<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 MARCH 1, 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 practicable date.
CLASS - Common Stock, Par Value $.10 per Share
OUTSTANDING AT MARCH 1, 1997 - 3,106,083
1
<PAGE>
INDEX
Part I. Financial Information Page
------
Consolidated Balance Sheets - March 1, 1997
and August 31, 1996 3, 4
Consolidated Statements of Operations - Three and Six
Months Ended March 1, 1997 and March 2, 1996 5
Consolidated Statements of Cash Flows - Six Months
Ended March 1, 1997 and March 2, 1996 6, 7
Notes to Consolidated Financial Statements 8-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
Part II. Other Information 15-17
Index to Exhibits
11. Calculations of Earnings Per Share 18
27. Financial Data Schedule 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
ASSETS March 1, Aug. 31,
-------- 1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash $177 $97
Restricted cash for debt payments 1,121 1,062
Accounts receivable - net 7,289 7,459
Inventories (Note 4) 10,434 9,853
Other current assets 271 259
Current portion of deferred income taxes (Note 2) 450 782
-------- --------
Total current assets 19,742 19,512
Property, plant and equipment - at cost (Note 1) 20,148 19,757
Less accumulated depreciation 9,351 8,844
-------- --------
Net property, plant and equipment 10,797 10,913
Other assets:
Intangible pension asset 380 380
Other 166 373
-------- --------
546 753
-------- --------
$31,085 $31,178
-------- --------
-------- --------
</TABLE>
See accompanying notes.
3
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
(Amounts in thousands)
<TABLE>
<CAPTION>
March 1, Aug. 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------------------------------------- ---------- ----------
<S> <C> <C>
Current liabilities:
Trade accounts payable $2,756 $3,165
Accrued liabilities (Note 7) 2,284 1,990
Accrued dividends on preferred
stock (Note 6) 225 0
Long-term debt due within one year 2,014 2,030
---------- ----------
Total current liabilities 7,279 7,185
Long-term liabilities:
Long-term debt 10,369 11,632
Accrued pension costs 723 817
Deferred compensation 336 376
Deferred income taxes (Note 2) 114 114
---------- ----------
11,542 12,939
Stockholders' equity:
Series C convertible preferred stock,
$2 par value, 1,995,050 authorized
and outstanding 3,990 3,990
Common stock 314 305
Additional paid-in capital 15,315 15,185
Retained deficit (7,331) (8,402)
Minimum pension liability (24) (24)
---------- ----------
Total stockholders' equity 12,264 11,054
---------- ----------
$31,085 $31,178
------- -------
------- -------
</TABLE>
See accompanying notes.
4
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- -------------------
March 1, March 2, March 1, March 2,
1997 1996 1997 1996
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $13,867 $12,502 $29,656 $30,231
Cost of sales 10,810 10,478 22,821 24,984
---------- --------- ---------- ---------
Gross profit 3,057 2,024 6,835 5,247
Selling, general and
administrative expenses 2,086 1,891 4,302 3,964
Plant closing reserve (Note 7) 0 0 (118) 995
---------- --------- ---------- ---------
Operating profit 971 133 2,651 288
Interest expense (net) (269) (348) (561) (768)
---------- --------- ---------- ---------
Income (loss) before benefit (provision) for income taxes 702 (215) 2,090 (480)
Benefit (provision) for income taxes (Note 2) (267) 64 (794) 145
---------- --------- ---------- ---------
Net income (loss) (Note 7) $435 ($151) $1,296 ($335)
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) applicable to common stock $395 ($151) $1,071 ($335)
------ ------ ------ ------
------ ------ ------ ------
Earnings (loss) per common share (Notes 3 and 7) $.07 $(.05) $.22 $(.11)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
See accompanying notes.
5
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
March 1, March 2,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) (Note 7) $1,296 ($335)
Adjustments to reconcile net income to
net cash provided (used) by
operating activities:
Depreciation and amortization 507 513
Deferred income taxes (Note 2) 332 (178)
Pension costs (94) 141
Deferred compensation (40) (26)
Changes in assets and liabilities:
Accounts receivable 170 3,413
Inventories (581) 2,419
Other assets 136 167
Trade accounts payable (409) (100)
Accrued liabilities (Note 7) 387 398
---------- ----------
Total adjustments 408 6,747
---------- ----------
Net cash provided by
operating activities 1,704 6,412
---------- ----------
Cash flows used by
investing activities:
Capital expenditures (391) (157)
---------- ----------
Cash used by investing
activities (391) (157)
---------- ----------
</TABLE>
See accompanying notes.
6
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
March 1, March 2,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows provided (used) by
financing activities:
Borrowings from line of credit $8,350 $8,798
Payments on line of credit (8,950) (14,350)
Payments on long term debt (679) (592)
Cash dividends on preferred stock 0 (177)
Proceeds from stock options exercised 46 0
---------- ----------
Cash used by
financing activities (1,233) (6,321)
---------- ----------
Increase (decrease) in cash 80 (66)
Cash- beginning of period 97 295
---------- ----------
Cash- end of period $177 $229
---------- ----------
---------- ----------
Cash paid for:
Interest $577 $818
---------- ----------
---------- ----------
Income taxes $272 $33
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
7
<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 March 1, 1997 and for the three and six months
ended March 1, 1997 and March 2, 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 Six Months Ended
Mar. 1, Mar. 2, Mar. 1, Mar. 2,
1997 1996 1997 1996
---- ---- ---- ----
Current $417 $4 $462 $33
Deferred (150) (68) 332 (178)
---- ---- ---- ----
Total $267 $(64) $794 $(145)
---- ---- ---- ----
---- ---- ---- ----
8
<PAGE>
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows (in thousands):
Three Months Ended Six Months Ended
Mar. 1, Mar. 2, Mar. 1, Mar. 2,
1997 1996 1997 1996
---- ---- ---- ----
Tax at 34% statutory
rate $239 $(73) $711 $(163)
State income taxes 28 9 83 18
---- ---- ---- ----
Income Taxes $267 $(64) $794 $(145)
---- ---- ---- ----
---- ---- ---- ----
(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 three and six month periods ending March 2, 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.
(4) INVENTORIES
Inventories were comprised of the following at March 1, 1997 and August
31, 1996:
March 1, 1997 August 31,1996
------------- --------------
Finished Products $5,703,000 $4,794,000
Work in Process 521,000 521,000
Raw Materials 4,210,000 4,538,000
----------- ----------
$10,434,000 $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
9
<PAGE>
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 March 1, 1997 the Company has accrued approximately
$112,000 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 six 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.
(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 should result 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. 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 March 1, 1997 are immaterial to the financial
position of the Company. The carrying amount of net long-term assets to be
disposed of as of March 1, 1997 are approximately $10,000.
10
<PAGE>
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.
(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.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue - Net sales for the second quarter of fiscal 1997 increased
$1,365,000 or 11% over the second quarter of fiscal 1996. This increase was
the result of increased sales of commercial office furniture, home office
furniture and other residential furniture including desks, desk chairs, wall
systems, occasional tables, and dining tables and chairs, and increased sales
to outside trade customers of lumber and fabricated wood parts by the
Company's sawmill/dimension parts plant . The increase was partially offset
by lower sales of bedroom furniture. Office furniture sales increased 22%;
sales to outside trade customers of lumber and fabricated wood parts by the
Company's sawmill/dimension parts plant increased 32%; sales of home office
furniture and other residential furniture including desks, desk chairs, wall
systems, occasional tables, and dining tables and chairs increased 22%; and
bedroom furniture sales decreased 12%.
Net sales for the first six months of fiscal 1997 decreased $575,000 or
1.9% from the first six months of fiscal 1996. This decrease was the result
of decreased sales of bedroom furniture and decreased sales in the first
fiscal quarter of home office furniture and other residential furniture
including desks, desk chairs, wall systems, occasional tables, and dining
tables and chairs. The decrease was partially offset by increased sales of
commercial office furniture. Office furniture sales increased 15%; sales of
home office furniture and other residential furniture including desks, desk
chairs, wall systems, occasional tables decreased 12%, and bedroom furniture
decreased by 8%. The decreases except for bedroom were in the first quarter
and were primarily the result of a weak retail furniture environment and
because in last year's first quarter a larger drop ship import order was
shipped for a major customer than in the current year.
Gross Margin - The Company's gross margin in the second quarter of fiscal
1997 was 22% compared to 16.2% in the second quarter of fiscal 1996. The
gross margin dollars in the second quarter increased $1,033,000 or 51%. 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 six months of fiscal 1997 was
23% compared to 17.4 % in the first six months of fiscal 1996. The gross
margin dollars in the first six months increased $1,588,000 or 30%. This
increase is the result of the reasons cited above.
Selling, General and Administrative (S,G&A) Expense - For the second quarter
of fiscal 1997, S,G&A expense amounted to $2,086,000 or 15% of sales
compared to $1,891,000 or 15.1% of sales for the second fiscal quarter of
1996.
For the first six months of fiscal 1996, S,G&A expense amounted to
$4,302,000 or 14.5% of sales compared to $3,964,000 or 13.1% of sales for
the first six months of fiscal 1996. This increase as a percentage of sales
is the result of the sales decrease mentioned above and the semi-fixed nature
of many S,G&A expenses, as well as increased sales, information system, and
other administrative expenses.
12
<PAGE>
Interest Expense - For the second quarter of fiscal 1997, net interest was
$269,000 compared to $348,000 for the second quarter of fiscal 1996, or a
decrease of 23% 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 six months of fiscal 1997, net interest was $561,000
compared to $768,000 for the first six months of fiscal 1996, or a decrease
of 27%. 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.
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 March 1, 1997 are immaterial to the financial
position of the Company. The carrying amount of net long-term assets to be
disposed of as of March 1, 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 53
days for the first six months of fiscal 1997 compared to 50 days for the six
months of fiscal 1996. The Company's average days of inventory on hand
averaged 82 days for the first six months of fiscal 1997 compared to 81 days
for the first six months of fiscal 1996. The Company's order backlog at
March 1, 1997 was approximately $3,381,000, a 32% decrease from approximately
$4,951,000 at the same time last year. This decrease is primarily the result
of soft demand for bedroom furniture.
13
<PAGE>
Key elements of the Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
Six Months
1997 1996
---- ----
<S> <C> <C>
Net cash provided by operating activities $1,704,000 $6,412,000
Cash used for investing activities (391,000) (157,000)
---------- ----------
Net cash flows from operating and investing activities 1,313,000 6,255,000
Cash used by financing activities (1,233,000) (6,321,000)
---------- ----------
Net change in cash and cash equivalents $80,000 $(66,000)
---------- ----------
---------- ----------
</TABLE>
During the first six months of fiscal 1997 , the Company provided cash
flows from operating activities of $1,704,000 compared to cash flows provided
of $6,412,000. 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 $391,000 during the first six months of fiscal 1997 and $157,000
during the first six months of fiscal 1996 primarily for capital
expenditures. Financing activities used $1,233,000 during the first six
months of fiscal 1997 primarily in reduction of debt compared to funds used
of $6,321,000 for the same purpose for the same six 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 $53,000. The Company
has recorded a reserve of approximately $112,000 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".
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.
14
<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 $53,000. The Company has recorded a reserve of
approximately $112,000 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
15
<PAGE>
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 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.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
11. Calculations of earnings per share.
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DMI FURNITURE, INC.
(Registrant)
Date: March 31, 1997 /s/Joseph G. Hill
-------------------
Joseph G. Hill
Vice President-Finance,
Chief Financial Officer,
Secretary & Treasurer
17
<PAGE>
EXHIBIT 11.
DMI FURNITURE, INC.
CALCULATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
March 1, March 2, March 1, March 2,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) (Note 7) $435,000 ($151,000) $1,296,000 ($335,000)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average shares of common stock
and common equivalents
outstanding:
Average common shares
outstanding 3,106,083 2,998,661 3,081,147 2,987,899
Common stock equivalents--
dilutive options and convertible
preferred stock (a) 2,961,871 0 2,880,870 0
---------- ---------- ---------- ----------
Average shares of common
stock and common stock
equivalents outstanding 6,067,954 2,998,661 5,962,017 2,987,899
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per common share (Notes 3 and 7) $.07 $(.05) $.22 $(.11)
------ ------- ------ -------
------ ------- ------ -------
</TABLE>
(a) For the periods ended March 2, 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.
18
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<S> <C>
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0
3990
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