Keystone Site") in Union Township,
Pennsylvania. The claims against the Company are based on allegations that
the Company had hazardous substances disposed of at these sites. The Lawsuit
was filed in September 1993 by the United States against eleven PRPs who were
ordered by the Environmental Protection Agency ("EPA") in June 1991 to take
remedial action at the Keystone Site and are challenging the EPA's
remediation proposal. Over 500 additional parties have also been named as
fourth-party defendants in the proceedings. Remediation costs at the
Keystone Site were estimated to total approximately $17 million by the
original 11 PRPs. The Company believes it is likely that a significant share
of the liability will be assigned to the former owners and operators who have
considerable assets. In addition, the federal court has held that a national
waste management company that acquired the Keystone business is liable as a
successor to the former owners and operators. The Company has reached a
tentative settlement with the EPA requiring payment of approximately $57,000,
which the Company has deposited into a settlement trust fund, pending court
approval of the settlement.
The Company is also a defendant in various lawsuits arising in the normal
course of business, including two other environmental matters. In
management's opinion, these lawsuits 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.
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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.
High Bid Low Bid
Price Price Price
----- ----- -----
1st Quarter of 1996 $ 1.25 $ 1.06
2nd Quarter of 1996 $ 1.69 $ 1.13
3rd Quarter of 1996 $ 2.00 $ 1.13
4th Quarter of 1996 $ 2.00 $ 1.38
1st Quarter of 1997 $ 2.25 $ 1.56
2nd Quarter of 1997 $ 3.31 $ 2.13
3rd Quarter of 1997 $ 3.00 $ 2.38
4th Quarter of 1997 $ 3.31 $ 2.44
(b) Approximate Number of Equity Security Holders
Title of Class- Common Stock, $.10 Par Value
Approximate Number of Stockholders as of August 30, 1997 - 1,632
(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.
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ITEM 6.
DMI FURNITURE, INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended
____________________________________________________________________
August 30, August 31, September 2, August 27, August 28,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Amounts in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $56,434 $55,563 $67,773 $60,932 $50,719
Net income from continuing operations 2,416 (4) 376 804 (3) 1,101 1,627
Earnings per common share $.40 (4) $.07 $.14 $.19 $.29
------- ------- ------- ------- -------
Total assets $35,551 $31,178 $38,512 $40,041 $29,443
Long-term debt and capital
lease obligations 14,857 13,661 21,037 20,352 14,395
</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 per share for change in
accounting principle, and $(50,000) or $(.01) per share charge for
extraordinary item.
Note 4 - Includes plant closing reserve which reduced net income and
earnings per common share by approximately $538,000 and $.09 per share
respectively.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth in "Management's Discussion and Analysis of
Financial Condition and results of Operations" below and in "Business"
includes "forward-looking statements" within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act, and is subject to the
safe harbor created by those sections. Factors that realistically could
cause results to differ materially from those projected in the
forward-looking statements include the cyclical and seasonal nature of the
furniture market; the availability and cost of raw materials and labor;
availability, terms and deployment of capital; changes in fashion or tastes;
general conditions in the economy and capital markets; demographic changes;
competition; and other factors identified in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in "Business"
and in the Company's filings with the Securities and Exchange Commission.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has a $17,500,000 credit agreement with Bank One,
Indianapolis, N.A. comprised of a $4,000,000 five-year term loan (outstanding
balance $1,645,445 as of August 30, 1997) and a maximum revolving master note
loan commitment of $13,500,000 (outstanding balance $8,319,619 as of August
30, 1997). On August 30, 1997, the Company had $1,467,000 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 52 days for fiscal 1997
which is an increase from the 50 days for fiscal 1996. Inventory turnover
was 3.9 in fiscal 1997 and 1996. The Company believes it will be able to
generate enough cash in fiscal 1997 from operations to make scheduled
payments on its long term debt.
Key elements of the Consolidated Statement of Cash Flows (in thousands):
1997 1996 1995
---- ---- ----
Net cash provided by operating activities $ 23 $ 8,504 $ 207
Cash provided (used) in investing activities (858) 140 (642)
------ ------- -----
Net cash flows from operating and investing
activities (835) 8,644 (435)
Cash provided (used) by financing activities 1,251 (8,616) 302
------ ------- -----
Net change in cash and cash equivalents $ 416 $ 28 $(133)
====== ======= =====
During fiscal 1997, the Company provided cash flows from operations of
$23,000 from net income of $2.4 million offset primarily by funds used to
finance inventories of expanding office and home office furniture lines as
well as to finance seasonal inventories of wood at the Sawmill to minimize
spot purchase premiums during the fall and winter months. In addition, cash
was used to finance accounts receivable resulting from the sales increase
during the fourth quarter. During fiscal 1996 , the Company provided cash
flows from operating activities of $8,504,000 compared to cash flows provided
of
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$207,000 the previous year. This improvement was due primarily to the
success of the Company's asset consolidation plan and particularly the
inventory reduction as well as the reduction in accounts receivable.
Investing activities used $858,000 during fiscal 1997 primarily to finance
capital expenditures, in particular the building addition at the Dimension
Plant to accommodate the lumber yield optimization equipment, to finance the
sales automation hardware and software, and to finance ongoing plant
modernization. Funds used for these expenditures were partially offset by
$193,000 in proceeds from the sale of certain environmental permits.
Investing activities provided $140,000 in fiscal 1996 compared to funds used
of $642,000 the previous year. The fiscal 1996 investing funds were
provided through the sale of certain idle assets in Gettysburg, Pennsylvania
as well as the final payments on an Alabama idle property sold several years
ago. The fiscal 1995 expenditures were primarily for ongoing plant
modernization. Financing activities during fiscal 1997 of $1,250,707 were
provided primarily by the revolving line of credit. Financing activities
during fiscal 1996 of $8,616,000 were primarily used to pay down debt with
funds generated by operations and investing activities previously described.
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.
The Company's fiscal 1998 budget for capital expenditures is
approximately $2.2 million. Approximately $1.5 million of this budget is to
build the new 100,000 square foot warehouse to principally support the new
Wynwood product line and the balance is to upgrade and modernize the
Company's manufacturing facilities. The Company anticipates that its 1997
internal cash flow and additional borrowings available under its credit
agreement and additional $1.5 million term loan will be sufficient to pay for
these expenditures.
The Company is currently subject to claims under federal and state
environmental laws based on allegations that the Company had hazardous
substances disposed of at three waste disposal sites. After depositing
$57,000 in a trust fund under the terms of a tentative settlement of claims
arising from one site and paying its portion of preliminary investigation and
remediation costs at the other two sites, the Company retains a reserve of
approximately $45,000 against potential environmental liabilities. Due to
the limited nature of the Company's involvement in these environmental
proceedings, the availability of certain defenses, and the involvement of
many other parties with substantial financial resources in the proceedings,
the Company does not anticipate, based on currently available information,
that potential environmental liabilities arising from these proceedings are
likely to exceed the amount of the Company's reserve by an amount that would
have a material effect on the Company's financial condition, results of
operations or cash flows. Expenses for the year to date were not material.
See "Item 3. Legal Proceedings" and Note 4 of Notes to Consolidated Financial
Statements.
RESULTS OF OPERATIONS
Net sales for fiscal 1997 increased by $871,000 or 2% over those of
fiscal 1996. This increase was the result of increased commercial and home
office furniture sales offset by lower bedroom furniture sales. The sales
change was as follows: office furniture sales increased by 13%; Home office
and other residential furniture sales excluding bedroom increased by 2%; and
bedroom sales decreased by 11% due to weak retail demand for budget-priced
bedroom furniture. Net sales for fiscal 1996 decreased by
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$12,210,000 or 18% from those of fiscal 1995. This decrease is primarily a
result of a soft residential furniture retail environment and also because
fiscal 1995 included 53 weeks. The sales change was as follows: office
furniture sales increased by 8%; bedroom sales decreased by 19%; and
residential desks and accent furniture sales decreased by 38%.
As a percentage of sales, cost of sales was 76.6% of sales for fiscal
1997, 80.9% of sales for fiscal 1996, and 82.6% of sales for fiscal 1995.
The decrease in cost of sales as a percentage of sales in fiscal 1997 and
1996 was the result of the Company's asset consolidation program initiated in
the first quarter and in particular the consolidation of the Gettysburg
operations into existing Indiana operations, thus significantly lowering the
Company's overhead. Also contributing to the improvement was the increased
production and favorable sales mix towards higher margin products, as well as
significant improvement in the Company's two internal supplier plant
operations.
As a percentage of sales, selling, general and administrative expenses
were 15.3% of sales for fiscal 1997, 14.1% of sales for fiscal 1996, and
12.6% of sales for fiscal 1995. This increase is primarily due to higher
sales and marketing expenses, customer service expenses, information system
expenses, and general administrative expenses. The increase in fiscal 1996
was primarily the result of the sales decrease exceeding the rate at which
these expenses decreased, most of which are of a semi-fixed nature.
The Company permanently closed its Gettysburg, Pennsylvania manufacturing
plant and warehouse facilities and consolidated the production and
distribution activities of those operations into its Huntingburg, Indiana
facilities during the second quarter of fiscal 1996. Consolidation of
production and warehousing into the Indiana facilities resulted in lower
manufacturing and warehousing overhead and plant administrative costs. The
Company recorded a pre-tax charge of approximately $995,000 in the first
quarter of fiscal 1996 related to this closing. The charge included book
provisions of approximately: $160,000 related to the recording of property,
plant, and equipment at net realizable value; $100,000 for recording certain
inventory items at net realizable value; $145,000 for a pension curtailment
loss; $125,000 for severance pay; and approximately $465,000 for costs to be
incurred after operations cease and that are associated with the closing as
well as expected future occupancy related costs. The severance pay accrual
related to the termination of certain salaried and support staff personnel.
None of the above referenced costs relate to the relocation or consolidation
of production into the Company's Huntingburg, Indiana facility. During the
fourth quarter of fiscal 1996 the Company sold the Gettysburg, Pennsylvania
manufacturing plant and realized gross proceeds of approximately $375,000.
Based upon this transaction approximately $127,000 of the book provision
related to the initial recording of property, plant and equipment at net
realizable value was not needed. The net plant closing charge included in
the consolidated statements of income was $868,000 for fiscal 1996. As of
August 30, 1997 the only Gettysburg related asset carried is a parcel of
unimproved land at a cost of $10,000 and there are no Gettysburg plant
closing related liabilities. During fiscal 1997 it was determined that the
remaining $119,000 of the book provision related to the initial recording of
property, plant and equipment at net realizable value was not needed.
Net interest expense decreased in fiscal 1997 to $1,005,000 from
$1,324,000 in fiscal 1996 because of lower average debt balances as well as
lower borrowing rates. Interest expense decreased in fiscal 1996 to
$1,335,956 from $1,913,231 in fiscal 1995 because of the pay down of debt
with the positive cash flow provided from success of the Company's asset
consolidation program and from operations, and to a lesser extent a reduction
in the interest rate spread charged by the Company's bank.
Gain On Disposal Of Property, Plant and Equipment - During fiscal 1997
the Company sold
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certain State of Pennsylvania environmental permits for approximately
$192,000 which had no carrying value. During fiscal 1996, the Company sold
an idle Gettysburg, Pennsylvania manufacturing plant and house and recorded a
total gain of approximately $44,000 and also received final payment on a note
from the sale of an idle manufacturing plant in Alabama over five years ago
and recorded an approximate gain of $26,000 on the final payment.
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 there were substantial increases in the
prices of lumber and other wood materials and this adversely affected the
Company's results in fiscal 1995. 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 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.
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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 August 30, 1997 and
August 31, 1996 F-2, F-3
Consolidated Statements of Income for the years ended
August 30, 1997, August 31, 1996 and
September 2, 1995 F-4
Consolidated Statements of Stockholders' Equity for
the years ended August 30, 1997, August 31, 1996,
and September 2, 1995 F-5
Consolidated Statements of Cash Flows for the years
ended August 30, 1997, August 31, 1996,
and September 2, 1995 F-6, F-7
Notes to Consolidated Financial Statements F-8--F-20
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.
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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 August 30, 1997
and August 31, 1996 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended August 30, 1997. 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 August 30, 1997 and August 31, 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended August 30, 1997 in conformity with generally
accepted accounting principles.
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
Consolidated 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 14, 1997
Louisville, Kentucky
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DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
as of
August 30, 1997 and August 31, 1996
ASSETS 1997 1996
- ------ ---- ----
Current assets:
Cash $ 512,367 $ 96,546
Restricted cash (Note 4) 1,080,196 1,061,537
Accounts receivable, less allowance for
doubtful accounts of $141,000 in 1997
and $110,000 in 1996 9,148,551 7,458,800
Inventories (Note 9) 12,261,761 9,853,201
Other current assets 363,041 259,270
Current portion of deferred income taxes
(Note 8) 792,160 781,973
----------- -----------
Total current assets 24,158,076 19,511,327
----------- -----------
Property, plant and equipment, at cost:
Land 753,572 753,572
Buildings and improvements 8,019,589 7,598,223
Machinery and equipment 10,829,509 10,784,515
Leasehold improvements 656,849 620,308
Construction in progress 176,982 0
----------- -----------
20,436,501 19,756,618
Less accumulated depreciation 9,479,220 8,843,575
----------- -----------
Net property, plant and equipment 10,957,281 10,913,043
----------- -----------
Other assets:
Intangible pension asset 296,166 380,106
Other 139,865 373,287
----------- -----------
Total other assets 436,031 753,393
----------- -----------
Total assets $35,551,388 $31,177,763
=========== ===========
See accompanying notes.
F-2 Page 15
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
as of
August 30, 1997 and August 31, 1996
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------------------------------------ ---- ----
Current liabilities:
Trade accounts payable $ 2,890,459 $ 3,164,821
Accrued liabilities (Note 9) 2,719,176 1,990,325
Accrued dividends on preferred stock (Note 5) 399,010 0
Long-term debt due within one year (Note 2) 2,011,860 2,029,904
----------- -----------
Total current liabilities 8,020,505 7,185,050
----------- -----------
Long-term liabilities:
Long-term debt (Note 2) 12,845,587 11,631,514
Accrued pension costs (Note 7) 600,748 816,598
Deferred compensation (Note 7) 321,079 376,490
Deferred income tax (Note 8) 502,471 114,138
----------- -----------
Total long-term liabilities 14,269,885 12,938,740
----------- -----------
Commitments and contingencies (Notes 3 & 4)
Stockholders' equity: (Notes 5 & 6)
Series C convertible preferred stock, $2 par
value, 1,995,050 shares authorized and
outstanding. 3,990,100 3,990,100
(liquidation preference of $2 per share
plus unpaid dividends)
Common stock, $.10 par value, 9,600,000 shares
authorized, 3,152,483 shares outstanding
(3,051,312 in 1996) 315,248 305,131
Additional paid-in capital 15,341,172 15,185,079
Retained deficit (6,385,522) (8,402,337)
Minimum pension liability 0 (24,000)
----------- -----------
Total stockholders' equity 13,260,998 11,053,973
----------- -----------
Total liabilities and stockholders' equity $35,551,388 $31,177,763
=========== ===========
See accompanying notes.
F-3 Page 16
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended
----------------------------------------
August 30, August 31, September 2,
1997 1996 1995
----------- ----------- -----------
Net sales (Note 11) $56,434,443 $55,562,751 $67,773,444
Cost of sales 43,257,757 44,948,772 56,013,705
----------- ----------- -----------
13,176,686 10,613,979 11,759,739
----------- ----------- -----------
Selling, general and
administrative expenses 8,616,732 7,843,052 8,571,849
Plant closing reserve (Note 12) (118,912) 868,000 -
Other income (expense):
Interest expense (1,062,556) (1,335,956) (1,913,231)
Interest income 58,354 12,314 16,878
Gain on disposal of property,
plant and equipment and other 195,642 74,685 2,040
Other 8,544 (45,127) (3,720)
----------- ----------- -----------
(800,016) (1,294,084) (1,898,033)
----------- ----------- -----------
Income before provision for income
taxes 3,878,850 608,843 1,289,857
Provision for income taxes
(Note 8) (1,463,025) (233,176) (485,380)
----------- ----------- -----------
Net income $2,415,825 $ 375,667 $804,477
=========== =========== ===========
Net income (loss) applicable to
common stock $2,016,815 $375,667 $500,000
=========== =========== ===========
Earnings per common share (Note 1) $ .40 $ .07 $ .14
=========== =========== ===========
See accompanying notes.
F-4 Page 17
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three years ended August 30, 1997
<TABLE>
<CAPTION>
Series C Number of
Convertible Series C Number of
Preferred Shares Common Common Shares
Stock Outstanding Stock Outstanding
------------- ------------ -------- -------------
<S> <C> <C> <C> <C>
BALANCES AT AUGUST 27, 1994 $4,040,000 2,020,000 $296,242 2,962,426
Net income - - - -
Dividends on preferred stock - - - -
Minimum pension liability - - - -
Stock options - - - -
Issuance of common stock - - 761 7,600
------------- ------------ -------- -------------
BALANCES AT September 2, 1995 $4,040,000 2,020,000 $297,003 2,970,026
Net income - - - -
Dividends on preferred stock - - - -
Minimum pension liability - - - -
Conversion of stock (49,900) (24,950) 4,900 49,000
Issuance of common stock - - 3,228 32,286
------------- ------------ -------- -------------
BALANCES AT August 31, 1996 $3,990,100 1,995,050 $305,131 3,051,312
Net income - - - -
Dividends on preferred stock - - - -
Minimum pension liability - - - -
Issuance of common stock - - 10,117 101,171
------------- ------------ -------- -------------
BALANCES AT August 30, 1997 $3,990,100 1,995,050 $315,248 3,152,483
------------- ------------ -------- -------------
</TABLE>
<TABLE>
<CAPTION>
Additional Retained Minimum
Paid-In Earnings Pension
Capital (Deficit) Liability Total
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCES AT AUGUST 27, 1994 $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 12,889 - - 13,650
----------- ----------- ---------- -----------
BALANCES AT September 2, 1995 $15,106,984 ($8,762,883) ($24,000) $10,657,104
Net income - 375,667 - 375,667
Dividends on preferred stock - (15,121) - (15,121)
Minimum pension liability - - - -
Conversion of stock 45,000 - - -
Issuance of common stock 33,095 - - 36,323
----------- ----------- ---------- -----------
BALANCES AT August 31, 1996 $15,185,079 ($8,402,337) ($24,000) $11,053,973
Net income - 2,415,825 - 2,415,825
Dividends on preferred stock - (399,010) - (399,010)
Minimum pension liability - - 24,000 24,000
Issuance of common stock 156,093 - - 166,210
----------- ----------- ---------- -----------
BALANCES AT August 30, 1997 $15,341,172 ($6,385,522) $0 $13,260,998
----------- ----------- ---------- -----------
</TABLE>
See accompanying notes.
F-5 Page 18
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
August 30, August 31, September 2,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,415,825 $ 375,667 $ 804,477
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,009,736 1,022,938 1,003,802
Amortization of loan closing costs 35,243 43,690 43,690
Gain on disposal of property,
plant and equipment (195,642) (73,535) (2,040)
Changes in assets and liabilities:
Accounts receivable (1,689,751) 3,179,702 (767,923)
Inventories (2,408,560) 3,411,342 1,327,674
Other assets 94,408 152,990 29,672
Trade accounts payable (274,362) 30,196 (2,258,972)
Accrued pension costs (107,910) 89,255 (66,305)
Deferred compensation (55,411) (57,713) (99,706)
Deferred income tax 378,146 186,165 416,000
Accrued liabilities 821,724 143,734 (223,036)
----------- ----------- -----------
Total adjustments (2,392,379) 8,128,764 (597,144)
----------- ----------- -----------
Net cash provided by operating activities 23,446 8,504,431 207,333
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (1,072,115) (537,959) (655,304)
Payments received on notes receivable - 135,750 10,708
Proceeds from the disposal of property,
plant and equipment 213,783 541,974 2,500
----------- ----------- -----------
Net cash provided (used) by investing
activities (858,332) 139,765 (642,096)
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-6 Page 19
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------
August 30, August 31, September 2,
1997 1996 1995
---------- ---------- ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings from line-of-credit 23,000,000 15,898,000 26,172,000
Payments on line-of-credit (20,650,000) (21,950,000) (24,600,000)
Additions to long-term debt - 50,380 72,497
Payments of long-term debt (1,153,971) (1,374,366) (958,746)
Restricted cash (18,659) (835,830) 18,293
Cash dividends on preferred stock - (404,537) (404,000)
Proceeds from stock options exercised 73,337 - 1,650
---------- ---------- ------------
Net cash provided (used) by
financing activities 1,250,707 (8,616,353) 301,694
---------- ---------- ------------
Increase (decrease) in cash 415,821 27,843 (133,069)
Cash, beginning of year 96,546 68,703 201,772
---------- ---------- ------------
Cash, end of year $512,367 $96,546 $68,703
---------- ---------- ------------
Cash paid for:
Interest $1,069,502 $1,368,703 $1,865,102
---------- ---------- ------------
Income taxes $ 701,597 $ 85,863 $ 76,432
---------- ---------- ------------
</TABLE>
See accompanying notes.
F-7 Page 20
<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, imports, and sells low to medium priced bedroom furniture,
commercial and home office furniture, desks, accent furniture, and tables and
chairs. It's principal distribution channels are multi-market furniture
retailers, distributors, independent retailers, catalogers, and warehouse
clubs located primarily throughout the United States.
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.
The useful lives of property, plant and equipment are as follows: Building
and leasehold improvements, 8-35 years; and machinery and equipment, 3-13
years.
INCOME TAXES -- The Company recognizes deferred tax assets and
liabilities based upon 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. (See Note 8 for additional
information).
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 (1997-6,006,353; 1996- 5,704,628; 1995 - 5,707,832), and
assumes the conversion of the Series C Preferred Stock into common stock.
(See Note 16 for additional information)
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.
ADVERTISING -- The Company expenses advertising-type costs as incurred.
Advertising expense was approximately $857,000, $578,000 and $573,000 in
fiscal 1997, 1996 and 1995 respectively.
ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
LONG-LIVED ASSETS -- In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for
F-8 Page 21
<PAGE>
Long-Lived Assets to be Disposed Of" (SFAS No. 121). This standard
establishes accounting standards for evaluating the potential impairment of
long-lived assets, certain identifiable intangibles and goodwill. The
Company adopted the provisions of SFAS No. 121 in the first quarter of fiscal
1997 and the application of the standard has not resulted in an impairment
loss.
2. LONG-TERM DEBT
Long-term debt consists of the following:
1997 1996
----------- ----------
Economic Development Revenue Bonds;
payable in annual increasing maturities
($315,000 in 1998) and a final maturity
on October 1, 2003 of $415,000; weekly
adjustable coupon interest rate
(3.58% on 8/30/97) and payable monthly. $2,545,000 $2,850,000
Economic Development Revenue Bonds;
payable in annual increasing maturities
($255,000 in 1998) and a final maturity
on June 1, 2004 of $405,000; weekly
adjustable coupon interest rate
(3.58% on 8/30/97) and payable monthly. 2,275,000 2,515,000
Term note payable to bank; due
in monthly principal installments of
$33,333; interest at prime (8.5%) or
LIBOR plus 1.75% (7.625%). 1,645,445 2,169,341
$13,500,000 revolving master note
payable to bank; interest at prime (8.5%)
or LIBOR plus 1.5% (7.375%);
expires November, 1997. 8,319,619 5,969,619
Capital leases on equipment; payable
quarterly through March, 2000;
interest at various rates. 72,383 157,458
----------- ----------
14,857,447 13,661,418
Less portion due within one year 2,011,860 2,029,904
----------- ----------
$12,845,587 $11,631,514
========== ==========
With respect to the term note and revolving loan above, the Company has
the option of borrowing based on prime rate + 0% or London Interbank Offered
Rate (LIBOR) + 1.75% for the term loan or +1.5% for the revolving note. As
of August 30, 1997, $5 million of the revolver note balance and $1.4 million
of the term loan were LIBOR priced.
Subsequent to the end of fiscal 1997, the Company entered into a new
credit agreement with its bank. The new credit agreement extended the
revolving loan maturity date to January 31, 2000 and provides for continued
amortization of the term loan until January 31, 2003 at its present rate of
amortization. In addition, the new agreement provides long term financing
for the new warehouse
F-9 Page 22
<PAGE>
project by increasing the term loan balance by up to $1.5 million and
amortization through January 31, 2003.
Substantially all assets are pledged to collateralize long-term debt.
On August 30, 1997, the Company had $1,467,000 additional borrowings
available under the formula for calculating its available borrowings.
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 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:
1998 $ 2,011,860
1999 1,027,125
2000 8,373,017
2001 1,085,000
2002 770,445
Thereafter 1,590,000
-----------
$14,857,447
===========
The Company's bank financing agreement contains restrictive
covenants that require the Company, among other things, to maintain a fixed
charge ratio, tangible net worth, and ratio of total funded debt to EBITDA,
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.
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 August 30, 1997 under these leases are
as follows:
1998 $ 706,319
1999 631,700
2000 427,788
2001 217,779
2002 175,471
----------
Total minimum payments $2,159,057
==========
F-10 Page 23
<PAGE>
Rent expense under operating leases charged to operations during
fiscal years 1997, 1996 and 1995 was $593,949, $747,412 and $815,273,
respectively.
4. COMMITMENTS AND CONTINGENCIES
The Company is currently subject to claims under federal and state
environmental laws based on allegations that the Company had hazardous
substances disposed of at three waste disposal sites. After depositing
$57,000 in a trust fund under the terms of a tentative settlement of claims
arising from one site and paying its portion of preliminary investigation and
remediation costs at the other two sites, the Company retains a reserve of
approximately $45,000 against potential environmental liabilities. Due to
the limited nature of the Company's involvement in these environmental
proceedings, the availability of certain defenses, and the involvement of
many other parties with substantial financial resources in the proceedings,
the Company does not anticipate, based on currently available information,
that potential environmental liabilities arising from these proceedings are
likely to exceed the amount of the Company's reserve by an amount that would
have a material effect on the Company's financial condition, results of
operations or cash flows. Expenses for the year to date were not material.
The Company has entered into individual employment agreements with
certain of its officers which expire at various times through December 31,
1998. 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
as defined in the agreements. The Company has funded $1,000,000 in escrow
agreements to provide for partial funding of any payments that may be
required under the agreements.
The Company had letters of credit outstanding totaling $2,041,000 at
August 30, 1997, and $1,521,000 at August 31, 1996. 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.
Holders of a majority of the Series C waived their right to elect a majority
of the directors during fiscal 1997 as a result of the Company's failure to
earn at least $769,500 in net income during fiscal 1996.
F-11 Page 24
<PAGE>
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.
6. STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued To Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
Had compensation cost for all option grants to employees and directors
been determined consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have affected as follows. Because the
method of accounting required by SFAS No. 123 has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
1997 1996
---------- --------
Net income: As reported $2,406,000 $376,000
Proforma 2,379,000 362,000
Earnings per common share: As reported $.40 $.07
Proforma .40 .06
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 August 30, 1997 follows:
F-12 Page 25
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
-------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 655 $1.66 606 $1.66 420 $1.77
Granted 85 2.77 97 1.63 187 1.40
Exercised (33) 1.38 - - (1) 1.38
Expired - - (48) 1.57 - -
-------- --------- -------- ---------- -------- ----------
Outstanding-end of
year 707 $1.80 655 $1.66 606 $1.66
-------- --------- -------- ---------- -------- ----------
-------- --------- -------- ---------- -------- ----------
Exercisable at end of
year 557 $1.68 559 $1.66 577 $1.61
Weighted-average fair
value of options granted
during the year $1.81 $1.06 $1.34
</TABLE>
Exercise prices for options outstanding as of August 30, 1997 ranged from
$1.38 to $3.00. The weighted-average remaining contractual life of those
options is 6.2 years.
Included in the above are 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. The options are
immediately exercisable for up to ten years after the date of grant.
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 August 30, 1997 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
-------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning
of year 90 $2.15 87 $2.17 83 $2.20
Granted 21 2.81 3 1.56 4 1.63
Exercised (14) 1.98 - - - -
Expired (45) 2.25 - - - -
-------- --------- -------- ---------- -------- ----------
Outstanding-end of
year 52 $2.38 90 $2.15 87 $2.17
-------- --------- -------- ---------- -------- ----------
-------- --------- -------- ---------- -------- ----------
Exercisable at end of
year 30 $2.12 85 $2.19 81 $2.17
Weighted-average fair
value of options granted
during the year $1.84 $1.02 $1.06
</TABLE>
F-13 Page 26
<PAGE>
Exercise prices for options outstanding as of August 30, 1997 ranged from
$1.19 to $3.50. The weighted-average remaining contractual life of those
options is 6.6 years.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 1997 and 1996: expected volatility of
43.8 percent; risk-free interest rate of 6.3 percent; expected lives for
options of 10 years; and expected dividend yield of 0 percent based on the
Company's history of no dividend payments on common stock.
7. PENSION PLANS
The Company has a defined benefit pension plan which covers substantially
all hourly employees. Pension costs charged to operations were approximately
$142,000 in fiscal 1997, $169,000 in fiscal 1996, and $180,000 in fiscal
1995. 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.
Net pension costs for the defined benefit plan in fiscal 1997, fiscal
1996 and fiscal 1995 was computed as follows:
1997 1996 1995
---- ---- ----
Service cost-benefits
earned $ 56,352 $ 70,598 $ 71,090
Interest cost on projected
benefit obligation 197,872 191,020 180,937
Actual return on plan assets (135,773) (126,034) (105,366)
Amortization of transition
obligation 9,907 13,686 13,686
Amortization of unrecognized
prior service cost 13,990 19,327 19,327
-------- -------- --------
Net pension expense $142,348 $168,597 $179,674
======== ======== ========
F-14 Page 27
<PAGE>
The funded status of the defined benefit plan at August 30, 1997 and
August 31, 1996 is shown below:
Actuarial present value of
accumulated plan benefits:
1997 1996
---- ----
Vested $(2,481,792) $(2,366,236)
Non-vested (99,171) (37,459)
----------- -----------
Accumulated/projected benefit
obligation (2,580,963) (2,403,695)
Plan assets at fair market
value 1,980,215 1,587,097
----------- -----------
Projected benefit obligation
in excess of plan assets (600,748) (816,598)
Unrecognized transition
liability 128,785 138,692
Unrecognized net (gain)/loss (60,073) (55,257)
Unrecognized prior service cost 227,454 241,414
Adjustment required to
recognize minimum liability (296,166) (324,849)
----------- -----------
Accrued pension liability $ (600,748) $ (816,598)
=========== ===========
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 for
salaried personnel and one for hourly personnel. Costs charged to operations
in fiscal 1997, fiscal 1996 and fiscal 1995 for the salaried plan were
$68,800, $57,000 and $65,400, respectively. Costs charged to operations in
fiscal 1997 for the hourly plan were $69,900.
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 August 30,
1997 and August 31, 1996 is approximately $321,000 and $376,000,
respectively. Plan costs charged to operations were approximately $35,000 in
fiscal 1997, $40,000 in fiscal 1996, and approximately $27,000 in fiscal 1995.
F-15 Page 28
<PAGE>
8. INCOME TAXES
The tax effect of each temporary timing difference and carryforward that
gives rise to significant deferred tax assets and deferred tax liabilities as
of August 30, 1997 and August 31, 1996 are as follows (in thousands):
1997 1996
---- ----
Net operating loss carryforwards $ - $ 130
Alternative minimum tax credit carryforward - 187
Accumulated tax depreciation of property and
equipment in excess of accumulated book
depreciation and other related items (617) (435)
Various accruals and reserves 722 788
Inventory 131 106
Other 53 (109)
----- -----
Net deferred tax asset $ 289 $ 667
===== =====
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. Management
believes the existing net deductible temporary differences will reverse
during the periods in which the Company generates net taxable income. Based
on this belief and the Company's historical and current pre-tax earnings as
well as its expectations for the future, management believes it is more
likely than not that the Company will realize its deferred tax assets. As a
result, no valuation allowance was required as of August 30, 1997 and August
31, 1996. Further, except for the effects of the reversal of net deductible
temporary differences, the Company is not currently aware of any factors that
would cause significant differences between taxable income and pre-tax book
income in future years.
Income tax expense consisted of the following (in thousands):
TWELVE MONTHS ENDED
AUG. 30, AUG. 31, SEP. 27,
1997 1996 1995
---- ---- ----
Currently payable $1,085 $ 47 $ 55
Deferred 378 186 430
------ ---- ----
Total $1,463 $233 $485
====== ==== ====
F-16 Page 29
<PAGE>
The deferred tax provision for the twelve months ended August 30, 1997
and August 31, 1996, and September 2, 1995 consisted of the following (in
thousands):
1997 1996 1995
---- ---- ----
Utilization of net operating loss
carryforwards $130 $ 13 $209
Utilization of AMT credit
carryforwards 187 - -
Excess tax over book depreciation 32 76 138
Other 29 97 83
---- ---- ----
$378 $186 $430
==== ==== ====
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows (in thousands):
TWELVE MONTHS ENDED
AUG. 30, AUG. 31, SEP. 27,
1997 1996 1995
---- ---- ----
Tax at 34% statutory rate $1,319 $207 $438
State income taxes, net of
federal benefit 144 26 47
------ ---- ----
Income Taxes $1,463 $233 $485
====== ==== ====
9. OTHER INFORMATION
Inventories - Inventories are summarized below:
1997 1996
---- ----
Finished product $ 6,789,000 $ 4,794,000
Work in process 514,000 521,000
Raw material 4,959,000 4,538,000
----------- -----------
$12,262,000 $ 9,853,000
=========== ===========
Accrued liabilities - Accrued liabilities are summarized below:
1997 1996
---- ----
Property, payroll and other taxes $ 1,028,533 $ 548,126
Payroll, bonuses and commissions 1,439,146 858,492
Interest 76,879 83,825
Other 174,618 499,882
----------- -----------
$ 2,719,176 $ 1,990,325
=========== ===========
F-17 Page 30
<PAGE>
10. QUARTERLY FINANCIAL DATA
Quarterly financial data (unaudited - in thousands of dollars except per
share amounts)
FIRST SECOND THIRD FOURTH
FISCAL 1997 QUARTER QUARTER QUARTER QUARTER YEAR
- ----------- ------- ------- ------- ------- ----
Net sales $15,789 $13,867 $12,530 $14,248 $56,434
Gross profit 3,778 3,057 3,191 3,151 13,177
Net income 861 435 570 540 2,416
Income per
common share (1) $.15 $.07 $.09 $.09 $.40
FIRST SECOND THIRD FOURTH
FISCAL 1996 QUARTER QUARTER QUARTER QUARTER YEAR
- ----------- ------- ------- ------- ------- ----
Net sales $17,729 $12,502 $12,397 $12,935 $55,563
Gross profit 3,223 2,024 2,490 2,877 10,614
Net income (loss) (184) (151) 205 506 376
Income (loss) per
common share (1) $(.06) $(.05) $.04 $.09 $.07
(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. (Except when net loss in period common equivalent shares
are omitted) (See Note 1).
11. MAJOR CUSTOMERS
The Company's six largest customers accounted for approximately 42% of
the Company's total sales in fiscal 1997. Six customers accounted for 34% of
sales in fiscal 1996 and four customers accounted for 34% of sales in fiscal
1995, one of which accounted for approximately 13% of sales. The loss of more
than one of these customers at the same time or one of the largest six could
have a material effect on the business of the Company. As of August 30,
1997, one customer accounted for approximately 24% 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.
F-18 Page 31
<PAGE>
12. PLANT CLOSING
The Company permanently closed its Gettysburg, Pennsylvania manufacturing
plant and warehouse facilities and consolidated the production and
distribution activities of those operations into its Huntingburg, Indiana
facilities during the second quarter of fiscal 1996. Consolidation of
production and warehousing into the Indiana facilities resulted in lower
manufacturing and warehousing overhead and plant administrative costs. The
Company recorded a pre-tax charge of approximately $995,000 in the first
quarter of fiscal 1996 related to this closing. The charge included book
provisions of approximately: $160,000 related to the recording of property,
plant, and equipment at net realizable value; $100,000 for recording certain
inventory items at net realizable value; $145,000 for a pension curtailment
loss; $125,000 for severance pay; and approximately $465,000 for costs to be
incurred after operations cease associated with the closing as well as
expected future occupancy related costs. The severance pay accrual related
to the termination of certain salaried and support staff personnel. None of
the above referenced costs related to the relocation or consolidation of
production into the Company's Huntingburg, Indiana facility. During the
fourth quarter of fiscal 1996 the Company sold the Gettysburg, Pennsylvania
manufacturing plant and realized gross proceeds of approximately $375,000.
Based upon this transaction approximately $127,000 of the book provision
related to the initial recording of property, plant and equipment at net
realizable value was not needed. The net plant closing charge included in
the consolidated statements of income was $868,000 for fiscal 1996. As of
August 30, 1997 the only Gettysburg related asset carried is a parcel of
unimproved land at cost of $10,000 and there are no Gettysburg plant closing
related liabilities. During fiscal 1997 it was determined that the remaining
$119,000 of the book provision related to the initial recording of property,
plant and equipment at net realizable value was not needed.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash and cash equivalents, trade receivable and trade
payables are considered to be representative of their respective fair values
because of the immediate or short-term maturities of these financial
instruments. The fair value of the Company's debt instruments approximated
the book value because a substantial portion of the underlying instruments
are variable rate notes which reprice frequently.
14. SOURCE AND SUPPLY OF LABOR
Approximately 154 of the Company's 449 employees are covered by 2
collective bargaining agreements. One contract with the union representing
81 employees is due to expire in April 1998.
F-19 Page 32
<PAGE>
15. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). This standard modifies disclosure requirements for companies required
to report earnings per share ("EPS") to include presentations of Basic EPS
(which includes no dilution of common stock equivalents) and, if applicable,
Diluted EPS (which reflects the potential dilution of common stock
equivalents). The standard will not be effective for the Company until the
completion of its fiscal 1998 second quarter. The pro forma Basic and Diluted
EPS for the three fiscal years 1997, 1996, and 1995, respectively, assuming
the application of SFAS No. 128 at the beginning of those periods, is as
follows:
1997 1996 1995
---- ---- ----
Earnings per share:
Basic $.64 $.13 $.17
Diluted $.40 $.07 $.14
Average shares outstanding:
Basic 3,114,482 2,999,189 2,970,026
Diluted 6,006,353 5,704,628 5,707,832
Number of common stock
equivalents in diluted shares
outstanding 2,891,871 2,705,439 2,737,806
F-20 Page 33
<PAGE>
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES.
None.
II-8 Page 34
<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 29,
1997.
III-1 Page 35
<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
None.
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.
IV-1 Page 36
<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 21, 1997 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 21, 1997
- --------------------------
Joseph G. Hill
/s/ Joseph L Ponce Director October 21, 1997
- --------------------------
Joseph L. Ponce
/s/ Alexander N. Rubin, Jr. Director October 21, 1997
- --------------------------
Alexander N. Rubin, Jr.
/s/ Thomas A. Dieruf Director October 21, 1997
- --------------------------
Thomas A. Dieruf
President, Chief
Executive Officer, Chairman
/s/ Donald D. Dreher of the Board and Director October 21, 1997
- --------------------------
Donald D. Dreher
IV-2 Page 37
<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 September 2, 1995 $101,169 $237,004 $205,996 $132,177
-------- -------- -------- --------
Year ended August 31, 1996 $132,177 $ 82,913 $105,099 $109,991
-------- -------- -------- --------
Year ended August 30, 1997 $109,991 $125,200 $ 93,778 $141,413
-------- -------- -------- --------
(A) Charge-offs net of recoveries.
</TABLE>
S-1 Page 38
<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) Extension and Renewal of Employment Agreement
as of January 1, 1996 between DMI Furniture, Inc.
and Donald D. Dreher.
****** (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.
** (n) Second Amendment To Amended And Restated Credit
Agreement between Bank One, Indianapolis, N.A.
and DMI Furniture, Inc. dated January, 1995.
** (o) Third Amendment To Amended And Restated Credit
Agreement between Bank One, Indianapolis, N.A.
and DMI Furniture, Inc. dated March, 1995.
** (p) Fourth Amendment To Amended And Restated Credit
Agreement between Bank One, Indianapolis, N.A.
and DMI Furniture, Inc. dated September 20 , 1995.
*********** (q) Fifth Amendment To Amended And Restated Credit
Page 39
<PAGE>
Agreement between Bank One, Indianapolis, N.A.
and DMI Furniture, Inc. dated November 1, 1995.
*********** (r) Sixth Amendment To Amended And Restated Credit
Agreement between Bank One, Indianapolis, N.A.
and DMI Furniture, Inc. dated January 11, 1996.
*********** (s) Seventh Amendment To Amended And Restated Credit
Agreement between Bank One, Indianapolis, N.A.
and DMI Furniture, Inc. dated July 17, 1996.
********* (t) Loan Agreement between City of Huntingburg,
Indiana and DMI Furniture, Inc. dated as of
October 1, 1993.
*********** (u) Escrow Agreements between DMI Furniture, Inc.,
Bank One, Indianapolis, N.A., The Fifth Third Bank
of Kentucky, and Donald D. Dreher and Joseph G. Hill.
*********** (v) Extension and Renewal of Employment Agreement
as of September 11, 1996 between DMI Furniture, Inc.
and Joseph G. Hill.
(11) Statement re: Computations of earnings per share E-1
(21) List of subsidiaries E-2
(23) Consent of Arthur Andersen LLP to incorporation of
audit report into S-8 registration. E-3
(27) Financial Data Schedule E-4
(99) Undertakings E-5
- -------------------------------------------------------------------------------
* 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-K
for the fiscal year ended August 31, 1996
*** Incorporated by reference to annual report on Form 10-Q
for the fiscal quarter ended March 4, 1995
**** Incorporated by reference to Form 8-K dated April 22, 1996.
***** 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.
********** Incorporated by reference to Form 10-K for the
fiscal year ended August 31, 1996.
Page 40
<PAGE>
EXHIBIT 11.
DMI FURNITURE, INC.
CALCULATIONS OF EARNINGS PER SHARE
AUGUST 30, AUGUST 31, SEPTEMBER 2,
1997 1996 1995
---- ---- ----
Net income $2,415,825 $ 375,667 $ 804,477
---------- ---------- ----------
Average shares of common stock
and common equivalents
outstanding:
Average common shares
outstanding 3,114,482 2,999,189 2,970,026
Common stock equivalents--
dilutive options and convertible
preferred stock 2,891,871 2,705,439 2,737,806
---------- ---------- ----------
Average shares of common
stock and common stock
equivalents outstanding 6,006,353 5,704,628 5,707,832
---------- ---------- ----------
Earnings per common share $.40 $.07 $.14
---------- ---------- ----------
E-1 Page 41
<PAGE>
EXHIBIT 21. LIST OF SUBSIDIARIES
DMI Management, Inc., a Kentucky corporation.
E-2 Page 42
<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 21, 1997
E-3 Page 43
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-30-1997
<CASH> 1593
<SECURITIES> 0
<RECEIVABLES> 9290
<ALLOWANCES> 141
<INVENTORY> 12262
<CURRENT-ASSETS> 24158
<PP&E> 20437
<DEPRECIATION> 9479
<TOTAL-ASSETS> 35551
<CURRENT-LIABILITIES> 8021
<BONDS> 12846
0
3990
<COMMON> 315
<OTHER-SE> 8955
<TOTAL-LIABILITY-AND-EQUITY> 35551
<SALES> 55839
<TOTAL-REVENUES> 56434
<CGS> 42684
<TOTAL-COSTS> 43258
<OTHER-EXPENSES> 8293
<LOSS-PROVISION> 72
<INTEREST-EXPENSE> 1005
<INCOME-PRETAX> 3879
<INCOME-TAX> 1463
<INCOME-CONTINUING> 2416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2416
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
<PAGE>
Exhibit 99. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's Annual Report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing 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 controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its 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.
