<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 27, 2000
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Commission File Number 0-4173
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DMI FURNITURE, INC.
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(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
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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 MAY 27, 2000 - 4,132,255
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<TABLE>
<CAPTION>
INDEX
Part I. Financial Information Page
-----
<S> <C> <C>
Consolidated Balance Sheets - May 27, 2000
and August 28, 1999 3, 4
Consolidated Statements of Income - Three and Nine Months
Ended May 27, 2000 and May 29, 1999 5
Consolidated Statements of Cash Flows - Nine Months Ended
May 27, 2000 and May 29, 1999 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
Index to Exhibits
10.a. Fifth Amendment To Amended And Restated Credit Agreement 17 - 19
10.b. Sixth Amendment To Amended And Restated Credit Agreement 20 - 21
27. Financial Data Schedule 22
</TABLE>
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PART I. FINANCIAL INFORMATION
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
(Unaudited)
May 27, Aug. 28,
ASSETS 2000 1999
------ ------- -------
<S> <C> <C>
Current assets:
Cash $ 635 $ 785
Accounts receivable - net 18,150 12,686
Inventories (Note 4) 20,547 18,905
Other current assets 471 471
Current portion of deferred income taxes 973 1,103
------- -------
Total current assets 40,776 33,950
Property, plant and equipment - at cost (Note 1) 20,169 22,750
Less accumulated depreciation 10,349 11,871
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Net property, plant and equipment 9,820 10,879
Other assets 438 450
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Total Assets $51,034 $45,279
======= =======
</TABLE>
See accompanying notes.
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DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
(Amounts in thousands)
<TABLE>
<CAPTION>
(Unaudited)
May 27, Aug. 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------------------------------ -------- --------
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 4,232 $ 2,527
Accrued liabilities 3,426 2,665
Long-term debt due within one year 1,500 1,509
-------- --------
Total current liabilities 9,158 6,701
Long-term liabilities:
Long-term debt 26,501 25,425
Accrued pension costs 660 636
Deferred compensation 205 228
Deferred income taxes 549 549
-------- --------
27,915 26,838
Stockholders' equity:
Common stock 413 405
Additional paid-in capital 16,754 16,551
Retained deficit (2,955) (4,965)
Minimum pension liability (251) (251)
-------- --------
Total stockholders' equity 13,961 11,740
-------- --------
Total liabilities and stockholders' equity $ 51,034 $ 45,279
======== ========
</TABLE>
See accompanying notes.
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DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
May 27, May 29, May 27, May 29,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 26,849 $ 18,950 $ 79,247 $ 62,240
Cost of sales 21,326 15,035 63,719 49,652
-------- -------- -------- --------
Gross profit 5,523 3,915 15,528 12,588
Selling, general and
administrative expenses 3,964 3,006 10,897 8,976
Plant closing reserve (Note 6) 0 0 (125) 0
-------- -------- -------- --------
Operating profit 1,559 909 4,756 3,612
Interest expense (net) (571) (411) (1,622) (1,305)
Gain on disposal of property, plant & equipment 158 0 173 0
-------- -------- -------- --------
Income before income taxes 1,146 498 3,307 2,307
Provision for income taxes (Note 2) (459) (189) (1,297) (873)
-------- -------- -------- --------
Net income $ 687 $ 309 $ 2,010 $ 1,434
======== ======== ======== ========
Earnings per common share (Note 3):
Basic $ 0.17 $ 0.08 $ 0.49 $ 0.36
======== ======== ======== ========
Diluted $ 0.16 $ 0.07 $ 0.47 $ 0.33
======== ======== ======== ========
</TABLE>
See accompanying notes.
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DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
May 27, May 29,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,010 $ 1,434
Adjustments to reconcile net income to
net cash provided (used) by
operating activities:
Gain on sale of assets (173) 0
Depreciation and amortization 826 933
Deferred income taxes (Note 2) 130 96
Pension costs 24 (110)
Deferred compensation (23) (23)
Changes in assets and liabilities:
Accounts receivable (5,464) (1,119)
Inventories (1,642) (1,287)
Other assets (42) (304)
Trade accounts payable 1,705 (797)
Accrued liabilities 951 (686)
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Total adjustments (3,708) (3,297)
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Net cash used by operating activities (1,698) (1,863)
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Cash flows provided (used) by investing activities:
Capital expenditures (316) (323)
Proceeds from sale of property, plant & equipment (Note 6) 777 0
------- -------
Cash provided (used) by investing activities 461 (323)
------- -------
</TABLE>
See accompanying notes.
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DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
May 27, May 29,
2000 1999
-------- --------
<S> <C> <C>
Cash flows provided (used) by financing activities:
Borrowings from line of credit 25,350 24,117
Payments on line of credit (23,150) (21,250)
Payments on long term debt (1,133) (1,021)
Proceeds from stock options exercised 20 382
-------- --------
Cash provided by financing activities 1,087 2,228
Increase (decrease) in cash (150) 42
Cash - beginning of period 785 1,092
-------- --------
Cash - end of period $ 635 $ 1,134
======== ========
Cash paid for:
Interest $ 1,562 $ 1,284
======== ========
Income taxes $ 999 $ 1,218
======== ========
</TABLE>
See accompanying notes.
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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 27, 2000 and for the three and nine months
ended May 27, 2000 and May 29, 1999 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 2000 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.
For the periods ending May 27, 2000 and May 29, 1999, comprehensive
income and net income are equal.
(2) Income Taxes
Income tax expense consisted of the following (in thousands):
Three Months Ended Nine Months Ended
May 27, May 29, May 27, May 29,
2000 1999 2000 1999
------ ------ ------ ------
Current $ 418 $ 170 $1,167 $ 777
Deferred 41 19 130 96
------ ------ ------ ------
Total $ 459 $ 189 $1,297 $ 873
====== ====== ====== ======
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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 Nine Months Ended
May 27, May 29, May 27, May 29,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Tax at 34% statutory rate $ 389 $ 168 $1,124 $ 784
State income taxes 70 21 173 89
------ ------ ------ ------
Income Taxes $ 459 $ 189 $1,297 $ 873
====== ====== ====== ======
</TABLE>
(3) Earnings Per Common Share
Basic earnings per common share are based upon the weighted average
shares outstanding. Outstanding stock options are treated as common stock
equivalents for purposes of computing diluted earnings per share. Basic and
diluted earnings per share are calculated as follows (unaudited):
<TABLE>
<CAPTION>
(Thousands except per share amounts)
Three Months Ended Nine Months Ended
May 27, May 29, May 27, May 29,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income $ 687 $ 309 $2,010 $1,434
====== ====== ====== ======
Average common shares outstanding 4,132 4,041 4,094 3,973
Common stock equivalents-dilutive
options 187 390 148 437
------ ------ ------ ------
Average shares of common stock
and equivalents outstanding 4,319 4,431 4,242 4,410
====== ====== ====== ======
Basic earnings per share $ .17 $ .08 $ .49 $ .36
====== ====== ====== ======
(Net income applicable to common stock
divided by average common shares
outstanding)
Diluted earnings per share $ .16 $ .07 $ .47 $ .33
====== ====== ====== ======
(Net income divided by average shares
of common stock and equivalents
outstanding)
</TABLE>
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(4) Inventories
Inventories were comprised of the following at May 27, 2000 and August
28, 1999:
May 27, 2000 Aug. 28,1999
------------ ------------
Finished Products $15,647,000 $13,415,000
Work in Process 361,000 525,000
Raw Materials 4,539,000 4,965,000
----------- -----------
$20,547,000 $18,905,000
=========== ===========
(5) Major customers and sources
The Company's customers include large furniture chain store retailers,
wholesale clubs, catalog retailers, mass merchandisers, and independent
distributors, as well as numerous smaller retailers. The Company's four largest
customers accounted for approximately 54% and 46% of the Company's total sales
for the three and nine months ended May 27, 2000 respectively. 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 three and nine months ended May 27, 2000.
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 May 27, 2000, one customer accounted for approximately 34% of
total accounts receivable.
Approximately 62% of the Company's total sales are of imported product
for the first nine months of fiscal 2000, as compared to 51% of sales for the
first nine months of fiscal 1999. The Company sources these products from
various factories in Asia, both through agents and direct, based primarily on
Company developed designs. The Company maintains a showroom, production office,
and quality control organization in China and Thailand. An unanticipated
interruption in the flow of products from one or more of these factories could
have a short-term material adverse effect on the Company's results of
operations.
(6) Plant closing
During the fourth quarter of fiscal 1999 management committed to
permanently close its Ferdinand, Indiana furniture manufacturing plant during
fiscal 2000. This closing will reduce the underutilized manufacturing capacity
of the Company. The Company recorded a pre-tax charge of approximately $600,000
in the fourth quarter of fiscal 1999 related to this closing. The charge
included book provisions of approximately: $125,000 related to the recording of
property, plant, and equipment at net realizable value; $215,000 for recording
certain inventory items at net realizable value; $85,000 for a pension
curtailment loss; $105,000 for severance pay; and approximately $70,000 for
costs to be incurred after operations cease that are associated with the closing
as well as future occupancy related costs. The severance pay, which is called
for by Company policy, is related to the termination of certain salaried and
support staff personnel. During the quarter ended February 26, 2000, the Company
entered into a contract to sell
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property, plant, and equipment related to this closed plant. During the third
quarter the transaction was completed resulting in a $166,000 gain on sale of
assets. The Company recorded a $125,000 plant closing reserve credit in the
second fiscal quarter, as certain plant closing costs became known. The balance
in the plant closing reserve as of May 27, 2000 is zero.
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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 1999 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 third quarter of fiscal 2000 ended May 27, 2000
increased approximately $7.9 million, or approximately 42% from the third
quarter of fiscal 1999. This increase was primarily the result of increased
sales of small office/home office furniture by the DMI Desk Company division,
increased sales of commercial office furniture by DMI Office Furniture division,
increased sales by the Company's Wynwood and Homestyles divisions, and increased
sales to a major customer. This increase was offset somewhat by decreased sales
of bedroom furniture by the Dolly Madison Furniture division. Sales by DMI Desk
Company increased approximately 97%; sales by DMI Office Furniture increased by
approximately 12%; sales by the Company's Wynwood and Homestyles divisions
increased by approximately 22% and 470% respectively; sales by Dolly Madison
division decreased by approximately 16%. Although the Company expects that sales
growth for comparable periods in the future is possible, the magnitude of any
sales increases for comparable periods in the near future will likely be less
than the increases being reported for the three and nine month periods in this
report.
Net sales for the nine months of fiscal 2000 ended May 27, 2000
increased approximately $17 million, or approximately 27% from the first nine
months of fiscal 1999. This increase was primarily the result of increased sales
of small office/home office furniture by the DMI Desk Company division,
increased sales of commercial office furniture by DMI Office Furniture division,
increased sales by the Company's Wynwood and Homestyles divisions, and increased
sales to a major customer. This increase was offset somewhat by decreased sales
of bedroom
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furniture by the Dolly Madison Furniture division. Sales by DMI Desk Company
increased approximately 29%; sales by DMI Office Furniture increased by
approximately 6%; sales by the Company's Wynwood and Homestyles divisions
increased by approximately 69% and 720% respectively; sales by Dolly Madison
division decreased by approximately 13%.
Gross Margin - The Company's gross margin in the third quarter of
fiscal 2000 was 20.6% compared to 20.7% in the third quarter of fiscal 1999. The
Company's gross margin for nine months of fiscal 2000 was 19.6% compared to
20.2% for the nine months of fiscal 1999. The decrease in gross margin for the
nine month period was primarily the result of: lower profits from the Company's
largest plant due to start-up inefficiencies as it manufactures office
furniture for the first time; and lower profits from the Company's vertically
integrated plants due to lower production levels and higher material costs. The
Company anticipates increased manufacturing efficiencies in future periods as
the largest furniture plant adjusts to manufacturing office furniture along
with bedroom furniture.
Selling, General and Administrative (S,G&A) Expense - For the third quarter of
fiscal 2000, S,G&A expense amounted to $3,964,000 or 14.8% of sales compared to
$3,006,000 or 15.9% of sales for the third quarter of fiscal 1999. The primary
reason for the decline as a percent of sales is the fixed nature of the majority
of these expenses as compared to the substantial increase in sales.
For the first nine months of fiscal 2000, S,G&A expense amounted to
$10,897,000 or 13.8% of sales compared to $8,976,000 or 14.4% of sales for the
first nine months of fiscal 1999. The primary reason for the decline as a
percent of sales is the reason mentioned above.
Plant Closing Reserve - During the second quarter of fiscal 2000, the Company
sold the property, plant & equipment of the closed plant, and the proceeds were
greater than the net book value thereby creating both the plant closing reserve
credit of $125,000 and a gain on sale of assets of $166,000. (See Note 6)
Operating Profit - For the third quarter of fiscal 2000, operating profit was
$1,559,000 or 5.8% of sales. For the third quarter of fiscal 1999, operating
profit was $909,000 or 4.8% of sales. The primary reason for the increase in the
operating profit margin is the decline of sales, general, and administrative
expenses as a percent of sales due to the fixed nature of the majority of these
expenses as compared to the substantial increase in sales. For the nine months
ended May 27, 2000, operating profit was $4,756,000 or 6.0% of sales including
the $125,000 plant closing reserve credit, as compared to $3,612,000 or 5.8% of
sales for the first nine months of the previous year. This increase as a percent
of sales was primarily a result of the plant closing reserve credit.
Interest Expense - For the third quarter of fiscal 2000, net interest was
$571,000 compared to $411,000 for the third quarter of fiscal 1999. For the
first nine months of fiscal 2000, net interest was $1,622,000 compared to
$1,305,000 for the same period of fiscal 1999. These increases were primarily
the result of higher interest rates as well as borrowings to finance higher
levels of accounts receivable and inventory to support the sales growth. During
the first quarter of fiscal
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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 May 27, 2000, $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 nine months of fiscal 2000 and 56 days
for the same period of fiscal 1999. This increase was primarily the result of
significant amounts outstanding to a major customer that the Company expects to
collect in due course. The Company's average days of inventory on hand averaged
81 days for the first nine months of fiscal 2000 compared to 92 days for the
same period of fiscal 1999. The primary reason for the decrease in days of
inventory on hand is a greater proportion of sales made on a direct import
basis.
Key elements of the Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
Nine Months
2000 1999
---- ----
<S> <C> <C>
Net cash used by operating activities $(1,698,000) $(1,863,000)
Cash provided (used) for investing activities 461,000 (323,000)
----------- -----------
Net cash flows from operating and investing activities (1,237,000) (2,186,000)
Cash provided by financing activities 1,087,000 2,228,000
----------- -----------
Net change in cash and cash equivalents $ (150,000) $ 42,000
=========== ===========
</TABLE>
During the first nine months of fiscal 2000, the Company used
cash flows for operating activities of $1,698,000 compared to cash flows used of
$1,863,000 the previous year. Investing activities provided $461,000 during the
first nine months of fiscal 1999 from the sale of property and equipment
partially offset by routine capital expenditures, and investing activities used
$323,000 during the first nine months of fiscal 1999 primarily for routine
manufacturing plant improvement costs. Financing activities provided $1,087,000
and $2,228,000 during the first nine months of fiscal 2000 and fiscal 1999
respectively, which came primarily from net borrowings on the revolving line of
credit.
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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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary market risk exposure with regard to financial
instruments is changes in interest rates. At May 27, 2000, a hypothetical 100
basis points increase in short term interest rates would result in a reduction
of approximately $200,000 in annual pretax earnings. This estimate assumes no
change in the volume or composition of debt at May 27, 2000. The Company has
effectively fixed the interest on approximately $8 million of its long-term debt
through the use of interest rate swaps, and the above estimated earnings
reduction takes these swaps into account. The fair market value of these swaps
is immaterial.
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PART II. OTHER INFORMATION
Item 3. Legal Proceedings
The Company is a defendant in various lawsuits arising in the normal
course of business, including several environmental matters. In management's
opinion, these lawsuits are not material to the results of operations or
financial position of the Company, or are adequately covered by insurance.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
10.a. Fifth Amendment To Amended And Restated Credit Agreement
10.b. Sixth Amendment To Amended And Restated Credit Agreement
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, 2000 /s/Joseph G. Hill
------------------------
Joseph G. Hill
Vice President-Finance,
Chief Financial Officer,
Secretary & Treasurer
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