<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 MAY 31, 1997
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 practicabledate.
CLASS - Common Stock, Par Value $.10 per Share
OUTSTANDING AT MAY 31, 1997 - 3,143,150
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<PAGE>
INDEX
Part I. Financial Information Page
Consolidated Balance Sheets - May 31, 1997
and August 31, 1996.................................... 3, 4
Consolidated Statements of Operations - Three and Nine
Months Ended May 31, 1997 and June 1, 1996............. 5
Consolidated Statements of Cash Flows - Nine
Months Ended May 31, 1997 and June 1, 1996............. 6, 7
Notes to Consolidated Financial Statements.............. 8-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 12-15
Part II. Other Information..................................... 16-17
Index to Exhibits
10. Eighth Amendment To Credit Agreement................... 18-36
11. Calculations of Earnings Per Share..................... 37
27. Financial Data Schedule................................ 38
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<PAGE>
PART I. FINANCIAL INFORMATION
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
May 31, Aug. 31,
ASSETS 1997 1996
-------- -------- ---------
Current assets:
Cash............................................... $245 $97
Restricted cash for debt payments.................. 1,218 1,062
Accounts receivable - net.......................... 6,958 7,459
Inventories (Note 4)............................... 11,555 9,853
Other current assets............................... 335 259
Current portion of deferred income taxes (Note 2).. 450 782
Total current assets............................ 20,761 19,512
Property, plant and equipment - at cost (Note 1).... 20,407 19,757
Less accumulated depreciation...................... 9,583 8,844
Net property, plant and equipment.................. 10,824 10,913
Other assets:
Intangible pension asset........................... 380 380
Other.............................................. 153 373
-------- ---------
533 753
-------- ---------
$32,118 $31,178
-------- ---------
-------- ---------
See accompanying notes.
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<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
(Amounts in thousands)
May 31, Aug. 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ -------- ---------
Current liabilities:
Trade accounts payable............................. $2,971 $3,165
Accrued liabilities (Note 7)....................... 2,670 1,990
Accrued dividends on preferred stock (Note 6)...... 325 0
Long-term debt due within one year................. 2,003 2,030
-------- ---------
Total current liabilities....................... 7,969 7,185
Long-term liabilities:
Long-term debt..................................... 10,259 11,632
Accrued pension costs.............................. 684 817
Deferred compensation.............................. 331 376
Deferred income taxes (Note 2)..................... 114 114
-------- ---------
11,388 12,939
Stockholders' equity:
Series C convertible preferred stock, $2 par
value, 1,995,050 authorized and outstanding....... 3,990 3,990
Common stock....................................... 315 305
Additional paid-in capital......................... 15,341 15,185
Retained deficit................................... (6,861) (8,402)
Minimum pension liability.......................... (24) (24)
-------- ---------
Total stockholders' equity...................... 12,761 11,054
-------- ---------
$32,118 $31,178
-------- ---------
-------- ---------
See accompanying notes.
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<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
May 31, June 1, May 31, June 1,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales............................ $12,530 $12,397 $42,186 $42,628
Cost of sales........................ 9,339 9,907 32,160 34,891
---------- ---------- ---------- ----------
Gross profit......................... 3,191 2,490 10,026 7,737
Selling, general and administrative
expenses........................... 2,226 1,887 6,528 5,851
Plant closing reserve (Note 7)....... 0 0 (118) 995
---------- ---------- ---------- ----------
Operating profit..................... 965 603 3,616 891
Interest expense (net)............... (238) (278) (799) (1,046)
Gain on sale of asset (Note 7)....... 192 0 192 0
---------- ---------- ---------- ----------
Income (loss) before benefit
(provision) for income taxes........ 919 325 3,009 (155)
Benefit (provision) for income
taxes (Note 2)...................... (349) (120) (1,143) 25
---------- ---------- ---------- ----------
Net income (loss) (Note 7)........... $570 $205 $1,866 ($130)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) applicable to
common stock........................ $470 $205 $1,541 ($130)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per common share
(Notes 3 and 7)..................... $0.09 $0.04 $0.31 ($0.04)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See accompanying notes.
</TABLE>
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<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
NINE MONTHS ENDED
-----------------------
May 31, Aug. 31,
1997 1996
-------- ---------
Cash flows from operating activities:
Net income (loss) (Note 7)......................... $1,866 ($130)
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization.................... 739 766
Deferred income taxes (Note 2)................... 332 (65)
Pension costs.................................... (133) 154
Gain on sale of asset............................ (192) 0
Deferred compensation............................ (45) (38)
Changes in assets and liabilities:
Accounts receivable.............................. 501 3,253
Inventories..................................... (1,702) 2,758
Other assets.................................... 144 229
Trade accounts payable.......................... (194) (177)
Accrued liabilities (Note 7).................... 773 565
-------- ---------
Total adjustments.............................. 223 7,445
-------- ---------
Net cash provided by operating activities...... 2,089 7,315
-------- ---------
Cash flows provided (used) by investing activities:
Capital expenditures.............................. (650) (311)
Payments received on notes receivable............. 0 142
Proceeds from sale of asset....................... 192 0
-------- ---------
Cash used by investing activities................. (458) (169)
-------- ---------
See accompanying notes.
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<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Amounts in thousands)
(Unaudited)
NINE MONTHS ENDED
-----------------------
May 31, Aug. 31,
1997 1996
-------- ---------
Cash flows provided (used) by financing activities:
Borrowings from line of credit..................... $12,800 $11,948
Payments on line of credit......................... (13,400) (18,150)
Payments on long term debt......................... (956) (715)
Cash dividends on preferred stock.................. 0 (328)
Proceeds from stock options exercised.............. 73 0
-------- ---------
Cash used by financing activities................. (1,483) (7,245)
-------- ---------
Increase (decrease) in cash......................... 148 (99)
Cash- beginning of period........................... 97 295
-------- ---------
Cash - end of period................................ $245 $196
-------- ---------
-------- ---------
Cash paid for:
Interest.......................................... $814 $1,089
-------- ---------
-------- ---------
Income taxes...................................... $494 $156
-------- ---------
-------- ---------
See accompanying notes.
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<PAGE>
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 May 31, 1997 and for the three and nine months
ended May 31, 1997 and June 1, 1996 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 1997 fiscal year.
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
reporting period. Actual results could differ from those estimates.
The specific useful lives of property, plant, and equipment are
as follows:
Building and Leasehold Improvements 8 - 35 yrs.
Machinery and Equipment 3 - 13 yrs.
(2) INCOME TAXES
Income tax expense (benefit) consisted of the following (in thousands):
Three Months Ended Nine Months Ended
-------------------- --------------------
May 31, June 1, May 31, June 1,
1997 1996 1997 1996
------ ------- ------- -------
Current............ $349 $7 $811 $40
Deferred........... 0 113 332 (65)
------ ------- ------- -------
Total............. $349 $120 $1,143 $(25)
------ ------- ------- -------
------ ------- ------- -------
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<PAGE>
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows (in thousands):
Three Months Ended Nine Months Ended
-------------------- --------------------
May 31, June 1, May 31, June 1,
1997 1996 1997 1996
------ ------- ------- -------
Tax at 34%
statutory rate.... $312 $110 $1,023 $(53)
State income taxes. 37 10 120 28
------ ------- ------- -------
Income Taxes....... $349 $120 $1,143 $(25)
------ ------- ------- -------
------ ------- ------- -------
(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 nine month period ending June 1, 1996, since the effect of the
assumption of the conversion of the Series C Preferred Stock into common
stock and the assumed exercise of stock options would be anti-dilutive, those
common equivalent shares were not included in the calculation of earnings per
common share. See Exhibit 11 for more information.
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 months and nine months periods of fiscal 1997 and
1996, respectively, assuming the application of SFAS No. 128 at the beginning
of those periods, is as follows:
Three Months Ended Nine Months Ended
-------------------- --------------------
May 31, June 1, May 31, June 1,
1997 1996 1997 1996
------ ------- ------- -------
Earnings per share:
Basic............. $.15 $.07 $.50 ($.04)
Diluted........... $.09 $.04 $.31 ($.04)
Average shares outstanding:
Basic............. 3,143,150 3,002,312 3,101,815 2,992,703
Diluted........... 6,029,013 5,726,481 5,984,349 2,992,703
Number of common stock
equivalents in
diluted shares
outstanding....... 2,885,863 2,724,169 2,882,534 0
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<PAGE>
(4) INVENTORIES
Inventories were comprised of the following at May 31, 1997 and August
31, 1996:
May 31, 1997 August 31,1996
------------ --------------
Finished Products........... $6,146,000 $4,794,000
Work in Process............. 521,000 521,000
Raw Materials............... 4,888,000 4,538,000
------------ --------------
$11,555,000 $9,853,000
------------ --------------
------------ --------------
(5) OTHER MATTERS
The Company has been identified as a potentially responsible party
("PRP") by the Environmental Protection Agency ("EPA") or state agencies, or
has had claims asserted against it by other parties, in proceedings relating
to six 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 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 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 approximately $53,000. The Company has
established a reserve reflecting its estimate of probable environmental
liabilities in connection with the proceedings based on presently available
information provided by steering committees of participants or regulatory
authorities with respect to each site. As of May 31, 1997 the Company has
accrued approximately $109,000 for these potential environmental liabilities.
The ultimate costs of the Company's environmental liabilities cannot be
estimated with certainty, primarily due to several uncertain factors at one
of the sites subject to legal proceedings. These factors principally are the
level of contamination, the selection of remedial methods, the stage of
investigation at the site, and the determination of the Company's liability
in proportion to owner/operators of the site and other responsible parties.
Due to the limited nature of the Company's involvement in these 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 during the second quarter and first nine months of fiscal
1997 were not material. See "Item 3. Legal Proceedings".
(6) DIVIDENDS
The dividends on Series C Preferred Stock accrued in a fiscal year are not
payable until the following fiscal year.
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<PAGE>
(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. Consolidation of production in the
Indiana facilities resulted in lower manufacturing 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: $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 expected 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.
Net current assets and liabilities associated with the Gettysburg,
Pennsylvania facilities as of May 31, 1997 are immaterial to the financial
position of the Company. The carrying amount of net long-term assets to be
disposed of as of May 31, 1997 are approximately $10,000.
During the first quarter of fiscal 1997 the Company sold the Gettysburg,
Pennsylvania warehouse and realized gross proceeds of approximately $130,000.
Based upon this transaction approximately $118,000 of the book provision related
to the initial recording of property, plant and equipment was not needed.
During the third quarter of fiscal 1997 the Company sold an environmental
permit which had no carrying value and was previously associated with the
Gettysburg manufacturing plant and realized a gain on the sale of approximately
$192,000.
(8) 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 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.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue - Net sales for the third quarter of fiscal 1997 increased $133,000
or 1% over the third quarter of fiscal 1996. This increase was the result of
increased sales of commercial office furniture, home office furniture,
bedroom furniture, and other residential furniture including desks, desk
chairs, wall systems, occasional tables, and dining tables and chairs. The
increase was partially offset by lower sales of lumber and wood parts by the
Company's sawmill/dimension plant to outside trade customers and also offset
by lower sales of certain residential desk products. Office furniture sales
increased 5%; sales of home office furniture and other residential furniture
including desks, desk chairs, wall systems, occasional tables, and dining
tables and chairs increased 56%; bedroom furniture sales increased 2%; sales
to outside trade customers of lumber and fabricated wood parts by the
Company's sawmill/dimension parts plant decreased 32%; and sales of certain
residential desks decreased 73% which was due to the Company's decision to
devote less production to these products due to their lower profit margin.
Net sales for the first nine months of fiscal 1997 decreased $442,000 or
1% from the first nine months of fiscal 1996. This decrease was the result of
decreased sales of bedroom furniture, certain residential desk products, and
lower sales of lumber and wood parts by the Company's sawmill/dimension plant
to outside trade customers. The decrease was partially offset by increased
sales of commercial office furniture, home office and other residential
furniture including desks, desk chairs, wall systems, occasional tables, and
dining tables and chairs. Office furniture sales increased 13%; sales of home
office furniture and other residential furniture including desks, desk
chairs, wall systems, occasional tables increased 13%, bedroom furniture
decreased by 7%, certain residential desk products decreased by 55%. The
decrease in bedroom was primarily the result of a weak retail furniture
environment and the decrease in certain residential desk products was the
same reason as cited above.
Gross Margin - The Company's gross margin in the third quarter of fiscal 1997
was 25.5% compared to 20.1% in the third quarter of fiscal 1996. The gross
margin dollars in the third quarter increased $701,000 or 28%. This increase
in gross margin was primarily the result of: higher margin product sales
mix; lower overall production and warehousing overhead expenses as a result
of the success of the Company's asset consolidation program; lower material
costs; and improved operations at the Company's fabrication plant.
The Company's gross margin in the first nine months of fiscal 1997 was
23.8% compared to 18.2 % in the first nine months of fiscal 1996. The gross
margin dollars in the first nine months increased $2,289,000 or 30%. This
increase is the result of the reasons cited above.
Selling, General and Administrative (S,G&A) Expense - For the third quarter of
fiscal 1997, S,G&A expense amounted to $2,226,000 or 17.8% of sales compared to
$1,887,000 or 15.2% of sales for the third fiscal quarter of 1996. This
increase is primarily due to higher sales and marketing expenses, customer
service expenses, information system expenses, and general administrative
expenses.
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<PAGE>
For the first nine months of fiscal 1997, S,G&A expense amounted to
$6,528,000 or 15.5% of sales compared to $5,851,000 or 13.7% of sales for the
first nine months of fiscal 1996. This increase as a percentage of sales is the
result of the sales decrease mentioned above.
Interest Expense - For the third quarter of fiscal 1997, net interest was
$238,000 compared to $278,000 for the third quarter of fiscal 1996, or a
decrease of 14%. This decrease was the result of lower bank debt balances than
in the previous year due to the success of the Company's asset consolidation
program.
For the first nine months of fiscal 1997, net interest was $799,000
compared to $1,046,000 for the first nine months of fiscal 1996, or a decrease
of 24%. This decrease was the result of a lower interest rate spread charged
by the Company's lending bank as well as lower bank debt balances than in the
previous year due to the success of the Company's asset consolidation program.
During the third quarter of fiscal 1997 the Company sold an environmental
permit which had no carrying value and was previously associated with the
Gettysburg manufacturing plant and realized a gain on the sale of approximately
$192,000. (See Note 7)
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. Consolidation of production in the
Indiana facilities has resulted in lower manufacturing overhead and plant
administrative costs in future periods. The Company recorded a pre-tax charge
of approximately $995,000 in the first quarter of fiscal 1996 related to this
closing which included a book provision of $160,000 related to the recording of
property, plant, and equipment at net realizable value. (See Note 7)
Net current assets and liabilities associated with the Gettysburg,
Pennsylvania facilities as of May 31, 1997 are immaterial to the financial
position of the Company. The carrying amount of net long-term assets to be
disposed of as of May 31, 1997 are approximately $10,000.
During the first quarter of fiscal 1997 the Company sold the Gettysburg,
Pennsylvania warehouse and realized gross proceeds of approximately $130,000.
Based upon this transaction approximately $118,000 of the book provision related
to the initial recording of property, plant and equipment was not needed.
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. The Company's days
of sales outstanding of accounts receivable averaged 51 days for the first nine
months of fiscal 1997 compared to 50 days for the nine months of fiscal 1996.
The Company's average days of inventory on hand averaged 89 days for the first
nine months of fiscal 1997 compared to 86 days for the first nine months of
fiscal 1996. The Company's order backlog at May 31, 1997 was approximately
$8,413,000, a 26% decrease from approximately $11,320,000 at the same time last
year. This decrease is primarily the result of soft demand for bedroom
furniture.
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<PAGE>
Key elements of the Consolidated Statements of Cash Flows:
Nine Months
-----------------------------
1997 1996
---------- ----------
Net cash provided by operating
activities......................... $2,089,000 $7,315,000
Cash used for investing activities.. (458,000) (169,000)
---------- ----------
Net cash flows from operating
and investing activities........... 1,631,000 7,146,000
Cash used by financing activities... (1,483,000) (7,245,000)
---------- ----------
Net change in cash and
cash equivalents................... $148,000 $(99,000)
---------- ----------
---------- ----------
During the first nine months of fiscal 1997, the Company provided cash
flows from operating activities of $1,631,000 compared to cash flows provided of
$7,146,000 for the nine month period in fiscal 1996. The operating cash flows
in the current year are primarily due to strong operating results and the
previous year primarily due to the success of the Company's inventory reduction
program and improved accounts receivable collection cycle and lower sales
levels. Investing activities required $458,000 during the first nine months of
fiscal 1997 and $169,000 during the first nine months of fiscal 1996 primarily
for capital expenditures. Financing activities used $1,483,000 during the first
nine months of fiscal 1997 primarily in reduction of debt compared to funds used
of $7,245,000 for the same purpose for the same nine month period of the
previous year.
The Company has been identified as a potentially responsible party ("PRP")
by the Environmental Protection Agency ("EPA") or state agencies, or has had
claims asserted against it by other parties, in proceedings relating to six
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 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 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 approximately $56,000. The Company has recorded a reserve of
approximately $109,000 against potential environmental liabilities. The
ultimate costs of the Company's environmental liabilities cannot be estimated
with certainty, primarily due to several uncertain factors at one of the sites
subject to legal proceedings. These factors principally are the level of
contamination, the selection of remedial methods, the stage of investigation at
the site, and the determination of the Company's liability in proportion to
owner/operators of the site and other responsible parties. Due to the limited
nature of the Company's involvement in these 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".
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<PAGE>
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.
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<PAGE>
PART II. OTHER INFORMATION
Item 3. Legal Proceedings
The Company has been identified as a potentially responsible party ("PRP")
by the Environmental Protection Agency ("EPA") or state agencies, or has had
claims asserted against it by other parties, in proceedings relating to six
waste disposal facilities which may be subject to remedial action under
Superfund or similar state statutes, including the action described in the
following paragraph. These proceedings are based on allegations that the
Company had hazardous 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 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 approximately $56,000. The Company has recorded a reserve of
approximately $109,000 against potential environmental liabilities, including
potential liabilities in connection with the site described below. The
ultimate costs of the Company's environmental liabilities cannot be estimated
with certainty, primarily due to several uncertain factors at one of the sites
subject to legal proceedings. These factors principally are the level of
contamination, the selection of remedial methods, the stage of investigation at
the site, and the determination of the Company's liability in proportion to
owner/operators of the site and other responsible parties. Due to the limited
nature of the Company's involvement in these 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.
In 1988, the Company was named out of over one thousand customers at the
Keystone Sanitation Company landfill (the "Keystone Site") in Union Township,
Pennsylvania, as one of 31 PRPs potentially responsible for remediation of this
site. After the Company provided the EPA with information concerning the
nature of the substances allegedly contributed by the Company, which the Company
believes did not include the principal hazardous substances of concern at the
site identified in the remedial investigation, the EPA did not name the Company
in an Administrative Order issued on June 28, 1991, requiring twelve other PRPs
to undertake remedial action at the Keystone Site. On September 27, 1993, the
United States filed a lawsuit in federal court for the Middle District of
Pennsylvania against eleven PRPs, who are challenging the EPA's proposal for
remedial action at the Keystone Site, which was estimated to cost $9,156,950.
The parties have estimated that total site costs will be $17 million. On
August 11, 1994, the Company was named, along with over 250 PRPs, as a
third-party defendant by the original PRP defendants. Based on a
court-directed production of information, the Company was assessed a preliminary
allocation of liability among generators of waste of approximately 1.35% by a
consultant. The Company has not paid any amount toward the cost of
investigation or remediation at the Keystone site. The Company is participating
with other third-party defendants in settlement negotiations and in filing a
fourth-party complaint joining over 500 additional parties in the litigation.
The Company believes it has a reasonable basis upon which to dispute, and has
disputed, both the volume of material attributed to it, and the allegation that
material contributed by the Company requires any remediation. The Company
believes it is likely that a significant share of the liability will be assigned
- 16 -
<PAGE>
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 is a defendant in various lawsuits arising in the normal course
of business including the environmental matters noted above, and which in
management's opinion, are not material to the results of operations or
financial position of the Company, or are adequately covered by insurance.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
10. Eighth Amendment To Credit Agreement between Bank One,
Indianapolis, National Association and DMI Furniture, Inc.
dated March 21, 1997.
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: July 10, 1997 /s/ Joseph G. Hill
-----------------------------
Joseph G. Hill
Vice President-Finance,
Chief Financial Officer,
Secretary & Treasurer
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<PAGE>
EIGHTH AMENDMENT TO CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT ("AMENDMENT") is executed
March 21, 1997, but with effect as of the 1st day of March, 1997 (the
"EIGHTH AMENDMENT EFFECTIVE DATE") by BANK ONE, INDIANAPOLIS, NATIONAL
ASSOCIATION (the "BANK") and DMI FURNITURE, INC., a Delaware corporation (the
"COMPANY").
RECITALS
1. The Company and the Bank are parties to an Amended and Restated
Credit Agreement, dated June 9, 1994, as amended by a First Amendment to
Amended and Restated Credit Agreement, dated October 11, 1994, a Second
Amendment to Amended and Restated Credit Agreement, dated January 10, 1995, a
Third Amendment to Amended and Restated Credit Agreement, dated March 10,
1995, a Fourth Amendment to Amended and Restated Credit Agreement, dated
September 20, 1995, effective as of August 15, 1995, a Fifth Amendment to
Amended and Restated Credit Agreement, dated November 1, 1995, a Sixth
Amendment to Amended and Restated Credit Agreement, dated January 11, 1996,
and a Seventh Amendment to Amended and Restated Credit Agreement, dated July
17, 1996, (the "Amended Credit Agreement").
2. The Company has requested the Bank, in accordance with and subject
to the terms of this Amendment, to: (i) agree to an adjustment of the
rates at which interest accrues on the Loans, (ii) agree to an adjustment of
the Applicable Credit Enhancement Letter of Credit Commission Rate, the
Applicable Documentary Letter of Credit Commission Rate, (iii) agree to an
adjustment of the facility fee payable with respect to the Revolving Loan,
(iv) agree to an amendment of the financial covenant of the Company set forth
in Section 7.g(iii); (v) agree to an amendment of the negative covenant of
the Company set forth in Section 8.k of the Amended Credit Agreement; and
(vi) agree to other amendments and modifications of the Amended Credit
Agreement as set forth in this Amendment.
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<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein, and each act performed and to be performed hereunder,
the Bank and the Company agree as follows:
1. DEFINITIONS. Except as otherwise expressly stated, all terms used
in the Recitals and in this Amendment that are defined in the Amended Credit
Agreement, as amended hereby, and that are not otherwise defined herein shall
have the same meanings in this Amendment as are ascribed to them in the
Amended Credit Agreement, as amended by this Amendment.
2. AMENDMENTS TO SECTION 1 OF THE AMENDED CREDIT AGREEMENT.
(a) NEW DEFINITIONS. Section 1 of the Amended Credit Agreement is
amended as of the Eighth Amendment Effective Date by the addition of each of
the following new definitions:
"aaaaa. APPLICABLE UNUSED COMMITMENT FEE PERCENTAGE. "Applicable Unused
Commitment Fee Percentage" means the percentage determined by
reference to the Ratio of Total Funded Debt to EBITDA in
accordance with the following table:
Ratio of Total
Funded Debt Applicable Unused Commitment
To EBITDA Percentage Fee
-------------- ----------------------------
3.51 and above 1/2 %
3.01 to 3.50 3/8 %
2.51 to 3.00 1/4 %
2.01 to 2.50 1/4 %
less than 2.01 1/8 %
The Applicable Unused Commitment Fee Percentage shall be
determined on the Eighth Amendment Effective Date on the basis of
the Ratio of Total Funded Debt to EBITDA in effect on the Eighth
Amendment Effective Date (which the Company and the Bank agree
for purposes of determining the Applicable Unused Commitment Fee
Percentage is between 2.01 and 2.50 as of the Eighth Amendment
Effective Date) and shall be redetermined and adjusted as of the
close of each fiscal quarter of the Company thereafter,
concurrently with any adjustment to the Ratio of Total Funded
Debt to EBITDA (as provided in the definition of Ratio of Total
Funded Debt to EBITDA in this Agreement), with such redetermined
Applicable Unused Commitment Fee Percentage to be effective for
the entire fiscal quarter of the Company which immediately
follows each such fiscal quarter.
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<PAGE>
bbbbb. CAPITAL EXPENDITURES. "Capital Expenditures" means for any
period the aggregate amount of all expenditures (whether paid in
cash or accrued as a liability and including without limitation
freight, installation costs, taxes and other related costs) of
the Company, during such period that to the extent required by
GAAP are required to be included in or reflected as property,
plant or equipment or similar fixed asset account in any
financial statements of the Company, including any acquisition,
construction or installation of properties or for any additions,
improvements or major repair thereto or any replacement thereof,
and the amount capitalized under any Capital Lease.
ccccc. CAPITAL LEASE. "Capital Lease" means any lease of property
(whether real, personal or mixed) which, to the extent required
by GAAP, is to be capitalized on the balance sheet of the
Company.
ddddd. EBITDA. "EBITDA" means for any fiscal period of the Company, the
Net Income for such period (minus or plus, to the extent included
in the determination of such Net Income, any gain or loss
(i) which must be treated as an extraordinary item under GAAP or
(ii) realized upon the sale or other disposition of any real
property or equipment that is not sold in the ordinary course of
business), PLUS (without duplication and only to the extent
deducted in determining such Net Income and all as determined in
accordance with GAAP), the sum of (a) Interest expense,
(b) federal, state, and local income tax expense, and
(c) depreciation and amortization expense.
eeeee. EIGHTH AMENDMENT. "Eighth Amendment" means the Eighth Amendment
to Amended and Restated Credit Agreement, effective as of March
1, 1997, executed between the Company and the Bank.
fffff. EIGHTH AMENDMENT EFFECTIVE DATE. "Eighth Amendment Effective
Date" means as of March 1, 1997.
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<PAGE>
ggggg. GAAP and GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. "GAAP" and
"generally accepted accounting principles" each means generally
accepted accounting principles in the United States of America as
in effect from time to time, which shall include the official
interpretations thereof by the Financial Accounting Standards
Board, consistently applied (from and after the date hereof) and
for the period as to which such accounting principles are to
apply. Except as otherwise provided in this Agreement, to the
extent applicable, all computations and determinations as to
accounting or financial matters and all financial statements to
be delivered pursuant to this Agreement shall be made and
prepared in accordance with GAAP (including principles of
consolidation where appropriate), and, to the extent applicable,
all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP.
hhhhh. INTEREST. "Interest" means for any period and for any Person,
the interest expense of such Person for that period, determined
in accordance with GAAP.
iiiii. INTERIM FINANCIAL STATEMENTS. "Interim Financial Statements"
means the interim financial statements of the Company furnished
to the Bank pursuant to Section 7.b(ii) of this Agreement for
each 4-week or 5-week period of a fiscal quarter of the Company,
and, when used in reference to a fiscal quarter or a period of
fiscal quarters of the Company, means all of the Interim
Financial Statements for each of the 4-week and 5-week periods
comprising such fiscal quarter or period of fiscal quarters.
jjjjj. LIBOR-BASED RATE. "LIBOR-based Rate" means a variable rate at
which interest may accrue on all or a portion of any of the Loans
under the terms of this Agreement, which rate is determined by
reference to the London Interbank Offered Rate.
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<PAGE>
kkkkk. LIEN. "Lien" and "lien" each means any mortgage, pledge,
security interest, encumbrance, lien, charge or deposit
arrangement of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in
the nature thereof, any sale of accounts with recourse against
the seller, any filing or agreement to file a financing statement
as debtor under the Uniform Commercial Code or any similar
statute other than to reflect ownership by third party of
property leased to the Person under a lease which is not in the
nature of a conditional sale or title retention agreement, and
any subordination arrangement in favor of another Person).
lllll. LONDON INTERBANK OFFERED RATE. "London Interbank Offered Rate"
means the per annum rate of interest, as determined by the Bank,
at which dollar deposits in immediately available funds are
offered to the principal banks in the London interbank market by
other principal banks in that market two Banking Days prior to
the commencement of a period of either one month, two months,
three months or six months for which the Company shall have
requested a quotation of the rate in amounts equal to the amount
for which the Company shall have requested a quotation of the
rate.
mmmmm. NET INCOME. "Net Income" means for any period the net income of
the Company for such period, determined in accordance with GAAP.
nnnnn. PERSON. "Person" means an individual, a corporation, a limited
or general partnership, a limited liability company, a joint
venture, a trust or unincorporated organization, a joint stock
company or other similar organization, a government or any
political subdivision thereof, a court, or any other legal
entity, whether acting in an individual, fiduciary or other
capacity.
- 22 -
<PAGE>
ooooo. PREPAYMENT PREMIUM AND REINVESTMENT RATE. Prepayment Premium
means the excess, if any, as determined by the Bank of: (i) the
present value at the time of prepayment of the interest payments
which would have been payable on account of an amount prepaid
from the date of prepayment until the end of the period during
which interest would have accrued at a LIBOR-based Rate but for
prepayment over (ii) the present value at the time of prepayment
of interest payments calculated at the rate (the "Reinvestment
Rate") which the Bank then estimates it would receive upon
reinvesting the principal amount of the prepayment in an
obligation which presents a credit risk substantially similar (as
determined in accordance with the commercial credit rating system
then used by the Bank) to that which is then presented by the
Loan for a period approximately equal to the balance of the
period during which interest would accrue on the portion of the
Loan prepaid at a LIBOR-based Rate, but for prepayment. The
discount rate used by the Bank in determining such present values
shall be the Reinvestment Rate.
ppppp. PRIME-BASED RATE. "Prime Based-Rate" means a variable rate at
which interest may accrue on all or a portion of the Loans under
the terms of this Agreement, which rate is determined by
reference to the Prime Rate.
qqqqq. RATIO OF TOTAL FUNDED DEBT TO EBITDA. "Ratio of Total Funded
Debt to EBITDA" means, with respect to any period, the ratio of
Total Funded Debt at the close of that period to EBITDA of the
Company for that period. For purposes of determining the
Applicable Unused Commitment Fee Percentage, the Applicable
Credit Enhancement Letter of Credit Commission Rate, the
Applicable Documentary Letter of Credit Commission Rate,
Applicable Spread I and Applicable Spread II, the Ratio of Total
Funded Debt to EBITDA shall be redetermined as of the close of
each fiscal quarter of the Company ending after the Eighth
Amendment Effective Date on the basis of the Interim Financial
Statements for such fiscal quarter and the most recent three
preceding fiscal quarters of the Company (a "Quarterly
Adjustment"), provided that, the Applicable Unused Commitment Fee
Percentage, the Applicable Credit Enhancement Letter of Credit
Commission Rate, the Applicable Documentary Letter of Credit
Commission Rate, Applicable Spread I and Applicable Spread II in
all events shall be the higher of the percentages as determined
by the Ratio of Total Funded Debt to EBITDA as of the close of
the fiscal quarter of the Company most recently ended and the
percentages as determined as of the close of the immediately
preceding fiscal quarter. No Quarterly Adjustment shall be
effective as to any LIBOR-based Rate until the expiration of the
period of time for which such LIBOR-based Rate shall have been
selected by the Company.
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<PAGE>
The Ratio of Total Funded Debt to EBITDA shall be adjusted on the
last Banking Day of the calendar month in which the Bank receives
the most recent Interim Financial Statements upon which such
adjustment is based. Notwithstanding the foregoing, in the event
that the Company fails to deliver any Interim Financial
Statements when due as required by this Agreement and fails to
cure such default within ten (10) days after notice of such
default to the Company by the Bank, then the Applicable Unused
Commitment Fee Percentage, the Applicable Credit Enhancement
Letter of Credit Commission Rate, the Applicable Documentary
Letter of Credit Commission Rate, Applicable Spread I and
Applicable Spread II shall be adjusted (without further notice by
the Bank) to the largest number shown in the table applicable to
such definition from such due date until the first interest
payment date which follows such delivery to the Bank of such
Interim Financial Statements.
rrrrr. TOTAL FUNDED DEBT. "Total Funded Debt" means, as of any date a
determination thereof is made, all of the following described
indebtedness, liabilities and obligations of the Company that are
interest-bearing, as determined in accordance with GAAP, without
duplication: (a) all indebtedness, liabilities and obligations
of the Company for borrowed money;(b) all obligations of the
Company as lessee under any Capital Lease; (c) all obligations,
indebtedness and liabilities which are secured by any Lien on any
asset of the Company, whether or not the obligation, indebtedness
or liability secured thereby shall have been assumed by the
Company; and (d) all obligations, indebtedness and liabilities of
others similar in character to those described in clauses (a)
through (c) of this definition for which the Company is liable,
contingently or otherwise, as obligor, guarantor or in any other
capacity, or in respect of which obligations, indebtedness or
liabilities the Company assures a creditor against loss or agrees
to take any action to prevent any such loss (other than
endorsements of negotiable instruments for collection in the
ordinary course of business), including without limitation all
reimbursement obligations of the Company in respect of letters of
credit, surety bonds or similar obligations and all obligations
of the Company to advance funds to, or to purchase assets,
property or services from, any other Person in order to maintain
the financial condition of such other Person, excluding
documentary letters of credit issued by the Bank to the Company
in connection with importing property in the ordinary course of
business.
- 24 -
<PAGE>
(b) AMENDED DEFINITIONS. The following definitions, as set forth in
Section 1 of the Amended Credit Agreement, are amended and restated in their
respective entireties as of the Eighth Amendment Effective Date to read as
follows:
"c. APPLICABLE CREDIT ENHANCEMENT LETTER OF CREDIT COMMISSION RATE.
"Applicable Credit Enhancement Letter of Credit Commission Rate"
means the rate per annum at which the commission due on each
Commission Due Date for each Credit Enhancement Letter of Credit
will be calculated, which rate shall be determined by reference
to the Ratio of Total Funded Debt to EBITDA in accordance with
the following table:
Ratio of Total Applicable Credit
Funded Debt Enhancement Letter of
To EBITDA Credit Commission Rate
-------------- ----------------------
3.51 and above 1.50 %
3.01 to 3.50 1.50 %
2.51 to 3.00 1.25 %
2.01 to 2.50 1.00 %
less than 2.01 1.00 %
The Applicable Credit Enhancement Letter of Credit Commission
Rate shall be determined on the Eighth Amendment Effective Date
on the basis of the Ratio of Total Funded Debt to EBITDA in
effect on the Eighth Amendment Effective Date (which the Company
and the Bank agree for purposes of the Applicable Credit
Enhancement Letter of Credit Commission Rate shall be between
2.01 and 2.50 as of the Eighth Amendment Effective Date) and
shall be redetermined and adjusted as of the close of each fiscal
quarter of the Company thereafter, concurrently with any
adjustment to the Ratio of Total Funded Debt to EBITDA (as
provided in the definition of Ratio of Total Funded Debt to
EBITDA in this Agreement), with such redetermined Applicable
Credit Enhancement Letter of Credit Commission Rate to be
effective for the entire fiscal quarter of the Company which
immediately follows each such fiscal quarter.
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<PAGE>
d. APPLICABLE DOCUMENTARY LETTER OF CREDIT COMMISSION RATE.
"Applicable Documentary Letter of Credit Commission Rate" means
the rate per annum at which the commission due upon the issuance
of each Documentary Letter of Credit will be calculated,
expressed as a percentage of the maximum amount which may be
drawn under the Documentary Letter of Credit, which rate shall be
determined by reference to the Ratio of Total Funded Debt to
EBITDA in accordance with the following table:
Ratio of Total Applicable Documentary
Funded Debt Letter of Credit
To EBITDA Commission Rate
-------------- ----------------------
3.51 and above 5/8 %
3.01 to 3.50 5/8 %
2.51 to 3.00 1/2 %
2.01 to 2.50 3/8 %
less than 2.01 1/4 %
The Applicable Documentary Letter of Credit Commission Rate shall
be determined on the Eighth Amendment Effective Date on the basis
of the Ratio of Total Funded Debt to EBITDA in effect on the
Eighth Amendment Effective Date (which the Company and the Bank
agree for purposes of the Applicable Documentary Letter of Credit
Commission Rate shall be between 2.01 and 2.50 as of the Eighth
Amendment Effective Date) and shall be redetermined and adjusted
as of the close of each fiscal quarter of the Company thereafter,
concurrently with any adjustment to the Ratio of Total Funded
Debt to EBITDA (as provided in the definition of Ratio of Total
Funded Debt to EBITDA in this Agreement), with such redetermined
Applicable Documentary Letter of Credit Commission Rate to be
effective for the entire fiscal quarter of the Company which
immediately follows each such fiscal quarter.
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<PAGE>
f. APPLICABLE SPREAD I. "Applicable Spread I" means that number of
percentage points to be taken into account in determining the
rate per annum at which interest will accrue on the Revolving
Loan, which shall be determined by reference to the Ratio of
Total Funded Debt to EBITDA in accordance with the following
table:
If determining If determining
Ratio of Total a LIBOR-based a Prime-based
Funded Debt Rate on the Rate on the
To EBITDA Revolving Loan Revolving Loan
------------- -------------- --------------
3.51 and above 2.75 % 1/4%
3.01 to 3.50 2.50 % 0%
2.51 to 3.00 2.00 % 0%
2.01 to 2.50 1.50 % 0%
less than 2.01 1.00 % 0%
Applicable Spread I shall be determined on the Eighth Amendment
Effective Date on the basis of the Ratio of Total Funded Debt to
EBITDA in effect on the Eighth Amendment Effective Date (which
the Company and the Bank agree for purposes of Applicable
Spread I shall be between 2.01 and 2.50 as of the Eighth Amendment
Effective Date) and shall be redetermined and adjusted as of the
close of each fiscal quarter of the Company thereafter,
concurrently with any adjustment to the Ratio of Total Funded
Debt to EBITDA (as provided in the definition of Ratio of Total
Funded Debt to EBITDA in this Agreement), with such redetermined
Applicable Spread I to be effective for the entire fiscal quarter
of the Company which immediately follows each such fiscal
quarter.
g. APPLICABLE SPREAD II. "Applicable Spread II" means that number
of percentage points to be taken into account in determining the
rate per annum at which interest will accrue on the Term Loan,
which shall be determined by reference to the Ratio of Total
Funded Debt to EBITDA in accordance with the following table:
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<PAGE>
If determining If determining
Ratio of Total a LIBOR-based a Prime-based
Funded Debt Rate on the Rate on the
To EBITDA Term Loan Term Loan
-------------- ------------- --------------
3.51 and above 3.00% 1/2%
3.01 to 3.50 2.75% 1/4%
2.51 to 3.00 2.25% 0%
2.01 to 2.50 1.75% 0%
less than 2.01 1.25% 0%
Applicable Spread II shall be determined on the Eighth Amendment
Effective Date on the basis of the Ratio of Total Funded Debt to
EBITDA in effect on the Eighth Amendment Effective Date (which
the Company and the Bank agree for purposes of Applicable
Spread II shall be between 2.01 and 2.50 as of the Eighth
Amendment Effective Date) and shall be redetermined and adjusted
as of the close of each fiscal quarter of the Company thereafter,
concurrently with any adjustment to the Ratio of Total Funded
Debt to EBITDA (as provided in the definition of Ratio of Total
Funded Debt to EBITDA in this Agreement), with such redetermined
Applicable Spread II to be effective for the entire fiscal
quarter of the Company which immediately follows each such fiscal
quarter.
x. COMMISSION DUE DATE. "Commission Due Date" is used as defined in
Section 4.a(iii) or in Section 4.b(iii) of this Agreement, as the
context requires."
3. AMENDMENTS TO SECTION 3 OF THE AMENDED CREDIT AGREEMENT.
(a) AMENDMENT OF SECTIONS 3.a(iii). Section 3.a(iii) of the Amended
Credit Agreement is amended and restated in its entirety as of the Eighth
Amendment Effective Date to read as follows:
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<PAGE>
"(iii) INTEREST ON THE REVOLVING LOAN. The principal amount of the
Revolving Loan outstanding from time to time shall bear interest until
maturity of the Revolving Note at a rate per annum equal to the Prime
Rate, plus Applicable Spread I, except that at the option of the
Company, exercised from time to time as provided in Section 3.d(iii)
of this Agreement, interest may accrue prior to maturity on any
Advance or on the entire outstanding balance of the Revolving Loan as
to which no LIBOR-based Rate previously elected remains in effect, at
a LIBOR-based Rate for a period of one month, two months, three months
or six months plus, plus Applicable Spread I, provided that an
election of a LIBOR-based Rate for a period extending beyond the
Revolving Loan Maturity Date shall be permitted only at the discretion
of the Bank. After maturity, whether on the Revolving Loan Maturity
Date or on account of acceleration upon the occurrence of an Event of
Default, and until paid in full, the Revolving Loan shall bear
interest at a per annum rate equal to the Prime Rate, plus Applicable
Spread I, plus two percent (2%) per annum, except that as to any
portion of the Revolving Loan for which the Company may have elected a
LIBOR-based Rate for a period of time that has not expired at
maturity, such portion shall, during the remainder of such period,
bear interest at the greater of the Prime Rate, plus Applicable
Spread I, plus two percent (2%) per annum or the LIBOR-based Rate then
in effect, plus Applicable Spread I, plus two percent (2%) per annum.
Accrued interest shall be due and payable monthly on the last Banking
Day of each month prior to maturity. After maturity, interest shall
be payable as accrued and without demand."
(b) AMENDMENT OF SECTIONS 3.a(vi). Section 3.a(vi) of the Amended
Credit Agreement is amended and restated in its entirety as of the Eighth
Amendment Effective Date to read as follows:
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<PAGE>
"(vi) UNUSED COMMITMENT FEE. In addition to interest on
the Revolving Loan, the Company shall pay to the Bank an unused
commitment fee for each partial or full fiscal quarter during
which the Revolving Loan Commitment is outstanding equal to the
Applicable Unused Commitment Fee Percentage in effect at the
close of such partial or full fiscal quarter TIMES the daily
average "Unused Revolving Loan Commitment" (as defined in the
following sentence) for such partial or full fiscal quarter
multiplied by a fraction, the numerator of which shall be the
number of calendar days in such partial or full fiscal quarter
and the denominator of which is 360. As used herein, the term
"Unused Revolving Loan Commitment" means, as of the close of each
calendar day for which a determination thereof is to be made, the
positive difference, if any, which results from subtracting from
the Revolving Loan Commitment the outstanding principal balance
of the Revolving Loan and the outstanding amount of the
Documentary Letters of Credit at the close of such calendar day.
Unused commitment fees for each fiscal quarter shall be due and
payable within ten (10) days following the Bank's submission,
following the close of such quarter, of a statement of the amount
due. Such fees may be debited by the Bank when due to any demand
deposit account of the Company carried with the Bank without
further authority, notice or demand."
(c) AMENDMENT OF SECTIONS 3.b(iii). Section 3.b(iii) of the Amended
Credit Agreement is amended and restated in its entirety as of the Eighth
Amendment Effective Date to read as follows:
"(iii) INTEREST ON THE TERM LOAN. The principal amount of the Term
Loan outstanding from time to time shall bear interest until maturity
of the Term Note at a rate per annum equal to the Prime Rate, plus
Applicable Spread II, except that at the option of the Company,
exercised from time to time as provided in Section 3.d(iii) of this
Agreement, interest may accrue prior to maturity on any Advance or on
the entire outstanding balance of the Term Loan as to which no
LIBOR-based Rate previously elected remains in effect, at a
LIBOR-based Rate for a period of one month, two months, three months
or six months, plus Applicable Spread II, provided that an election
of a LIBOR-based Rate for a period extending beyond the scheduled
maturity of the Term Note shall be permitted only at the discretion
of the Bank. After maturity, whether on the scheduled maturity date
or on account of acceleration upon the occurrence of an Event of
Default, and until paid in full, the Term Loan shall bear interest
at a per annum rate equal to the Prime Rate, plus Applicable
Spread II, plus two percent (2%) per annum, except that as to any
portion of the Term Loan for which the Company may have elected a
LIBOR-based Rate for a period of time that has not expired at
maturity, such portion shall, during the remainder of such period,
bear interest at the greater of the Prime Rate, plus Applicable
Spread II, plus two percent (2%) per annum or the LIBOR-based Rate
then in effect, plus Applicable Spread II, plus two percent (2%) per
annum. Accrued interest shall be due and payable monthly on the last
Banking Day of each month prior to maturity. After maturity, interest
shall be payable as accrued and without demand."
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<PAGE>
(d) ADDITION OF NEW SECTION 3.d(iii). New Section 3.d(iii) is added
to Amended Credit Agreement as of the Eighth Amendment Effective Date to
read as follows:
"(iii) PROCEDURES FOR ELECTING LIBOR-BASED RATES--CERTAIN
EFFECTS OF ELECTION. LIBOR-based Rates may be elected only in
accordance with the following procedures, shall be subject to the
following conditions and the election of a LIBOR-based Rate shall have
the following consequences in addition to other consequences stated in
this Agreement:
A. No LIBOR-based Rate may be elected at any time
that an Event of Default or Unmatured Event of Default has
occurred and is continuing. A LIBOR-based Rate may be
elected only for Loans or portions of Loans in a minimum
amount of $1,000,000.00.
B. Voluntary prepayment prior to scheduled maturity
of all or any portion of a Loan on which interest is
accruing at a LIBOR-based Rate shall be subject to
contemporaneous payment of the Prepayment Premium if, at the
time of prepayment, the Reinvestment Rate is less than the
LIBOR-based Rate at which interest accrues on the Loan. A
Prepayment Premium shall also be due and payable on
prepayment of all or any portion of any Loan prior to
scheduled maturity because of acceleration of maturity on
account of an Event of Default if, at the time of
acceleration of maturity, the Reinvestment Rate is less than
the LIBOR-based Rate at which interest is accruing on the
Loan. If at the time of any voluntary or mandatory
prepayment of any portion of the principal of any Loan,
interest accrues at both a LIBOR-based Rate or Rates and at
a Prime-based Rate on portions of the Loan, then any
prepayment of principal will be applied first to the portion
of the Loan on which interest accrues at the Prime-based
Rate and next to the portion or portions at which interest
accrues at a LIBOR-based Rate or Rates, and if interest
accrues on the Loan at more than one LIBOR-based Rate, first
to that portion or those portions on which interest accrues
at a Rate or Rates which results in no Prepayment Premium or
the lowest Prepayment Premium or Premiums.
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<PAGE>
C. On any Banking Day, the Company may request a
quotation of the LIBOR-based Rates then in effect from the
Bank. As soon as possible, and in any event before the
close of business on the next following Banking Day, the
Bank shall quote such LIBOR-based Rates. The Company shall
then have until the end of the Banking Day on which such
quotation is given or within such longer time as the Bank
may specify, to exercise its option to elect any LIBOR-based
Rate quoted, subject to all other conditions and limitations
stated in this Agreement. The period for which any LIBOR-based
Rate is effective shall begin on the second Banking
Day following the day on which the quotation is given.
D. An election of a LIBOR-based Rate may be
communicated to the Bank on behalf of the Company only by an
Authorized Officer. Such election may be communicated by
telephone or by telephone facsimile (fax) machine or any
other form of written electronic communication, or by a
writing delivered to the Bank. At the request of the Bank,
the Company shall confirm any election in writing and such
written confirmation shall be signed by an Authorized
Officer. The Bank shall be entitled to rely on any oral or
employee from anyone reasonably believed in good faith by
LIBOR-based Rate which is received by an appropriate Bank
such employee to be an Authorized Officer.
E. Notwithstanding any other provision of this
Agreement, the Bank may elect not to quote a LIBOR-based
Rate on any day on which the Bank has determined that it is
not practical to quote such rate because of the
unavailability of approximating the relevant London
Interbank Offered Rate, or because of legal or regulatory
changes which make it impractical or burdensome for the Bank
to lend money at a LIBOR-based Rate."
- 32 -
<PAGE>
4. AMENDMENT TO SECTION 7.g(iii) OF THE AMENDED CREDIT AGREEMENT.
Section 7.g(iii) of the Amended Credit Agreement is amended and restated in its
entirety as of the Eighth Amendment Effective Date to read as follows:
"(iii) RATIO OF TOTAL FUNDED DEBT TO EBITDA. As of the close of
each fiscal quarter of the Company ending after the Eighth
Amendment Effective Date, the Company shall have, for the
period of the four consecutive fiscal quarters which end on
each such close, a Ratio of Total Funded Debt to EBITDA of
not greater than (i) 4.0:1 for each such fiscal quarter
ending before August 29, 1997, (ii) 3.5:1 for each fiscal
quarter ending on or after August 30, 1997, and before
August 28, 1998, (iii) 3.0:1 for each fiscal quarter ending
on or after August 29, 1998."
5. AMENDMENT TO SECTION 8.k OF THE AMENDED CREDIT AGREEMENT.
Section 8.k of the Amended Credit Agreement is amended and restated in its
entirety as of the Eighth Amendment Effective Date to read as follows:
"k. CAPITAL EXPENDITURES LIMITATION. The Company shall not make
Capital Expenditures in any fiscal year of the Company which in
the aggregate exceed the amount of depreciation expense of the
Company for the immediately preceding fiscal year of the
Company."
6. AMENDMENT TO SECTION 15 OF THE AMENDED CREDIT AGREEMENT.
Section 15 of the Amended Credit Agreement is amended and restated in its
entirety as of the Eighth Amendment Effective Date to read as follows:
"SECTION 15. COSTS, EXPENSES AND TAXES. The Company agrees to pay
(without duplication), all of the following fees, costs and expenses
incurred by the Bank: (i) all reasonable costs and expenses in
connection with the negotiation, preparation, printing, typing,
reproduction, execution, closing and delivery of the Loan Documents
(including the Eighth Amendment) and any and all other documents
furnished pursuant thereto or in connection therewith, and in the
perfection of liens and security interests granted under the Loan
Documents, and all investigation of and due diligence regarding the
Company and the security for the Obligations undertaken and performed
with respect thereto, including without limitation the reasonable fees
and out-of-pocket expenses of Messrs. Baker & Daniels, special counsel
to the Bank, (ii) all reasonable costs and expenses in connection with
the negotiation, preparation, printing, typing, reproduction,
execution and delivery of any amendments or modifications of (or
supplements to) any of the Loan Documents and any and all other
documents furnished pursuant thereto or in connection therewith, and
all investigation of and due diligence regarding the Company and the
security for the Obligations undertaken and performed with respect
thereto, including without limitation the reasonable fees and
out-of-pocket expenses of counsel retained by the Bank relative
thereto (or, but not as well as the reasonable allocated costs of
staff counsel) as well as the fees and out-of-pocket expenses other
outside experts retained by the Bank, and in connection with the
foregoing, (iii) all search fees, appraisal fees and expenses,
- 33 -
<PAGE>
title insurance policy fees, filing service fees, costs and expenses
and filing and recording fees and taxes (including UCC, tax and
judgment lien searches to be obtained by the Bank with respect to
the Company in each jurisdiction in which each has property and all
expenses incurred by the Bank in connection with any audit or review
of the books and records or physical assets of the Company conducted
by the Bank under or pursuant to the provisions of this Agreement or
any other Loan Document, and, (iv) all costs and expenses (including,
without limitation, all reasonable attorneys' fees and expenses
incurred by the Bank), if any, incurred at any time an Unmatured Event
of Default or Event of Default has occurred and remains unremedied or
incurred in connection with the enforcement of this Agreement, any
Note and/or all or any of the other Loan Documents or any other
agreement furnished pursuant hereto or thereto or in connection
herewith or therewith; and (v) all reasonable attorneys fees, and
out-of-pocket expenses (including a reasonable allocation of the
Bank's overhead expenses for its auditors and agents) incurred by the
Bank in connection with its administration and disbursement of the
Loans and this Agreement. In addition, the Company shall pay any
and all stamp, transfer and other similar taxes payable or determined
to be payable in connection with the execution and delivery of this
Agreement, or any of the other Loan Documents or the issuance of any
Note or the making of any of the Loans, and agree, jointly and
severally, to save and hold the Bank harmless from and against any
and all liabilities with respect to or resulting from any delay in
paying, or omission to pay, such taxes. Any portion of the foregoing
fees, costs and expenses which remains unpaid following the Bank's
statement and request for payment thereof shall bear interest from
the date of such statement and request to the date of payment at
a per annum rate equal to the Prime Rate."
7. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Bank that:
(a)(i) The execution, delivery and performance of this Amendment
and all agreements and documents delivered pursuant hereto by the Company has
been duly authorized by all necessary corporate action and does not and will
not violate any provision of any law, rule, regulation, order, judgment,
injunction, or aware presently in effect applying to it, or of its articles
of incorporation or by-laws, or result in a breach of or constitute a default
under any material agreement, lease or instrument to which the Company is a
party or by which it or its properties may be bound or affected; (ii) no
authorization, consent, approval, license, exemption or filing of a
registration with any court or governmental department, agency or
instrumentality is or will be necessary to the valid execution, delivery or
performance by the Company of this Amendment and all agreements and documents
delivered pursuant hereto; and (iii) this Amendment and all agreements and
documents delivered pursuant hereto by the Company are the legal, valid and
binding obligations of the Company and enforceable against its in accordance
with the terms thereof.
- 34 -
<PAGE>
(b) After giving effect to the amendments contained in this
Amendment, the representations and warranties contained in Section 5 of the
Amended Credit Agreement are true and correct on and as of the Eighth
Amendment Effective Date with the same force and effect as if made on and as
of the Eighth Amendment Effective Date, except that the representation in
Section 5.d of the Amended Credit Agreement shall be deemed to refer to the
financial statements of the Company most recently delivered to the Bank prior
to the Eighth Amendment Effective Date.
(c) No Event of Default or Unmatured Event of Default has occurred
and is continuing or will exist under the Agreement as of the Eighth Amendment
Effective Date.
The Bank and the Company acknowledge and agree that as of the Eighth
Amendment Effective Date, the Overline Loan Commitment has terminated and the
Overline Loan Availability Amount.
8. CONDITIONS. The obligation of the Bank to execute and to
perform this Amendment shall be subject to full satisfaction of the following
conditions precedent on or before the Eighth Amendment Effective Date:
(a) Copies, certified as of the Eighth Amendment Effective Date, of
such corporate documents of the Company as the Bank may request, including
articles of incorporation, by-laws (or certifying as to the continued
accuracy of the articles of incorporation and by-laws previously delivered to
the Bank), and incumbency certificates, and such documents evidencing
necessary corporate action by the Company with respect to this Amendment and
all other agreements or documents delivered pursuant hereto as the Bank may
request.
(b) This Amendment shall have been duly executed by the Company.
(c) The Company shall have paid all costs and expenses incurred by
the Bank in connection with the negotiation, preparation and closing of this
Amendment and the other documents and agreements delivered pursuant hereto,
including the reasonable fees and out-of-pocket expenses of Messrs. Baker &
Daniels, special counsel to the Bank.
(d) The Bank shall have received such additional agreements,
documents and certifications, fully executed by the Company as may be
reasonably requested by the Bank, including amendments to collateral
documents.
9. CONSENT. DMI Management, Inc., by its execution of this
Amendment, expressly consents to the execution, delivery and performance by
the Company and the Bank of this Amendment and each of the other documents,
instruments and agreements to be executed pursuant hereto and consent to the
elimination and release of the guaranty agreements previously executed and
delivered to the Bank by DMI Management, Inc. with respect to all or part of
the Obligations. The Company expressly consents to the execution, delivery
and performance by the Bank of this Amendment and each of the other
documents, instruments and agreements to be executed pursuant hereto. The
Company agrees that neither the provisions of this Amendment nor any action
taken or not taken in accordance with the terms of this Amendment shall
constitute a termination, extinguishment, release or discharge of any of the
Obligations or provide a defense, set off, or counter claim to any of them
with respect to any its obligations under any of the Loan Documents.
- 35 -
<PAGE>
10. BINDING ON SUCCESSORS AND ASSIGNS. All of the terms and
provisions of this Amendment shall be binding upon and inure to the benefit
of the parties hereto, their respective successors, assigns and legal
representatives.
11. GOVERNING LAW/ENTIRE AGREEMENT/SURVIVAL. This Amendment is a
contract made under, and shall be governed by an construed in accordance
with, the laws of the State of Indiana applicable to contracts made and to be
performed entirely with such state and without giving effect to the choice of
law principals of such state. This Amendment constitutes and expresses the
entire understanding between the parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements and understandings,
commitments, inducements or conditions, whether expressed or implied, oral or
written. All covenants, agreements, undertakings, representations and
warranties made in this Amendment shall survive the execution and delivery of
this Amendment, and shall not be affected by any investigation made by any
party.
IN WITNESS WHEREOF, the parties hereto and DMI Management, Inc. (for
the purposes of Section 9 hereof) have caused this Amendment to be duly
executed and delivered as of the Eighth Amendment Effective Date.
BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION
By:________________________________
D. Kelly Queisser, Vice President
and Senior Relationship Manager
(the "Bank")
DMI FURNITURE, INC.
By:_________________________________
Printed:____________________________
Title:______________________________
("Company")
DMI MANAGEMENT, INC.
By:_________________________________
Printed:____________________________
Title:______________________________
- 36 -
<PAGE>
EXHIBIT 11.
DMI FURNITURE, INC.
CALCULATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- ------------------------
May 31, June 1, May 31, June 1,
1997 1996 1997 1996
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Net income (loss) (Note 7) $570,000 $205,000 $1,866,000 ($130,000)
========= ========= ========= =========
Average shares of common stock
and common equivalents
outstanding:
Average common shares
outstanding 3,143,150 3,002,312 3,101,815 2,992,703
Common stock equivalents--
dilutive options and convertible
preferred stock (a) 2,885,863 2,724,169 2,882,534 0
--------- --------- ---------- -----------
Average shares of common
stock and common stock
equivalents outstanding 6,029,013 5,726,481 5,984,349 2,992,703
========= ========= ========= =========
Earnings (loss) per common share (Notes 3 and 7) $0.09 $0.04 $0.31 ($0.04)
===== ===== ===== =====
</TABLE>
(a) For the nine month period ended June 1, 1996, since the effect of the
assumption of the conversion of the Series C Preferred Stock into common
stock and the assumed exercise of stock options would be anti-dilutive,
those common equivalent shares were not included in the calculation of
earnings per common share.
- 37 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 1463
<SECURITIES> 0
<RECEIVABLES> 7169
<ALLOWANCES> 211
<INVENTORY> 11555
<CURRENT-ASSETS> 20761
<PP&E> 20407
<DEPRECIATION> 9583
<TOTAL-ASSETS> 32118
<CURRENT-LIABILITIES> 7969
<BONDS> 10259
0
3990
<COMMON> 315
<OTHER-SE> 8456
<TOTAL-LIABILITY-AND-EQUITY> 32118
<SALES> 41709
<TOTAL-REVENUES> 42186
<CGS> 31709
<TOTAL-COSTS> 32160
<OTHER-EXPENSES> 6132
<LOSS-PROVISION> 86
<INTEREST-EXPENSE> 799
<INCOME-PRETAX> 3009
<INCOME-TAX> 1143
<INCOME-CONTINUING> 1866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1866
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
