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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 December 2, 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.225
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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
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Outstanding at December 2, 2000 - 4,140,655
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INDEX
Part I. Financial Information PAGE
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Consolidated Balance Sheets - December 2, 2000
and September 2, 2000 3, 4
Consolidated Statements of Operations - Three Months
Ended December 2, 2000 and November 30, 1999 5
Consolidated Statements of Cash Flows - Three Months Ended
December 2, 2000 and November 30, 1999 6, 7
Consolidated Statement of Stockholder's Equity - Three Months
Ended December 2, 2000 8
Notes to Consolidated Financial Statements 9 -11
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-14
Part II. Other Information 15-16
Index to Exhibits
10. (a) Eighth Amendment to Amended and Restated Credit Agreement
27. Financial Data Schedule
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Part I. Financial Information
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
Dec. 2, Sep. 2,
ASSETS 2000 2000
------ ---- ----
Current assets:
Cash $527 $677
Accounts receivable-Net 23,732 17,891
Inventories (Note 4) 18,964 20,811
Other current assets 416 413
Current portion of deferred income taxes 1,171 1,241
------ ------
Total current assets 44,810 41,033
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Property, plant and equipment, at cost:
Land 655 655
Buildings and improvements 8,565 8,418
Machinery and equipment 10,119 9,891
Leasehold improvements 985 985
Construction in progress 111 399
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20,435 20,348
Less accumulated depreciation 10,839 10,613
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Net property, plant and equipment 9,596 9,735
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Other assets 330 181
------ ------
Total Assets $54,736 $50,949
======== =======
See accompanying notes.
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DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Continued)
<TABLE>
<CAPTION>
(Unaudited)
Dec. 2, Sep. 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 2000
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Trade accounts payable $4,738 $3,576
Accrued liabilities 5,092 3,754
Long-term debt due within one year 1,500 1,500
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Total current liabilities $11,330 $8,830
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Long-term liabilities:
Long-term debt $26,526 $26,501
Deferred compensation 164 176
Deferred income taxes 676 676
------ ------
$27,366 $27,353
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Stockholders' equity:
Common stock, $.10 par value, 9,600,000 shares
authorized, 4,140,655 shares outstanding (4,132,255 on Sep. 2, 2000) $414 $413
Additional paid-in capital 16,774 16,753
Retained deficit (1,272) (2,400)
Accumulated other comprehensive income 124 0
------ ------
Total stockholders' equity $16,040 $14,766
------ ------
Total liabilities and stockholders' equity $54,736 $50,949
======== =======
</TABLE>
See accompanying notes.
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DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Amounts in thousands (except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
Dec. 2, Nov. 30,
2000 1999
---- ----
<S> <C> <C>
Net sales $31,252 $28,378
Cost of sales 24,546 22,734
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Gross profit $6,706 $5,644
Margin 21.5% 19.9%
Selling, general and
administrative expenses 4,221 3,723
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% of sales 13.5% 13.1%
Operating profit 2,485 1,921
Margin 8.0% 6.8%
Other income (expense):
Interest expense (net) (701) (503)
Other income 39 0
------- -------
(662) (503)
Income before income taxes $1,823 $1,418
Provision for income taxes (note 2) (695) (539)
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Net income $1,128 $879
======= ====
Earnings per common share:
Basic $0.27 $0.22
====== =====
Diluted $0.26 $0.21
====== =====
Average common and equivalent shares outstanding 4,349 4,160
====== =====
</TABLE>
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DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
Dec. 2, Nov. 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $1,128 $879
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 245 264
Amortization of loan closing costs 13 -
Gain on disposal of property, plant and equipment (12) -
Deferred income taxes 70 54
Changes in assets and liabilities:
Accounts receivable (5,841) (6,293)
Inventories 1,847 1,459
Other assets (28) (21)
Trade accounts payable 1,162 1,821
Accrued liabilities 1,359 1,214
Accrued pension costs - 38
Deferred compensation (12) (8)
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Total adjustments (1,197) (1,472)
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Net cash used by operating activities (69) (593)
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Cash flows provided/(used) by investing activities:
Capital expenditures (106) (53)
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Net cash used by investing activities (106) (53)
------- -------
</TABLE>
See accompanying notes.
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DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
Dec. 2, Nov. 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows provided/(used) by financing activities:
Borrowings from line-of-credit 8,150 8,450
Payments on line-of-credit (7,750) (7,400)
Payments on long-term debt (375) (375)
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Net cash provided by financing activities 25 675
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Increase/(Decrease) in cash (150) 29
Cash - beginning of period 677 785
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Cash - end of period $ 527 $ 814
======= =======
Cash paid for:
Interest (net of amounts capitalized) $ 683 $ 485
====== =====
Income taxes $ - $ 189
==== =====
Non cash Items:
Interest Rate Derivatives $ 124 $ -
====== ===
Stock grants $ 22 $ -
===== ===
</TABLE>
See accompanying notes.
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DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
Quarter ended December 2, 2000
<TABLE>
<CAPTION>
Number of (1)
Common Additional Retained Interest
Common Shares Paid-In Earnings Rate
Stock Outstanding Capital (Deficit) Swaps Total
----- ----------- ------- - --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 2, 2000 $ 413 4,132 $ 16,753 $ (2,400) $ - 14,766
Net income - - - 1,128 - 1,128
Cummulative effect of change
in accounting principle 194 194
Other comprehensive income - - - - (70) (70)
Issuance of common stock 1 9 21 - - 22
----- ----- -------- -------- ----- ------
Balances at December 2, 2000 414 4,141 16,774 (1,272) 124 16,040
</TABLE>
(1) This column provides information with respect to accumulated other
comprehensive income.
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 December 2, 2000 and for the three months ended
December 2, 2000 and November 30, 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 2001 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 period ending December 2, 2000 comprehensive income is
approximately $124,000 higher than net income due to effect of adoption of SFAS
133 (see note 6). For the period ending November 30, 1999, comprehensive income
and net income are equal.
(2) Income Taxes
Income tax expense consisted of the following (in thousands):
Three Months Ended
Dec. 2, 2000 Nov. 30, 1999
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Current $625 $485
Deferred 70 54
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Total $695 $539
=================== ==================
The provision for income taxes differs from that computed at the
federal statutory corporate tax rate as follows (in thousands):
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Three Months Ended
Dec. 2, 2000 Nov. 30, 1999
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Tax at 34% statutory rate $620 $482
State income taxes 75 57
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Income taxes $695 $539
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(3) Earnings Per Common Share
<TABLE>
<CAPTION>
Thousands except per share amounts
Dec. 2, 2000 Nov. 30, 1999
--------------------- --------------------
<S> <C> <C>
Net Income $1,128 $879
===================== ====================
Average common shares outstanding 4,138 4,045
Common stock equivalents-dilutive options 211 115
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Average shares of common stock and equivalents outstanding 4,349 4,160
===================== ====================
Basic earnings per share $0.27 $0.22
===================== ====================
(Net income divided by average common shares outstanding)
Diluted earnings per share $0.26 $0.21
===================== ====================
(Net income divided by average shares of common stock and
equivalents outstanding)
</TABLE>
(4) Inventories
Inventories were comprised of the following at December 2, 2000 and
September 2, 2000:
Dec. 2, 2000 Sep. 2, 2000
---------------- ----------------
Finished Products $14,487,000 $16,273,000
Work in Process 488,000 488,000
Raw Materials 3,989,000 4,050,000
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Total $18,964,000 $20,811,000
================ ================
(5) Major customers and sources of supply
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 five largest customers accounted for
approximately 56% of the Company's total sales in the quarter ended December 2,
2000. One customer accounted for 43% of the Company's total
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net sales for the quarter ended December 2, 2000. The loss of more than one of
these customers at the same time or one of the largest five could have a
material adverse effect on the business of the Company. As of December 2, 2000,
one customer accounted for approximately 53% of total accounts receivable.
For the quarter ended December 2, 2000, approximately 72% of the
Company's total sales are of imported product. The Company sources these
products from various factories in Asia and Mexico, both through agents and
direct, based primarily on Company developed designs. The Company maintains a
showroom, production office, and quality control organization in China. 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) Derivative & Hedging Activities
The Company utilizes interest rate swaps to hedge against adverse
changes in interest rates relative to the Company's variable rate debt. The
interest rate swaps are not utilized to take speculative positions. The
Company's policies with regards to activities involving derivative instruments
were established by the Board of Directors and those policies along with actual
derivative related results are periodically reviewed with the Company's Board of
Directors.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
Company adopted the new Statement effective September 3, 2000. As a result, the
Company recorded the fair market value of its interest rate swaps as cash flow
hedges on its balance sheet and has marked the asset to fair value through other
comprehensive income. The fair market value of the swaps as of September 3, 2000
was approximately $194,000. As of December 2, 2000 the fair market value of the
Company's interest rate swaps was approximately $124,000. The Company reduced
other comprehensive income by $70,000 to account for the change in fair market
value of the interest rate swaps.
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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 2000 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 2001 increased
$2,874,000 or approximately 10% from the first quarter of fiscal 2000. This
increase was primarily the result of increased sales by DMI Desk Company and the
Home Styles division. Sales at DMI Desk were up approximately 39% while the Home
Styles division sales increased over 12%. Sales at the Wynwood division
increased 3% while sales at DMI Office Company and Dolly Madison were down
approximately 6% and 34% respectively.
Gross Margin - The Company's gross margin in the first quarter of
fiscal 2001 was 21.5% compared to 19.9% in the first quarter of fiscal 2000.
This increase in gross margin was primarily the result of lower overall
manufacturing costs and increased utilization of the Company's manufacturing
plants. The improved manufacturing performance was primarily a result of the
Company's decision to close its Ferdinand, Indiana furniture manufacturing plant
that was discussed in previous filings.
Selling, General and Administrative (S, G&A) Expense - For the first
quarter of fiscal 2001, S, G&A expense amounted to $4,221,000 or 13.5% of sales
compared to $3,723,000 or 13.1% of sales for the first fiscal quarter of 2000.
The increase in S, G&A expense is primarily the result of growth in our import
divisions.
Operating Profit - For the first quarter of fiscal 2001, operating
profit was $2,485,000 or 8.0% of sales, compared to $1,921,000 or 6.8% of sales
for the first quarter of fiscal 2000. The increase in operating margin percent
was primarily the result of the items discussed above.
Interest Expense - For the first quarter of fiscal 2001, net interest
was $701,000 compared to $503,000 for the first quarter of fiscal 2000. This
increase was primarily the result of borrowings to finance higher levels of
accounts receivable and inventory to support the sales growth, and higher
interest rates of approximately 100 basis points over the quarter ended November
30, 1999.
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
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collection of accounts receivable and from its ability to borrow funds. The
Company's days of sales outstanding of accounts receivable averaged 61 days for
the first quarter of fiscal 2001 and 62 days for the first quarter of fiscal
2000. The Company's average days of inventory on hand averaged 74 days for the
first quarter of fiscal 2001 compared to 79 days for the first quarter of fiscal
2000.
Key elements of the Consolidated Statements of Cash Flows:
Three Months
2001 2000
--------- ---------
Net cash used by operating activities $ (69,000) $(593,000)
Cash used for investing activities (106,000) (53,000)
--------- ---------
Net cash flows from operating and investing activities $(175,000) $(646,000)
Cash provided by financing activities 25,000 675,000
--------- ---------
Net change in cash and cash equivalents $(150,000) $ 29,000
========= =========
During the first three months of fiscal 2001, the Company used cash
flows for operating activities of $69,000 compared to cash flows used of
$593,000 for the three month period in fiscal 2000. The operating cash flows
used in the current year are lower than funds used the previous year primarily
due to higher net income and improved working capital management. Investing
activities used approximately $106,000 during the first quarter of fiscal 2001
for routine capital expenditures. Financing activities provided $25,000 and
$675,000 during the first three months of fiscal 2001 and fiscal 2000
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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company utilizes interest rate swaps to hedge against adverse
changes in interest rates relative to the Company's variable rate debt. The
interest rate swaps are not utilized to take speculative positions. The
Company's policies with regards to activities involving derivative instruments
were established by the Board of Directors and those policies along with actual
derivative related results are periodically reviewed with the Company's Board of
Directors.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
Company adopted the new Statement effective September 3, 2000. As a result, the
Company recorded the fair market value of its interest rate swaps as cash flow
hedges on its balance sheet and has marked the asset to fair value through other
comprehensive income. The fair market value of the swaps as of September 3, 2000
was approximately $194,000. As of December 2, 2000 the fair market value of the
Company's interest rate swaps was approximately $124,000. The Company reduced
other
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comprehensive income by $70,000 to account for the change in fair market value
of the interest rate swaps.
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 December 2, 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 December 2, 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.
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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 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of security holders on December 15,
2000 at which security holders; (a) elected six directors for the ensuing year
and (b) ratified the appointment of Arthur Andersen LLP as auditors for the 2001
fiscal year.
Results of the voting in connection with these items were as follows:
Election of Directors
---------------------
<TABLE>
<CAPTION>
For % Against %
<S> <C> <C> <C> <C>
Donald D. Dreher 3,474,574 84 40,371 1
Joseph G. Hill 3,474,574 84 40,371 1
Thomas M. Levine 3,474,574 84 40,371 1
David M. Martin 3,474,574 84 40,371 1
W. Howard Armistead 3,474,574 84 40,371 1
Daniel H. Abramowitz 3,474,574 84 40,371 1
</TABLE>
<TABLE>
<CAPTION>
For % Against % Abstain %
<S> <C> <C> <C> <C> <C> <C>
Arthur Andersen 3,484,172 84 20,721 0 10,052 0
</TABLE>
There were 3,514,945 shares of Common Stock represented as present in
person at the meeting constituting 85% of the 4,140,655 shares of Common Stock
outstanding; therefore a quorum was present at the meeting.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS
3. Amended and Restated Certificate of Incorporation (incorporated by
reference to Registration No. 333-52546)
10. (a) Eighth Amendment to Amended and Restated Credit Agreement
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
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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: January 16, 2001 /s/ Phillip J. Keller
--------------------
Phillip J. Keller
Vice President-Finance,
Chief Financial Officer &
Treasurer
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