<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
Quarterly Report Under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended November 28, 1998
----------------------------------------------
Commission File Number 0-4173
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DMI FURNITURE, INC.
-------------------
(Exact name of registrant as specified in its charter)
DELAWARE 41-0678467
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(State of incorporation) (IRS employer ID number)
One Oxmoor Place, 101 Bullitt Lane, Louisville, Kentucky 40222
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(Address of principal executive offices)
Registrant's telephone number with area code: (502) 426-4351 Ext.227
-------------- -------
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 November 28, 1998 - 3,909,429
- --------------------------------
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Consolidated Balance Sheets - November 28, 1998
and August 29, 1998 3,4
Consolidated Statements of Operations - Three Months
Ended November 28, 1998 and November 29, 1997 5
Consolidated Statements of Cash Flows - Three Months Ended
November 28, 1998 and August 29, 1998 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 15-16
Index to Exhibits
27. Financial Data Schedule 17
</TABLE>
The Company has restated its results for the quarter ending November
28, 1998 resulting from a change in accounting for inventory cutoff for this
period. See Note 6.
2
<PAGE>
PART I. FINANCIAL INFORMATION
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
Nov. 28, Aug. 29,
ASSETS 1998 1998
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 701 $ 1,092
Accounts receivable - net 15,161 10,252
Inventories (Note 4) 16,817 16,296
Other current assets 421 341
Current portion of deferred income taxes (Note 2) 881 935
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Total current assets 33,981 28,916
Property, plant and equipment - at cost (Note 1) 22,534 22,459
Less accumulated depreciation 10,839 10,522
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Net property, plant and equipment 11,695 11,937
Other assets 465 476
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Total assets $46,141 $41,329
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------- -------
</TABLE>
See accompanying notes.
3
<PAGE>
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nov. 28, Aug. 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998
- ------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 4,096 $ 3,521
Accrued liabilities 3,803 3,128
Long-term debt due within one year 1,517 1,524
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Total current liabilities 9,416 8,173
Long-term liabilities:
Long-term debt 24,156 21,393
Accrued pension costs 771 807
Deferred compensation 265 273
Deferred income taxes (Note 2) 426 426
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25,618 22,899
Stockholders' equity:
Common stock 391 389
Additional paid-in capital 16,226 16,183
Retained deficit (5,247) (6,052)
Minimum pension liability (263) (263)
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Total stockholders' equity 11,107 10,257
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Total liabilities and stockholders' equity $46,141 $41,329
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</TABLE>
See accompanying notes.
4
<PAGE>
DMI FURNITURE, INC.
STATEMENTS OF INCOME
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
Nov. 28, Nov. 29,
1998 1997
---- ----
<S> <C> <C>
Net sales $23,003 $17,439
Cost of sales 18,275 13,304
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Gross profit 4,728 4,135
Selling, general and administrative expenses 2,982 2,570
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Operating profit 1,746 1,565
Interest expense (net) (453) (259)
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Income before income taxes 1,293 1,306
Provision for income taxes (Note 2) (488) (496)
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Net income $ 805 $ 810
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------- -------
Net income applicable to common stock $ 805 $ 690
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Earnings per common share (Note 3):
Basic $ 0.21 $ 0.22
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------- -------
Diluted $ 0.19 $ 0.13
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------- -------
</TABLE>
See accompanying notes.
5
<PAGE>
DMI FURNITURE, INC.
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
Nov. 28, Nov. 29,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 805 $ 810
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 317 304
Deferred income taxes (Note 2) 54 45
Pension costs (36) (93)
Deferred compensation (8) (11)
Changes in assets and liabilities:
Accounts receivable (4,909) (2,500)
Inventories (521) 290
Other assets (69) (5)
Trade accounts payable 575 5
Accrued liabilities 711 382
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Total adjustments (3,886) (1,583)
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Net cash used by operating activities (3,081) (773)
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Cash flows (used) by investing activities:
Capital expenditures (75) (854)
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Cash used by investing activities (75) (854)
------- -------
</TABLE>
See accompanying notes.
6
<PAGE>
DMI FURNITURE, INC.
STATEMENTS OF CASH FLOWS
(Continued)
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
Nov. 28, Nov. 29,
1998 1997
---- ----
<S> <C> <C>
Cash flows provided (used) by financing activities:
Borrowings from line of credit $10,517 $ 6,650
Payments on line of credit (7,500) (4,650)
Payments on long term debt (261) (395)
Proceeds from stock options exercised 9 34
Dividends 0 (211)
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Cash provided by financing activities 2,765 1,428
Decrease in cash (391) (199)
Cash - beginning of period 1,092 512
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Cash - end of period $ 701 $ 313
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Cash paid for:
Interest $ 408 $ 234
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Income taxes $ 224 $ 300
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</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 November 28, 1998 and for the three months ended
November 28, 1998 and November 29, 1997 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 1999 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):
<TABLE>
<CAPTION>
Three Months Ended
Nov. 28, Nov. 29,
1998 1997
---- ----
<S> <C> <C>
Current $434 $451
Deferred 54 45
---- ----
Total $488 $496
---- ----
---- ----
</TABLE>
8
<PAGE>
The provision for income taxes differs from that computed at the
federal statutory corporate tax rate as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
Nov. 28, Nov. 29,
1998 1997
---- ----
<S> <C> <C>
Tax at 34% statutory rate $440 $444
State income taxes 48 52
---- ----
Income Taxes $488 $496
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---- ----
</TABLE>
(3) Earnings Per Common Share
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"). This standard modifies disclosure requirements for companies required
to report earnings per share ("EPS") to include presentations of Basic EPS
(which includes no dilution of common stock equivalents) and, if applicable,
Diluted EPS (which reflects the potential dilution of common stock equivalents).
The standard was effective for the Company with the completion of its fiscal
1998 second quarter.
<TABLE>
<CAPTION>
(Thousands except per share amounts)
Three Months Ended
Nov. 28, Nov. 29,
1998 1997
---- ----
<S> <C> <C>
Net income $ 805 $ 810
Less: preferred stock dividends -- (120)
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Net income applicable to common stock $ 805 $ 690
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Average common shares outstanding 3,902 3,156
Common stock equivalents-dilutive
options (and convertible preferred
stock for Nov. 29, 1997) 414 2,921
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Average shares of common stock
and equivalents outstanding 4,316 6,077
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Basic earnings per share $ .21 $ .22
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------- -------
(Net income applicable to common stock
divided by average common shares
outstanding)
Diluted earnings per share $ .19 $ .13
------- -------
------- -------
(Net income divided by average shares
of common stock and equivalents
outstanding)
</TABLE>
9
<PAGE>
On August 28, 1998 the Company retired its Series C Preferred Stock. Of
the 1,995,050 Series C shares outstanding, 1,557,593 shares were redeemed for
$3.00 per share by the Company as stated in its Certificate of Incorporation,
and 437,457 Series C shares were converted into 722,762 common shares at the
option of the holders. The redemption was funded through term bank debt and
cash.
(4) Inventories
Inventories were comprised of the following at November 28, 1998 and
August 29, 1998:
<TABLE>
<CAPTION>
Nov. 28, 1998 Aug. 29, 1998
------------- -------------
<S> <C> <C>
Finished Products $11,115,000 $10,898,000
Work in Process 502,000 512,000
Raw Materials 5,200,000 4,886,000
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$16,817,000 $16,296,000
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----------- -----------
</TABLE>
(5) Other matters
The Company is currently subject to claims under federal and state
environmental laws based on allegations that the Company had hazardous
substances disposed of at three waste disposal sites. After depositing $57,000
in a trust fund under the terms of a tentative settlement of claims arising from
one site and paying its portion of preliminary investigation and remediation
costs at the other two sites, the Company retains a reserve of approximately
$42,000 against potential environmental liabilities. Due to the limited nature
of the Company's involvement in these environmental proceedings, the
availability of certain defenses, and the involvement of many other parties with
substantial financial resources in the proceedings, the Company does not
anticipate, based on currently available information, that potential
environmental liabilities arising from these proceedings are likely to exceed
the amount of the Company's reserve by an amount that would have a material
effect on the Company's financial condition, results of operations or cash
flows.
(6) Major customers
The Company's customers include large furniture chain store retailers,
wholesale clubs, catalog retailers, and independent distributors, as well as
numerous smaller retailers. The Company's four largest customers accounted for
approximately 55% of the Company's total sales in the quarter ended November 28,
1998. One customer, Sam's Club, a division of Wal-Mart Stores, Inc., accounted
for more than 10% of the Company's total net sales for the quarter ended
November 28, 1998. Six customers accounted for approximately 51% of the
Company's total
10
<PAGE>
sales in fiscal 1998. The loss of more than one of these customers at the
same time or one of the largest four could have a material adverse effect on
the business of the Company. As of November 28, 1998, one customer accounted
for approximately 42% of total accounts receivable.
(6) Subsequent event
The financial statements and footnote disclosures as of and for the
three month period ended November 28, 1998 have been restated for a reduction in
inventory resulting from a change in accounting for inventory cutoff during this
period. This had the effect of reducing reported net income by approximately
$80,000 and basic and diluted earnings per share by $.02. Such restatement had
an immaterial effect on the Company's financial position and had no effect on
cash flow.
11
<PAGE>
Forward-Looking Statements
The information set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and in the other portions of this report
includes forward-looking statements about the Corporation and its business. For
this purpose, the use of words such as "believes," "anticipates," "plans,"
"expects," and similar expressions are intended to identify forward-looking
statements. Factors that realistically could cause results to differ materially
from those projected in the forward-looking statements include the cyclical and
seasonal nature of the furniture market; the availability and cost of raw
materials and labor; availability, terms and deployment of capital; events that
disrupt the flow of goods from off-shore manufacturing sources; merchandising
decisions by one or more of the Company's major customers that adversely affect
their purchases of the Company's furniture products; changes in fashion or
tastes that adversely affect consumer perception of the Company's furniture
products; general conditions in the capital markets or in the general economy;
demographic changes that affect consumer purchases of furniture; competition;
and other factors identified in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below, in "Item 1. Business" of
the Company's 1998 Annual Report on Form 10-K, and in the Company's other
filings with the Securities and Exchange Commission.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue - Net sales for the first quarter of fiscal 1999 increased $5,564,000 or
approximately 32% from the first quarter of fiscal 1998. This increase was
primarily the result of increased sales of home office furniture, sales by the
Company's Wynwood division, and substantially increased sales to a major
customer. This increase was offset somewhat by decreased sales of promotional
priced bedroom furniture, and to a lesser extent, decreased sales of office
furniture. Sales of home office furniture increased approximately 70%; sales of
budget priced bedroom furniture decreased approximately 13%; and sales of
commercial office furniture decreased approximately 4%.
Gross Margin - The Company's gross margin in the first quarter of fiscal 1999
was 20.6% compared to 23.7% in the first quarter of fiscal 1998. This decrease
in gross margin was primarily the result of lower production levels and gross
margins associated with the promotional bedroom furniture line due to reduced
demand, as well as lower margin sales mix than the previous year.
12
<PAGE>
Selling, General and Administrative (S,G&A) Expense - For the first quarter of
fiscal 1999, S,G&A expense amounted to $2,982,000 or 13.0% of sales compared to
$2,570,000 or 14.7% of sales for the first fiscal quarter of 1998. This decrease
as a percent of sales is primarily the result of the fixed nature of a majority
of these expenses relative to the substantial sales increase.
Operating Profit - For the first quarter of fiscal 1999, operating profit was
$1,746,000 or 7.6% of sales, compared to $1,565,000 or 9.0% of sales for the
first quarter of fiscal 1998. This decrease was a result of the reasons
mentioned above for the change in gross margin, offset somewhat by the lower
selling, general and administrative expense as a percent of sales.
Interest Expense - For the first quarter of fiscal 1999, net interest was
$453,000 compared to $259,000 for the first quarter of fiscal 1998. This
increase was primarily the result of borrowings to finance higher levels of
accounts receivable and inventory to support the sales growth, as well as
borrowings to redeem the preferred stock in August 1998. (See Note 3) During the
first quarter of fiscal 1999, the Company implemented the use of interest rate
swaps as a cash flow hedge to effectively fix the interest rate on part of its
variable rate debt. As of November 28, 1998, $8 million of the Company's
variable rate debt was subject to interest rate swaps.
Liquidity and Capital Resources - Demands for funds relate to payments
for raw materials and other operating costs, debt obligations, 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 59 days for the first quarter of fiscal 1999 and 56 days for
the quarter of fiscal 1998. This increase was the result of past due amounts
that the Company believes will be received after the customer concludes its
internal research. (Subsequent to November 28, 1998, a majority of these past
due amounts were received by the Company) The Company's average days of
inventory on hand averaged 91 days for the first quarter of fiscal 1999 compared
to 85 days for the first quarter of fiscal 1998. This increase is primarily the
result of increased finished goods for new commercial office groups and the
Wynwood division.
Key elements of the Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
Three Months
1999 1998
---- ----
<S> <C> <C>
Net cash used by operating activities $(3,081,000) $ (773,000)
Cash used for investing activities (75,000) (854,000)
----------- -----------
Net cash flows from operating and investing activities (3,156,000) (1,627,000)
Cash provided by financing activities 2,765,000 1,428,000
----------- -----------
Net change in cash and cash equivalents $ (391,000) $ (199,000)
----------- -----------
----------- -----------
</TABLE>
During the first three months of fiscal 1999, the Company used cash
flows for operating activities of $3,081,000 compared to cash flows used of
$773,000 for the three month period in fiscal 1998. The operating cash flows
used in the current year are higher than funds used the
13
<PAGE>
previous year primarily due to the accounts receivable and inventory
increases necessary to support the significantly higher sales level in fiscal
1999. Investing activities used approximately $75,000 during the first
quarter of fiscal 1999 for routine capital expenditures, and investing
activities required $854,000 during the first three months of fiscal 1998
primarily to continue construction of the new 100,000 square foot facility in
Huntingburg, Indiana for the new Wynwood division. Financing activities
provided $2,765,000 and $1,428,000 during the first three months of fiscal
1999 and fiscal 1998 respectively, which came primarily from borrowings on
the revolving line of credit.
The Company is currently subject to claims under federal and state
environmental laws based on allegations that the Company had hazardous
substances disposed of at three waste disposal sites. After depositing $57,000
in a trust fund under the terms of a tentative settlement of claims arising from
one site and paying its portion of preliminary investigation and remediation
costs at the other two sites, the Company retains a reserve of approximately
$45,000 against potential environmental liabilities. Due to the limited nature
of the Company's involvement in these environmental proceedings, the
availability of certain defenses, and the involvement of many other parties with
substantial financial resources in the proceedings, the Company does not
anticipate, based on currently available information, that potential
environmental liabilities arising from these proceedings are likely to exceed
the amount of the Company's reserve by an amount that would have a material
effect on the Company's financial condition, results of operations or cash
flows. Expenses for the year to date were not material.
The Company does not believe any events are probable which would
materially change its present liquidity position, which is adequate to satisfy
known demands for funds for operations and to pay bank and other debt.
The Company has received certifications or representations from the
vendors of its critical hardware, system software, and application software that
those products are Year 2000 ready. The Company employs IBM AS400 hardware, IBM
OS400 operating system, and MAPICS manufacturing and production information
control system for the large majority of its system needs, all of which was
subject to the above mentioned certifications. The Company has tested this
hardware and software and found its Year 2000 readiness to be as certified. The
Company has not incurred any material costs in its Year 2000 readiness plans nor
does it anticipate any material costs in the future. The Company has received
representations or certifications from its largest suppliers representing that
they are Year 2000 compliant. In the event that any of the Company's larger
suppliers are not Year 2000 compliant, the Company believes that a sufficient
number of alternative sources exist to allow the Company to meet its raw
material needs. The Company has received representations from customers
representing approximately 50% of its annual sales that those customers are Year
2000 compliant. The Company has received representation from its primary
depository and lender bank that they are Year 2000 compliant. Even given best
efforts and execution of the aforementioned planning and testing, disruptions
and unexpected business problems may occur as a result of the Year 2000 issue.
14
<PAGE>
PART II. OTHER INFORMATION
Item 3. Legal Proceedings
The Company is currently subject to claims under federal and state
environmental laws based on allegations that the Company had hazardous
substances disposed of at three waste disposal sites. After depositing $57,000
in a trust fund under the terms of a tentative settlement of claims arising from
one site and paying its portion of preliminary investigation and remediation
costs at the other two sites, the Company presently retains a reserve of
approximately $42,000 against potential environmental liabilities. Due to the
limited nature of the Company's involvement in these environmental proceedings,
the availability of certain defenses, and the involvement of many other parties
with substantial financial resources in the proceedings, the Company does not
anticipate, based on currently available information, that potential
environmental liabilities arising from these proceedings are likely to exceed
the amount of the Company's reserve by an amount that would have a material
effect on the Company's financial condition, results of operations or cash
flows.
The Company is also a defendant in various lawsuits arising in the
normal course of business, including two other environmental matters. In
management's opinion, these lawsuits are not material to the results of
operations or financial position of the Company, or are adequately covered by
insurance.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated August
31, 1998 to announce it had completed the retirement of its Series C Preferred
Stock.
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: August 31, 1999 /s/ Joseph G. Hill
--------------------------
Joseph G. Hill
Vice President-Finance,
Chief Financial Officer,
Secretary & Treasurer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-28-1999
<PERIOD-START> AUG-30-1998
<PERIOD-END> NOV-28-1998
<CASH> 701
<SECURITIES> 0
<RECEIVABLES> 15,348
<ALLOWANCES> 187
<INVENTORY> 16,817
<CURRENT-ASSETS> 33,981
<PP&E> 22,534
<DEPRECIATION> 10,839
<TOTAL-ASSETS> 46,141
<CURRENT-LIABILITIES> 9,416
<BONDS> 24,156
0
0
<COMMON> 391
<OTHER-SE> 10,716
<TOTAL-LIABILITY-AND-EQUITY> 46,141
<SALES> 22,890
<TOTAL-REVENUES> 23,003
<CGS> 18,146
<TOTAL-COSTS> 18,275
<OTHER-EXPENSES> 2,947
<LOSS-PROVISION> 35
<INTEREST-EXPENSE> 453
<INCOME-PRETAX> 1,293
<INCOME-TAX> 488
<INCOME-CONTINUING> 805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 805
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.19
</TABLE>
