FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended April 2, 1994 Commission File No. 0-11577
LADD FURNITURE, INC.
(Exact name of registrant as specified in charter)
North Carolina 56-1311320
(State or other juris- (I.R.S. Employer
diction of incorpora- Identification No.)
tion or organization)
One Plaza Center, Box HP-3, High Point, North Carolina 27261-1500
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (910) 889-0333
_____________________
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
______________________
As of May 10, 1994 there were 23,082,852 shares of Common Stock ($.10
par value) of the registrant outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the thirteen weeks ended April 2, 1994 and April 3, 1993
(Amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
April 2, April 3,
1994 1993
<S> <C> <C>
Net sales $ 139,039 136,128
Cost of sales 113,455 111,244
Gross profit 25,584 24,884
Selling, general and
administrative expenses 21,569 20,606
Operating income 4,015 4,278
Other deductions (income):
Interest expense 1,634 1,391
Other, net (48) (72)
1,586 1,319
Earnings before income taxes 2,429 2,959
Income tax expense 774 1,209
Net earnings $ 1,655 1,750
Net earnings per common share $ 0.07 0.08
Weighted average number of
common shares outstanding 23,066,506 23,033,538
</TABLE>
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LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 2, 1994 and January 1, 1994
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
April 2,
1994 January 1,
(Unaudited) 1994*
<S> <C> <C>
Current assets:
Cash $ 2,389 1,350
Trade accounts receivable, less allowances
for doubtful receivables, discounts,
returns and allowances of $5,040 and $4,178,
respectively (Note 4) 64,365 72,975
Inventories (Note 2) 116,311 100,639
Prepaid expenses and other current assets 11,284 6,110
Total current assets 194,349 181,074
Property, plant and equipment, net 113,580 97,497
Intangible and other assets, net 82,787 57,166
$ 390,716 335,737
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 7,730 5,815
Short-term bank borrowings (Note 5) 17,450 -
Trade accounts payable 29,338 23,414
Accrued expenses and other current liabilities 35,377 28,841
Total current liabilities 89,895 58,070
Long-term debt, excluding current installments 130,635 105,257
Deferred compensation and other liabilities 2,722 3,405
Deferred income taxes 16,360 18,902
Total liabilities 239,612 185,634
Shareholders' equity:
Preferred stock of $100 par value. Authorized
500,000 shares; no shares issued - -
Common stock of $.10 par value. Authorized
50,000,000 shares; issued 23,086,959 and
23,062,262 shares, respectively 2,309 2,306
Additional paid-in capital 49,443 49,186
Currency translation adjustment (170) (170)
Retained earnings 100,530 99,568
152,112 150,890
Less unamortized value of restricted stock (1,008) (787)
Total shareholders' equity 151,104 150,103
$ 390,716 335,737
</TABLE>
*Derived from the Company's 1993 Annual Report.
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LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the thirteen weeks ended April 2, 1994 and April 3, 1993
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
April 2, April 3,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,655 1,750
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation of property, plant and equipment 3,145 2,407
Amortization 707 625
Provision for losses on trade accounts receivable 797 422
Gain on sales of property, plant and equipment (180) (55)
Provision for deferred income taxes (92) (671)
Increase (decrease) in deferred compensation
and other liabilities (683) 383
Change in assets and liabilities, net of effects
from purchase of Pilliod Furniture in 1994
Increase in trade accounts receivable (4,440) (13,313)
Increase in inventories (3,524) (5,272)
(Increase) decrease in prepaid expenses
and other current assets (3,455) 121
Decrease in trade accounts payable (1,518) (444)
Increase in accrued expenses and other
current liabilities 4,589 1,225
Total adjustments (4,654) (14,572)
Net cash used in operating activities (2,999) (12,822)
Cash flows from investing activities:
Acquisition of Pilliod Furniture, net of cash
acquired (Note 3) (23,847) -
Additions to property, plant and equipment (10,096) (4,363)
Proceeds from sales of property, plant and equipment 207 95
Additions to other assets (158) (532)
Net cash used in investing activities (33,894) (4,800)
Cash flows from financing activities:
Proceeds from long-term borrowings 27,217 18,650
Proceeds from short-term bank borrowings 17,450 -
Proceeds from sales of trade accounts receivable 24,000 -
Principal payments of long-term debt (30,064) (692)
Proceeds from common stock issued 22 66
Dividends paid (693) (692)
Net cash provided by financing activites 37,932 17,332
Effect of exchange rate changes on cash - 32
Net increase (decrease) in cash 1,039 (258)
Cash at beginning of period 1,350 1,826
Cash at end of period $ 2,389 1,568
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,473 544
Cash paid during the period for income taxes 377 451
</TABLE>
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LADD FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Currency Unamortized
Number Additional trans- value of Total
of shares Common paid-in lation Retained restricted shareholders'
issued stock capital adjustment earnings stock equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 2, 1993 23,019,631 $ 2,302 48,681 (89) 98,489 (659) 48,724
Shares issued in connection
with incentive stock
option plan 11,668 1 90 - - - 91
Shares issued in connection
with and amortization of
employee restricted
stock awards 30,963 3 415 - - (128) 290
Currency translation
adjustment - - - (81) - - (81)
Net earnings - - - - 3,846 - 3,846
Dividends paid - - - - (2,767) - (2,767)
BALANCE AT JANUARY 1, 1994 23,062,262 2,306 49,186 (170) 99,568 (787) 150,103
Shares issued in connection
with incentive stock
option plan 2,344 - 19 - - - 19
Repurchase of restricted
stock (14,317) (1) (125) - - 125 (1)
Shares issued in connection
with and amortization of
employee restricted
stock awards 36,670 4 363 - - (346) 21
Net earnings - - - - 1,655 - 1,655
Dividends paid - - - - (693) - (693)
BALANCE AT APRIL 2, 1994
(UNAUDITED) 23,086,959 $ 2,309 49,443 (170) 100,530 (1,008) 151,104
</TABLE>
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Notes:
(1) Quarterly Financial Data
The quarterly consolidated financial data are unaudited but
include, in the opinion of management, all adjustments necessary
for a fair statement of the operating results for the interim
periods indicated. All such adjustments are of a normal recurring
nature.
(2) Inventories
A summary of inventories follows (in thousands):
April 2, January 1,
1994 1994
Inventories on the FIFO
cost method:
Finished goods $ 63,893 55,881
Work in process 20,936 19,277
Raw materials and supplies 43,210 37,183
Total inventories on
the FIFO cost method 128,039 112,341
Less adjustments of certain inven-
tories to the LIFO cost method (11,728) (11,702)
$ 116,311 100,639
(3) Acquisition of Pilliod Furniture
On January 31, 1994, the Company acquired The Pilliod Cabinet
Company (Pilliod), a manufacturer of promotional priced casegoods
furniture, by purchasing all of the common stock of its parent
company, Pilliod Holding Company, for $24,257,000 million cash
(including acquisition expenses), the repayment of Pilliod debt of
$29,893,000 million, and the assumption of other long-term debt of
$247,000. The excess of cost over fair value of the net assets
acquired was approximately $31,134,000 and will be amortized on a
straight-line basis over 40 years. The acquisition was accounted
for as a purchase and accordingly, the net assets and operations
of Pilliod have been included in the Company's consolidated
financial statements beginning on the acquisition date.
The following unaudited pro forma data presents the combined first
quarter 1994 and 1993 results of operations of the Company and
Pilliod as though the acquisition had occurred on January 3, 1993,
giving effect to depreciation and amortization of assets on the
accounting basis recognized in recording the purchase, the
interest
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on funds used to effect the purchase, and excluding
certain non-recurring expenses of Pilliod during 1993 (in
thousands, except per share data).
April 2, April 3,
1994 1993
Net sales $ 146,699 157,789
Net earnings 1,934 2,539
Net earnings per common share $ 0.08 0.11
(4) Accounts Receivable Securitization Program
On January 31, 1994, the Company sold ownership interest in a
defined pool of trade accounts receivable for $20,000,000, the
proceeds of which were used to partially finance the Pilliod
acquisition - see Note 3. Under the agreement, which expires in
January 1995, the maximum amount of the purchaser's investment can
be $30,000,000 and is subject to change based on the level of
eligible receivables and concentrations of receivables. At April
2, 1994 the defined pool of trade accounts receivable
totaled approximately $34,791,000 and the purchaser's
investment totaled $24,000,000. The net cash proceeds are
reported as financing activities in the accompanying 1994
first quarter consolidated statement of cash flows. The
purchaser's investment is reflected as a reduction of trade
accounts receivables in the accompanying April 2, 1994
consolidated balance sheet. The Company will retain substantially
the same risk of credit loss as if the receivables had not been
sold. The total cost of the program is included in selling,
general and administrative expense in the accompanying 1994 first
quarter consolidated statement of operations. A portion of the
cost of the accounts receivable sale program is based on the
purchaser's level of investment and borrowing costs.
(5) Short-term Bank Borrowings
During the first quarter of 1994, the Company established
unsecured short-term bank credit lines aggregating $35,000,000, of
which $17,450,000 was outstanding at April 2, 1994. These short-
term bank credit lines expire on January 27, 1995 and February 28,
1995. The credit lines bear interest at rates selected by the
Company of LIBOR (3.94% at April 2, 1994) plus 1 1/8%, prime
(6.25% at April 2, 1994) or at a lesser rate based on availability
of bank funds. The Company pays commitment fees ranging from
0.25% to 0.375% on the unused portion of the short-term bank
credit lines.
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The following table sets forth the percentage relationship of net
sales to certain items included in the Consolidated Statements of
Operations:
13 Weeks Ended
April 2, April 3,
1994 1993
Net sales 100.0% 100.0
Cost of sales 81.6 81.7
Gross profit 18.41 8.3
Selling, general and
administrative expenses 15.5 15.2
Operating income 2.9 3.1
Other deductions:
Interest expense 1.2 1.0
Other, net (0.1) (0.1)
1.1 0.9
Earnings before income
taxes 1.8 2.2
Income tax expense .6 .9
Net earnings 1.2% 1.3
The Company's 1994 first quarter operating results were influenced by
the acquisition of Pilliod on January 31, 1994. The results of
operations of the newly acquired furniture company are included in
the Company's consolidated financial statements from the date of
acquisition - see Note 3.
Net sales for the first quarter of 1994 increased to $139.0
million, the second highest sales quarter in the Company's history,
from $136.1 million during the first quarter of 1993. The sales
increase of 2.1% from the first quarter of 1993 and 12.2% from the
fourth quarter of 1993 was primarily attributable to the acquisition
of Pilliod. The increase in sales over 1993's first quarter sales
resulting from the Pilliod acquisition was partially offset by the
discontinuance of certain American of Martinsville residential
casegoods product lines during the second half of 1993 and declines
in first quarter 1994 sales of higher-priced casegoods and lower-
priced upholstery products.
Cost of sales as a percentage of net sales decreased slightly to
81.6% in the first quarter of 1994 from 81.7% in the first quarter of
1993, increasing the gross profit margin to 18.4% from 18.3% for the
same period of 1993. This year's first quarter gross margin was
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comparable to the year-earlier quarter's margin which was heavily
impacted by winter weather. This year's first quarter, however, was
lower than expected due to the production interruptions caused by
1994's January and February winter storms. LADD's manufacturing
locations in Mississippi, North Carolina, Pennsylvania, Tennessee and
Virginia experienced weather-related production down time during the
first quarter of 1994. Also, certain casegoods companies scheduled
downtime to control inventory levels.
Selling, general and administrative (SG&A) expenses increased to
15.5% of net sales for the first quarter of 1994, from 15.2% for the
same period in 1993. The percentage increase was primarily due to
costs associated with the accounts receivable securitization program
implemented during 1994's first quarter - see Note 4. The increase in
total SG&A dollars for the first quarter of 1994 in comparison with
the first quarter of 1993 was due to the inclusion of Pilliod for the
two months in 1994.
Other deductions were 1.1% of net sales for the first quarter of
1994 compared to 0.9% for the same period in 1993. The increase was
primarily attributable to an increase in interest expense due to the
partial funding of the $54.0 million Pilliod acquisition with long
and short-term bank borrowings.
The decrease in the Company's effective income tax rate from
40.9% in 1993's first quarter to 31.9% in the first quarter of 1994
was in part due to tax planning strategies implemented late in 1993
to reduce the Company's state income taxes. Additionally, the
reduction in the effective income tax rate was impacted by utilizing
a portion of net operating loss carryforwards of Pilliod as well as
the Company's capital loss carryforwards.
For the first quarter of 1994, the Company had net earnings of
$1.7 million, or $.07 per share, compared with $1.8 million, or $.08
per share, in the year-earlier period.
Liquidity and Capital Resources
The Company's current ratio at April 2, 1994 was 2.2 to 1
compared to 3.1 to 1 at January 1, 1994. Net working capital totaled
$104.5 million at April 2, 1994 compared to $123.0 million at January
1, 1994. The decrease in working capital and the decrease in the
current ratio were primarily attributable to an increase in short-
term bank borrowings used for the Pilliod acquisition and a
decrease in trade receivables resulting from the accounts receivable
securitization program - See Note 4.
During the first three months of 1994, the Company generated
cash from net earnings plus depreciation and amortization of $5.5
million compared to $4.8 million in 1993. The cash generated in 1994
and 1993's first quarters were utilized to partially fund increases
in working capital of $8.3 million and $17.7 million, respectively.
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During the first three months of 1994, capital spending totaled
a record $10.1 million compared to $4.4 million during the same
period in 1993. Capital expenditures were funded largely from the
operations of the Company and borrowings under the Company's existing
long-term and short-term revolving credit lines. A majority of the
capital spending during the first quarter of 1994 was to complete
capital projects which were initiated in the prior fiscal year.
During the first quarter of 1994, the Company increased long-
term borrowings by $27.0 million. These incremental borrowings were
used principally to fund the Pilliod acquisition and the quarter's
capital expenditures. The Company had outstanding long-term
borrowings of $130.6 million at April 2, 1994, representing 43.4% of
total capitalization, compared to $105.3 million or 37.9% at January
1, 1994. On January 28, 1994 and February 28, 1994, the Company
entered into unsecured one-year revolving lines of credit with two
banks of $20.0 million and $15.0 million, respectively, both of which
bear interest at rates at or below the Company's long-term credit
facility. The Company intends to refinance borrowings under the
short-term lines during 1994. At April 2, 1994, the Company had
$17.4 million in outstanding short-term borrowings and $17.6 million
in unused and available short-term revolving bank credit lines to
meet future cash requirements.
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PART II. OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the quarter, the Company filed a Form 8-K report
dated February 14, 1994 reporting under Item 2 it's
acquisition of all of the outstanding stock of Pilliod
Holding Company. The Form 8-K report did not include
the financial information required under Item 7 since
audited financial statements for Pilliod for the
period ended January 31, 1994 were not yet
available and acquisition accounting was not yet
finalized. On April 8, 1994 the Company filed a Form
8-K/A-1 amending the Form 8-K report to include the
audited financial statements for Pilliod Holding
Company for the nine months ended January 31, 1994 and
proforma financial data reflecting the combination of
the Company and Pilliod as if the acquisition had
occurred January 3, 1993.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LADD Furniture, Inc.
Date: May 16, 1994 By: s/William S. Creekmuir
William S. Creekmuir
Senior Vice President
and Chief Financial Officer
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